[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 972 Introduced in Senate (IS)]







107th CONGRESS
  1st Session
                                  S. 972

    To amend the Internal Revenue Code of 1986 to improve electric 
  reliability, enhance transmission infrastructure, and to facilitate 
               access to the electric transmission grid.


_______________________________________________________________________


                      IN THE UNITED STATES SENATE

                              May 25, 2001

Mr. Murkowski (for himself, Mr. Breaux, Mr. Thompson, and Mr. Jeffords) 
introduced the following bill; which was read twice and referred to the 
                          Committee on Finance

_______________________________________________________________________

                                 A BILL


 
    To amend the Internal Revenue Code of 1986 to improve electric 
  reliability, enhance transmission infrastructure, and to facilitate 
               access to the electric transmission grid.

    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 adding 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 the 
        issuance of certain obligations described in section 103(a) 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 any electric output 
                facility any bond the interest on which is excluded 
                from gross income 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--
                            ``(i) which was issued by such unit with 
                        respect to an electric output facility before 
                        the date of enactment of this subsection, the 
                        interest on which was exempt from tax on such 
                        date,
                            ``(ii) which is an eligible refunding bond 
                        that directly or indirectly refunds a bond 
                        issued prior to the date of enactment of this 
                        section, or
                            ``(iii) which is described in paragraph 
                        (2)(D), (E), or (F),
                shall be treated as a private activity bond.
            ``(2) Exceptions.--If an election is made under paragraph 
        (1), paragraph (1)(A) 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 (d)(6)).
                    ``(C) Any bond issued to finance a qualifying 
                transmission facility or a qualifying distribution 
                facility owned by the governmental unit.
                    ``(D) Any bond issued to finance equipment or 
                facilities necessary to meet Federal or State 
                environmental requirements applicable to an existing 
                generation facility owned by the governmental unit.
                    ``(E) Any bond issued to finance repair of any 
                existing generation facility owned by the governmental 
                unit. 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 owned by 
                        the governmental unit and 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)) that is owned by the 
                        governmental unit.
                This subparagraph shall not apply to any facility or 
                property that is constructed, acquired or financed for 
                the principal purpose of providing the facility (or the 
                output thereof) to nongovernmental persons.
            ``(3) Form and effect of election.--
                    ``(A) In general.--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) Treatment of electing governmental unit.--A 
                governmental unit which makes an election under 
                paragraph (1) shall be treated for purposes of section 
                141 as a person which is not a governmental unit and 
                which 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 owned by the governmental unit on 
                the date of enactment of this subsection and either in 
                service on such date or the 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 available.
                    ``(C) Qualifying transmission facility.--The term 
                `qualifying transmission facility' means a local 
                transmission facility (as described in subsection 
                (c)(3)(A)) over which open access transmission services 
                described in subparagraph (A) or (B) of subsection 
                (b)(2) are available.
    ``(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 
                transmission service and ancillary services--
                            ``(i) pursuant to an open access 
                        transmission tariff filed with and approved by 
                        FERC, including an acceptable reciprocity 
                        tariff but, in the case of a voluntarily filed 
                        tariff, only if the governmental unit 
                        voluntarily files a report with the FERC within 
                        90 days of the date of enactment of this 
                        section relating to whether or not the issuer 
                        will join a regional transmission organization,
                            ``(ii) under an independent system operator 
                        or regional transmission organization agreement 
                        approved by FERC, or
                            ``(iii) in the case of an ERCOT utility (as 
                        defined in section 212(k)(2)(B) of the Federal 
                        Power Act (16 U.S.C. 824k(k)(2)(B))), pursuant 
                        to a tariff approved by the Public Utility 
                        Commission of Texas.
                    ``(B) Participation in--
                            ``(i) an independent system operator 
                        agreement, or
                            ``(ii) a regional transmission organization 
                        agreement,
                which has been approved by FERC, or by the Public 
                Utility Commission of Texas in the case of an ERCOT 
                utility (as so defined). Such participation may include 
                transfer of control of transmission facilities to an 
                organization described in clause (i) or (ii).
                    ``(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.
            ``(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 makes available open access 
                distribution service under paragraph (2)(C) and, in the 
                case of a seller that owns or operates transmission 
                facilities, if such seller makes available open access 
                transmission under subparagraph (A) or (B) of paragraph 
                (2).
                    ``(B) The sale of electricity to a wholesale native 
                load purchaser or in a wholesale stranded cost 
                mitigation sale--
                            ``(i) if the seller makes available open 
                        access transmission service described in 
                        subparagraph (A) or (B) of paragraph (2), or
                            ``(ii) if the seller owns or operates no 
                        transmission facilities and transmission 
                        providers to the seller's wholesale native load 
                        purchasers make available open access 
                        transmission service described in subparagraph 
                        (A) or (B) of paragraph (2).
            ``(4) Definitions and special rules.--For purposes of this 
        subsection:
                    ``(A) On-system purchaser.--The term `on-system 
                purchaser' means a person whose electric facilities or 
                equipment are directly connected with transmission or 
                distribution facilities which are owned by such 
                governmental unit, and such person--
                            ``(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) at least 10 years,
                but only to the extent that in either case such 
                purchaser resells the electricity (I) directly at 
                retail to persons within the purchaser's distribution 
                area or (II) indirectly through one or more 
                intermediate wholesale purchasers (each of whom as of 
                June 30, 2000, was a party to a requirements contract 
                or a firm power contract described in clause (ii)) to 
                retail purchasers in the ultimate wholesale 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 the 
                following requirements:
                            ``(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 which 
                                do not constitute a private business 
                                use, exceed
                                    ``(II) sales during that year of 
                                the recovery period to wholesale native 
                                load purchasers which 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 calendar year which includes 
                        the date of the 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 which 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 the lesser 
                of--
                            ``(i) in any year the private business use 
                        that resulted from the contract during the base 
                        year, or
                            ``(ii) the maximum amount of private 
                        business use which could occur (absent the 
                        enactment of this section) without causing the 
                        bonds to be private activity bonds.
                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) Time of sale rule.--For purposes of 
                paragraphs (C)(ii) and (F), private business use shall 
                be determined under the law in effect in the year of 
                the sale.
                    ``(H) Joint action agencies.--A joint action 
                agency, or a member of (or a wholesale native load 
                purchaser from) a joint action agency, which 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 which is not a 
                local transmission facility, or
                    ``(B) a start-up utility distribution facility.
            ``(2) Exceptions.--Paragraph (1) shall not apply to--
                    ``(A) any qualified bond (as defined in section 
                141(e)),
                    ``(B) any 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 the 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 
                        the 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 1 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.--The term `retail native 
                load' with respect to a governmental unit (or an entity 
                other than a governmental unit that operates an 
                electric utility) is the electric load of end-users in 
                the distribution area of the governmental unit or 
                entity.
                    ``(C) Wholesale native load.--The term `wholesale 
                native load' is--
                            ``(i) the retail native load of such unit's 
                        wholesale native load purchasers (or of an 
                        ultimate wholesale purchaser described in 
                        subsection (b)(4)(B)(ii)), and
                            ``(ii) the electric load of purchasers (not 
                        described in clause (i)) under wholesale 
                        requirements contracts which--
                                    ``(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) the governmental unit's available 
                        transmission rights shall be taken into 
                        account,
                            ``(ii) 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
                            ``(iii) transmission, siting and 
                        construction decisions of regional transmission 
                        organizations or independent system operators 
                        and State and Federal regulatory and siting 
                        agencies, after a proceeding that provides for 
                        public input, 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 of the governmental unit in 
                service on the date of enactment of this section which 
                is ordered or approved by a regional transmission 
                organization, by an independent system operator, or by 
                a State regulatory or siting agency, after a proceeding 
                that provides for public input.
            ``(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 the enactment of 
                this section, and
                    ``(B) during the first ten years after the date 
                such governmental unit begins operating an electric 
                utility.
        A governmental unit is treated as having operated an electric 
        utility on the date of the enactment of this section if it 
        operates electric output facilities which were operated by 
        another governmental unit to provide electric service to the 
        public on such date.
    ``(d) Definitions; Special Rules.--For purposes of this section--
            ``(1) Base year.--The term `base year' means the calendar 
        year which includes the date of the enactment of this section 
        or, at the election of the governmental unit, either of the 2 
        immediately preceding calendar years.
            ``(2) Distribution area.--The term `distribution area' 
        means the area in which a governmental unit (or an entity other 
        than a governmental unit that operates an electric utility) 
        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 69 
        kV or greater, except that the owner of the facility may elect 
        to treat any output facility that the FERC determines is a 
        transmission facility under standards applied by FERC under the 
        Federal Power Act as a transmission facility for purposes of 
        this section.
            ``(6) Eligible refunding bond.--The term `eligible 
        refunding bond' means any State or local bond issued after an 
        election described in subsection (a) that directly or 
        indirectly refunds any bond described in section 103(a) (other 
        than a qualified bond) issued before such election, if the 
        weighted average maturity of the issue of which the refunding 
        bond is a part 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 the 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 before 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 either at one time or 
        incrementally.
            ``(10) Service obligation.--The term `service obligation' 
        means an obligation under State or Federal law (exclusive of an 
        obligation arising solely under a contract entered into with a 
        person) to provide electric distribution services or electric 
        sales service, as provided in such law.
            ``(11) Contract modifications.--A contract is treated as a 
        new contract if it is substantially modified.
    ``(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) (1) any transaction 
that is not a permitted open access transaction or permitted sales 
transaction, or (2) any facilities other than electric output 
facilities.''.
    (b) Repeal of Exception for Certain Nongovernmental Electric Output 
Facilities.--Section 141(d)(5) of the Internal Revenue Code of 1986 is 
amended by inserting ``(except in the case of an electric output 
facility that is a distribution facility),'' after ``this subsection''.
    (c) Conforming Amendment.--The table of sections for subpart A of 
part IV of subchapter B of chapter 1 of the Internal Revenue Code of 
1986 is amended by inserting after the item relating to section 141 the 
following new item:

                              ``Sec. 141A. Electric output 
                                        facilities.''
    (d) 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 paragraphs (1) and (2) of 
        section 141A(b), 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 the enactment of this Act.
            (3) Applicability.--References in this 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 (relating to involuntary conversions) 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. The part of the gain, 
        if any, on a sale or exchange to which section 1033 is not 
        applied by reason of section 1245 shall nevertheless not be 
        recognized, if the taxpayer so elects, to the extent that it is 
        applied to reduce the basis for determining gain or loss on 
        sale or exchange of property, of a character subject to the 
        allowance for depreciation under section 167, remaining in the 
        hands of the taxpayer immediately after the sale or exchange, 
        or acquired in the same taxable year. The manner and amount of 
        such reduction shall be determined under regulations prescribed 
        by the Secretary. Any election made by the taxpayer under this 
        section shall be made by a statement to that effect in his 
        return for the taxable year in which the sale or exchange takes 
        place, and such election shall be binding for the taxable year 
        and all subsequent taxable years.
            ``(2) Extension of replacement period.--In the case of any 
        involuntary conversion described in paragraph (1), subsection 
        (a)(2)(B) shall be applied by substituting `4 years' for `2 
        years' in clause (i) thereof.
            ``(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 (16 U.S.C. 823b) 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 which 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 acquired in the acquisition of control 
                of a corporation 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.--
                            ``(i) In general.--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.
                            ``(ii) Qualifying group member.--For 
                        purposes of this subparagraph, the term 
                        `qualifying group member' means 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 subchapter A of 
                chapter 6. 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), 
        shall affect 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 the 
        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) In general.--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 who the Federal 
                                Energy Regulatory Commission determines 
                                in its authorization of the transaction 
                                under section 203 of the Federal Power 
                                Act (16 U.S.C. 824b) is not a market 
                                participant within the meaning of such 
                                Commission's rules applicable to 
                                regional transmission organizations, 
                                and 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 not 
                                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 the 
        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 contributions to the capital of a 
corporation) is amended--
            (1) by striking ``Water and Sewage Disposal'' in the 
        heading, and inserting ``Certain'',
            (2) by striking ``water or,'' in the matter preceding 
        subparagraph (A) of paragraph (1) and inserting ``electric 
        energy, water, or'',
            (3) by striking ``water or'' in paragraph (1)(B)and 
        inserting ``electric energy (but not including assets used in 
        the generation of electricity), water, or'',
            (4) by striking ``water or'' in paragraph (2)(A)(ii) and 
        inserting ``electric energy (but not including assets used in 
        the generation of electricity), water, or'',
            (5) 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'' in paragraph (3)(A), and
            (6) by striking ``water or'' in paragraph (3)(C) and 
        inserting ``electric energy, water, or''.
    (b) Effective Date.--The amendments made by this section shall 
apply to amounts received after the date of the 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 (relating to special rules for nuclear 
decommissioning costs) 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 the Internal Revenue Code of 1986 
(relating to income and deductions of the taxpayer) 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 the 
Internal Revenue Code of 1986 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--
                    ``(A) In general.--The term `nuclear 
                decommissioning costs' means 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. Such term shall include all such 
                costs which, outside of the decommissioning context, 
                might otherwise be capital expenditures.
                    ``(B) Identification of costs.--The taxpayer may 
                identify nuclear decommissioning 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.''.
    (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>