By:  Bailey                                            H.B. No. 185
       73R1721 DWS-D
                                 A BILL TO BE ENTITLED
    1-1                                AN ACT
    1-2  relating to prohibition of consideration of charitable
    1-3  contributions in setting a utility's rates.
    1-4        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
    1-5        SECTION 1.  Section 41, Public Utility Regulatory Act
    1-6  (Article 1446c, Vernon's Texas Civil Statutes), is amended to read
    1-7  as follows:
    1-8        Sec. 41.  COMPONENTS OF INVESTED CAPITAL AND NET INCOME.  The
    1-9  components of invested capital and net income shall be determined
   1-10  according to the following rules:
   1-11        (a)  Invested Capital.  Utility rates shall be based upon the
   1-12  original cost of property used by and useful to the public utility
   1-13  in providing service including construction work in progress at
   1-14  cost as recorded on the books of the utility.  The inclusion of
   1-15  construction work in progress is an exceptional form of rate relief
   1-16  to be granted only upon the demonstration by the utility that such
   1-17  inclusion is necessary to the financial integrity of the utility.
   1-18  Construction work in progress shall not be included in the rate
   1-19  base for major projects under construction to the extent that such
   1-20  projects have been inefficiently or imprudently planned or managed.
   1-21  Original cost shall be the actual money cost, or the actual money
   1-22  value of any consideration paid other than money, of the property
   1-23  at the time it shall have been dedicated to public use, whether by
   1-24  the utility which is the present owner or by a predecessor, less
    2-1  depreciation.
    2-2        (b)  Separations and Allocations.  Costs of facilities,
    2-3  revenues, expenses, taxes, and reserves shall be separated or
    2-4  allocated as prescribed by the regulatory authority.
    2-5        (c)  Net Income.  By "net income" is meant the total revenues
    2-6  of the public utility less all reasonable and necessary expenses as
    2-7  determined by the regulatory authority.  The regulatory authority
    2-8  shall determine expenses and revenues in a manner consistent with
    2-9  the following:
   2-10              (1)  Transactions with Affiliated Interests.  Payment
   2-11  to affiliated interests for costs of any services, or any property,
   2-12  right or thing, or for interest expense shall not be allowed either
   2-13  as capital cost or as expense except to the extent that the
   2-14  regulatory authority shall find such payment to be reasonable and
   2-15  necessary for each item or class of items as determined by the
   2-16  commission.  Any such finding shall include specific findings of
   2-17  the reasonableness and necessity of each item or class of items
   2-18  allowed and a finding that the price to the utility is no higher
   2-19  than prices charged by the supplying affiliate to its other
   2-20  affiliates or divisions for the same item or class of items, or to
   2-21  unaffiliated persons or corporations.  The price paid by gas
   2-22  utilities to affiliated interests for natural gas from Outer
   2-23  Continental Shelf lands shall be subject to a rebuttable
   2-24  presumption that such price is reasonable if the price paid does
   2-25  not exceed the price permitted by federal regulation if such gas is
   2-26  regulated by any federal agency or if not regulated by a federal
   2-27  agency does not exceed the price paid by nonaffiliated parties for
    3-1  natural gas from Outer Continental Shelf lands.  The burden of
    3-2  establishing that such a price paid is not reasonable shall be on
    3-3  any party challenging the reasonableness of such price.
    3-4              (2)  Income Taxes.  If the public utility is a member
    3-5  of an affiliated group that is eligible to file a consolidated
    3-6  income tax return, and if it is advantageous to the public utility
    3-7  to do so, income taxes shall be computed as though a consolidated
    3-8  return had been so filed and the utility had realized its fair
    3-9  share of the savings resulting from the consolidated return, unless
   3-10  it is shown to the satisfaction of the regulatory authority that it
   3-11  was reasonable to choose not to consolidate returns.  The amounts
   3-12  of income taxes saved by a consolidated group of which a public
   3-13  utility is a member by reason of the elimination in the
   3-14  consolidated return of the intercompany profit on purchases by the
   3-15  public utility from an affiliate shall be applied to reduce the
   3-16  cost of the property or services so purchased.  The investment tax
   3-17  credit allowed against federal income taxes, to the extent retained
   3-18  by the utility, shall be applied as a reduction in the rate based
   3-19  contribution of the assets to which such credit applies, to the
   3-20  extent and at such rate as allowed by the Internal Revenue Code.
   3-21              (3)  Expenses Disallowed.  The regulatory authority
   3-22  shall not consider for ratemaking purposes the following expenses:
   3-23                    (A)  legislative advocacy expenses, whether made
   3-24  directly or indirectly, including but not limited to legislative
   3-25  advocacy expenses included in trade association dues;
   3-26                    (B)  payments, except those made under an
   3-27  insurance or risk-sharing arrangement executed before the date of
    4-1  loss, made to cover costs of an accident, equipment failure, or
    4-2  negligence at a utility facility owned by a person or governmental
    4-3  body not selling power inside the State of Texas;
    4-4                    (C)  Costs of processing a refund or credit under
    4-5  Subsection (e) of Section 43 of this Act; <or>
    4-6                    (D)  any expenditure found by the regulatory
    4-7  authority to be unreasonable, unnecessary, or not in the public
    4-8  interest, including but not limited to executive salaries,
    4-9  advertising expenses, legal expenses, and civil penalties or fines;
   4-10  or
   4-11                    (E)  charitable contributions.
   4-12        The regulatory authority may promulgate reasonable rules and
   4-13  regulations with respect to the allowance or disallowance of any
   4-14  expenses for ratemaking purposes.
   4-15        SECTION 2.  This Act applies only to a rate proceeding for
   4-16  which the statement of intent is filed on or after the effective
   4-17  date of this Act.
   4-18        SECTION 3.  The importance of this legislation and the
   4-19  crowded condition of the calendars in both houses create an
   4-20  emergency and an imperative public necessity that the
   4-21  constitutional rule requiring bills to be read on three several
   4-22  days in each house be suspended, and this rule is hereby suspended,
   4-23  and that this Act take effect and be in force from and after its
   4-24  passage, and it is so enacted.