SECTION 1. TAX-EXEMPT BOND FINANCING OF CERTAIN ELECTRIC FACILITIES.

    (a) Permitted Open Access Transactions Not a Private Business 
Use.--Section 141(b)(6) of the Internal Revenue Code of 1986 (defining 
private business use) is amended by adding at the end the following:
                    ``(C) Permitted open access transactions not a 
                private business use.--
                            ``(i) In general.--For purposes of this 
                        subsection, the term `private business use' 
                        shall not include a permitted open access 
                        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 subsection (f)(5)(A)) owned or 
                        leased by a governmental unit or in which a 
                        governmental unit has capacity rights:
                                    ``(I) Providing open access 
                                transmission services and ancillary 
                                services that meet the reciprocity 
                                requirements of Federal Energy 
                                Regulatory Commission Order No. 888, or 
                                that are ordered by the Federal Energy 
                                Regulatory Commission, or that are 
                                provided in accordance with a 
                                transmission tariff of an independent 
                                system operator approved by such 
                                Commission, or are consistent with 
                                state administered laws, rules or 
                                orders providing for open transmission 
                                access.
                                    ``(II) Participation in an 
                                independent system operator agreement, 
                                regional transmission group, or 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 
                                facilities.
                                    ``(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 (1) to an on-system 
                                purchaser, (2) an existing off-system 
                                sale, or (3) a qualifying load loss 
                                sale.
                                    ``(V) Such other transactions or 
                                activities as may be provided in 
                                regulations prescribed by the 
                                Secretary.
                            ``(iii) Qualifying load loss sale.--For 
                        purposes of clause (ii)(IV), a sale of electric 
                        energy by a governmental unit is a qualifying 
                        load loss sale in any calendar year after 1997, 
                        if it is a new off-system sale, and the 
                        aggregate of new off-system sales in such year 
                        does not exceed lost load, and if the term of 
                        the sale does not exceed three years, and such 
                        governmental unit has elected under subsection 
                        (f)(2) to suspend issuance of certain tax-
                        exempt bonds for not less than the term of the 
                        sale (or for any period equal to the term of 
                        the sale that includes the first year of the 
                        sale).
                            ``(iv) Other 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 who is 
                                directly connected with transmission or 
                                distribution facilities that are owned 
                                or leased by such governmental unit or 
                                in which such governmental unit has 
                                capacity rights that are treated under 
                                FERC tariffs or existing contracts as 
                                equivalent to ownership.
                                    ``(II) Off-system purchaser.--The 
                                term `off-system purchaser' 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 purchaser 
                                of electric energy in the base year, 
                                but not in excess of the KWH purchased 
                                by such person in such year.
                                    ``(IV) New off-system sale.--The 
                                term `new off-system sale' means an 
                                off-system sale other than an existing 
                                off-system sale.
                                    ``(V) Lost load.--The term `lost 
                                load' for the purposes of determining 
                                qualifying load loss sales for any 
                                year, means the amount (if any) by 
                                which (1) the sum of on-system sales of 
                                electric energy and existing off-system 
                                sales of electric energy in such year 
                                is less than (2) the sum of such sales 
                                of electric energy in the base year.
                                    ``(VI) Base year.--The term `base 
                                year' means 1997 (or, at the election 
                                of such unit, in 1995 or 1996).
                                    ``(VII) Joint action agencies.--A 
                                member of a joint action agency that is 
                                entitled to make a qualifying load loss 
                                sale in a year may transfer that 
                                entitlement to the joint action agency 
                                in accordance with rules of the 
                                Secretary.''.
    (b) Election To Terminate Tax Exempt Financing.--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 or Suspend Tax-Exempt Bond Financing 
for Certain Electric Output Facilities.--
            ``(1) Termination election.--An issuer may make an 
        irrevocable election under this paragraph to terminate certain 
        tax-exempt financing for electric output facilities. If the 
        issuer makes such election, then--
                    ``(A) except as provided in paragraph (3), 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 electric 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 enactment 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 
                governmental unit.
            ``(2) Suspension election.--For purposes of subsection 
        (b)(6)(C)(iii), an issuer may elect to suspend certain tax-
        exempt financing for electric output facilities for a calendar 
        year. If the issuer makes such election, then (except as 
        provided in paragraph (3)) no bond, the interest on which is 
        exempt from tax under section 103, may be issued in such 
        calendar year with respect to an electric output facility.
            ``(3) Exceptions.--An election under paragraph (1) or (2) 
        does not apply to--
                    ``(A) any qualified bond (as defined in subsection 
                (e)),
                    ``(B) any eligible refunding bond, or
                    ``(C) any bond issued to finance a qualifying T&D 
                facility, or
                    ``(D) any bond issued to finance repairs or 
                pollution control equipment for electric output 
                facilities. Repairs cannot increase by more than a de 
                minimis degree the capacity of the facility beyond 
its original design.
            ``(4) Form and effect of elections.--An election under 
        paragraph (1) or (2) shall be made in such a manner as the 
        Secretary prescribes and shall be binding on any successor in 
        interest to the issuer.
            ``(5) Definitions.--For purposes of this subsection--
                    ``(A) Electric output facility.--The term `electric 
                output facility' means an output facility that is an 
                electric generation, transmission, 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) or (2) that 
                directly or indirectly refund state or local bonds 
                issued before such election, if the weighted average 
                maturity of the refunding 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 Transition 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 the Act to sections of 
        the Internal Revenue Code of 1986, as amended, shall be deemed 
        to include references to comparable sections of the Internal 
        Revenue Code of 1954, as amended.
            (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 subsection (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 effect on the date of enactment of this Act 
                for any claim under section 141(f) of such Code arising 
                from having made the election.
    (d) Short Title.--This Act may be cited as the ``Private Use 
Competition Reform Act of 1998''.
Output: Amends the Internal Revenue Code, with respect to tax-exempt bond financing of certain electric facilities, to revise the definition of private business use to exclude a permitted open access transaction. Defines such a transaction.  Permits, as specified, the termination or suspension of tax-exempt bond financing for certain electric output facilities.