I
105TH CONGRESS
2D SESSION
H. R. 3927
To amend the Internal Revenue Code of 1986 to restrict the use of tax-
exempt financing by governmentally owned electric utilities and to subject
certain activities of such utilities to income tax.
IN THE HOUSE OF REPRESENTATIVES
MAY 21, 1998
Mr. ENGLISH of Pennsylvania (for himself, Mr. JEFFERSON, and Mr. CRANE)
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 restrict
the use of tax-exempt financing by governmentally owned
electric utilities and to subject certain activities of such
utilities to income tax.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. BONDS ISSUED TO FINANCE CERTAIN GOVERN-
MENTAL 
ELECTRIC 
OUTPUT 
FACILITIES
TREATED AS PRIVATE ACTIVITY BONDS.
(a) GOVERNMENTAL UNITS NO LONGER ELIGIBLE
FOR EXCEPTION FROM TERMINATION OF LOCAL FUR-
NISHING PROVISIONS.—Paragraph (3) of section 142(f) of
the Internal Revenue Code of 1986 is amended by adding
at the end the following flush sentence:
‘‘For purposes of applying this paragraph to bonds
issued after the date of the enactment of this sen-
tence, the term ‘person’ shall not include a govern-
mental unit.’’
(b) CERTAIN ISSUES FOR GOVERNMENTAL ELECTRIC
OUTPUT FACILITIES TREATED
AS PRIVATE ACTIVITY
BONDS.—Section 141 of such Code (relating to private
activity bonds) is amended by adding at the end the follow-
ing new subsection:
‘‘(f) ISSUES FOR GOVERNMENTAL ELECTRIC OUT-
PUT FACILITIES.—
‘‘(1) IN GENERAL.—The term ‘private activity
bond’ includes any bond issued as part of an issue
if any proceeds of the issue are to be used (directly
or indirectly) for the construction or acquisition of
any governmental electric output facility.
‘‘(2) GOVERNMENTAL
ELECTRIC
OUTPUT
FA-
CILITY; ELECTRIC ENERGY SERVICES.—For purposes
of this subsection—
‘‘(A) GOVERNMENTAL
ELECTRIC
OUTPUT
FACILITY.—
‘‘(i) IN GENERAL.—The term ‘govern-
mental electric output facility’ means any
facility (including any generation, trans-
mission, or distribution facility) used or to
be used in connection with the furnishing
for sale of electric energy services by any
governmental utility.
‘‘(ii) EXCEPTION FOR PROPERTY CON-
VERTED TO NONOUTPUT USE.—The term
‘governmental electric output facility’ shall
not include any property described in sub-
section (d)(4).
‘‘(B) ELECTRIC ENERGY SERVICES.—The
term ‘electric energy services’ includes the fur-
nishing of electric energy.
‘‘(3) EXCEPTION FOR LOCAL GOVERNMENTAL
UTILITIES.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
be applied by not taking into account any facil-
ity owned by a local governmental utility.
‘‘(B) LOCAL
GOVERNMENTAL
UTILITY.—
For purposes of this subsection, the term ‘local
governmental utility’ means any governmental
utility if—
‘‘(i) all governmental electric output
facilities (other than generation facilities)
which—
‘‘(I) are owned by such utility,
and
‘‘(II) are placed in service after
the date of the enactment of this sub-
section,
are located within the qualified govern-
mental service area of such utility,
‘‘(ii) electric energy services furnished
by such utility are sold only to ultimate
consumers located within such area, and
‘‘(iii) no governmental electric output
facility owned by such utility is designed
differently, sized larger, built sooner, or
constructed in a more costly manner than
is reasonably necessary for ultimate con-
sumers located within such area.
‘‘(C) JOINT ACTION POWER AGENCIES.—
For purposes of determining whether a partici-
pant in a joint action power agency meets the
requirements of subparagraph (B)—
‘‘(i) such participant shall be treated
as owning its share of the governmental
electric output facilities owned by such
agency, and
‘‘(ii) the determination of whether the
requirements of clause (i) or (iii) of sub-
paragraph (B) are met shall be made by
treating the qualified governmental service
area of such participant as including such
area of all participants in such agency.
‘‘(4) EXCEPTION FOR SMALL GOVERNMENTAL
UTILITIES.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
be applied by not taking into account any facil-
ity owned by a small governmental utility.
‘‘(B) SMALL
GOVERNMENTAL
UTILITY.—
For purposes of ths subsection, the term ‘small
governmental utility’ means any governmental
utility if—
‘‘(i) as of the issuance date of the
issue, it is reasonably expected that such
utility will furnish electric energy services
for sale to less than 5,000 consumers, and
‘‘(ii) at least 30 percent of its average
gross income during any 3-calendar year
period is from sales to residential consum-
ers.
‘‘(5) EXCEPTION FOR LOCAL DISTRIBUTION FA-
CILITIES.—Paragraph (1) shall be applied by not
taking into account any distribution facility if—
‘‘(A) such facility is located within the
qualified governmental service area of such util-
ity, and
‘‘(B) such facility meets the requirements
of paragraph (3)(B)(iii).
‘‘(6) EXCEPTIONS TO RULES REQUIRING THAT
ULTIMATE CONSUMERS BE LOCATED WITHIN QUALI-
FIED GOVERNMENTAL SERVICE AREA.—
‘‘(A) IN
GENERAL.—For purposes of
clauses (ii) and (iii) of paragraph (3)(B), a sale
shall be treated as being to an ultimate con-
sumer located within a governmental utility’s
qualified governmental service area if such sale
meets—
‘‘(i) the governmental utility exception
of subparagraph (B),
‘‘(ii) the pooling exception of subpara-
graph (C),
‘‘(iii) the existing contract exception
of subparagraph (D),
‘‘(iv) the de minimis exception of sub-
paragraph (E), or
‘‘(v) the transmission exception of
subparagraph (F).
‘‘(B) GOVERNMENTAL
UTILITY
EXCEP-
TION.—A sale of electric energy services meets
the governmental utility exception of this sub-
paragraph if the sale is by a governmental util-
ity with a qualified governmental service area to
another governmental utility for resale solely to
ultimate consumers located within the qualified
governmental service area of the purchasing
governmental utility.
‘‘(C) POOLING
EXCEPTION.—A sale of
electric energy services meets the pooling excep-
tion of this subparagraph if—
‘‘(i) the sale is by a governmental util-
ity with a qualified governmental service
area to a person for the resale of the elec-
tric energy services,
‘‘(ii) such sale is—
‘‘(I) pursuant to a pooling or
swap arrangement to a person that
owns distribution facilities for dis-
tribution through those facilities,
‘‘(II) pursuant to a regional
transmission group or other similar
arrangement to a person that owns
distribution facilities for distribution
through those facilities, or
‘‘(III) for the emergency transfer
of electric energy services, and
‘‘(iii) the dollar amount of the pooling
sales by the governmental utility during a
calendar year does not exceed the dollar
amount of the pooling purchases by such
utility during such year.
‘‘(D) EXISTING CONTRACT EXCEPTION.—A
sale of electric energy services meets the exist-
ing contract exception of this subparagraph if
the sale is pursuant to—
‘‘(i) a binding contract in effect on the
date of the enactment of this subsection, or
‘‘(ii) a renewal of such a contract but
only if such renewal is at the sole option
of the purchaser.
‘‘(E) DE MINIMIS EXCEPTION.—A sale of
electric energy services meets the de minimis
exception of this subparagraph if—
‘‘(i) the sale is by a governmental util-
ity with a qualified governmental service
area to a person who owns any electric en-
ergy distribution facility for distribution
and resale by such person through such fa-
cility, and
‘‘(ii) all of the governmental electric
output facilities of such utility meet the re-
quirements of paragraph (3)(B)(iii), and
‘‘(iii) the aggregate dollar amount of
the sales described in clause (i) during any
calendar year (other than sales which meet
the requirements of any other subpara-
graph of this paragraph) does not exceed
10 percent of the average of the dollar
amounts of the governmental utility’s sales
of electric energy services during the 3 pre-
ceding calendar years.
‘‘(F) TRANSMISSION EXCEPTION.—A sale
of electric energy services meets the trans-
mission exception of this subparagraph if the
only electric energy services provided by the
governmental utility with respect to such sale
are provided by—
‘‘(i) any transmission or distribution
facility placed in service before the date of
the enactment of this subsection,
‘‘(ii) any distribution facility which
meets the requirements of paragraph (5),
or
‘‘(iii) any transmission or distribution
facility which meets the requirements of
clauses (i) and (iii) of paragraph (3)(B).
If electric energy is sold in connection with the
sale of any transmission or distribution service,
the sale of such service meets the requirements
of this subparagraph only if the sale of the elec-
tric energy is to ultimate consumers located
within the qualified governmental service area
of such utility.
‘‘(7) 
QUALIFIED
GOVERNMENTAL
SERVICE
AREA.—For purposes of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
governmental service area’ means, with respect
to any governmental utility, the area—
‘‘(i)(I) in which such utility has the
obligation to supply electric energy services
to ultimate consumers, or
‘‘(II) if such utility has no such obli-
gation, which is coincident to an electric
distribution system of such utility and im-
mediately adjacent thereto, and