[Congressional Record Volume 144, Number 140 (Thursday, October 8, 1998)]
[Extensions of Remarks]
[Page E1966]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        ELECTRICITY DEREGULATION

                                 ______
                                 

                         HON. ROBERT T. MATSUI

                             of california

                    in the house of representatives

                       Thursday, October 8, 1998

  Mr. MATSUI. Mr. Speaker, today, together with my Ways and Means 
colleague, Mr. Neal, I have introduced a bill setting forth the 
Administration's approach to legislation addressing the tax 
consequences of electricity deregulation upon tax-exempt bonds issued 
by municipally owned utilities for the generation, transmission and 
distribution of electricity. As my colleagues may recall, the 
Administration unveiled a comprehensive electricity deregulation 
proposal on March 24, 1998, which included a section dealing with the 
tax issues associated with deregulation.
  The 105th Congress did not have an opportunity to take up this or 
other proposals on electricity deregulation this year. However, despite 
the lack of Federal legislation in this area, 18 states have already 
gone forward and begun to deregulate electricity at the state and local 
level. My own home state of California has deregulated much of its 
market already. The era of competition has already started for the 
utilities operating in these states.
  Municipally-owned utilities have operated up to now under a strict 
regime of Federal tax rules governing their ability to issue tax-exempt 
bonds which were enacted in an era that did not contemplate electricity 
deregulation. These so-called ``private use'' rules limit the amount of 
power that municipal or state-owned utilities (``public power'') may 
sell to private entities through facilities financed with tax-exempt 
bonds. For years, the private use rules were cumbersome but manageable. 
As states deregulate, however, the private use rules are threatening 
many communities that are served by public power with significant 
financial penalties as they adjust to the changing marketplace. In 
effect, the rules are forcing public utilities to face the prospects of 
violating the private use rules, or walling off their customers from 
competition, or raising rates to consumers--the precise opposite of 
what deregulation is supposed to achieve. The consumer can only lose 
when this happens.
  The Administration proposal that I am introducing today would protect 
consumers by grandfathering already outstanding bonds, continue to 
permit public utilities to issue tax-exempt bonds for facilities 
involved in the distribution of electricity in the future, but 
eliminate their ability to issue tax-exempt debt in the future for 
facilities involved with the transmission or generation of electricity.
  In addition, because the restructuring of the electric utility 
industry is affecting the investor-owned utilities as well as public 
utilities, the Administration proposal includes a provision intended to 
address a tax problem that a number of the investor-owned utilities 
face in a deregulated world. Specifically, under present law, the 
amount of contributions to a qualified nuclear decommissioning fund a 
utility is entitled to deduct is the lesser of ``cost-of-service'' 
amount or the ``ruling amount.'' In a restructured market, if a nuclear 
power plant is no longer subject to cost-of-service ratemaking, it 
could be determined that the amount of decommissioning costs included 
in cost-of-service would be zero. To eliminate this possibility, the 
provision would change the present law limitation on the amount of the 
deduction by limiting the deduction solely by reference to the ``ruling 
amount''
  I am introducing this legislation at this time in order to give 
affected parties, including consumers, an opportunity to review the 
bill and provided us in Congress with input on its provisions. With 
this input, we will be in a position to address this important issue 
more capably in the 106th Congress. I am certainly aware that there are 
other approaches to the private use problem, some of which have been 
introduced this year in the House and others in the other body. There 
are numerous policy and technical issues to be resolved in designing a 
fair and workable solution to this problem.
  The bill does not resolve all of those problems, and indeed, is 
intended to be a starting point for the consideration of the tax issues 
involved with electricity deregulation. Other approaches, for instance, 
providing an election for public utilities to live within the current 
private use regime or opt into a regime without the ability to issue 
tax-exempt bonds except for distribution and transmission, merit 
serious review and discussion.
  Even within the approach the Administration has taken in this bill, 
there are issues that might be decided differently. For instance, the 
legislation somewhat arbitrarily defines ``distribution property'' as 
output facilities that operate at 69 KV or lower. It is our 
understanding that this definition does not pick up all facilities used 
for distribution, and that a more flexible definition may be necessary. 
We welcome input on this issue.
  In addition, the legislation ties the relief in the bill to enactment 
of a Federal electric deregulation bill, which, of course, has not yet 
been enacted. Because states like California have already deregulated, 
public power consumers need this relief now. An alternate effective 
date tied to state deregulation activities would be appropriate.
  Another example of an important issue that might be addressed 
differently is the refunding of bonds. The legislation permits only 
current refundings of tax-exempt bonds within the grandfather of 
existing debt, but it also permits the maturity of the bonds to be 
extended for a limited period. On the other hand, it does not permit 
advance refundings. The legislation could be drafted to permit either 
approach to refunding, or advanced and current refundings without 
extension of the maturity term. I urge affected parties to comment on 
which is the more appropriate rule.
  Another complex issue on which we seek comment is whether public 
utilities should be able to issue bonds for generation and transmission 
where the proceeds of the bonds are used just to repair or make 
environmental improvements to existing facilities and are not used to 
expand significantly current capacity. The bill as introduced does not 
address this issue.
  Mr. Speaker, we plan to work with all interested parties including 
American consumers to ensure that we end up with the fairest, most 
reasonable solution to this complex problem. We want electricity 
deregulation to be a good deal for everyone involved, especially the 
American consumer who certainly deserves the lower electric bills that 
a competitive marketplace is supposed to provide. I urge my colleagues 
to review this legislation carefully over the coming months and welcome 
their input, as well as that of all affected parties.

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