I
107TH CONGRESS
1ST SESSION
H. R. 1601
To amend the Internal Revenue Code of 1986 to facilitate electric cooperative
participation in a competitive electric power industry.
IN THE HOUSE OF REPRESENTATIVES
APRIL 26, 2001
Mr. MCINNIS (for himself, Mr. TANNER, Mr. HAYWORTH, Mr. MATSUI, Mr.
POMEROY, Mr. RAMSTAD, and Mr. ENGLISH) 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 facilitate
electric cooperative participation in a competitive electric
power industry.
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 ‘‘Rural Electric Tax
Equity Act’’.
SEC. 2. MEMBER INCOME TEST.
(a) ELECTRIC INDUSTRY RESTRUCTURING INCOME
EXCLUDED FROM MEMBER INCOME TEST.—
(1) IN GENERAL.—Section 501(c)(12)(C) of the
Internal Revenue Code of 1986 is amended by strik-
ing ‘‘or’’ at the end of clause (i), by striking the pe-
riod at the end of clause (ii) and inserting a comma,
and by adding at the end the following new clauses:
‘‘(iii) from the prepayment of any
loan, debt, or obligation made, insured, or
guaranteed under the Rural Electrification
Act of 1936,
‘‘(iv) from any organization or entity
in which the electric company owns an in-
terest, other than income received by the
electric company and paid by the organiza-
tion or entity,
‘‘(v) from any member that volun-
tarily waives any right to capital credits,
patronage dividends, or similar amounts
allocated or paid by the electric company,
‘‘(vi) from any member for electric en-
ergy sold or furnished by the electric com-
pany based upon the electric company’s in-
cremental cost of generating, purchasing,
transmitting, or distributing the electric
energy,
‘‘(vii) from the receipt of any money
or capital or any other contribution in aid
of construction that would be excluded
from income under section 118(c) if re-
ceived by a regulated public utility,
‘‘(viii) either—
‘‘(I) from the transfer of any
amount into a trust, fund, or instru-
ment established to pay any nuclear
decommissioning costs, if the transfer
is in connection with the transfer of a
nuclear powerplant or nuclear power-
plant unit, or
‘‘(II) from the distribution of any
amount from any such trust, fund, or
instrument, including income rep-
resenting payments by the electric
company to the trust, fund, or instru-
ment, and investment income earned
by the trust, fund, or instrument,
‘‘(ix) from any individual, organiza-
tion, or entity for the electric company sell-
ing, leasing, exchanging, or otherwise
transferring on a mutually agreed upon
basis any property, property right, asset,
or service territory, or
‘‘(x) from any organization or entity,
including any municipality, resulting from
the compulsory or involuntary requisition
or condemnation, or the threat or immi-
nence of a compulsory or involuntary req-
uisition or condemnation, of any property,
asset, or service territory.’’.
(2) SPECIAL
RULES.—Section 512(b)(12) of
such Code is amended by adding at the end the fol-
lowing new subparagraphs:
‘‘(E) For purposes of this paragraph, if
any Federal, State, or local law, regulation,
holding, or order prohibits an electric company
from engaging in a business on a cooperative
basis, and if the electric company owns an in-
terest in any organization or entity engaged in
that business, then, at the electric company’s
election, the percentage of any income received
by the electric company and paid by the organi-
zation or entity equaling the percentage of
amounts collected by the organization or entity
from electric company members during the tax-
able year shall be treated as amounts collected
by the electric company from members for the
sole purpose of meeting losses and expenses.
‘‘(F) For purposes of subparagraph (C),
regardless of any contrary Federal, State, or
local law, regulation, holding, or order, neither
an electric company’s receipt of income de-
scribed in clause (v) or (vi) of such subpara-
graph, nor a member’s voluntary waiver of a
right described in such clause (v) or payment
described in such clause (vi), shall affect any
determination that the electric company is oper-
ating on a mutual or cooperative basis.’’.
(b) ELECTRIC INDUSTRY RESTRUCTURING INCOME
INCLUDED
AS MEMBER INCOME
IN MEMBER INCOME
TEST.—Section 501(c)(12) of the Internal Revenue Code
of 1986, as amended by subsection (a)(2), is amended by
adding at the end the following new subparagraph:
‘‘(G)(i) For purposes of this paragraph,
amounts collected by a mutual or cooperative
electric company from members for the sole
purpose of meeting losses and expenses includes
income received or accrued from any individual,
organization, or entity not a member for, or in
connection with, the electric company selling,
performing, or otherwise providing any goods or
services as required by, in voluntary compliance
with, or in order to conform to any electric in-
dustry restructuring law, including the fol-
lowing:
‘‘(I) The transmission or distribution
of electric energy to, with, or for any mem-
ber, or the sale, performance, transfer, or
other provision of any other goods or serv-
ices related to the transmission or distribu-
tion of electric energy to, with, or for any
member.
‘‘(II) The joining, participation in,
transfer of ownership or control of prop-
erty to, or provision of any other goods or
services to or for a regional transmission
organization, independent system operator,
regional transmission group, or similar or-
ganization or entity, all as approved or au-
thorized by the Federal Energy Regulatory
Commission, the Public Utility Commission
of Texas, the Rural Utilities Service, or
other appropriate entity.
‘‘(III) The sale, performance, or other
provision to, with, or for any member of
any goods or services related to any meter-
ing, billing, collection, customer service, or
similar activity.
‘‘(IV) The sale or furnishing of elec-
tric energy to, with, or for any member, or
the sale, performance, or other provision of
any other goods or services related to the
sale or furnishing of electric energy to,
with, or for any member.
‘‘(V) The sale or furnishing of electric
energy other than to, with, or for any
member, or the sale, performance, or other
provision of any other goods or services re-
lated to the sale or furnishing of electric
energy other than to, with, or for any
member, but only to the extent that, after
the electric company mandatorily or volun-
tarily complies with any electric industry
restructuring law, the annual income re-
ceived or accrued for, or in connection
with, the sale or furnishing of electric en-
ergy to, with, or for any member, or the
sale, performance, or other provision of
any other goods or services to, with, or for
any member, is less than the electric com-
pany’s average annual income, adjusted for
historical growth, received or accrued dur-
ing the 3 calendar years preceding the
electric company’s compliance.
‘‘(ii) For purposes of this subparagraph,
‘electric industry restructuring law’ means any
Federal, State, or local law, regulation, holding,
or order restructuring the retail or wholesale
electric industry or providing for or facilitating
the nondiscriminatory open access to, reliability
of, or safety associated with the transmission or
distribution of electric energy.’’.
SEC. 3. UNRELATED BUSINESS TAXABLE INCOME.
Section 512(b) of the Internal Revenue Code of 1986
(relating to modifications) is amended by adding at the
end the following new paragraph:
‘‘(18) There shall be excluded all income de-
scribed in section 501(c)(12)(G).’’.
SEC. 4. TREATMENT OF TAXABLE ELECTRIC COOPERA-
TIVES.
Section 7701 of the Internal Revenue Code of 1986
(relating to definitions) is amended by redesignating sub-
section (n) as subsection (o) and by inserting after sub-
section (m) the following new subsection:
‘‘(n) TREATMENT OF CERTAIN AMOUNTS RECEIVED
BY NONEXEMPT ELECTRIC COMPANIES.—
‘‘(1) IN GENERAL.—With respect to any non-
exempt electric company—
‘‘(A) any amount received from any indi-
vidual, organization, or entity that would not be
a ‘contribution to the capital of the taxpayer’
under section 118(b), or that, if the company
were a regulated public utility under section
118(c), would be a ‘contribution to the capital
of the taxpayer’ under section 118(c), shall be
treated as a contribution to the company’s cap-
ital, and
‘‘(B) capital credits, patronage dividends,
and similar amounts include any amount paid
to a patron to the extent that such amount is
from income received from business done with
or for other patrons to whom no amounts are
paid, or to whom smaller amounts are paid,
with respect to substantially identical trans-
actions, and income shall be treated as received
from business done with or for the nonexempt
electric company’s patrons, if the income is re-
ceived:
‘‘(i) ELECTRIC
INDUSTRY
RESTRUC-
TURING
INCOME.—From any individual,
organization, or entity not a patron for, or
in connection with, the nonexempt electric
company selling, performing, or otherwise
providing any goods or services as required
by, in voluntary compliance with, or in
order to conform to any electric industry
restructuring law, including the following:
‘‘(I) WHEELING
INCOME.—The
transmission or distribution of electric
energy to, with, or for any patron, or
the sale, performance, transfer, or
other provision of any other goods or
services related to the transmission or
distribution of electric energy to, with,
or for any patron.
‘‘(II) REGIONAL
TRANSMISSION
ORGANIZATION INCOME.—The joining,
participation in, transfer of ownership
or control of property to, or provision
of any other goods or services to or
for a regional transmission organiza-
tion, independent system operator, re-
gional transmission group, or similar
organization or entity, all as approved
or authorized by the Federal Energy
Regulatory Commission, the Public
Utility Commission of Texas, the
Rural Utilities Service, or other ap-
propriate entity.
‘‘(III) UNBUNDLING
INCOME.—
The sale, performance, or other provi-
sion to, with, or for any patron of any
goods or services related to any meter-
ing, billing, collection, customer serv-
ice, or similar activity.
‘‘(IV) ELECTRIC ENERGY SALES
INCOME.—The sale or furnishing of
electric energy to, with, or for any pa-
tron, or the sale, performance, or
other provision of any other goods or
services related to the sale or fur-
nishing of electric energy to, with, or
for any patron.
‘‘(V) REPLACEMENT
ELECTRIC
ENERGY SALES INCOME.—The sale or
furnishing of electric energy other
than to, with, or for any patron, or
the sale, performance, or other provi-
sion of any other goods or services re-
lated to the sale of or furnishing of
electric energy other than to, with, or
‘‘(iv) INCREMENTAL
COST
ELECTRIC
ENERGY
INCOME.—From any patron for
electric energy sold or furnished by the
nonexempt electric company based upon
the company’s incremental cost of gener-
ating, purchasing, transmitting, or distrib-
uting the electric energy.
‘‘(v) NUCLEAR DECOMMISSIONING IN-
COME.—Either—
‘‘(I) from the transfer of any
amount into a trust, fund, or instru-
ment established to pay any nuclear
decommissioning costs, if the transfer
is in connection with the transfer of a
nuclear powerplant or nuclear power-
plant unit, or
‘‘(II) from the distribution of any
amount from such trust, fund, or in-
strument, 
including 
income 
rep-
resenting payments by the nonexempt
electric company to the trust, fund, or
instrument, and investment income
earned by the trust, fund, or instru-
ment.
‘‘(vi) 
PROPERTY
TRANSFER
IN-
COME.—From any individual, organization,
or entity for the nonexempt electric com-
pany selling, leasing, exchanging, or other-
wise transferring on a mutually agreed
upon basis any property, property right,
asset, or service territory.
‘‘(vii) 
CONDEMNATION
INCOME.—
From any organization or entity, including
any municipality, resulting from the com-
pulsory or involuntary requisition or con-
demnation, or the threat or imminence of
a compulsory or involuntary requisition or
condemnation, of any property, asset, or
service territory.
‘‘(2) SPECIAL
RULES.—For purposes of this
subsection—
‘‘(A) WAIVER INCOME.—Regardless of any
contrary Federal, State, or local law, regulation,
holding, or order, neither a nonexempt electric
company’s receipt of income described in para-
graph (1)(B)(iii), nor a patron’s voluntary waiv-
er of a right described in such paragraph, shall
affect any determination that the company is
operating on a cooperative basis.
‘‘(B) INCREMENTAL COST ELECTRIC EN-
ERGY
INCOME.—Regardless of any contrary
Federal, State, or local law, regulation, holding,
or order, neither a nonexempt electric com-
pany’s receipt of income described in paragraph
(1)(B)(iv), nor a patron’s payment of the
amount described in such paragraph, shall af-
fect any determination that the company is op-
erating on a cooperative basis.
‘‘(3) DEFINITIONS.—For purposes of this
subsection—
‘‘(A) 
ELECTRIC
INDUSTRY
RESTRUC-
TURING LAW.—The term ‘electric industry re-
structuring law’ means any Federal, State, or
local law, regulation, holding, or order restruc-
turing the retail or wholesale electric industry
or providing for or facilitating the nondiscrim-
inatory open access to, reliability of, or safety
associated with the transmission or distribution
of electric energy.
‘‘(B) NONEXEMPT ELECTRIC COMPANY.—
The term ‘nonexempt electric company’ means
any corporation or organization described in
section 1381(a)(2)(C) and engaged in fur-
nishing electric energy.’’.
SEC. 5. EFFECTIVE DATE.
The amendments made by this Act shall apply to
amounts received in taxable years ending after the date
of the enactment of this Act.
Æ