Senator Seeks Natural Gas Supply Act to Relieve Publicly Owned Utilities

By Rigsby, Deborah | Nation's Cities Weekly, April 23, 2001 | Go to article overview

Senator Seeks Natural Gas Supply Act to Relieve Publicly Owned Utilities


Rigsby, Deborah, Nation's Cities Weekly


In a repeated effort to provide long-term energy relief to publicly owned utility companies and their customers, Senator John Breaux (D-La.) reintroduced the Municipal Utility Natural Gas Supply Act (S. 726) this month.

The legislation would allow municipal utilities to continue purchasing long-term supplies of natural gas through tax-exempt bonds, without risking potential audits by the Internal Revenue Service's (IRS) Tax-Exempt Bond Group. Since the summer of 1999, the bond market has been reluctant to underwrite municipal bonds for gas prepayments because of IRS audits of about $1 billion worth of existing gas bonds. The IRS is questioning whether utilities violated arbitrage rules of the federal tax code, thereby making an illegal profit from such wholesale purchases of natural gas, deemed by auditors as "investment-type property." In August 1999, the IRS proposed regulations (REG-113526-98) that would prevent the use of tax-exempt borrowing authority to purchase long-term supplies of natural gas. Final rules are expected later this year.

"In the midst of an energy crisis, communities are scrambling for a reliable and less expensive supply of natural gas," Breaux stated. "Confusion over IRS language and fear of regulation has virtually ended this effective method of securing gas for local communities. This [legislation] is a good solution because prepaid supply arrangements are the most reliable way to assure an ample supply of natural gas. …

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