I
106TH CONGRESS
2D SESSION
H. R. 4971
To amend the Internal Revenue Code of 1986 to facilitate competition in
the electric power industry.
IN THE HOUSE OF REPRESENTATIVES
JULY 26, 2000
Mr. HAYWORTH (for himself, Mr. ENGLISH, Mr. MATSUI, Mr. WELLER, Mr.
NEAL of Massachusetts, Mr. RAMSTAD, Mrs. THURMAN, Mr. HERGER,
Mr. WATKINS, Mrs. JOHNSON of Connecticut, and Mr. SHAW) 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
competition in the 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 ‘‘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 inserting 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 certain tax-exempt financing 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 an
electric output facility any bond the interest on
which is exempt from tax under section 103,
and
‘‘(B) notwithstanding paragraph (1) or (2)
of section 141(a) or paragraph (4) or (5) of
section 141(b), no bond that was issued by such
unit with respect to an electric output facility
before the date of enactment of this subsection
(or which is described in paragraph (2)(B), (D),
(E) or (F)) the interest on which was exempt
from tax on such date, shall be treated as a pri-
vate activity bond.
‘‘(2) EXCEPTIONS.—An election under para-
graph (1) 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 (e)).
‘‘(C) Any bond issued to finance a quali-
fying transmission facility or a qualifying dis-
tribution facility.
‘‘(D) Any bond issued to finance equip-
ment or facilities necessary to meet Federal or
State environmental requirements applicable to
an existing generation facility.
‘‘(E) Any bond issued to finance repair of
any existing generation facility. Repairs of fa-
cilities 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 con-
struct (i) a qualified facility, as defined in sec-
‘‘(A) EXISTING GENERATION FACILITY.—
The term ‘existing generation facility’ means an
electric generation facility in service on the date
of enactment of this subsection or 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 provided.
‘‘(C) QUALIFYING
TRANSMISSION
FACIL-
ITY.—The term ‘qualifying transmission facil-
ity’ means a local transmission facility over
which open access transmission services de-
scribed in subsection (b)(2)(A), (B), or (E) are
provided.
‘‘(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 
transmissionservice 
and 
ancillary
services—
‘‘(i) pursuant to an open access trans-
mission tariff filed with and approved by
FERC, but, in the case of a voluntarily
filed tariff, only if the governmental unit
voluntarily files a report described in 18
CFR 35.34(c) or (h) or successor provision
(relating to whether or not the issuer will
join a regional transmission organization)
not later than the later of the applicable
date prescribed in such sections or 60 days
after enactment of this section;
‘‘(ii) under an independent system op-
erator, regional transmission organization
or regional transmission group agreement
approved by FERC; or
‘‘(iii) in the case of an ERCOT utility
(as defined in section 212 (k) of the Fed-
eral Power Act), pursuant to a tariff ap-
proved by the Public Utility Commission of
Texas.
‘‘(B) Participation in—
‘‘(i) an independent system operator
agreement,
‘‘(ii) a regional transmission organiza-
tion agreement, or
‘‘(iii) a regional transmission group,
that has been approved by FERC, or by the
Public Utility Commission of Texas in the case
of an ERCOT utility. Such participation may
include transfer of control of transmission fa-
cilities to an organization described in clause
(i), (ii), or (iii).
‘‘(C) Delivery on a nondiscriminatory open
access basis of electric energy sold to end-users
served by distribution facilities owned by such
governmental unit.
‘‘(D) Delivery on a nondiscriminatory open
access basis of electric energy generated by gen-
eration facilities connected to distribution facili-
ties owned by such governmental unit.
‘‘(E) Other transactions providing non-
discriminatory open access transmission or dis-
tribution services under Federal, State, or local
open access, retail competition or similar pro-
grams, to the extent provided in regulations
prescribed by the Secretary.
‘‘(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 provides open access dis-
tribution service under paragraph (2)(C) and,
in the case of a seller that owns or operates
transmission facilities, if such seller provides
open access transmission under paragraph
(2)(A), (B), or (E).
‘‘(B) The sale of electricity to a wholesale
native load purchaser or in a wholesale strand-
ed cost mitigation sale—
‘‘(i) if the seller provides open access
transmission service described in para-
graph (2)(A), (B), or (E), or
‘‘(ii) if the seller owns or operates no
transmission facilities and transmission
providers to the seller’s wholesale native
load purchasers provide open access trans-
mission service described in paragraph
(2)(A), (B), or (E).
‘‘(4) DEFINITIONS AND SPECIAL RULES.—For
purposes of this subsection:
‘‘(A) ON-SYSTEM PURCHASER.—The term
‘on-system purchaser’ from a governmental unit
means a person whose electric facilities or
equipment are directly connected with trans-
mission or distribution facilities that are owned
by such governmental unit, and who—
‘‘(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) 10 years or
more, but only to the extent in either case
such purchaser resells the electricity at re-
tail to persons within the purchaser’s dis-
tribution 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 clauses (i),
(ii), and (iii).
‘‘(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 that
do not constitute a private business
use, exceed
‘‘(II) sales during that year of
the recovery period to wholesale native
load purchasers that do not constitute
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 year of 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 that 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 (i) in any year the private business use
that resulted during the base year, or (ii) the
maximum amount of private business use that
could occur (absent the enactment of this sec-
tion) without causing the bonds to be private
activity bonds, whichever is less. This subpara-
graph shall only apply to the extent 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) JOINT
ACTION
AGENCIES.—A joint
action agency, or a member of (or a wholesale
native load purchaser from) a joint action agen-
cy, that is entitled to make a sale described in
subparagraph (A) or (B) in a year may transfer
the entitlement to make that sale to the mem-
ber (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 that is not a local transmission
facility, or (B) a start-up utility distribution facility.
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not
apply to—
‘‘(A) a qualified bond (as defined in section
141(e)),
‘‘(B) an eligible refunding bond (as defined
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 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 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 one or more governmental units. For pur-
poses of this subparagraph, the distribution
area of a public power authority which was cre-
ated in 1931 by a State statute and which, as
of January 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.—A govern-
mental unit’s ‘retail native load’ is the electric
load of end-users served by distribution facili-
ties owned by such governmental unit.
‘‘(C) WHOLESALE NATIVE LOAD.—A gov-
ernmental unit’s ‘wholesale native load’ is the—
‘‘(i) retail native load of such unit’s
wholesale native load purchasers, and
‘‘(ii) electric load of purchasers (not
described in clause (i)) under wholesale re-
quirements contracts that (I) do not con-
stitute 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) electric reliability standards or re-
quirements of national or regional reli-
ability organizations, regional transmission
organizations and the Electric Reliability
Council of Texas shall be taken into ac-
count, and
‘‘(ii) transmission, siting and con-
struction decisions of regional transmission
organizations or independent system opera-
tors and state and Federal agencies shall
be presumptive 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 in service on
the date of enactment of this section that is or-
dered or approved by a regional transmission
organization, by an independent system oper-
ator, or by a state regulatory or siting agency.
‘‘(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 govern-
mental unit that did not operate an electric utility
on the date of enactment of this section, and (B)
prior to the date on which such governmental unit
operates in a qualified service area (as such term is
defined in section 141(d)(3)(B)). A governmental
unit is deemed to have operated an electric utility on
the date of enactment of this section if it operates
electric output facilities that were operated by an-
other governmental unit to provide electric service to
the public on the date of enactment of this section.
‘‘(d) DEFINITIONS; SPECIAL RULES.—For purposes
of this section—
‘‘(1) BASE YEAR.—The term ‘base year’ means
the year of enactment of this section or, at the elec-
tion of the governmental unit, either of the two cal-
endar years immediately prior to the year of enact-
ment.
‘‘(2) DISTRIBUTION AREA.—The term ‘distribu-
tion area’ means the area in which a governmental
unit 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 69kV or greater, except that
the owner of the facility may elect to treat any out-
put facility that is a transmission facility for pur-
poses of the Federal Power Act as a transmission fa-
cility for purposes of this section.
‘‘(6) ELIGIBLE REFUNDING BOND.—The term
‘eligible refunding bond’ means State or local bonds
issued after an election described in subsection (a)
that directly or indirectly refund tax exempt bonds
(other than a qualified bond) issued before such
election, if the weighted average maturity of the re-
funding bonds 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 enactment of this section.
‘‘(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 prior to 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 ob-
ligation under a requirements 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.
‘‘(10) SERVICE OBLIGATION.—The term ‘service
obligation’ means an obligation under State or Fed-
eral law (exclusive of an obligation arising solely
from a contract entered into with such person) to
provide electric distribution services or electric sales
service, as provided in such law.
‘‘(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) any transaction that is not a permitted open ac-
cess transaction or permitted sales transaction.’’
(b) REPEAL
OF EXCEPTION
FOR CERTAIN NON-
GOVERNMENTAL ELECTRIC OUTPUT FACILITIES.—Sec-
tion 141(d)(5) of such Code is amended by inserting ‘‘(ex-
cept in the case of an electric output facility that is a dis-
tribution facility),’’ after ‘‘this section’’.
(c) 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 section 141A(b)(1) and (2), as added
by subsection (a), with respect to permitted open ac-
cess 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 enactment of this
Act.
(3) APPLICABILITY.—References in the 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 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.
‘‘(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 striking ‘2 years’ and inserting ‘4 years’.
‘‘(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
Regulatory Commission determines in its au-
thorization of the transaction under section 203
of the Federal Power Act is not a ‘market par-
ticipant’ within the meaning of such Commis-
sion’s rules applicable to regional transmission
organizations, and (ii) whose transmission fa-
cilities to which the election under this sub-
section applies are placed under the operational
control of a Federal Energy Regulatory Com-
mission-approved regional transmission organi-
zation 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 that 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 in a person whose primary
trade or business consists of generating, trans-
mitting, distributing, or selling electricity or
producing, transmitting, distributing, or selling
natural gas.
‘‘(6) SPECIAL
RULES
FOR
CONSOLIDATED
GROUPS.—
‘‘(A) INVESTMENT BY QUALIFYING GROUP
MEMBERS.—This subsection shall apply to a
qualifying electric transmission transaction en-
gaged in by a taxpayer if the proceeds are in-
vested in exempt utility property by a qualifying
group member. A ‘qualifying group member’ is
any member of a consolidated group within the
meaning of section 1502 and the regulations
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 subtitle A, chapter 6,
subchapter A hereof. The Secretary shall pre-
scribe such regulations as may be necessary to
provide for the treatment of any exempt utility
property received in a qualifying electric trans-
mission transaction as successor assets subject
to the application of such consolidated return
provisions.
‘‘(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), affects 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 trans-
mission 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 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) Paragraph (1) shall not apply to
any distribution that is a qualifying elec-
tric transmission transaction. For purposes
of this subparagraph, a ‘qualifying electric
transmission transaction’ means any dis-
tribution of stock in a corporation whose
primary trade or business consists of pro-
viding electric transmission services, where
such stock is later acquired (or where the
assets of such corporation are later ac-
quired) by another person that is an inde-
pendent 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 (x) who the Fed-
eral Energy Regulatory Commission
determines in its authorization of the
transaction under section 203 of the
Federal Power Act is not a ‘market
participant’ within the meaning of
such Commission’s rules applicable to
regional transmission organizations,
and (y) whose transmission facilities
transferred as a part of such quali-
fying electric transmission transaction
are placed under the operational con-
trol of a Federal Energy Regulatory
Commission-approved regional trans-
mission organization within the period
specified in such order, but later than
the close of the replacement period (as
defined in section 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 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 special
rules for water and sewage disposal utilities) is amended—
(1) in the heading, by striking ‘‘WATER AND
SEWAGE DISPOSAL’’ and inserting ‘‘CERTAIN’’.
(2) in paragraph (1)—
(A) in the lead-in for paragraph (1), by
striking ‘‘water or,’’ and inserting ‘‘electric en-
ergy, water, or’’, and
(B) in subparagraph (B), by striking
‘‘water or’’ and inserting ‘‘electric energy (but
not including assets used in the generation of
electricity), water, or’’,
(3) in paragraph (2)(A)(ii), by striking ‘‘water
or’’ and inserting ‘‘electric energy (but not including
assets used in the generation of electricity), water,
or’’, and
(4) in paragraph (3)—
(A) in subparagraph (A), by inserting
‘‘such term shall include amounts paid as cus-
tomer connection fees (including amounts paid
to connect the customer’s line to an electric line
or a main water or sewer line) and’’ after ‘‘ex-
cept that’’, and
(B) in subparagraph (C), by striking
‘‘water or’’ and inserting ‘‘electric energy,
water, or’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to amounts received after the
date of enactment of this Act.
SEC. 5. TAX TREATMENT OF NUCLEAR DECOMMISSIONING
FUNDS.
(a) INCREASE IN AMOUNT PERMITTED TO BE PAID
INTO NUCLEAR DECOMMISSIONING RESERVE FUND.—
Subsection (b) of section 468A of the Internal Revenue
Code of 1986 is amended to read as follows:
‘‘(b) LIMITATION ON AMOUNTS PAID INTO FUND.—
‘‘(1) IN GENERAL.—The amount which a tax-
payer may pay into the Fund for any taxable year
during the funding period shall not exceed the level
funding amount determined pursuant to subsection
(d), except—
‘‘(A) where the taxpayer is permitted by
Federal or State law or regulation (including
authorization by a public service commission) to
charge customers a greater amount for nuclear
decommissioning costs, in which case the tax-
payer may pay into the Fund such greater
amount, or
‘‘(B) in connection with the transfer of a
nuclear powerplant, where the transferor or
transferee (or both) is required pursuant to the
terms of the transfer to contribute a greater
amount for nuclear decommissioning costs, in
which case the transferor or transferee (or
both) may pay into the Fund such greater
amount.
‘‘(2) CONTRIBUTIONS
AFTER
FUNDING
PE-
RIOD.—Notwithstanding any other provision of this
section, a taxpayer may make deductible payments
to the Fund in any taxable year between the end of
the funding period and the termination of the license
issued by the Nuclear Regulatory Commission for
the nuclear powerplant to which the Fund relates
provided such payments do not cause the assets of
the Fund to exceed the nuclear decommissioning
costs allocable to the taxpayer’s current or former
interest in the nuclear powerplant to which the Fund
relates. The foregoing limitation shall be applied by
taking into account a reasonable rate of inflation for
the nuclear decommissioning costs and a reasonable
after-tax rate of return on the assets of the Fund
until such assets are anticipated to be expended.’’
(b) DEDUCTION FOR NUCLEAR DECOMMISSIONING
COSTS WHEN PAID.—Paragraph (2) of section 468A(c)
of such Code is amended to read as follows:
‘‘(2) DEDUCTION
OF
NUCLEAR
DECOMMIS-
SIONING COSTS.—In addition to any deduction under
subsection (a), nuclear decommissioning costs paid
or incurred by the taxpayer during any taxable year
shall constitute ordinary and necessary expenses in
carrying on a trade or business under section 162.’’
(c) LEVEL FUNDING AMOUNTS.—Subsection (d) of
section 468A of such Code is amended to read as follows:
‘‘(d) LEVEL FUNDING AMOUNTS.—
‘‘(1) ANNUAL AMOUNTS.—For purposes of this
section, the level funding amount for any taxable
year shall equal the annual amount required to be
contributed to the Fund in each year remaining in
the funding period in order for the Fund to accumu-
late the nuclear decommissioning costs allocable to
the taxpayer’s current or former interest in the nu-
clear powerplant to which the Fund relates. The an-
nual amount described in the foregoing sentence
shall be calculated by taking into account a reason-
able rate of inflation for the nuclear decommis-
sioning costs and a reasonable after-tax rate of re-
turn on the assets of the Fund until such assets are
anticipated to be expended.
‘‘(2) FUNDING
PERIOD.—The funding period
for a Fund shall end on the last day of the last tax-
able year of the expected operating life of the nu-
clear powerplant.
‘‘(3) NUCLEAR DECOMMISSIONING COSTS.—For
purposes of this section, the term ‘nuclear decom-
missioning costs’ shall mean all costs to be incurred
in connection with entombing, decontaminating, dis-
mantling, removing, and disposing of a nuclear pow-
erplant, and shall include all associated preparation,
security, fuel storage, and radiation monitoring
costs. The taxpayer may identify such costs by ref-
erence either to a site-specific engineering study or
to the financial assurance amount calculated pursu-
ant to section 50.75 of title 10 of the Code of Fed-
eral Regulations. The term shall include all such
costs which, outsie of the decommissioning context,
might otherwise be capital expenditures.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts paid after June 30,
2000, in taxable years ending after such date.
Æ