Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
This Act may be cited as the ``Bond Fairness and Protection Act of 1999''.
(a) PERMITTED OPEN ACCESS TRANSACTIONS NOT A PRIVATE BUSINESS USE.--Section 141(b)(6) of the Internal Revenue Code of 1986 (defining private business use) is amended by adding at the end the following:
``(C) PERMITTED OPEN ACCESS TRANSACTIONS NOT A PRIVATE BUSINESS USE.--
``(i) IN GENERAL.--For purposes of this subsection, the term `private business use' shall not include a permitted open access transaction.
``(ii) PERMITTED OPEN ACCESS TRANSACTION DEFINED.--For purposes of clause (i), the term `permitted open access transaction' means any of the following transactions or activities with respect to an electric output facility (as defined in subsection (f)(4)(A)) owned by a governmental unit:
``(I) Providing open access transmission services and ancillary services that meet the reciprocity requirements of Federal Energy Regulatory Commission Order No. 888, or that are ordered by the Federal Energy Regulatory Commission, or that are provided in accordance with a transmission tariff of an independent system operator approved by such Commission, or that are consistent with State-administered laws, rules, or orders providing for open transmission access.
``(II) Participation in an independent system operator agreement (which may include transferring control of transmission facilities to an independent system operator), in a regional transmission group, or in a power exchange agreement approved by such Commission.
``(III) Delivery on an open access basis of electric energy sold by other entities to end-users served by such governmental unit's distribution facilities.
``(IV) If open access service is provided under subclause (I) or (III), the sale of electric output of electric output facilities on terms other than those available to the general public if such sale is to an on-system purchaser or is an existing off-system sale.
``(V) Such other transactions or activities as may be provided in regulations prescribed by the Secretary.
``(iii) DEFINITIONS; SPECIAL RULES.--For purposes of this subparagraph--
``(I) ON-SYSTEM PURCHASER.--The term `on-system purchaser' means a person who purchases electric energy from a governmental unit and whose electric facilities or equipment are directly connected with transmission or distribution facilities that are owned by such governmental unit.
``(II) OFF-SYSTEM PURCHASER.--The term `off-system purchaser' means a purchaser of electric energy from a governmental unit other than an on-system purchaser.
``(III) EXISTING OFF-SYSTEM SALE.--The term `existing off-system sale' means a sale of electric energy to a person that was an off-system purchaser of electric energy in the base year, but not in excess of the kilowatt hours purchased by such person in such year.
``(IV) BASE YEAR.--The term `base year' means 1998 (or, at the election of such unit, 1996 or 1997).
``(V) JOINT ACTION AGENCIES.--A member of a joint action agency that is entitled to make a sale described in clause (ii)(IV) in a year may transfer that entitlement to the joint action agency in accordance with rules of the Secretary.
``(VI) GOVERNMENT-OWNED FACILITY.--An electric output facility (as defined in subsection (f)(4)(A)) shall be treated as owned by a governmental unit if it is owned or leased by such governmental unit or if such governmental unit has capacity rights therein acquired before July 9, 1996, for the purposes of serving one or more customers to which such governmental unit had a service obligation on such date under State law or a requirements contract.''.
``(b) ELECTION TO TERMINATE TAX-EXEMPT FINANCING.--Section 141 of the Internal Revenue Code of 1986 (relating to private activity bond; qualified bond) is amended by adding at the end the following:
``(f) ELECTION TO TERMINATE TAX-EXEMPT BOND FINANCING FOR CERTAIN ELECTRIC OUTPUT FACILITIES.--
``(1) IN GENERAL.--An issuer may make an irrevocable election under this paragraph to terminate certain tax-exempt financing for electric output facilities. If the issuer makes such election, then--
``(A) except as provided in paragraph (2), no bond the interest on which is exempt from tax under section 103 may be issued on or after the date of such election with respect to an electric output facility; and
``(B) notwithstanding paragraph (1) or (2) of subsection (a) or paragraph (5) of subsection (b), with respect to an electric output facility no bond that was issued before
``(2) EXCEPTIONS.--An election under paragraph (1) does not apply to--
``(A) any qualified bond (as defined in subsection (e)),
``(B) any eligible refunding bond,
``(C) any bond issued to finance a qualifying T&D facility, or
``(D) any bond issued to finance equipment necessary to meet Federal or State environmental requirements applicable to, or repair of, electric output facilities in service on the date of enactment of this subsection. Repairs or equipment may not increase by more than a de minimis degree the capacity of the facility beyond its original design.
``(3) FORM AND EFFECT OF ELECTIONS.--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 the electing issuer.
``(4) DEFINITIONS.--For purposes of this subsection--
``(A) ELECTRIC OUTPUT FACILITY.--The term `electric output facility' means an output facility that is an electric generation, transmission, or distribution facility.
``(B) ELIGIBLE REFUNDING BOND.--The term `eligible refunding bond' means State or local bonds issued after an election described in paragraph (1) that directly or indirectly refund State or local bonds issued before such election, if the weighted average maturity of the refunding bonds do not exceed the remaining weighted average maturity of the bonds issued before the election.
``(C) QUALIFIED T&D FACILITY.--The term `qualifying T&D facility' means--
``(i) transmission facilities over which services described in subsection (b)(6)(C)(ii)(I) are provided, or
``(ii) distribution facilities over which services described in subsection (b)(6)(C)(ii)(III) are provided.''.
(c) EFFECTIVE DATE, APPLICABILITY, AND TRANSITION RULES.--
(1) EFFECTIVE DATE.--The amendments made by this section take effect on the date of enactment of this Act, except that a governmental unit may elect to apply section 141(b)(6)(C) of the Internal Revenue Code of 1986, as added by subsection (a), with respect to permitted open access transactions on or after July 9, 1996.
(2) APPLICABILITY.--References in 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.
(3) TRANSITION RULES.--
(A) PRIVATE BUSINESS USE.--Any activity that was not a private business use prior to the effective date of the amendment made by subsection (a) shall not be deemed to be a private business use by reason of the enactment of such amendment.
(B) ELECTION.--An issuer making the election under section 141(f) of the Internal Revenue Code of 1986, as added by subsection (b), shall not be liable under any contract in effect on the date of enactment of this Act for any claim arising from having made the election.