I
106TH CONGRESS
1ST SESSION
H. R. 721
To amend the Internal Revenue Code of 1986 to provide for tax-exempt
bond financing of certain electric facilities.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 11, 1999
Mr. HAYWORTH (for himself and Mr. MATSUI) introduced the following bill;
which was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide
for tax-exempt bond financing of certain electric facilities.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Bond Fairness and
Protection Act of 1999’’.
SEC. 2. TAX-EXEMPT BOND FINANCING OF CERTAIN ELEC-
TRIC FACILITIES.
(a) PERMITTED OPEN ACCESS TRANSACTIONS NOT
A PRIVATE BUSINESS USE.—Section 141(b)(6) of the In-
ternal Revenue Code of 1986 (defining private business
use) is amended by adding at the end the following:
‘‘(C) PERMITTED
OPEN
ACCESS
TRANS-
ACTIONS NOT A PRIVATE BUSINESS USE.—
‘‘(i) IN
GENERAL.—For purposes of
this subsection, the term ‘private business
use’ shall not include a permitted open ac-
cess transaction.
‘‘(ii) 
PERMITTED
OPEN
ACCESS
TRANSACTION DEFINED.—For purposes of
clause (i), the term ‘permitted open access
transaction’ means any of the following
transactions or activities with respect to an
electric output facility (as defined in sub-
section (f)(4)(A)) owned by a governmental
unit:
‘‘(I) Providing open access trans-
mission services and ancillary services
that meet the reciprocity requirements
of Federal Energy Regulatory Com-
mission Order No. 888, or that are
ordered by the Federal Energy Regu-
latory Commission, or that are pro-
vided in accordance with a trans-
mission tariff of an independent sys-
tem operator approved by such Com-
mission, or that are consistent with
State-administered laws, rules, or or-
ders providing for open transmission
access.
‘‘(II) Participation in an inde-
pendent system operator agreement
(which may include transferring con-
trol of transmission facilities to an
independent system operator), in a re-
gional transmission group, or in a
power exchange agreement approved
by such Commission.
‘‘(III) Delivery on an open access
basis of electric energy sold by other
entities to end-users served by such
governmental unit’s distribution facili-
ties.
‘‘(IV) If open access service is
provided under subclause (I) or (III),
the sale of electric output of electric
output facilities on terms other than
those available to the general public if
such sale is to an on-system purchaser
or is an existing off-system sale.
‘‘(V) Such other transactions or
activities as may be provided in regu-
lations prescribed by the Secretary.
‘‘(iii) 
DEFINITIONS; 
SPECIAL
RULES.—For 
purposes 
of 
this
subparagraph—
‘‘(I) ON-SYSTEM
PURCHASER.—
The 
term 
‘on-system 
purchaser’
means a person who purchases electric
energy from a governmental unit and
whose electric facilities or equipment
are directly connected with trans-
mission or distribution facilities that
are owned by such governmental unit.
‘‘(II) 
OFF-SYSTEM
PUR-
CHASER.—The term ‘off-system pur-
chaser’ means a purchaser of electric
energy from a governmental unit
other than an on-system purchaser.
‘‘(III) 
EXISTING
OFF-SYSTEM
SALE.—The term ‘existing off-system
sale’ means a sale of electric energy to
a person that was an off-system pur-
chaser of electric energy in the base
year, but not in excess of the kilowatt
hours purchased by such person in
such year.
‘‘(IV) BASE
YEAR.—The term
‘base year’ means 1998 (or, at the
election of such unit, 1996 or 1997).
‘‘(V) JOINT ACTION AGENCIES.—
A member of a joint action agency
that is entitled to make a sale de-
scribed in clause (ii)(IV) in a year
may transfer that entitlement to the
joint action agency in accordance with
rules of the Secretary.
‘‘(VI) GOVERNMENT-OWNED FA-
CILITY.—An electric output facility
(as defined in subsection (f)(4)(A))
shall be treated as owned by a govern-
mental unit if it is owned or leased by
such governmental unit or if such gov-
ernmental unit has capacity rights
therein acquired before July 9, 1996,
for the purposes of serving one or
more customers to which such govern-
mental unit had a service obligation
on such date under State law or a re-
quirements contract.’’.
(b) ELECTION TO TERMINATE TAX-EXEMPT FI-
NANCING.—Section 141 of the Internal Revenue Code of
1986 (relating to private activity bond; qualified bond) is
amended by adding at the end the following:
‘‘(f) ELECTION TO TERMINATE TAX-EXEMPT BOND
FINANCING
FOR CERTAIN ELECTRIC OUTPUT FACILI-
TIES.—
‘‘(1) IN GENERAL.—An issuer may make an ir-
revocable election under this paragraph to terminate
certain tax-exempt financing for electric output fa-
cilities. If the issuer makes such election, then—
‘‘(A) except as provided in paragraph (2),
no bond the interest on which is exempt from
tax under section 103 may be issued on or after
the date of such election with respect to an elec-
tric output facility; and
‘‘(B) notwithstanding paragraph (1) or (2)
of subsection (a) or paragraph (5) of subsection
(b), with respect to an electric output facility no
bond that was issued before the date of enact-
ment of this subsection, the interest on which
was exempt from tax on such date, shall be
treated as a private activity bond, for so long
as such facility continues to be owned by a gov-
ernmental unit.
‘‘(2) EXCEPTIONS.—An election under para-
graph (1) does not apply to—
‘‘(A) any qualified bond (as defined in sub-
section (e)),
‘‘(B) any eligible refunding bond,
‘‘(C) any bond issued to finance a qualify-
ing T&D facility, or
‘‘(D) any bond issued to finance equipment
necessary to meet Federal or State environ-
mental requirements applicable to, or repair of,
electric output facilities in service on the date
of enactment of this subsection. Repairs or
equipment may not increase by more than a de
minimis degree the capacity of the facility be-
yond its original design.
‘‘(3) FORM AND EFFECT OF ELECTIONS.—An
election under paragraph (1) shall be made in such
a manner as the Secretary prescribes and shall be
binding on any successor in interest to the electing
issuer.
‘‘(4) DEFINITIONS.—For purposes of this
subsection—
‘‘(A) ELECTRIC
OUTPUT
FACILITY.—The
term ‘electric output facility’ means an output
facility that is an electric generation, trans-
mission, or distribution facility.
‘‘(B) ELIGIBLE
REFUNDING
BOND.—The
term ‘eligible refunding bond’ means State or
local bonds issued after an election described in
paragraph (1) that directly or indirectly refund
State or local bonds issued before such election,
if the weighted averaged maturity of the re-
funding bonds do not exceed the remaining
weighted average maturity of the bonds issued
before the election.
‘‘(C) QUALIFYING
T&D
FACILITY.—The
term ‘qualifying T&D facility’ means—
‘‘(i) transmission facilities over which
services 
described 
in 
subsection
(b)(6)(C)(ii)(I) are provided, or
‘‘(ii) distribution facilities over which
services 
described 
in 
subsection
(b)(6)(C)(ii)(III) are provided.’’.
(c) EFFECTIVE DATE, APPLICABILITY, AND TRANSI-
TION RULES.—
(1) EFFECTIVE DATE.—The amendments made
by this section take effect on the date of enactment
of this Act, except that a governmental unit may
elect to apply section 141(b)(6)(C) of the Internal
Revenue Code of 1986, as added by subsection (a),
with respect to permitted open access transactions
on or after July 9, 1996.
(2) APPLICABILITY.—References in this Act to
sections of the Internal Revenue Code of 1986 shall
be deemed to include references to comparable sec-
tions of the Internal Revenue Code of 1954.
(3) TRANSITION RULES.—
(A) PRIVATE BUSINESS USE.—Any activity
that was not a private business use prior to the
effective date of the amendment made by sub-
section (a) shall not be deemed to be a private
business use by reason of the enactment of such
amendment.
(B) ELECTION.—An issuer making the
election under section 141(f) of the Internal
Revenue Code of 1986, as added by subsection
(b), shall not be liable under any contract in ef-
fect on the date of enactment of this Act for
any claim arising from having made the elec-
tion.
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