In FSC/ETI conference talks today, an amendment to help rural electric co-ops remain competitive in today’s restructured utility industry was added to the conference report. The so-called “85-15 rule amendment,” sponsored by Sen. Baucus and supported by Sens. Bingaman and Conrad, has been approved (twice) by the House and Senate as part of comprehensive energy legislation and is in the HR 6 conference report. Said Bingaman, "I’m happy that we have corrected -- at least temporarily -- a problem that has been threatening the financial viability of electric co-ops for years. It is vital that these utilities continue to be able to provide low-cost electricity to rural customers, in my home state of New Mexico as well as elsewhere in the country." Under IRS rules, rural electric co-ops are exempt from federal income tax as long as 85 percent of their income comes directly from members. The intent of this rule was to make sure that co-ops focused the bulk of their business activities on their consumer-owners. If co-ops exceed this limit, they lose tax-exempt status. In a restructured electricity market, it has become increasingly difficult for co-ops to remain within this limit because changes to rules and regulations have required them to allow other utilities to use their transmission systems. That requirement generates revenue for the co-ops (from new, possibly non-member sources) that is outside their control and may, inadvertently, tip them over the 15 percent IRS threshold. Without Congressional action, this could result in the loss of the tax-exempt status for many co-ops across the nation.
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