I
107TH CONGRESS
1ST SESSION
H. R. 1459
To amend the Internal Revenue Code of 1986 to improve electric reliability,
enhance transmission infrastructure, and to facilitate access to the elec-
tric transmission grid.
IN THE HOUSE OF REPRESENTATIVES
APRIL 4, 2001
Mr. HAYWORTH (for himself, Mr. ENGLISH, Mr. MATSUI, Mr. WELLER, Mr.
NEAL of Massachusetts, Mr. HOUGHTON, Ms. BALDWIN, Mr. KING, Mr.
SPRATT, and Mr. GRAHAM) introduced the following bill; which was re-
ferred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to improve
electric reliability, enhance transmission infrastructure,
and to facilitate access to the electric transmission grid.
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 ‘‘Electric Power Indus-
try Tax Modernization Act’’.
SEC. 2. TAX-EXEMPT BOND FINANCING OF CERTAIN ELEC-
TRIC FACILITIES.
(a) RULES APPLICABLE TO ELECTRIC OUTPUT FA-
CILITIES.—Subpart A of part IV of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
tax exemption requirements for State and local bonds) is
amended by adding after section 141 the following new
section:
‘‘SEC. 141A. ELECTRIC OUTPUT FACILITIES.
‘‘(a) ELECTION TO TERMINATE TAX-EXEMPT BOND
FINANCING
FOR CERTAIN ELECTRIC OUTPUT FACILI-
TIES.—
‘‘(1) IN GENERAL.—A governmental unit may
make an irrevocable election under this paragraph to
terminate the issuance of certain obligations de-
scribed in section 103(a) for electric output facilities.
If the governmental unit makes such election,
then—
‘‘(A) except as provided in paragraph (2),
on or after the date of such election the govern-
mental unit may not issue with respect to any
electric output facility any bond the interest on
which is excluded from gross income under sec-
tion 103, and
‘‘(B) notwithstanding paragraph (1) or (2)
of section 141(a) or paragraph (4) or (5) of
section 141(b), no bond—
‘‘(i) which was issued by such unit
with respect to an electric output facility
before the date of enactment of this sub-
section, the interest on which was exempt
from tax on such date,
‘‘(ii) which is an eligible refunding
bond that directly or indirectly refunds a
bond issued prior to the date of enactment
of this section, or
‘‘(iii) which is described in paragraph
(2)(D), (E), or (F),
shall be treated as a private activity bond.
‘‘(2) EXCEPTIONS.—If an election is made
under paragraph (1), paragraph (1)(A) does not
apply to any of the following bonds:
‘‘(A) Any qualified bond (as defined in sec-
tion 141(e)).
‘‘(B) Any eligible refunding bond (as de-
fined in subsection (d)(6)).
‘‘(C) Any bond issued to finance a quali-
fying transmission facility or a qualifying dis-
tribution facility owned by the governmental
unit.
‘‘(D) Any bond issued to finance equip-
ment or facilities necessary to meet Federal or
State environmental requirements applicable to
an existing generation facility owned by the
governmental unit.
‘‘(E) Any bond issued to finance repair of
any existing generation facility owned by the
governmental unit. Repairs of facilities may not
increase the generation capacity of the facility
by more than 3 percent above the greater of its
nameplate or rated capacity as of the date of
enactment of this section.
‘‘(F) Any bond issued to acquire or
construct—
‘‘(i) a qualified facility (as defined in
section 45(c)(3)) if such facility is owned
by the governmental unit and is placed in
service during a period in which a qualified
facility may be placed in service under
such section, or
‘‘(ii) any energy property (as defined
in section 48(a)(3)) that is owned by the
governmental unit.
This subparagraph shall not apply to any facil-
ity or property that is constructed, acquired or
financed for the principal purpose of providing
the facility (or the output thereof) to non-
governmental persons.
‘‘(3) FORM AND EFFECT OF ELECTION.—
‘‘(A) IN
GENERAL.—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, or any related
party with respect to, the electing governmental
unit. For purposes of this paragraph, a govern-
mental unit shall be treated as related to an-
other governmental unit if it is a member of the
same controlled group.
‘‘(B) TREATMENT OF ELECTING GOVERN-
MENTAL
UNIT.—A governmental unit which
makes an election under paragraph (1) shall be
treated for purposes of section 141 as a person
which is not a governmental unit and which is
engaged in a trade or business, with respect to
its purchase of electricity generated by an elec-
tric output facility placed in service after such
election, if such purchase is under a contract
executed after such election.
‘‘(4) DEFINITIONS.—For purposes of this sub-
section:
‘‘(A) EXISTING GENERATION FACILITY.—
The term ‘existing generation facility’ means an
electric generation facility owned by the govern-
mental unit on the date of enactment of this
subsection and either in service on such date or
the construction of which commenced prior to
June 1, 2000.
‘‘(B) QUALIFYING
DISTRIBUTION
FACIL-
ITY.—The term ‘qualifying distribution facility’
means a distribution facility over which open
access distribution services described in sub-
section (b)(2)(C) are available.
‘‘(C) QUALIFYING
TRANSMISSION
FACIL-
ITY.—The term ‘qualifying transmission facil-
ity’ means a local transmission facility (as de-
scribed in subsection (c)(3)(A)) over which open
access transmission services described in sub-
paragraph (A) or (B) of subsection (b)(2) are
available.
‘‘(b) PERMITTED OPEN ACCESS ACTIVITIES
AND
SALES TRANSACTIONS NOT A PRIVATE BUSINESS USE
FOR BONDS THAT REMAIN SUBJECT TO PRIVATE USE
RULES.—
‘‘(1) GENERAL
RULE.—For purposes of this
section and section 141, the term ‘private business
use’ shall not include a permitted open access activ-
ity or a permitted sales transaction.
‘‘(2) PERMITTED OPEN ACCESS ACTIVITIES.—
For purposes of this section, the term ‘permitted
open access activity’ means any of the following
transactions or activities with respect to an electric
output facility owned by a governmental unit:
‘‘(A) Providing nondiscriminatory open ac-
cess 
transmission 
service 
and 
ancillary
services—
‘‘(i) pursuant to an open access trans-
mission tariff filed with and approved by
FERC, including an acceptable reciprocity
tariff but, in the case of a voluntarily filed
tariff, only if the governmental unit volun-
tarily files a report with the FERC within
90 days of the date of enactment of this
section relating to whether or not the
issuer will join a regional transmission or-
ganization,
‘‘(ii) under an independent system op-
erator or regional transmission organiza-
tion agreement approved by FERC, or
‘‘(3) PERMITTED
SALES
TRANSACTION.—For
purposes of this subsection, the term ‘permitted
sales transaction’ means any of the following sales of
electric energy from existing generation facilities (as
defined in subsection (a)(4)(A)):
‘‘(A) The sale of electricity to an on-system
purchaser, if the seller makes available open ac-
cess distribution service under paragraph (2)(C)
and, in the case of a seller that owns or oper-
ates transmission facilities, if such seller makes
available open access transmission under sub-
paragraph (A) or (B) of paragraph (2).
‘‘(B) The sale of electricity to a wholesale
native load purchaser or in a wholesale strand-
ed cost mitigation sale—
‘‘(i) if the seller makes available open
access transmission service described in
subparagraph (A) or (B) of paragraph (2),
or
‘‘(ii) if the seller owns or operates no
transmission facilities and transmission
providers to the seller’s wholesale native
load purchasers make available open access
transmission service described in subpara-
graph (A) or (B) of paragraph (2).
‘‘(4) DEFINITIONS AND SPECIAL RULES.—For
purposes of this subsection:
‘‘(A) ON-SYSTEM PURCHASER.—The term
‘on-system purchaser’ means a person whose
electric facilities or equipment are directly con-
nected with transmission or distribution facili-
ties which are owned by such governmental
unit, and such person—
‘‘(i) purchases electric energy from
such governmental unit at retail and either
was within such unit’s distribution area in
the base year or is a person as to whom
the governmental unit has a service obliga-
tion, or
‘‘(ii) is a wholesale native load pur-
chaser from such governmental unit.
‘‘(B) WHOLESALE
NATIVE
LOAD
PUR-
CHASER.—The term ‘wholesale native load pur-
chaser’ means a wholesale purchaser as to
whom the governmental unit had—
‘‘(i) a service obligation at wholesale
in the base year, or
‘‘(ii) an obligation in the base year
under a requirements contract, or under a
firm sales contract that has been in effect
for (or has an initial term of) at least 10
years,
but only to the extent that in either case such
purchaser resells the electricity (I) directly at
retail to persons within the purchaser’s dis-
tribution area or (II) indirectly through one or
more intermediate wholesale purchasers (each
of whom as of June 30, 2000, was a party to
a requirements contract or a firm power con-
tract described in clause (ii)) to retail pur-
chasers in the ultimate wholesale purchaser’s
distribution area.
‘‘(C) WHOLESALE STRANDED COST MITI-
GATION SALE.—The term ‘wholesale stranded
cost mitigation sale’ means one or more whole-
sale sales made in accordance with the following
requirements:
‘‘(i) A governmental unit’s allowable
sales under this subparagraph during the
recovery period may not exceed the sum of
its annual load losses for each year of the
recovery period.
‘‘(ii) The governmental unit’s annual
load loss for each year of the recovery pe-
riod is the amount (if any) by which—
‘‘(I) sales in the base year to
wholesale 
native 
load 
purchasers
which do not constitute a private busi-
ness use, exceed
‘‘(II) sales during that year of
the recovery period to wholesale native
load purchasers which do not con-
stitute a private business use.
‘‘(iii) If actual sales under this sub-
paragraph during the recovery period are
less than allowable sales under clause (i),
the amount not sold (but not more than 10
percent of the aggregate allowable sales
under clause (i)) may be carried over and
sold as wholesale stranded cost mitigation
sales in the calendar year following the re-
covery period.
‘‘(D) RECOVERY
PERIOD.—The recovery
period is the 7-year period beginning with the
start-up year.
‘‘(E) START-UP YEAR.—The start-up year
is whichever of the following calendar years the
governmental unit elects:
‘‘(i) The year the governmental unit
first offers open transmission access.
‘‘(ii) The first year in which at least
10 percent of the governmental unit’s
wholesale customers’ aggregate retail na-
tive load is open to retail competition.
‘‘(iii) The calendar year which in-
cludes the date of the enactment of this
section, if later than the year described in
clause (i) or (ii).
‘‘(F) PERMITTED
SALES
TRANSACTIONS
UNDER
EXISTING
CONTRACTS.—A sale to a
wholesale native load purchaser (other than a
person to whom the governmental unit had a
service obligation) under a contract which re-
sulted in private business use in the base year
shall be treated as a permitted sales transaction
only to the extent that sales under the contract
exceed the lesser of—
‘‘(i) in any year the private business
use that resulted from the contract during
the base year, or
‘‘(ii) the maximum amount of private
business use which could occur (absent the
enactment of this section) without causing
the bonds to be private activity bonds.
This subparagraph shall only apply to the ex-
tent that the sale is allocable to bonds issued
prior to the date of enactment of this section
(or bonds issued to refund such bonds).
‘‘(G) TIME OF SALE RULE.—For purposes
of paragraphs (C)(ii) and (F), private business
use shall be determined under the law in effect
in the year of the sale.
‘‘(H) JOINT
ACTION
AGENCIES.—A joint
action agency, or a member of (or a wholesale
native load purchaser from) a joint action agen-
cy, which is entitled to make a sale described in
subparagraph (A) or (B) in a year, may trans-
fer the entitlement to make that sale to the
member (or purchaser), or the joint action
agency, respectively.
‘‘(c) CERTAIN BONDS FOR TRANSMISSION AND DIS-
TRIBUTION FACILITIES NOT TAX EXEMPT.—
‘‘(1) GENERAL
RULE.—For purposes of this
title, no bond the interest on which is exempt from
taxation under section 103 may be issued on or after
the date of enactment of this subsection if any of the
proceeds of such issue are used to finance—
‘‘(A) any transmission facility which is not
a local transmission facility, or
‘‘(B) a start-up utility distribution facility.
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not
apply to—
‘‘(A) any qualified bond (as defined in sec-
tion 141(e)),
‘‘(B) any eligible refunding bond (as de-
fined in subsection (d)(6)), or
‘‘(C) any bond issued to finance—
‘‘(i) any repair of a transmission facil-
ity in service on the date of the enactment
of this section, so long as the repair does
not increase the voltage level over its level
in the base year or increase the thermal
load limit of the transmission facility by
more than 3 percent over such limit in the
base year,
‘‘(ii) any qualifying upgrade of a
transmission facility in service on the date
of the enactment of this section, or
‘‘(iii) a transmission facility necessary
to comply with an obligation under a
shared or reciprocal transmission agree-
ment in effect on the date of enactment of
this section.
‘‘(3) LOCAL TRANSMISSION FACILITY DEFINI-
TIONS.—For purposes of this subsection—
‘‘(A) LOCAL
TRANSMISSION
FACILITY.—
The term ‘local transmission facility’ means a
transmission facility which is located within the
governmental unit’s distribution area or which
is, or will be, necessary to supply electricity to
serve retail native load or wholesale native load
of 1 or more governmental units. For purposes
of this subparagraph, the distribution area of a
public power authority which was created in
1931 by a State statute and which, as of Janu-
ary 1, 1999, owned at least one-third of the
transmission circuit miles rated at 230 kV or
higher in the State, shall be determined under
regulations of the Secretary.
‘‘(B) RETAIL
NATIVE
LOAD.—The term
‘retail native load’ with respect to a govern-
mental unit (or an entity other than a govern-
mental unit that operates an electric utility) is
the electric load of end-users in the distribution
area of the governmental unit or entity.
‘‘(C) WHOLESALE
NATIVE
LOAD.—The
term ‘wholesale native load’ is—
‘‘(i) the retail native load of such
unit’s wholesale native load purchasers (or
of an ultimate wholesale purchaser de-
scribed in subsection (b)(4)(B)(ii)), and
‘‘(ii) the electric load of purchasers
(not described in clause (i)) under whole-
sale requirements contracts which—
‘‘(I) do not constitute private
business use under the rules in effect
absent this subsection, and
‘‘(II) were in effect in the base
year.
‘‘(D) NECESSARY TO SERVE LOAD.—For
purposes of determining whether a transmission
or distribution facility is, or will be, necessary
to supply electricity to retail native load or
wholesale native load—
‘‘(i) the governmental unit’s available
transmission rights shall be taken into ac-
count,
‘‘(ii) electric reliability standards or
requirements of national or regional reli-
ability organizations, regional transmission
organizations and the Electric Reliability
Council of Texas shall be taken into ac-
count, and
‘‘(iii) transmission, siting and con-
struction decisions of regional transmission
organizations or independent system opera-
tors and State and Federal regulatory and
siting agencies, after a proceeding that
provides for public input, shall be pre-
sumptive 
evidence 
regarding 
whether
transmission facilities are necessary to
serve native load.
‘‘(E) QUALIFYING
UPGRADE.—The term
‘qualifying upgrade’ means an improvement or
addition to transmission facilities of the govern-
mental unit in service on the date of enactment
of this section which is ordered or approved by
a regional transmission organization, by an
independent system operator, or by a State reg-
ulatory or siting agency, after a proceeding that
provides for public input.
‘‘(4) START-UP UTILITY DISTRIBUTION FACIL-
ITY DEFINED.—For purposes of this subsection, the
term ‘start-up utility distribution facility’ means any
distribution facility to provide electric service to the
public that is placed in service—
‘‘(A) by a governmental unit that did not
operate an electric utility on the date of the en-
actment of this section, and
‘‘(B) during the first ten years after the
date such governmental unit begins operating
an electric utility.
A governmental unit is treated as having operated
an electric utility on the date of the enactment of
this section if it operates electric output facilities
which were operated by another governmental unit
to provide electric service to the public on such date.
‘‘(d) DEFINITIONS; SPECIAL RULES.—For purposes
of this section—
‘‘(1) BASE YEAR.—The term ‘base year’ means
the calendar year which includes the date of the en-
actment of this section or, at the election of the gov-
ernmental unit, either of the 2 immediately pre-
ceding calendar years.
‘‘(2) DISTRIBUTION AREA.—The term ‘distribu-
tion area’ means the area in which a governmental
unit (or an entity other than a governmental unit
that operates an electric utility) owns distribution
facilities.
‘‘(3) ELECTRIC OUTPUT FACILITY.—The term
‘electric output facility’ means an output facility
that is an electric generation, transmission, or dis-
tribution facility.
‘‘(4) DISTRIBUTION FACILITY.—The term ‘dis-
tribution facility’ means an electric output facility
that is not a generation or transmission facility.
‘‘(5) 
TRANSMISSION
FACILITY.—The 
term
‘transmission facility’ means an electric output facil-
ity (other than a generation facility) that operates at
an electric voltage of 69 kV or greater, except that
the owner of the facility may elect to treat any out-
put facility that the FERC determines is a trans-
mission facility under standards applied by FERC
under the Federal Power Act as a transmission facil-
ity for purposes of this section.
‘‘(6) ELIGIBLE REFUNDING BOND.—The term
‘eligible refunding bond’ means any State or local
bond issued after an election described in subsection
(a) that directly or indirectly refunds any bond de-
scribed in section 103(a) (other than a qualified
bond) issued before such election, if the weighted av-
erage maturity of the issue of which the refunding
bond is a part does not exceed the remaining weight-
ed average maturity of the bonds issued before the
election. In applying such term for purposes of sub-
section (c)(2)(B), the date of election shall be
deemed to be the date of the enactment of this sec-
tion.
‘‘(7) FERC.—The term ‘FERC’ means the
Federal Energy Regulatory Commission.
‘‘(8) GOVERNMENT-OWNED FACILITY.—An elec-
tric output facility shall be treated as ‘owned by a
governmental unit’ if it is an electric output facility
that either is—
‘‘(A) owned or leased by such govern-
mental unit, or
‘‘(B) a transmission facility in which the
governmental unit acquired before the base year
long-term firm capacity for the purposes of
serving customers to which the unit had at that
time either—
‘‘(i) a service obligation, or
‘‘(ii) an obligation under a require-
ments contract.
‘‘(9) REPAIR.—The term ‘repair’ shall include
replacement of components of an electric output fa-
cility, but shall not include replacement of the facil-
ity either at one time or incrementally.
‘‘(10) SERVICE OBLIGATION.—The term ‘service
obligation’ means an obligation under State or Fed-
eral law (exclusive of an obligation arising solely
under a contract entered into with a person) to pro-
vide electric distribution services or electric sales
service, as provided in such law.
‘‘(11) CONTRACT MODIFICATIONS.—A contract
is treated as a new contract if it is substantially
modified.
‘‘(e) SAVINGS CLAUSE.—Subsection (b) does not af-
fect the applicability of section 141 to (or the Secretary’s
authority to prescribe, amend or rescind regulations re-
specting) (1) any transaction that is not a permitted open
access transaction or permitted sales transaction, or (2)
any facilities other than electric output facilities.’’.
(b) REPEAL
OF EXCEPTION
FOR CERTAIN NON-
GOVERNMENTAL ELECTRIC OUTPUT FACILITIES.—Sec-
tion 141(d)(5) of the Internal Revenue Code of 1986 is
amended by inserting ‘‘(except in the case of an electric
output facility that is a distribution facility),’’ after ‘‘this
subsection’’.
(c) CONFORMING AMENDMENT.—The table of sec-
tions for subpart A of part IV of subchapter B of chapter
1 of the Internal Revenue Code of 1986 is amended by
inserting after the item relating to section 141 the fol-
lowing new item:
‘‘Sec. 141A. Electric output facilities.’’
(d) EFFECTIVE DATE; APPLICABILITY.—
(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 paragraphs (1) and (2) of section
141A(b), as added by subsection (a), with respect to
permitted open access activities entered into on or
after April 14, 1996.
(2) CERTAIN
EXISTING
AGREEMENTS.—The
amendment made by subsection (b) (relating to re-
peal of the exception for certain nongovernmental
output facilities) does not apply to any acquisition of
facilities made pursuant to an agreement that was
entered into before the date of the enactment of this
Act.
(3) 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.
SEC. 3. INDEPENDENT TRANSMISSION COMPANIES.
(a) SALES OR DISPOSITIONS TO IMPLEMENT FED-
ERAL ENERGY REGULATORY COMMISSION
OR STATE
ELECTRIC RESTRUCTURING POLICY.—
(1) IN GENERAL.—Section 1033 of the Internal
Revenue Code of 1986 (relating to involuntary con-
versions) is amended by redesignating subsection (k)
as subsection (l), and by inserting after subsection
(j) the following new subsection:
‘‘(k) SALES OR DISPOSITIONS TO IMPLEMENT FED-
ERAL ENERGY REGULATORY COMMISSION
OR STATE
ELECTRIC RESTRUCTURING POLICY.—
‘‘(1) IN GENERAL.—For purposes of this sub-
title, if a taxpayer elects the application of this sub-
section to a qualifying electric transmission trans-
action and the proceeds received from such trans-
action are invested in exempt utility property, such
transaction shall be treated as an involuntary con-
version to which this section applies. The part of the
gain, if any, on a sale or exchange to which section
1033 is not applied by reason of section 1245 shall
nevertheless not be recognized, if the taxpayer so
elects, to the extent that it is applied to reduce the
basis for determining gain or loss on sale or ex-
change of property, of a character subject to the al-
lowance for depreciation under section 167, remain-
ing in the hands of the taxpayer immediately after
the sale or exchange, or acquired in the same tax-
able year. The manner and amount of such reduc-
tion shall be determined under regulations pre-
scribed by the Secretary. Any election made by the
taxpayer under this section shall be made by a state-
ment to that effect in his return for the taxable year
in which the sale or exchange takes place, and such
election shall be binding for the taxable year and all
subsequent taxable years.
‘‘(2) EXTENSION OF REPLACEMENT PERIOD.—
In the case of any involuntary conversion described
in paragraph (1), subsection (a)(2)(B) shall be ap-
plied by substituting ‘4 years’ for ‘2 years’ in clause
(i) thereof.
‘‘(3) QUALIFYING
ELECTRIC
TRANSMISSION
TRANSACTION.—For purposes of this subsection, the
term ‘qualifying electric transmission transaction’
means any sale or other disposition of property used
in the trade or business of electric transmission, or
an ownership interest in a person whose primary
trade or business consists of providing electric trans-
mission services, to another person that is an inde-
pendent transmission company.
‘‘(4) 
INDEPENDENT
TRANSMISSION
COM-
PANY.—For purposes of this subsection, the term
‘independent transmission company’ means—
‘‘(A) a regional transmission organization
approved by the Federal Energy Regulatory
Commission,
‘‘(B) a person—
‘‘(i) who the Federal Energy Regu-
latory Commission determines in its au-
thorization of the transaction under section
203 of the Federal Power Act (16 U.S.C.
823b) is not a market participant within
the meaning of such Commission’s rules
applicable to regional transmission organi-
zations, and
‘‘(ii) whose transmission facilities to
which the election under this subsection
applies are placed under the operational
control of a Federal Energy Regulatory
Commission-approved 
regional 
trans-
mission organization within the period
specified in such order, but not later than
the close of the replacement period, or
‘‘(C) in the case of facilities subject to the
exclusive jurisdiction of the Public Utility Com-
mission of Texas, a person which is approved by
that Commission as consistent with Texas State
law regarding an independent transmission or-
ganization.
‘‘(5) EXEMPT
UTILITY
PROPERTY.—For pur-
poses of this subsection, the term ‘exempt utility
property’ means—
‘‘(A) property used in the trade or business
of generating, transmitting, distributing, or sell-
ing electricity or producing, transmitting, dis-
tributing, or selling natural gas, or
‘‘(B) stock acquired in the acquisition of
control of a corporation whose primary trade or
business consists of generating, transmitting,
distributing, or selling electricity or producing,
transmitting, distributing, or selling natural
gas.
‘‘(6) SPECIAL
RULES
FOR
CONSOLIDATED
GROUPS.—
‘‘(A) INVESTMENT BY QUALIFYING GROUP
MEMBERS.—
‘‘(i) IN
GENERAL.—This subsection
shall apply to a qualifying electric trans-
mission transaction engaged in by a tax-
payer if the proceeds are invested in ex-
empt utility property by a qualifying group
member.
‘‘(ii) QUALIFYING GROUP MEMBER.—
For purposes of this subparagraph, the
term ‘qualifying group member’ means any
member of a consolidated group within the
meaning of section 1502 and the regula-
tions promulgated thereunder of which the
taxpayer is also a member.
‘‘(B) COORDINATION WITH CONSOLIDATED
RETURN PROVISIONS.—A sale or other disposi-
tion of electric transmission property or an
ownership interest in a qualifying electric trans-
mission transaction, where an election is made
under this subsection, shall not result in the
recognition of income or gain under the consoli-
dated return provisions of subchapter A of
chapter 6. The Secretary shall prescribe such
regulations as may be necessary to provide for
the treatment of any exempt utility property re-
ceived in a qualifying electric transmission
transaction as successor assets subject to the
application of such consolidated return provi-
sions.
‘‘(7) ELECTION.—Any election made by a tax-
payer under this subsection shall be made by a
statement to that effect in the return for the taxable
year in which the qualifying electric transmission
transaction takes place in such form and manner as
the Secretary shall prescribe, and such election shall
be binding for that taxable year and all subsequent
taxable years.’’
(2) SAVINGS
CLAUSE.—Nothing in section
1033(k) of the Internal Revenue Code of 1986, as
added by subsection (a), shall affect Federal or
State regulatory policy respecting the extent to
which any acquisition premium paid in connection
with the purchase of an asset in a qualifying electric
transmission transaction can be recovered in rates.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to transactions occur-
ring after the date of the enactment of this Act.
(b) DISTRIBUTIONS OF STOCK TO IMPLEMENT FED-
ERAL ENERGY REGULATORY COMMISSION
OR STATE
ELECTRIC RESTRUCTURING POLICY.—
(1) IN GENERAL.—Section 355(e)(4) of the In-
ternal Revenue Code of 1986 is amended by redesig-
nating subparagraphs (C), (D), and (E) as subpara-
graphs (D), (E), and (F), respectively, and by in-
serting after subparagraph (B) the following new
subparagraph:
‘‘(C) DISTRIBUTIONS OF STOCK TO IMPLE-
MENT FEDERAL ENERGY REGULATORY COMMIS-
SION
OR
STATE
ELECTRIC
RESTRUCTURING
POLICY.—
‘‘(i) IN
GENERAL.—Paragraph (1)
shall not apply to any distribution that is
a qualifying electric transmission trans-
action. For purposes of this subparagraph,
a ‘qualifying electric transmission trans-
action’ means any distribution of stock in
a corporation whose primary trade or busi-
ness consists of providing electric trans-
mission services, where such stock is later
acquired (or where the assets of such cor-
poration are later acquired) by another
person that is an independent transmission
company.
‘‘(ii) INDEPENDENT
TRANSMISSION
COMPANY.—For purposes of this sub-
section, the term ‘independent trans-
mission company’ means—
‘‘(I) a regional transmission or-
ganization approved by the Federal
Energy Regulatory Commission,
‘‘(II) a person who the Federal
Energy Regulatory Commission deter-
mines in its authorization of the
transaction under section 203 of the
Federal Power Act (16 U.S.C. 824b)
is not a market participant within the
meaning of such Commission’s rules
applicable to regional transmission or-
ganizations, and whose transmission
facilities transferred as a part of such
qualifying electric transmission trans-
action are placed under the oper-
ational control of a Federal Energy
Regulatory Commission-approved re-
gional transmission organization with-
in the period specified in such order,
but not later than the close of the re-
placement period (as defined in sec-
tion 1033(k)(2)), or
‘‘(III) in the case of facilities
subject to the exclusive jurisdiction of
the Public Utility Commission of
Texas, a person that is approved by
that Commission as consistent with
Texas State law regarding an inde-
pendent transmission organization.’’
(2) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to distributions occur-
ring after the date of the enactment of this Act.
SEC. 4. CERTAIN AMOUNTS RECEIVED BY ELECTRIC UTILI-
TIES EXCLUDED FROM GROSS INCOME AS
CONTRIBUTIONS TO CAPITAL.
(a) IN GENERAL.—Subsection (c) of section 118 of
the Internal Revenue Code of 1986 (relating to contribu-
tions to the capital of a corporation) is amended—
(1) by striking ‘‘WATER
AND SEWAGE DIS-
POSAL’’ in the heading, and inserting ‘‘CERTAIN’’,
(2) by striking ‘‘water or,’’ in the matter pre-
ceding subparagraph (A) of paragraph (1) and in-
serting ‘‘electric energy, water, or’’,
(3) by striking ‘‘water or’’ in paragraph
(1)(B)and inserting ‘‘electric energy (but not includ-
ing assets used in the generation of electricity),
water, or’’,
(4) by striking ‘‘water or’’ in paragraph
(2)(A)(ii) and inserting ‘‘electric energy (but not in-
cluding assets used in the generation of electricity),
water, or’’,
(5) by inserting ‘‘such term shall include
amounts paid as customer connection fees (including
amounts paid to connect the customer’s line to an
electric line or a main water or sewer line) and’’
after ‘‘except that’’ in paragraph (3)(A), and
(6) by striking ‘‘water or’’ in paragraph (3)(C)
and inserting ‘‘electric energy, water, or’’.