[Congressional Record Volume 146, Number 100 (Thursday, July 27, 2000)]
[Senate]
[Pages S7863-S7867]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MURKOWSKI (for himself, Mr. Gorton, Mr. Kerrey, and Mr. 
        Jeffords):
  S. 2967. A bill to amend the Internal Revenue Code of 1986 to 
facilitate competition in the electric power industry; to the Committee 
on Finance.


           the electric power industry tax modernization act

  Mr. MURKOWSKI. Mr. President, today I am joined by Senators, Gorton, 
Kerrey and Jeffords in introducing the Electric Power Industry Tax 
Modernization Act, legislation that will facilitate the opening up of 
the nation's energy grid to electricity competition. This landmark 
legislation demonstrates the good faith of the most important players 
in the industry--the investor owned utilities (IOUs) and the municipal 
utilities.
  In the Energy Committee, which I currently Chair, we have held more 
than 18 days of hearings and heard testimony from more than 160 
witnesses on electricity restructuring. Although those 160 witnesses 
had many differing views, every witness agreed that the tax laws must 
be rewritten to reflect the new reality of a competitive electricity 
market.
  Already, 24 states have implemented laws deregulating their 
electricity markets. And the other 36 states are all considering 
deregulation schemes. Faced with that reality, the federal tax laws 
must be updated to ensure that tax laws which made sense when 
electricity was a regulated monopoly are not allowed to interfere with 
opening up the nation's electrical infrastructure to competition.
  Last October I held a hearing in the Finance Committee Subcommittee 
on Long Term Growth to examine all of the tax issues that confront the 
industry. At the end of the hearing I urged all parties to sit down at 
the negotiating table and hammer out a consensus that will resolve the 
tax issues.
  The bill we are introducing today reflects the compromise that has 
been reached between the IOUs and the municipal utilities.
  One of the major problems that the current tax rules create is to 
undermine the efficiency of the entire electric system in a deregulated 
environment because these rules effectively preclude public power 
entities from participating in State open access restructuring plans, 
without jeopardizing the exempt status of their bonds.
  No one wants to see bonds issued to finance public power become 
retroactively taxable because a municipality chooses to participate in 
a state open access plan. That would cause havoc in the financial 
markets and could undermine the financial stability of many 
municipalities.
  The bill we are introducing overcomes this problem by allowing 
municipal systems to elect to terminate the issuance of new tax-exempt 
bonds for generation facilities in return for grandfathering existing 
bonds. In addition, the bill allows tax-exempt bonds to be issued to 
finance some new transmission facilities.
  I recognize that in making these two changes in the tax law, the 
municipal utilities have given up a substantial financing tool that has 
been at the heart of the controversy between the municipal utilities 
and the IOUs.
  At the same time, the bill updates the tax code to reflect the fact 
that the regulated monopoly model no longer exists. For example, the 
bill modifies the current rules regarding the treatment of nuclear 
decommissioning costs to make certain that utilities will have the 
resources to meet those future costs and clarifies the tax treatment of 
these funds if a nuclear facility is sold.
  The bill also provides tax relief for utilities that spin off or sell 
transmission facilities to independent participants in FERC approved 
regional transmission organizations.
  Another section of the bill changes the tax rules regarding 
contributions in aid of construction for electric transmission and 
distribution facilities. This is an especially important provision; 
however when this bill is considered in the Finance Committee, I intend 
to modify this proposal so that it is expanded to all contributions in 
aid of construction, not just for electric transmission and 
distribution.
  The IOUs and the Municipal utilities are to be commended for coming 
up

[[Page S7864]]

with this agreement. However, there is one other element of the tax 
code that needs to be addressed if we are going to open the entire grid 
to competition. And that sector is the cooperative sector.
  Currently, coops may not participate in wheeling power through their 
lines because of concern that they will violate the so-called 85-15 
test. I urge the coops to sit down with the other utilities and reach 
an accord so that when we consider this legislation, the coops' will be 
included in a tax bill.
  Mr. GORTON. Mr. President, today I am extremely pleased to co-sponsor 
the Electric Power Industry Tax Modernization Act. This legislation, 
when enacted, will contribute to a more reliable and efficient electric 
power industry that will provide benefits for all Americans connected 
to the interstate power grid.
  I have been working for three years to resolve the tax problems for 
consumer-owned municipal utilities, those that are often referred to as 
Public Power. Nearly half the citizens of my state are served by Public 
Power.
  These problems are due to outdated tax statutes that were written in 
a different era-an era where the emerging competition in the wholesale 
electricity market was not envisioned. The negative effects of these 
outdated tax provisions have impacted not only consumers of Public 
Power, but also tens of millions of other customers. Public Power is 
often prevented from sharing the use of their transmission systems 
solely due to these tax provisions. These outdated tax provisions are 
negatively impacting the reliability of entire regions of our nation, 
adding stress to an already stressed system.
  In addition to Public Power, other types of utilities are prevented 
from adapting to this new era of emerging competition by other 
constraints in this outdated area of the tax law. All of these 
uncertainties have led to a condition where investment has slowed in 
this critical area of the economy, just as we need more investment to 
assure sufficient power plants and transmission lines to feed a growing 
economy that is increasingly dependent on reliable and affordable 
electricity.
  This compromise bill includes the essence of my legislation, S. 386, 
The Bond Fairness and Protection Act that I introduced last year with 
Senator Kerrey from Nebraska, a bill that includes an additional 32 co-
sponsors in the Senate. This legislative language will allow Public 
Power to move into the future with certainty, and protects the millions 
of American citizens who hold current investments in Public Power debt.
  The bill also includes legislative language that resolves conflicts 
for investor-owned utilities. These changes are also needed to solve 
problems in other parts of the outdated tax code as it pertains to 
electricity. The new provisions will also help contribute to a more 
reliable and orderly electricity system in our nation.
  I look forward to gaining additional support for this bill among the 
other members of the Senate, and I look forward to the Finance 
Committee's consideration of this legislation in September. As soon as 
this legislation can be enacted, American electricity consumers will 
begin to enjoy a more certain and reliable future regarding their 
electricity needs.
  Mr. KERREY. Mr. President, today I wish to join my colleagues, 
Senator Murkowski, Gorton, and Jeffords in introducing legislation that 
will help ensure that customers receive reliable and affordable 
electricity. The Electric Power Industry Tax Modernization Act is the 
culmination of months-long discussions between shareholder-owned 
utilities and publicly-owned utilities. Without the diligence and 
patience exhibited by these groups, it is doubtful that Congress could 
be in the position to act on this issue. Additionally, I would like to 
recognize the efforts of Senator Murkowski and Senator Gorton, whose 
efforts at getting these groups to sit down and discuss these issues 
was invaluable to the final agreement.
  Mr. President, this legislation will ensure that Nebraskans continue 
to benefit from the publicly-owned power they currently receive. 
Nebraska has 154 not-for-profit community-based public power systems. 
It is the only state which relies entirely on public power for 
electricity. This system has served my state well as Nebraskans enjoy 
some of the lowest electricity rates in the nation.
  In closing, I would urge my colleagues to join this bipartisan effort 
to address the changes steaming from electrical restructuring.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2967

       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 
     which 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 
     (d)(6)).
       ``(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) 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 in 
     service on the date of the enactment of this subsection or 
     the construction of which commenced before 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 (as defined in subsection (c)(3)(A)) over which open 
     access transmission services described in subparagraph (A), 
     (B), or (E) of subsection (b)(2) are provided.
       ``(b) Permitted Open Access Activities and Sales 
     Transactions Not a Private Business Use for Bonds Which 
     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

[[Page S7865]]

     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, but, in the case of a voluntarily 
     filed tariff, only if the governmental unit voluntarily files 
     a report described in paragraph (c) or (h) of section 35.34 
     of title 18 of the Code of Federal Regulations 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 paragraphs or 60 
     days after the date of the enactment of this section,
       ``(ii) under an independent system operator agreement, 
     regional transmission organization agreement, or regional 
     transmission group 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,
       ``(ii) a regional transmission organization agreement, or
       ``(iii) a regional transmission group,
     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), (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 which owns or 
     operates transmission facilities, if such seller provides 
     open access transmission under subparagraph (A), (B), or (E) 
     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 provides open access transmission 
     service described in subparagraph (A), (B), or (E) 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 provide open access 
     transmission service described in subparagraph (A), (B), or 
     (E) 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 a 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 which 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 at retail to persons within the 
     purchaser's distribution area.
       ``(C) Wholesale stranded cost mitigation sale.--The term 
     `wholesale stranded cost mitigation sale' means 1 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 which resulted 
     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 before the date of the 
     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, 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 the 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 the enactment of this 
     section.
       ``(3) Local transmission facility definitions and special 
     rules.--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 230kV or greater in the State, shall be 
     determined under regulations of the Secretary.
       ``(B) Retail native load.--The term `retail native load' is 
     the electric load of end-users served by distribution 
     facilities owned by a governmental unit.
       ``(C) Wholesale native load.--The term `wholesale native 
     load' is--
       ``(i) the retail native load of a governmental unit's 
     wholesale native load purchasers, 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) 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

[[Page S7866]]

       ``(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 the 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.
       ``(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 which did not operate an 
     electric utility on the date of the enactment of this 
     section, and
       ``(B) before 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 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 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 any State or local bond issued after an 
     election described in subsection (a) that directly or 
     indirectly refunds any tax-exempt bond (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.
       ``(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 a person) to provide electric distribution services or 
     electric sales service, as provided in such law.
       ``(e) Savings Clause.--Subsection (b) shall not affect the 
     applicability of section 141 to (or the Secretary's authority 
     to prescribe, amend, or rescind regulations respecting) any 
     transaction which 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 the 
     Internal Revenue Code of 1986 is amended by inserting 
     ``(except in the case of an electric output facility which 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 
     shall take effect on the date of the 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.
       ``(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 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.--
       ``(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

[[Page S7867]]

     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 preceding 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.
                                 ______