[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4971 Introduced in House (IH)]







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 Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Electric Power Industry Tax 
Modernization Act''.

SEC. 2. TAX-EXEMPT BOND FINANCING OF CERTAIN ELECTRIC FACILITIES.

    (a) Rules Applicable to Electric Output Facilities.--Subpart A of 
part IV of subchapter B of chapter 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 Facilities.--
            ``(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 governmental 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 private activity bond.
            ``(2) Exceptions.--An election under paragraph (1) does not 
        apply to any of the following bonds:
                    ``(A) Any qualified bond (as defined in section 
                141(e)).
                    ``(B) Any eligible refunding bond (as defined in 
                subsection (e)).
                    ``(C) Any bond issued to finance a qualifying 
                transmission facility or a qualifying distribution 
                facility.
                    ``(D) Any bond issued to finance equipment 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 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 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).
            ``(3) Form and effect of election.--
                    ``(A) 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 
                governmental unit shall be treated as related to 
                another governmental unit if it is a member of the same 
                controlled group.
                    ``(B) A governmental unit that makes an election 
                under paragraph (1) shall be treated for purposes of 
                section 141 as a person that is not a governmental unit 
                and that is engaged in a trade or business, with 
                respect to its purchase of electricity generated by an 
                electric 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 subsection:
                    ``(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 facility.--The term 
                `qualifying distribution facility' means a distribution 
                facility over which open access distribution services 
                described in subsection (b)(2)(C) are provided.
                    ``(C) Qualifying transmission facility.--The term 
                `qualifying transmission facility' means a local 
                transmission facility over which open access 
                transmission services described 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 activity 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 access 
                transmissionservice and ancillary services--
                            ``(i) pursuant to an open access 
                        transmission 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 
                        operator, 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 Federal Power 
                        Act), pursuant to a tariff approved by the 
                        Public Utility Commission of Texas.
                    ``(B) Participation in--
                            ``(i) an independent system operator 
                        agreement,
                            ``(ii) a regional transmission organization 
                        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 facilities 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 generation 
                facilities connected to distribution facilities owned 
                by such governmental unit.
                    ``(E) Other transactions providing 
                nondiscriminatory open access transmission or 
                distribution services under Federal, State, or local 
                open access, retail competition or similar programs, 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 
                distribution 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 stranded cost 
                mitigation sale--
                            ``(i) if the seller provides open access 
                        transmission service described in paragraph 
                        (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 transmission 
                        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 transmission 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 obligation, or
                            ``(ii) is a wholesale native load purchaser 
                        from such governmental unit.
                    ``(B) Wholesale native load purchaser.--The term 
                `wholesale native load purchaser' 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 retail to persons 
                        within the purchaser's distribution area.
                    ``(C) Wholesale stranded cost mitigation sale.--The 
                term `wholesale stranded cost mitigation sale' means 
                one or more wholesale 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 period 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 
                        subparagraph 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 recovery 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 native 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 resulted 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 
                section) without causing the bonds to be private 
                activity bonds, whichever is less. This subparagraph 
                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 agency, 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 member (or purchaser), or the joint action 
                agency, respectively.
    ``(c) Certain Bonds for Transmission and Distribution 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 facility 
                        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 agreement in effect on 
                        the date of enactment of this section.
            ``(3) Local transmission facility definitions.--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 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 
                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 governmental unit's 
                `retail native load' is the electric load of end-users 
                served by distribution facilities owned by such 
                governmental unit.
                    ``(C) Wholesale native load.--A governmental 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 
                        requirements contracts that (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) electric reliability standards or 
                        requirements of national or regional 
                        reliability organizations, regional 
                        transmission organizations and the Electric 
                        Reliability Council of Texas shall be taken 
                        into account, and
                            ``(ii) transmission, siting and 
                        construction decisions of regional transmission 
                        organizations or independent system operators 
                        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 ordered or approved 
                by a regional transmission organization, by an 
                independent system operator, or by a state regulatory 
                or siting agency.
            ``(4) Start-up utility distribution facility 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 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 
        another 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 election of the 
        governmental unit, either of the two calendar years immediately 
        prior to the year of enactment.
            ``(2) Distribution area.--The term `distribution 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 distribution facility.
            ``(4) Distribution facility.--The term `distribution 
        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 facility (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 output facility that is a transmission 
        facility for purposes of the Federal Power Act as a 
        transmission facility 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 refunding bonds does not exceed the remaining 
        weighted average maturity of the bonds issued before the 
        election. In applying such term for purposes of subsection 
        (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 electric 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 governmental 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 obligation under a 
                requirements contract.
            ``(9) Repair.--The term `repair' shall include replacement 
        of components of an electric output facility, but shall not 
        include replacement of the facility.
            ``(10) Service obligation.--The term `service obligation' 
        means an obligation under State or Federal 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 affect the 
applicability of section 141 to (or the Secretary's authority to 
prescribe, amend, or rescind regulations respecting) any transaction 
that is not a permitted open access transaction or permitted sales 
transaction.''
    (b) Repeal of Exception for Certain Nongovernmental Electric Output 
Facilities.--Section 141(d)(5) of such Code is amended by inserting 
``(except in the case of an electric output facility that is a 
distribution 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 
        access activities entered into on or after April 14, 1996.
            (2) Certain existing agreements.--The amendment made by 
        subsection (b) (relating to repeal 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 sections of the Internal Revenue Code 
        of 1954.

SEC. 3. INDEPENDENT TRANSMISSION COMPANIES.

    (a) Sales or Dispositions To Implement Federal 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 Federal Energy Regulatory 
Commission or State Electric Restructuring Policy.--
            ``(1) In general.--For purposes of this subtitle, if a 
        taxpayer elects the application of this subsection to a 
        qualifying electric transmission transaction and the proceeds 
        received from such transaction are invested in exempt utility 
        property, such transaction shall be treated as an involuntary 
        conversion 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 applied 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 
        transmission services, to another person that is an independent 
        transmission company.
            ``(4) Independent transmission company.--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 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 (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 transmission 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 Commission 
                of Texas, a person that is approved by that commission 
                as consistent with Texas State law regarding an 
                independent transmission organization.
            ``(5) Exempt utility property.--For purposes of this 
        subsection, the term `exempt utility property' means--
                    ``(A) property used in the trade or business of 
                generating, transmitting, distributing, or selling 
                electricity or producing, transmitting, distributing, 
                or selling natural gas, or
                    ``(B) stock in a person 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.--This 
                subsection shall apply to a qualifying electric 
                transmission transaction engaged in by a taxpayer if 
                the proceeds are invested 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 disposition of electric 
                transmission property or an ownership interest in a 
                qualifying electric transmission transaction, where an 
                election is made under this subsection, shall not 
                result in the recognition of income or gain under the 
                consolidated return provisions of subtitle A, chapter 
                6, subchapter A hereof. The Secretary shall prescribe 
                such regulations as may be necessary to provide for the 
                treatment of any exempt utility property received in a 
                qualifying electric transmission transaction as 
                successor assets subject to the application of such 
                consolidated return provisions.
            ``(7) Election.--Any election made by a taxpayer 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 transmission 
        transaction can be recovered in rates.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to transactions occurring after the date of 
        enactment of this Act.
    (b) Distributions of Stock To Implement Federal Energy Regulatory 
Commission or State Electric Restructuring Policy.
            (1) In general.--Section 355(e)(4) of the Internal Revenue 
        Code of 1986 is amended by redesignating subparagraphs (C), 
        (D), and (E) as subparagraphs (D), (E), and (F), respectively, 
        and by inserting after subparagraph (B) the following new 
        subparagraph:
                    ``(C) Distributions of stock to implement federal 
                energy regulatory commission or state electric 
                restructuring policy.--
                            ``(i) Paragraph (1) shall not apply to any 
                        distribution that is a qualifying electric 
                        transmission transaction. For purposes of this 
                        subparagraph, a `qualifying electric 
                        transmission transaction' means any 
                        distribution of stock in a corporation whose 
                        primary trade or business consists of providing 
                        electric transmission services, where such 
                        stock is later acquired (or where the assets of 
                        such corporation are later acquired) by another 
                        person that is an independent transmission 
                        company.
                            ``(ii) Independent transmission company.--
                        For purposes of this subsection, the term 
                        `independent transmission company' means--
                                    ``(I) a regional transmission 
                                organization approved by the Federal 
                                Energy Regulatory Commission,
                                    ``(II) a person (x) who the Federal 
                                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 
                                qualifying electric transmission 
                                transaction are placed under the 
                                operational control of a Federal Energy 
                                Regulatory Commission-approved regional 
                                transmission 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 
                                independent transmission 
                                organization.''
            (2) Effective date.--The amendments made by this subsection 
        shall apply to distributions occurring after the date of 
        enactment of this Act.

SEC. 4. CERTAIN AMOUNTS RECEIVED BY ELECTRIC UTILITIES 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 energy, 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 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'', 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 taxpayer 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 taxpayer 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 period.--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 decommissioning 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 
        accumulate the nuclear decommissioning costs allocable to the 
        taxpayer's current or former interest in the nuclear powerplant 
        to which the Fund relates. The annual amount described in the 
        foregoing sentence shall be calculated 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.
            ``(2) Funding period.--The funding period for a Fund shall 
        end on the last day of the last taxable year of the expected 
        operating life of the nuclear powerplant.
            ``(3) Nuclear decommissioning costs.--For purposes of this 
        section, the term `nuclear decommissioning costs' shall mean 
        all costs to be incurred in connection with entombing, 
        decontaminating, dismantling, removing, and disposing of a 
        nuclear powerplant, and shall include all associated 
        preparation, security, fuel storage, and radiation monitoring 
        costs. The taxpayer may identify such costs by reference either 
        to a site-specific engineering study or to the financial 
        assurance amount calculated pursuant to section 50.75 of title 
        10 of the Code of Federal 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.
                                 <all>