PUBLIC UTILITY PROPERTY.

SEC. 441. PUBLIC UTILITY PROPERTY. (a) In General.—Section 167 (relating to depreciation) is amended by inserting after subsection (k) (added by section 521) the following new subsection: “(l) Reasonable Allowance in Case of Property of Certain Utilities.— “(1) Pre-1970 public utility property.— “(A) In general.—In the case of any pre-1970 public utility property, the term ‘reasonable allowance’ as used in subsection (a) means an allowance computed under— “(i) a subsection (1) method, or “(ii) the applicable 1968 method for such property. Except as provided in subparagraph (B), clause (ii) shall apply only if the taxpayer uses a normalization method of accounting. “(B) Flow-through method of accounting in certain cases.—In the case of any pre-1970 public utility property, the taxpayer may use the applicable 1968 method for such property if— “(i) the taxpayer used a flow-through method of accounting for such property for its July 1969 accounting period, or “(ii) the first accounting period with respect to such property is after the July 1969 accounting period, and the taxpayer used a flow-through method of accounting for its July 1969 accounting period for the property on the basis of which the applicable 1968 method for the property in question is established. 83 Stat. 626 “(2) Post-1969 public utility property.—In the case of an post-1969 public utility property, the term ‘reasonable allowance’ as used in subsection (a) means an allowance computed under— “(A) a subsection (1) method, “(B) a method otherwise allowable under this section if the taxpayer uses a normalization method of accounting, or “(C) the applicable 1968 method, if, with respect to its pre-1970 public utility property of the same (or similar) kind most recently placed in service, the taxpayer used a flow through method of accounting for its July 1969 accounting period. “(3) Definitions.—For purposes of this subsection— “(A) Public utility property.—The term ‘public utility property’ means property used predominantly in the trade or business of the furnishing or sale of— “(i) electrical energy, water, or sewage disposal services, “(ii) gas or steam through a local distribution system, “(iii) telephone services, or other communication services if furnished or sold by the Communications Satellite Corporation for purposes authorized by the Communications Satellite Act of 1962 (47 U.S.C. 701), or “(iv) transportation of gas or steam by pipeline, if the rates for such furnishing or sale, as the case may be, have been established or approved by a State or political subdivision thereof, by any agency or instrumentality of the United States, or by a public service or public utility commission or other similar body of any State or political subdivision thereof. “(B) Pre-1970 public utility property.—The term ‘pre-1970 public utility property’ means property which was public utility property in the hands of any person at any time before January 1, 1970. “(C) Post-1969 public utility property.—The term ‘post-1969 public utility property’ means any public utility property which is not pre-1970 public utility property. “(D) Applicable 1968 method.—The term ‘applicable 1968 method’ means, with respect to any public utility property— “(i) the method of depreciation used on a return with respect to such property for the latest taxable year for which a return was filed before August 1, 1969, “(ii) if clause (i) does not apply, the method used by the taxpayer on a return for the latest taxable year for which a return was filed before August 1, 1969, with respect to its public utility property of the same kind (or if there is no property of the same kind, property of the most similar kind) most recently placed in service, or “(iii) if neither clause (i) nor (ii) applies, a subsection (l) method. In the case of any section 1250 property to which subsection (j) applies, the term ‘applicable 1968 method’ means the method permitted under subsection (j) which is most nearly comparable to the applicable 1968 method determined under the preceding sentence. “(E) Applicable 1968 method in certain cases.—If the taxpayer evidenced the intent to use a method of depreciation (other than its applicable 1968 method or a subsection (l) 83 Stat. 627 method) with respect to any public utility property in a timely application for change of accounting method filed before August 1, 1969, or in the computation of its tax expense for purposes of reflecting operating results in its regulated books of account for its July 1969 accounting period, such other method shall be deemed to be its applicable 1968 method with respect to such property and public utility property of the same (or similar) kind subsequently placed in service. “(F) Subsection (1) method.—The term ‘subsection (1) method’ means any method determined by the Secretary or his delegate to result in a reasonable allowance under subsection (a), other than (i) a declining balance method, (ii) the sum of the years-digits method, or (iii) any other method allowable solely by reason of the application of subsection (b)(4) or (j)(1)(C). “(G) Normalization method of accounting.—In order to use a normalization method of accounting with respect to any public utility property— “(i) the taxpayer must use the same method of depreciation to compute both its tax expense and its depreciation expense for purposes of establishing its cost of service for ratemaking purposes and for reflecting operating results in its regulated books of account, and “(ii) if, to compute its allowance for depreciation under this section, it uses a method of depreciation other than the method it used for the purposes described in clause (i), the taxpayer must make adjustments to a reserve to reflect the deferral of taxes resulting from the use of such different methods of depreciation. “(H) Flow-through method of accounting.—The taxpayer used a ‘flow-through method of accounting’ with respect to any public utility property if it used the same method of depreciation (other than a subsection (l) method) to compute its allowance for depreciation under this section and to compute its tax expense for purposes of reflecting operating results in its regulated books of account. “(I) July 1009 accounting period.—The term ‘July 1969 accounting period’ means the taxpayer’s latest accounting period ending before August 1, 1969, for which it computed its tax expense for purposes of reflecting operating results in its regulated books of account. For purposes of this paragraph, different declining balance rates shall be treated as different methods of depreciation. “(4) Special rules as to flow-through method.— “(A) Election as to new property representing growth in capacity.—If the taxpayer makes an election under this subparagraph within 180 days after the date of the enactment of this subparagraph in the manner prescribed by the Secretary or his delegate, in the case of taxable years beginning after December 31, 1970, paragraph (2)(C) shall not apply with respect to any post-1969 public utility property, to the extent that such property constitutes property which increases the productive or operational capacity of the taxpayer with respect to the goods or services described in paragraph (3)(A) and does not represent the replacement of existing capacity. “(B) Certain pending applications for changes in method.—In applying paragraph (1)(B), the taxpayer shall 83 Stat. 628 be deemed to have used a flow-through method of accounting for its July 1969 accounting period with respect to any pre-1970 public utility property for which it filed a timely application for change of accounting method before August 1, 1969, if with respect to public utility property of the same (or similar) kind most recently placed in service, it used a flow-through method of accounting for its July 1969 accounting period. “(5) Reorganizations, assets acquisitions, etc.—If by reason of a corporate reorganization, by reason of any other acquisition of the assets of one taxpayer by another taxpayer, by reason of the fact that any trade or business of the taxpayer is subject to ratemaking by more than one body, or by reason of other circumstances, the application of any provisions of this subsection to any public utility property does not carry out the purposes of this subsection, the Secretary or his delegate shall provide by regulations for the application of such provisions in a manner consistent with the purposes of this subsection.” (b) Effective Date.—The amendment made by subsection (a) shall apply with respect to all taxable years for which a return has not been filed before August 1, 1969.