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02-21-01 -- Senate Version Of Estate-Tax Repeal Introduced

The bill, S 275, would eliminate, immediately upon enactment, the federal estate, gift, and generation-skipping transfer taxes. It would also allow every individual to continue to step up the tax basis of assets in his or her estate to the fair market value at the date of death, subject to an overall limitation of $2.8 million per individual, $5.6 million per married couple. The per-person exemption would be indexed for inflation.

This legislation is more generous -- not to mention faster-acting -- than the Dunn-Tanner bill introduced in the House. However, of the two, the House version seems to be more likely to pass in that it mirrors President Bush’s proposal to eliminate the estate tax by 2009 through a gradual phase out.

02-21-01 -- Legislation Introduced In House And Senate To Ease Cash Accounting Rules

On Wednesday morning, Rep. Walley Herger (R-CA) introduced the “Cash Accounting for Small Business Act of 2001” in the House Ways and Means Committee, of which he is a member. Later that same day, Sen. Kit Bond (R-MO) introduced parallel legislation in the Senate Small Business Committee, which he chairs.

The legislation follows the recommendation of the IRS National Taxpayer Advocate in his 2000 Annual Report to Congress. It would simplify tax accounting law for small businesses by clarifying that businesses -- even those with inventories -- with $5 million or less in yearly gross receipts are entitled to use the cash method of accounting without restriction. The cash accounting legislation also indexes the $5 million average annual gross receipts threshold for inflation. The cash accounting safe harbor will be effective for taxable years beginning after December 31, 2000.

NECA favors allowing the use of cash accounting (and the completed-contract method of accounting for larger businesses) by construction contractors.We are optimistic about the involvement of such powerful legislators as Rep. Herger and Sen. Bond. (Having a member of the Ways and Means Committee and the chairman of the Íenate Small Business Committee sponsor a cash accounting bill is half the battle!) We will continue working on behind the scene and on Capital Hill for the passage of this much-needed legislation and will keep you informed of developments.

02-21-01 -- Power Line Shortage Threatens To Derail Deregulation

Strained power-line capacity has added to California’s energy woes, blocking the movement of surplus power from the state’s south end to northern cities hit hardest by blackouts last month. Crowded transmission lines are also heightening the risk of sharply higher electricity prices and power shortages in New York City this summer, energy analysts warn. In other parts of the country -- around the Great Lakes, and in the Southeast and Northeast -- traffic jams in long-distance power lines threaten to undercut the very competition in electric service that is supposed to be the rationale behind deregulation.

"The seeds of what has grown in California have been sown over the United States as a whole by our failure to keep up with our [transmission] infrastructure over the past decade,” said Karl Stahlkopf, vice president of the Electric Power Research Institute, an industry-backed thinktank in Palo Alto, California. The institute predicts 20 percent to 25 percent growth in electricity demand in the next decade, but only a 4 percent increase in power lines and electric-grid equipment.

Transmission capacity is falling further and further behind the demand for power, said consultant Eric Hirst, in a report for the Washington, D.C.-based Edison Electric Institute. That would not be so troubling if electricity service had remained a local business, with communities served primarily by nearby utilities responsible for both generation and transmission. But long-distance power transmission can be essential in a deregulated system, by increasing competitive offers for customers, said Ken Rose, senior economist with the National Regulatory Research Institute in Columbus, Ohio.

When power can move freely within or between regions, generators in distant cities can compete with each other, Rose said. When bottlenecks occur, competition suffers and generators can push prices up in their home markets. “When you don’t have enough transmission, it’s easier for suppliers to exercise market power,” Hirst said.

Impediments To Siting Power Lines

A major problem is that building transmission lines is fraught with political and financial challenges. From suburbs to farms, the giant towers and the drooping lines they support are loathed and opposed.

“It’s easier to site a generation plant than to build a 20-mile transmission line through people’s backyards,” said Mike Calimano, vice president for operations of the New York Independent System Operator, the state’s power grid manager.

“We haven’t built any [transmission lines] from Canada or the West since 1978, and that was a war,” said Minnesota Attorney General Mike Hatch. “We had highway patrols trying to keep the peace. It was awful then,” and will be again as new power-line projects go forward, he warned.

Utilities often complain that the profit they are allowed to make on building transmission lines, as determined by Federal Energy Regulatory Commission rules, is too low to make the investment worthwhile, Stahlkopf said.

Still another obstacle is the political and regulatory turmoil over deregulation. Utilities “are like deer frozen in the headlights, waiting for state and federal legislators and regulators to define the structure of the industry in which they will operate, invest and be regulated,” Hirst said. (And let’s face it: Utilities have little incentive to build new power lines that would make it easier for their current customers to buy cheaper power from someone else!)

A new group of “merchant” generating companies, including Duke Energy Corp., Calpine Corp., Reliant Energy Inc. and others, have bought utilities’ generating plants in many parts of the country and could also fund transmission investments. But they, too, have difficulty predicting how such investments would pay off, analysts say.

Transmission construction has also been frustrated by a split in regulatory responsibility. The Federal Energy Regulatory Commission (FERC), whose members are appointed by the president, oversees rates charged for transmitting power. But states have jurisdiction over where the lines are built.

Possible Solutions Remain Far Off

Sen. Frank H. Murkowski (R-Alaska), chairman of the Senate Energy and Natural Resources Committee, will soon introduce legislation seeking to speed up transmission line siting, and some analysts say that can’t happen unless the federal government takes control of final decisions. But such an approach would run into opposition from other members of Congress, such as Rep. Joe Barton (R-Texas), chairman of the House Commerce energy subcommittee, who argues that siting should remain a state responsibility.

In the meantime, the FERC has called on utilities to create cooperative Regional Transmission Organizations that would decide on transmission needs and encourage member utilities to build lines where they’re needed. The FERC’s deadline is December 15, but the process is moving slowly in some areas of the country, particularly the Midwest.

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Last modified: February 23, 2001