COMMENTS ON
REGULATIONS UNDER SECTION 141
OF THE CODE AS THEY RELATE TO OUTPUT FACILITIES
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The following comments and recommendations express the individual views of
the members of the Section of Taxation who prepared them and do not represent the position
of the American Bar Association or the Section of Taxation.
These comments and recommendations were prepared by members of the Committee on
Tax-Exempt Financing. Primary responsibility was taken by Richard H. Nicholls and Dean M.
Weiner, Chair and Vice-Chair of the project. Coordinating responsibility was taken by
David A. Caprera and Milton Wakschlag, successive Chairs of the Committee. Members of the
Committee who submitted comments were James R. Eustis, Anthony Giancana, Carol L. Lew,
Jeffrey L. Piemont and Robert S. Price. These comments were reviewed by Charles Almond of
the Section’s Committee on Government Submissions and by George C. Howell, III, the
Council Director for the Committee on Tax-Exempt Financing.
Although many of the members of the Section of Taxation who participated in preparing
these comments and recommendations have clients who would be affected by the federal tax
principles addressed, or have advised clients on the application of such principles, no
such member (or the firm or organization to which such member belongs) has been engaged by
a client to make a governmental submission with respect to, or otherwise influence the
development or outcome of, the specific subject matter of these comments except that other
attorneys at the firm where Mr. Nicholls is employed who did not participate in the
preparation of the comments have been retained to comment on the Regulations.
Contact:
Dean M. Weiner
(213) 669-6638
Dated: June 21, 2000
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Contents
EXECUTIVE SUMMARY
INTRODUCTION
BASIC CONCEPT OF USE AND EFFECT OF 1986
LEGISLATION
1954 Code
The 1986 Act and the Legislative History
SPECIFIC COMMENTS ON PROVISIONS REGARDING USE OF
GENERATION FACILITIES
Benefits of Ownership
General Comments
Application to Joint Action
Agencies
Burdens of Paying Debt Service
General Comments
Payments on Contract
Termination
Wholesale Requirements Contracts
General Comments
Transition Rule Regarding
Wholesale Requirements Contracts
Relationship of Requirements
Contract Rules to Other Rules
Retail Requirements Contracts
Exception for Swapping and Pooling
Three Year Stranded Cost Rules
MEASUREMENT OF PRIVATE USE OF GENERATION
Nameplate
Facilities Acquired or Constructed Primarily for Use by
Private Business Users
Facilities with a Limited Source of Supply
Reserved Capacity Rule
Time for Applying Tests – Effect of Involuntary Changes
COMMENTS REGARDING $15,000,000 LIMITATION
Nonqualified Amount
Definition of "Project"
Multiple Units
Improvements
Replacements
COMMENTS REGARDING ALLOCATION OF OUTPUT TO
FACILITIES AND PORTIONS THEREOF
System Allocations
Allocation to Particular Units
Example 3 of Section
1.141-7T(h) Should Be Clarified
COMMENTS REGARDING TRANSMISSION FACILITIES
Transmission Facilities
Transmission Contracts – Relationship of Firm Contracts
to Requirement Contract Rules
DISCUSSION OF TRANSMISSION AND OPEN ACCESS
Standard Operation of Transmission and
Distribution Facilities
Independent System Operator and Open Access
Use by the ISO
Example 5 of section
1.141-7T(h)
Retail Access
Grandfathering Provisions Regarding Open Access to
Transmission
Section 1.141-7T(f)(5) –
Special Exceptions For Transmission Facilities
The Open Access Provisions
Are Valid Regulations
Technical Comments –
Section 1.141-7T(f)(5)(i)(B)
Section 1.141-7T(f)(5)(ii)
– Actions Taken to Implement Nondiscriminatory Open Access
Section 1.141-7T(f)(5)(iii)
– Application of Reasonable Expectations Test to Refundings
Treasury Regulation 1.141-7T(b)(1)(ii)(B) – Available
Output of Electric Transmission Facilities
Definition of Transmission Project
COMMENTS AFFECTING GENERATION AND TRANSMISSION
Definition of Output Contract
Contracts With Specific Performance Rights
Short-Term Contract Safe Harbor
Short-Term Contract Limits
Should Treat All Months Equally
Other Transactions
De Minimis Contracts
Relationship to
Payments Test
Rules Regarding Measurement Period
Application of the Payments and Security Tests
Allocation of Payments to Debt Service
Allocation to Equity Financed Portion of a Facility
Examples 5 and 6 of Section 1.141-14(b) Should Be Modified
Financial Contracts
Purely Financial
Transactions
Transmission Congestion
Charges
Options
APPLICATION OF SECTION 141(b)(5) (AS APPLICABLE TO
OUTPUT FACILITIES THROUGH SECTION 1313(b)(5) OF THE 1986 ACT) TO MULTI-PROJECT ISSUES
COMMENTS REGARDING REFUNDINGS
Period for Testing Refundings
Application of Section 1.150-1(c)(3) to Refundings
COMMENTS REGARDING REMEDIAL ACTION
Rules Regarding Mandatory Redemption for
Expected Intentional Action
Substantial Period of Time
Special Rule for Reasonably Expected Mandatory Redemptions
Measurement Period
The Percentage of Nonqualified Bonds Should Exclude
Permissible Private Use and Be Based on Use Over Time
Allocation of Disposition Proceeds
Anticipatory Remedial Action
Allocation of Disposition
Proceeds First to Obligations
TRANSITION RULES
The Change in Use Rules Should Not Apply to
Bonds Subject to the 1954 Code
Electing the Regulations in Whole Should Not Be Required for
Pre-existing Transactions
Effective Date of Regulations for Purposes of Applying
Sections 141(a)(4) to Refundings
Effective Date – Application to 1954 Code Bonds
Election of Regulations in Whole – Should Not Apply to
1954 Code Bonds
Cross Reference to Discussion of Other Transition Provisions
APPENDIX A
PROPOSED REGULATIONS REGARDING OUTPUT FACILITIES
APPENDIX B
REFERENCES IN 1986 LEGISLATIVE HISTORY TO TAX-EXEMPT BONDS BECOMING TAXABLE
APPENDIX C
TRANSMISSION CONGESTION CONTRACTS, CONGESTION CHARGES AND RELATED MATTERS
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