Resolution

More than 20 states have enacted electric utility restructuring legislation, and similar legislation is likely to be enacted in every state within the next few years. As these state statutes are enacted and implemented, it has become apparent that provisions of the U.S. Tax Code create obstacles to or are inconsistent with the goals of these state electric utility restructuring initiatives.

The private use provisions of the U.S. Tax Code create nearly insurmountable obstacles for publicly owned utilities with tax exempt financed generation and transmission facilities to operate in the restructured environment in states that have already enacted restructuring legislation. They create obstacles as well for similarly situated publicly owned utilities in other states that need to make plans and take actions today in anticipation of state restructuring legislation in the near future.

U.S. Tax Code provisions dealing with the tax treatment of contributions to nuclear decommissioning funds are also affected by state restructuring legislation.

Under current provisions of the U.S. Tax Code, private investor-owned utility owners of nuclear power facilities may deduct authorized contributions to an approved decommissioning fund in calculating federal income taxes. The allowed amount of such deductions by law is the lesser of the state utility commission approved amount, or an amount approved by the Internal Revenue Service. Without this special provision, these contributions would not be deductible for income tax purposes until decommissioning expenses are actually incurred.

With state restructuring and deregulation, and the elimination of cost-of-service rates, the amount of state authorized contributions to decommissioning funds may be zero. And since federal law requires that deductions shall be the lesser of state or IRS allowed amounts, current contributions to such funds may no longer be deductible for federal income tax purposes.

These and possibly other provisions of the U.S. Tax Code dealing with all segments of the electric utility industry need to be reconciled with changes in state laws so that the public policy objectives of these Tax Code provisions do not conflict with or create obstacles to the realization of the public policy objectives of newly enacted state legislation. And all of these Tax Code provisions should be dealt with simultaneously.

The Clinton Administration’s comprehensive industry restructuring legislation recognizes that certain Tax Code provisions, specifically the "private use" problem and the tax treatment of contributions to nuclear decommissioning funds, are the result of newly enacted state legislation, and contains provisions to address them.

Publicly owned utilities are pleased that the Administration has recognized the private use problem in its proposal, but believe that proposal falls short of a fair and reasonable resolution. Public power supports an alternative to the Administration’s proposal contained in the Bond Fairness and Protection Act sponsored in the U.S. Senate by Senators Gorton and Kerrey and in the House of Representatives by Hayworth and Matsui.

Recently, investor-owned utilities advanced their own alternative to the Administration’s proposal with respect to nuclear decommissioning fund contributions, (H.R. 2038, the Nuclear Decommissioning Restructuring Act). This legislation deals with the tax treatment of contributions to nuclear decommissioning funds and other matters, including the tax treatment of transfers of such funds in the event that nuclear facilities are sold.

These investor owned utilities, many of whom actively and aggressively opose the enactment of the Bond Fairness and Protection Act are now urging Congress to ignore the obvious fact that both the private use and nuclear decommissioning problems are the result of changes in the industry brought about by state restructuring legislation. They are urging Congress to enact the Nuclear Decommissioning Restructuring Act now, but to oppose the simultaneous enactment of the Bond Fairness and Protection Act.

NOW, THEREFORE, BE IT RESOLVED: that the American Public Power Association urges Congress to recognize that certain provisions of the U.S. Tax Code affecting all electric utilities, including in particular private use restrictions and contributions to nuclear decommissioning funds, conflict with changes in the electric utility industry brought about by state restructuring initiatives, and requests the Congress to adopt fair and reasonable solutions to all of these problems as quickly as possible; and

BE IT FURTHER RESOLVED: that APPA will vigorously oppose any changes in the Tax Code that propose to reconcile conflicts between the Code and state restructuring legislation unless such changes simultaneously address the private use issue.

Approved by the American Public Power Association 6/22/99