By:  Sibley, et al.                                      S.B. No. 7
                                A BILL TO BE ENTITLED
                                       AN ACT
 1-1     relating to electric utility restructuring and to the powers and
 1-2     duties of the Public Utility Commission of Texas; providing civil
 1-3     and administrative penalties; making an appropriation.
 1-4           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
 1-5           SECTION 1.  Section 11.003, Utilities Code, is amended to
 1-6     read as follows:
 1-7           Sec. 11.003.  DEFINITIONS.  In this title:
 1-8                 (1)  "Affected person" means:
 1-9                       (A)  a public utility or electric cooperative
1-10     affected by an action of a regulatory authority;
1-11                       (B)  a person whose utility service or rates are
1-12     affected by a proceeding before a regulatory authority; or
1-13                       (C)  a person who:
1-14                             (i)  is a competitor of a public utility
1-15     with respect to a service performed by the utility; or
1-16                             (ii)  wants to enter into competition with
1-17     a public utility.
1-18                 (2)  "Affiliate" means:
1-19                       (A)  a person who directly or indirectly owns or
1-20     holds at least five percent of the voting securities of a public
1-21     utility;
1-22                       (B)  a person in a chain of successive ownership
1-23     of at least five percent of the voting securities of a public
1-24     utility;
 2-1                       (C)  a corporation that has at least five percent
 2-2     of its voting securities owned or controlled, directly or
 2-3     indirectly, by a public utility;
 2-4                       (D)  a corporation that has at least five percent
 2-5     of its voting securities owned or controlled, directly or
 2-6     indirectly, by:
 2-7                             (i)  a person who directly or indirectly
 2-8     owns or controls at least five percent of the voting securities of
 2-9     a public utility; or
2-10                             (ii)  a person in a chain of successive
2-11     ownership of at least five percent of the voting securities of a
2-12     public utility;
2-13                       (E)  a person who is an officer or director of a
2-14     public utility or of a corporation in a chain of successive
2-15     ownership of at least five percent of the voting securities of a
2-16     public utility; or
2-17                       (F)  a person determined to be an affiliate under
2-18     Section 11.006.
2-19                 (3)  "Allocation" means the division among
2-20     municipalities or among municipalities and unincorporated areas of
2-21     the plant, revenues, expenses, taxes, and reserves of a utility
2-22     used to provide public utility service in a municipality or for a
2-23     municipality and unincorporated areas.
2-24                 (4)  "Commission" means the Public Utility Commission
2-25     of Texas.
2-26                 (5)  "Commissioner" means a member of the Public
 3-1     Utility Commission of Texas.
 3-2                 (6)  "Cooperative corporation" means:
 3-3                       (A)  an electric cooperative [corporation
 3-4     organized under Chapter 161 or a predecessor statute to Chapter 161
 3-5     and operating under that chapter]; or
 3-6                       (B)  a telephone cooperative corporation
 3-7     organized under Chapter 162 or a predecessor statute to Chapter 162
 3-8     and operating under that chapter.
 3-9                 (7)  "Corporation" means a domestic or foreign
3-10     corporation, joint-stock company, or association, and each lessee,
3-11     assignee, trustee, receiver, or other successor in interest of the
3-12     corporation, company, or association, that has any of the powers or
3-13     privileges of a corporation not possessed by an individual or
3-14     partnership.  The term does not include a municipal corporation or
3-15     electric cooperative, except as expressly provided by this title.
3-16                 (8)  "Counsellor" means the public utility counsel.
3-17                 (9)  "Electric cooperative" means:
3-18                       (A)  a corporation organized under Chapter 161 or
3-19     a predecessor statute to Chapter 161 and operating under that
3-20     chapter;
3-21                       (B)  a corporation organized as an electric
3-22     cooperative in a state other than Texas that has obtained a
3-23     certificate of authority to conduct affairs in the State of Texas;
3-24     or
3-25                       (C)  a successor to an electric cooperative
3-26     created in accordance with a conversion plan approved by a vote of
 4-1     the members of the electric cooperative before June 1, 1999.
 4-2                 (10)  "Facilities" means all of the plant and equipment
 4-3     of a public utility, and includes the tangible and intangible
 4-4     property, without limitation, owned, operated, leased, licensed,
 4-5     used, controlled, or supplied for, by, or in connection with the
 4-6     business of the public utility.
 4-7                 (11) [(10)]  "Municipally owned utility" means a
 4-8     utility owned, operated, and controlled by a municipality or by a
 4-9     nonprofit corporation the directors of which are appointed by one
4-10     or more municipalities.
4-11                 (12) [(11)]  "Office" means the Office of Public
4-12     Utility Counsel.
4-13                 (13) [(12)]  "Order" means all or a part of a final
4-14     disposition by a regulatory authority in a matter other than
4-15     rulemaking, without regard to whether the disposition is
4-16     affirmative or negative or injunctive or declaratory.  The term
4-17     includes:
4-18                       (A)  the issuance of a certificate of convenience
4-19     and necessity; and
4-20                       (B)  the setting of a rate.
4-21                 (14) [(13)]  "Person" includes an individual, a
4-22     partnership of two or more persons having a joint or common
4-23     interest, a mutual or cooperative association, and a corporation,
4-24     but does not include an electric cooperative.
4-25                 (15) [(14)]  "Proceeding" means a hearing,
4-26     investigation, inquiry, or other procedure for finding facts or
 5-1     making a decision under this title.  The term includes a denial of
 5-2     relief or dismissal of a complaint.
 5-3                 (16) [(15)]  "Rate" includes:
 5-4                       (A)  any compensation, tariff, charge, fare,
 5-5     toll, rental, or classification that is directly or indirectly
 5-6     demanded, observed, charged, or collected by a public utility for a
 5-7     service, product, or commodity described in the definition of
 5-8     utility in Section 31.002 or 51.002; and
 5-9                       (B)  a rule, practice, or contract affecting the
5-10     compensation, tariff, charge, fare, toll, rental, or
5-11     classification.
5-12                 (17) [(16)]  "Ratemaking proceeding" means[:]
5-13                       [(A)]  a proceeding in which a rate is changed[;
5-14     and]
5-15                       [(B)  a proceeding initiated under Chapter 34].
5-16                 (18) [(17)]  "Regulatory authority" means either the
5-17     commission or the governing body of a municipality, in accordance
5-18     with the context.
5-19                 (19) [(18)]  "Service" has its broadest and most
5-20     inclusive meaning.  The term includes any act performed, anything
5-21     supplied, and any facilities used or supplied by a public utility
5-22     in the performance of the utility's duties under this title to its
5-23     patrons, employees, other public utilities, an electric
5-24     cooperative, and the public.  The term also includes the
5-25     interchange of facilities between two or more public utilities.
5-26     The term does not include the printing, distribution, or sale of
 6-1     advertising in a telephone directory.
 6-2                 (20) [(19)]  "Test year" means the most recent 12
 6-3     months, beginning on the first day of a calendar or fiscal year
 6-4     quarter, for which operating data for a public utility are
 6-5     available.
 6-6                 (21) [(20)]  "Trade association" means a nonprofit,
 6-7     cooperative, and voluntarily joined association of business or
 6-8     professional persons who are employed by public utilities or
 6-9     utility competitors to assist the public utility industry, a
6-10     utility competitor, or the industry's or competitor's employees in
6-11     dealing with mutual business or professional problems and in
6-12     promoting their common interest.
6-13           SECTION 2.  Section 12.005, Utilities Code, is amended to
6-14     read as follows:
6-15           Sec. 12.005.  APPLICATION OF SUNSET ACT.  The Public Utility
6-16     Commission of Texas is subject to Chapter 325, Government Code
6-17     (Texas Sunset Act).  Unless continued in existence as provided by
6-18     that chapter or by Chapter 39, the commission is abolished and this
6-19     title expires September 1, 2005 [2001].
6-20           SECTION 3.  Section 12.101, Utilities Code, is amended to
6-21     read as follows:
6-22           Sec. 12.101.  COMMISSION EMPLOYEES.  The commission shall
6-23     employ:
6-24                 (1)  an executive director; and
6-25                 (2)  [a general counsel; and]
6-26                 [(3)]  officers and other employees the commission
 7-1     considers necessary to administer this title.
 7-2           SECTION 4.  Sections 12.151 and 12.152, Utilities Code, are
 7-3     amended to read as follows:
 7-4           Sec. 12.151.  REGISTERED LOBBYIST.  A person required to
 7-5     register as a lobbyist under Chapter 305, Government Code, because
 7-6     of the person's activities for compensation on behalf of a
 7-7     profession related to the operation of the commission may not serve
 7-8     as a commissioner [or act as general counsel to the commission].
 7-9           Sec. 12.152.  Conflict of Interest.  (a)  A person is not
7-10     eligible for appointment as a commissioner [or for employment as
7-11     the general counsel] or executive director of the commission if:
7-12                 (1)  the person serves on the board of directors of a
7-13     company that supplies fuel, utility-related services, or
7-14     utility-related products to regulated or unregulated electric or
7-15     telecommunications utilities; or
7-16                 (2)  the person or the person's spouse:
7-17                       (A)  is employed by or participates in the
7-18     management of a business entity or other organization that is
7-19     regulated by or receives funds from the commission;
7-20                       (B)  directly or indirectly owns or controls more
7-21     than a 10 percent interest or a pecuniary interest with a value
7-22     exceeding $10,000 in:
7-23                             (i)  a business entity or other
7-24     organization that is regulated by or receives funds from the
7-25     commission; or
7-26                             (ii)  a utility competitor, utility
 8-1     supplier, or other entity affected by a commission decision in a
 8-2     manner other than by the setting of rates for that class of
 8-3     customer;
 8-4                       (C)  uses or receives a substantial amount of
 8-5     tangible goods, services, or funds from the commission, other than
 8-6     compensation or reimbursement authorized by law for commission
 8-7     membership, attendance, or expenses; or
 8-8                       (D)  notwithstanding Paragraph (B), has an
 8-9     interest in a mutual fund or retirement fund in which more than 10
8-10     percent of the fund's holdings at the time of appointment is in a
8-11     single utility, utility competitor, or utility supplier in this
8-12     state and the person does not disclose this information to the
8-13     governor, senate, commission, or other entity, as appropriate.
8-14           (b)  A person otherwise ineligible because of Subsection
8-15     (a)(2)(B) may be appointed to the commission and serve as a
8-16     commissioner or may be employed as [the general counsel or]
8-17     executive director if the person:
8-18                 (1)  notifies the attorney general and commission that
8-19     the person is ineligible because of Subsection (a)(2)(B); and
8-20                 (2)  divests the person or the person's spouse of the
8-21     ownership or control:
8-22                       (A)  before beginning service or employment; or
8-23                       (B)  if the person is already serving or
8-24     employed, within a reasonable time.
8-25           SECTION 5.  Section 13.002, Utilities Code, is amended to
8-26     read as follows:
 9-1           Sec. 13.002.  APPLICATION OF SUNSET ACT.  The Office of
 9-2     Public Utility Counsel is subject to Chapter 325, Government Code
 9-3     (Texas Sunset Act).  Unless continued in existence as provided by
 9-4     that chapter, the office is abolished and this chapter expires
 9-5     September 1, 2005 [2001].
 9-6           SECTION 6.  Section 13.024, Utilities Code, is amended to
 9-7     read as follows:
 9-8           Sec. 13.024.  Prohibited Acts.  (a)  The counsellor may not[:]
 9-9                 [(1)]  have a direct or indirect interest in a utility
9-10     company regulated under this title[; or]
9-11                 [(2)  provide legal services directly or indirectly to
9-12     or be employed in any capacity by a utility company regulated under
9-13     this title], its parent, or its subsidiary companies, corporations,
9-14     or cooperatives or a utility competitor, utility supplier, or other
9-15     entity affected in a manner other than by the setting of rates for
9-16     that class of customer.
9-17           (b)  The prohibition under Subsection (a) applies during the
9-18     period of the counsellor's service [and until the second
9-19     anniversary of the date the counsellor ceases to serve as
9-20     counsellor.]
9-21           [(c)  This section does not prohibit a person from otherwise
9-22     engaging in the private practice of law after the person ceases to
9-23     serve as counsellor].
9-24           SECTION 7.  Section 13.043, Utilities Code, is amended to
9-25     read as follows:
9-26           Sec. 13.043.  PROHIBITION ON EMPLOYMENT OR REPRESENTATION.
 10-1    (a)  A former counsel may not make any communication to or
 10-2    appearance before the commission or an officer or employee of the
 10-3    commission before the second anniversary of the date the person
 10-4    ceases to serve as counsel if the communication or appearance is
 10-5    made:
 10-6                (1)  on behalf of another person in connection with any
 10-7    matter on which the person seeks official action; or
 10-8                (2)  with the intent to influence a commission decision
 10-9    or action.
10-10          (b)  A former counsel may not represent any person or receive
10-11    compensation for services rendered on behalf of any person
10-12    regarding a matter before the commission before the second
10-13    anniversary of the date the person ceases to serve as counsel.
10-14          (c)  A person commits an offense if the person violates this
10-15    section.  An offense under this subsection is a Class A
10-16    misdemeanor.
10-17          (d)  An [The counsellor or an] employee of the office may
10-18    not:
10-19                (1)  be employed by a public utility that was in the
10-20    scope of the [counsellor's or] employee's official responsibility
10-21    while the [counsellor or] employee was associated with the office;
10-22    or
10-23                (2)  represent a person before the commission or a
10-24    court in a matter:
10-25                      (A)  in which the [counsellor or] employee was
10-26    personally involved while associated with the office; or
 11-1                      (B)  that was within the [counsellor's or]
 11-2    employee's official responsibility while the [counsellor or]
 11-3    employee was associated with the office.
 11-4          (e) [(b)]  The prohibition of Subsection (d)(1) [(a)(1)]
 11-5    applies until the[:]
 11-6                [(1)  second anniversary of the date the counsellor
 11-7    ceases to serve as a counsellor; and]
 11-8                [(2)]  first anniversary of the date the employee's
 11-9    employment with the office ceases.
11-10          (f) [(c)]  The prohibition of Subsection (d)(2) [(a)(2)]
11-11    applies while an [a counsellor or] employee of the office is
11-12    associated with the office and at any time after.
11-13          SECTION 8.  Subsection (d), Section 14.101, Utilities Code,
11-14    is amended to read as follows:
11-15          (d)  This section does not apply to:
11-16                (1)  the purchase of a unit of property for
11-17    replacement; [or]
11-18                (2)  an addition to the facilities of a public utility
11-19    by construction; or
11-20                (3)  transactions that facilitate unbundling, asset
11-21    valuation, minimization of ownership or control of generation
11-22    assets, or other purposes consistent with Chapter 39.
11-23          SECTION 9.  Subsections (a) and (b), Section 16.001,
11-24    Utilities Code, are amended to read as follows:
11-25          (a)  To defray the expenses incurred in the administration of
11-26    this title, an assessment is imposed on each public utility, retail
 12-1    electric provider, and electric cooperative within the jurisdiction
 12-2    of the commission that serves the ultimate consumer, including each
 12-3    interexchange telecommunications carrier.
 12-4          (b)  An assessment under this section is equal to one-sixth
 12-5    of one percent of the public utility's, retail electric provider's,
 12-6    or electric cooperative's gross receipts from rates charged to the
 12-7    ultimate consumer in this state.
 12-8          SECTION 10.  Section 31.002, Utilities Code, is amended to
 12-9    read as follows:
12-10          Sec. 31.002.  DEFINITIONS.  In this subtitle:
12-11                (1)  "Affiliated power generation company" means a
12-12    power generation company that is affiliated with or the successor
12-13    in interest of an electric utility certificated to serve an area.
12-14                (2)  "Affiliated retail electric provider" means a
12-15    retail electric provider that is affiliated with or the successor
12-16    in interest of an electric utility certificated to serve an area.
12-17                (3)  "Aggregation" includes the following:
12-18                      (A)  the purchase of electricity from a retail
12-19    electric provider by an electricity customer for its own use in
12-20    multiple locations; or
12-21                      (B)  the purchase of electricity by an
12-22    electricity customer as part of a voluntary association of
12-23    electricity customers.
12-24                (4)  "Customer choice" means the freedom of a retail
12-25    customer to purchase electric services, either individually or
12-26    through voluntary aggregation with other retail customers, from the
 13-1    provider or providers of the customer's choice and to choose among
 13-2    various fuel types, energy efficiency programs, and renewable power
 13-3    suppliers.
 13-4                (5)  "Electric Reliability Council of Texas" or "ERCOT"
 13-5    means the area in Texas served by electric utilities, municipally
 13-6    owned utilities, and electric cooperatives that is not
 13-7    synchronously interconnected with electric utilities outside the
 13-8    state.
 13-9                (6)  "Electric utility" means a person or river
13-10    authority that owns or operates for compensation in this state
13-11    equipment or facilities to produce, generate, transmit, distribute,
13-12    sell, or furnish electricity in this state.  The term includes a
13-13    lessee, trustee, or receiver of an electric utility and a
13-14    recreational vehicle park owner who does not comply with Subchapter
13-15    C, Chapter 184, with regard to the metered sale of electricity at
13-16    the recreational vehicle park.  The term does not include:
13-17                      (A)  a municipal corporation;
13-18                      (B)  a qualifying facility;
13-19                      (C)  a power generation company;
13-20                      (D)  an exempt wholesale generator;
13-21                      (E) [(D)]  a power marketer;
13-22                      (F) [(E)]  a corporation described by Section
13-23    32.053 to the extent the corporation sells electricity exclusively
13-24    at wholesale and not to the ultimate consumer; or
13-25                      (G)  an electric cooperative;
13-26                      (H)  a retail electric provider;
 14-1                      (I)  this state or an agency of this state; or
 14-2                      (J) [(F)]  a person not otherwise an electric
 14-3    utility who:
 14-4                            (i)  furnishes an electric service or
 14-5    commodity only to itself, its employees, or its tenants as an
 14-6    incident of employment or tenancy, if that service or commodity is
 14-7    not resold to or used by others;
 14-8                            (ii)  owns or operates in this state
 14-9    equipment or facilities to produce, generate, transmit, distribute,
14-10    sell, or furnish electric energy to an electric utility, if the
14-11    equipment or facilities are used primarily to produce and generate
14-12    electric energy for consumption by that person; or
14-13                            (iii)  owns or operates in this state a
14-14    recreational vehicle park that provides metered electric service in
14-15    accordance with Subchapter C, Chapter 184.
14-16                (7) [(2)]  "Exempt wholesale generator" means a person
14-17    who is engaged directly or indirectly through one or more
14-18    affiliates exclusively in the business of owning or operating all
14-19    or part of a facility for generating electric energy and selling
14-20    electric energy at wholesale and who:
14-21                      (A)  does not own a facility for the transmission
14-22    of electricity, other than an essential interconnecting
14-23    transmission facility necessary to effect a sale of electric energy
14-24    at wholesale; and
14-25                      (B)  has:
14-26                            (i)  applied to the Federal Energy
 15-1    Regulatory Commission for a determination under 15 U.S.C. Section
 15-2    79z-5a; or
 15-3                            (ii)  registered as an exempt wholesale
 15-4    generator as required by Section 35.032.
 15-5                (8)  "Freeze period" means the period beginning on
 15-6    January 1, 1999, and ending on December 31, 2001.
 15-7                (9)  "Independent system operator" means an entity
 15-8    supervising the collective transmission facilities of a power
 15-9    region that is charged with nondiscriminatory coordination of
15-10    market transactions, systemwide transmission planning, and network
15-11    reliability.
15-12                (10)  "Power generation company" means a person who:
15-13                      (A)  generates electricity that is intended to be
15-14    sold at wholesale;
15-15                      (B)  does not own a transmission or distribution
15-16    facility in this state other than an essential interconnecting
15-17    facility, a facility not dedicated to public use, or a facility
15-18    otherwise excluded from the definition of "electric utility" under
15-19    Subdivision (6); and
15-20                      (C)  does not have a certificated service area,
15-21    although its affiliated electric utility or transmission and
15-22    distribution utility may have a certificated service area.
15-23                (11) [(3)]  "Power marketer" means a person who:
15-24                      (A)  becomes an owner of electric energy in this
15-25    state for the purpose of selling the electric energy at wholesale;
15-26                      (B)  does not own generation, transmission, or
 16-1    distribution facilities in this state;
 16-2                      (C)  does not have a certificated service area;
 16-3    and
 16-4                      (D)  has:
 16-5                            (i)  been granted authority by the Federal
 16-6    Energy Regulatory Commission to sell electric energy at
 16-7    market-based rates; or
 16-8                            (ii)  registered as a power marketer under
 16-9    Section 35.032.
16-10                (12)  "Power region" means a contiguous geographical
16-11    area which is a distinct region of the North American Electric
16-12    Reliability Council.
16-13                (13) [(4)]  "Qualifying cogenerator" and "qualifying
16-14    small power producer" have the meanings assigned those terms by 16
16-15    U.S.C. Sections 796(18)(C) and 796(17)(D).  A qualifying
16-16    cogenerator that provides electricity to the purchaser of the
16-17    cogenerator's thermal output is not for that reason considered to
16-18    be a retail electric provider or a power generation company.
16-19                (14) [(5)]  "Qualifying facility" means a qualifying
16-20    cogenerator or qualifying small power producer.
16-21                (15) [(6)]  "Rate" includes a compensation, tariff,
16-22    charge, fare, toll, rental, or classification that is directly or
16-23    indirectly demanded, observed, charged, or collected by an electric
16-24    utility for a service, product, or commodity described in the
16-25    definition of electric utility in this section and a rule,
16-26    practice, or contract affecting the compensation, tariff, charge,
 17-1    fare, toll, rental, or classification that must be approved by a
 17-2    regulatory authority.
 17-3                (16)  "Retail customer" means the separately metered
 17-4    end-use customer who purchases and ultimately consumes electricity.
 17-5                (17)  "Retail electric provider" means a person that
 17-6    sells electric energy to retail customers in this state.  A retail
 17-7    electric provider may not own or operate generation assets.
 17-8                (18)  "Separately metered" means metered by an
 17-9    individual meter that is used to measure electric energy
17-10    consumption by a retail customer and for which the customer is
17-11    directly billed by a utility or retail electric provider.
17-12                (19)  "Transmission and distribution utility" means a
17-13    person or river authority that owns or operates for compensation in
17-14    this state equipment or facilities to transmit or distribute
17-15    electricity, except for facilities necessary to interconnect a
17-16    generation facility with the transmission or distribution network,
17-17    a facility not dedicated to public use, or a facility otherwise
17-18    excluded from the definition of "electric utility" under
17-19    Subdivision (6), in a qualifying power region certified pursuant to
17-20    Section 39.152 but does not include a municipally owned utility or
17-21    an electric cooperative.
17-22                (20) [(7)]  "Transmission service" includes
17-23    construction or enlargement of facilities, transmission over
17-24    distribution facilities, control area services, scheduling
17-25    resources, regulation services, reactive power support, voltage
17-26    control, provision of operating reserves, and any other associated
 18-1    electrical service the commission determines appropriate.
 18-2          SECTION 11.  Subchapter A, Chapter 32, Utilities Code, is
 18-3    amended by adding Section 32.0015 to read as follows:
 18-4          Sec. 32.0015.  REGULATION OF SUCCESSOR ELECTRIC UTILITY OR
 18-5    ELECTRIC COOPERATIVE.  If an electric utility purchases, acquires,
 18-6    merges, or consolidates with or acquires 50 percent or more of the
 18-7    stock of an electric utility or electric cooperative, the
 18-8    commission shall regulate the successor electric utility or
 18-9    electric cooperative in the same manner that the commission would
18-10    regulate the entity that was subject to the stricter regulation
18-11    before the purchase, acquisition, merger, or consolidation.
18-12          SECTION 12.  Sections 32.051 and 32.052, Utilities Code, are
18-13    amended to read as follows:
18-14          Sec. 32.051.  Exemption of River Authority From Wholesale
18-15    Rate Regulation.  Notwithstanding any other provision of this
18-16    title, the commission may not directly or indirectly regulate
18-17    revenue requirements, rates, fuel costs, fuel charges, or fuel
18-18    acquisitions that are related to the generation and sale of
18-19    electricity at wholesale, and not to ultimate consumers, by a river
18-20    authority operating a steam generating plant on or before
18-21    January 1, 1999.
18-22          Sec. 32.052.  Ability of Certain River Authorities to
18-23    Construct Improvements.  A river authority operating a steam
18-24    generating plant on or before January 1, 1999, may acquire,
18-25    finance, construct, rebuild, repower, and use new or existing power
18-26    plants, equipment, transmission lines, or other assets to sell
 19-1    electricity exclusively at wholesale to:
 19-2                (1)  a purchaser in San Saba, Llano, Burnet, Travis,
 19-3    Bastrop, Blanco, Colorado, or Fayette County; or
 19-4                (2)  a purchaser in an area served by the river
 19-5    authority on January 1, 1975.
 19-6          SECTION 13.  Section 32.053, Utilities Code, is amended by
 19-7    amending Subsections (b) and (f) and adding Subsections (g) and (h)
 19-8    to read as follows:
 19-9          (b)  Notwithstanding a river authority's enabling legislation
19-10    or Chapter 245, Acts of the 67th Legislature, Regular Session, 1981
19-11    (Article 717p, Vernon's Texas Civil Statutes), a corporation may:
19-12                (1)  acquire, finance, construct, rebuild, repower,
19-13    operate, or sell a facility directly related to the generation of
19-14    electricity; [and]
19-15                (2)  sell, at wholesale only, the output of the
19-16    facility to a purchaser, other than an ultimate consumer, at any
19-17    location in this state; and
19-18                (3)  purchase and sell electricity, at wholesale only,
19-19    to a purchaser, other than an ultimate consumer, at any location in
19-20    this state.
19-21          (f)  The proceeds from the sale of bonds or other obligations
19-22    the interest on which is exempt from taxation and that are issued
19-23    by a corporation or river authority subject to this section, other
19-24    than a bond or obligation available to an investor-owned utility or
19-25    exempt wholesale generator, may not be used by the corporation[,
19-26    and may not have been used,] to finance the construction or
 20-1    acquisition of or the rebuilding or repowering of a facility for
 20-2    the generation of electricity by the corporation.
 20-3          (g)  Notwithstanding any other law, the board of directors of
 20-4    a river authority may sell, lease, loan, or otherwise transfer
 20-5    some, all, or substantially all of the electric generation property
 20-6    of the river authority to a nonprofit corporation authorized under
 20-7    this section or Chapter 245, Acts of the 67th Legislature, Regular
 20-8    Session, 1981 (Article 717p, Vernon's Texas Civil Statutes).  The
 20-9    property transfer shall be made pursuant to terms and conditions
20-10    approved by the board of directors of the river authority.
20-11          (h)  Subsections (a)-(f) do not apply to a corporation
20-12    created pursuant to Chapter 245, Acts of the 67th Legislature,
20-13    Regular Session, 1981 (Article 717p, Vernon's Texas Civil
20-14    Statutes), to serve an area described in Section 32.052.
20-15          SECTION 14.  Section 35.001, Utilities Code, is amended to
20-16    read as follows:
20-17          Sec. 35.001.  Definition.  In this subchapter, "electric
20-18    utility" includes a municipally owned utility and an electric
20-19    cooperative.
20-20          SECTION 15.  Section 35.004, Utilities Code, is amended to
20-21    read as follows:
20-22          Sec. 35.004.  PROVISION OF TRANSMISSION SERVICE.  (a)  An
20-23    electric utility or transmission and distribution utility that owns
20-24    or operates transmission facilities shall provide wholesale
20-25    transmission service at rates and terms, including terms of access,
20-26    that are comparable to the rates and terms of the utility's own use
 21-1    of its system.
 21-2          (b)  The commission shall ensure that an electric utility or
 21-3    transmission and distribution utility provides nondiscriminatory
 21-4    access to wholesale transmission service for qualifying facilities,
 21-5    exempt wholesale generators, power marketers, power generation
 21-6    companies, retail electric providers, and other electric utilities
 21-7    or transmission and distribution utilities.
 21-8          (c)  When an electric utility, electric cooperative, or
 21-9    transmission and distribution utility provides wholesale
21-10    transmission service within ERCOT at the request of a third party,
21-11    the commission shall ensure that the utility recovers the utility's
21-12    reasonable costs in providing wholesale transmission services
21-13    necessary for the transaction from the entity for which the
21-14    transmission is provided so that the utility's other customers do
21-15    not bear the costs of the service.
21-16          (d)  The commission shall price wholesale transmission
21-17    services within ERCOT based on the postage stamp method of pricing
21-18    under which a transmission-owning utility's rate is based on the
21-19    ERCOT utilities' combined annual costs of transmission divided by
21-20    the total demand placed on the combined transmission systems of all
21-21    such transmission-owning utilities within a power region.  An
21-22    electric utility subject to the freeze period imposed by Section
21-23    39.052 may treat transmission costs in excess of transmission
21-24    revenues during the freeze period as an expense for purposes of
21-25    determining annual costs in the annual report filed pursuant to
21-26    Section 39.257.  Notwithstanding Section 36.201, the commission may
 22-1    approve rates that may be periodically adjusted to ensure timely
 22-2    recovery of transmission investment.
 22-3          (e)  The commission shall ensure that ancillary services
 22-4    necessary to facilitate the transmission of electric energy are
 22-5    available at reasonable prices with terms and conditions that are
 22-6    not unreasonably preferential, prejudicial, discriminatory,
 22-7    predatory, or anticompetitive.  In this subsection, "ancillary
 22-8    services" means services necessary to facilitate the transmission
 22-9    of electric energy including load following, standby power, backup
22-10    power, reactive power, and such other services as the commission
22-11    may determine by rule.
22-12          SECTION 16.  Subsection (b), Section 35.005, Utilities Code,
22-13    is amended to read as follows:
22-14          (b)  The commission may require transmission service at
22-15    wholesale, including the construction or enlargement of a
22-16    facility[, in a proceeding not related to approval of an integrated
22-17    resource plan].
22-18          SECTION 17.  Section 35.033, Utilities Code, is amended to
22-19    read as follows:
22-20          Sec. 35.033.  Affiliate Wholesale Provider.  An affiliate of
22-21    an electric utility may be an exempt wholesale generator or power
22-22    marketer and may sell electric energy to its affiliated electric
22-23    utility in accordance with [Chapter 34 and other] laws governing
22-24    wholesale sales of electric energy.
22-25          SECTION 18.  Section 35.034, Utilities Code, is amended by
22-26    adding Subsection (c) to read as follows:
 23-1          (c)  For purposes of this section, "electric utility" does
 23-2    not include a river authority.
 23-3          SECTION 19.  Section 35.035, Utilities Code, is amended by
 23-4    adding Subsection (d) to read as follows:
 23-5          (d)  For purposes of this section, "electric utility" does
 23-6    not include a river authority.
 23-7          SECTION 20.  Chapter 35, Utilities Code, is amended by adding
 23-8    Subchapter D to read as follows:
 23-9          SUBCHAPTER D.  STATE AUTHORITY TO SELL OR CONVEY POWER
23-10          Sec. 35.101.  DEFINITIONS.  In this subchapter:
23-11                (1)  "Commissioner" means the Commissioner of the
23-12    General Land Office.
23-13                (2)  "Public retail customer" means a retail customer
23-14    that is an agency of this state, an institution of higher
23-15    education, a public school district, or a political subdivision of
23-16    this state.
23-17          Sec. 35.102.  STATE AUTHORITY TO SELL OR CONVEY POWER.  The
23-18    commissioner, acting on behalf of the state, may sell or otherwise
23-19    convey power directly to a public retail customer regardless of
23-20    whether the public retail customer is also classified as a
23-21    wholesale customer under other provisions of this title.
23-22          Sec. 35.103.  ACCESS TO TRANSMISSION AND DISTRIBUTION
23-23    SYSTEMS; RATES.  (a)  Except as provided in Section 35.104, the
23-24    state is entitled to have access to all transmission and
23-25    distribution systems of all electric utilities, transmission and
23-26    distribution utilities, municipally owned utilities, and electric
 24-1    cooperatives that serve public retail customers.
 24-2          (b)  An entity described by Subsection (a) shall provide any
 24-3    utility service, including transmission, distribution, and other
 24-4    services, to the state at the lowest applicable rate charged for
 24-5    similar service to other customers.
 24-6          Sec. 35.104.  LIMIT IN CERTAIN AREAS.  Sections 35.102,
 24-7    35.103, and 35.105 shall not apply to the rates, retail service
 24-8    area, facilities, or public retail customers of a municipally owned
 24-9    electric utility that has not adopted customer choice or an
24-10    electric cooperative that has not adopted customer choice.  In a
24-11    certificated service area of an electric utility in which customer
24-12    choice has not been introduced, the state may not engage in retail
24-13    transactions that exceed 2.5 percent of a retail electric utility's
24-14    total retail load.
24-15          Sec. 35.105.  COSTS OF SERVING STATE AGENCY.  An electric
24-16    utility may not recover from a residential customer or from any
24-17    other customer class the assigned and allocated costs of serving a
24-18    state agency, institution of higher education, public school
24-19    district, or political subdivision of this state.  The rates of a
24-20    municipally owned utility or an electric cooperative shall be set
24-21    in accordance with the provisions of Chapters 40 and 41,
24-22    respectively.
24-23          Sec. 35.106.  WHOLESALE CUSTOMERS.  This subchapter does not
24-24    prevent the commissioner, acting on behalf of this state, from
24-25    registering as a power marketer.
24-26          SECTION 21.  Section 36.008, Utilities Code, is amended to
 25-1    read as follows:
 25-2          Sec. 36.008.  STATE TRANSMISSION SYSTEM.  In establishing
 25-3    rates for an electric utility [not required to file an integrated
 25-4    resource plan], the commission may review the state's transmission
 25-5    system and make recommendations to the utility on the need to build
 25-6    new power lines, upgrade power lines, and make other necessary
 25-7    improvements and additions.
 25-8          SECTION 22.  Section 36.052, Utilities Code, is amended to
 25-9    read as follows:
25-10          Sec. 36.052.  ESTABLISHING REASONABLE RETURN.  In
25-11    establishing a reasonable return on invested capital, the
25-12    regulatory authority shall consider applicable factors, including:
25-13                (1)  [the efforts of the electric utility to comply
25-14    with its most recently approved integrated resource plan;]
25-15                [(2)]  the efforts and achievements of the utility in
25-16    conserving resources;
25-17                (2) [(3)]  the quality of the utility's services;
25-18                (3) [(4)]  the efficiency of the utility's operations;
25-19    and
25-20                (4) [(5)]  the quality of the utility's management.
25-21          SECTION 23.  Subsection (d), Section 36.058, Utilities Code,
25-22    is amended to read as follows:
25-23          (d)  In making a finding regarding an affiliate transaction,
25-24    [including an affiliate transaction subject to Chapter 34,] the
25-25    regulatory authority shall:
25-26                (1)  determine the extent to which the conditions and
 26-1    circumstances of that transaction are reasonably comparable
 26-2    relative to quantity, terms, date of contract, and place of
 26-3    delivery; and
 26-4                (2)  allow for appropriate differences based on that
 26-5    determination.
 26-6          SECTION 24.  Section 36.201, Utilities Code, is amended to
 26-7    read as follows:
 26-8          Sec. 36.201.  AUTOMATIC ADJUSTMENT FOR CHANGES IN COSTS.
 26-9    Except as permitted by [Chapter 34 or] Section 36.204, the
26-10    commission may not establish a rate or tariff that authorizes an
26-11    electric utility to automatically adjust and pass through to the
26-12    utility's customers a change in the utility's fuel or other costs.
26-13          SECTION 25.  Section 36.204, Utilities Code, is amended to
26-14    read as follows:
26-15          Sec. 36.204.  COST RECOVERY AND INCENTIVES.  In establishing
26-16    rates for an electric utility [not required to file an integrated
26-17    resource plan], the commission may:
26-18                (1)  allow timely recovery of the reasonable costs of
26-19    conservation, load management, and purchased power, notwithstanding
26-20    Section 36.201; and
26-21                (2)  authorize additional incentives for conservation,
26-22    load management, purchased power, and renewable resources.
26-23          SECTION 26.  Section 36.207, Utilities Code, is amended to
26-24    read as follows:
26-25          Sec. 36.207.  USE OF MARK-UPS.  Any mark-ups approved under
26-26    [Chapter 34 or] Section 36.206 are an exceptional form of rate
 27-1    relief that the electric utility may recover from ratepayers only
 27-2    on a finding by the commission that the relief is necessary to
 27-3    maintain the utility's financial integrity.
 27-4          SECTION 27.  Section 37.001, Utilities Code, is amended to
 27-5    read as follows:
 27-6          Sec. 37.001.  DEFINITIONS.  In this chapter:
 27-7                (1)  "Certificate" means a certificate of convenience
 27-8    and necessity.
 27-9                (2)  "Electric utility" includes an electric
27-10    cooperative.
27-11                (3)  "Retail electric utility" means a person,
27-12    political subdivision, or agency that operates, maintains, or
27-13    controls in this state a facility to provide retail electric
27-14    utility service.  The term does not include a corporation described
27-15    by Section 32.053 to the extent that the corporation sells
27-16    electricity exclusively at wholesale and not to the ultimate
27-17    consumer.  A qualifying cogenerator that sells electric energy at
27-18    retail to the sole purchaser of the cogenerator's thermal output
27-19    under Sections 35.061 and 36.007 is not for that reason considered
27-20    to be a retail electric utility.
27-21          SECTION 28.  Section 37.051, Utilities Code, is amended by
27-22    adding Subsection (c) to read as follows:
27-23          (c)  Notwithstanding any other provision of this chapter,
27-24    including Subsection (a), an electric cooperative is not required
27-25    to obtain a certificate of public convenience and necessity for the
27-26    construction, installation, operation, or extension of any
 28-1    generating facilities or necessary interconnection facilities.
 28-2          SECTION 29.  Subchapter B, Chapter 37, Utilities Code, is
 28-3    amended by adding Sections 37.060 and 37.061 to read as follows:
 28-4          Sec. 37.060.  DIVISION OF MULTIPLY CERTIFICATED SERVICE
 28-5    AREAS.  (a)  This subsection and Subsections (b)-(g) shall apply
 28-6    only to areas in which each retail electric utility that is
 28-7    authorized to provide retail electric utility service to the area
 28-8    is providing customer choice.  For purposes of this subsection, an
 28-9    electric cooperative or a municipally owned electric utility shall
28-10    be deemed to be providing customer choice if it has approved a
28-11    resolution adopting customer choice that is effective upon
28-12    certification of the applicable power region pursuant to Section
28-13    39.152 or effective within 24 months after the date of the
28-14    resolution adopting customer choice.  All other retail electric
28-15    utilities shall be deemed to be providing customer choice if
28-16    customer choice will be allowed for customers of the retail
28-17    electric utility upon certification of the applicable power region
28-18    pursuant to Section 39.152.  In areas in which each certificated
28-19    retail electric utility is providing customer choice, the
28-20    commission, if requested by a retail electric utility, shall
28-21    examine all areas within the service area of the retail electric
28-22    utility making the request that are also certificated to one or
28-23    more other retail electric utilities and, after notice and hearing,
28-24    shall amend the retail electric utilities' certificates so that
28-25    only one retail electric utility is certificated to provide
28-26    distribution services in any such area.  Only retail electric
 29-1    utilities certificated to serve an area on June 1, 1999, may
 29-2    continue to serve the area or portion of the area under an amended
 29-3    certificate issued pursuant to this subsection.
 29-4          (b)  This section shall not apply in any area in which a
 29-5    municipally owned utility is certificated to provide retail
 29-6    electric utility service if the municipally owned utility serving
 29-7    the area files with the commission by February 1, 2000, a request
 29-8    that areas within the certificated service area of the municipally
 29-9    owned utility remain as presently certificated.
29-10          (c)  The commission shall enter its order dividing multiply
29-11    certificated areas within one year of the date a request is
29-12    received.
29-13          (d)  In amending certificates under this section, the
29-14    commission shall take into consideration the factors set out in
29-15    Section 37.056.
29-16          (e)  Notwithstanding Section 37.059, the commission shall
29-17    revoke certificates to the extent necessary to achieve the division
29-18    of retail electric service areas as provided by this section.
29-19          (f)  Unless otherwise agreed by the affected retail electric
29-20    utilities, each retail electric utility shall be allowed to
29-21    continue to provide service to the location of
29-22    electricity-consuming facilities it is serving on the date an
29-23    application for division of the affected multiply certificated
29-24    service areas is filed.  No customer located within the affected
29-25    multiply certificated service areas shall be permitted to switch
29-26    from one retail electric utility to another while an application
 30-1    for division of the affected multiply certificated service areas is
 30-2    pending.
 30-3          (g)  If on June 1, 1999, retail service is being provided in
 30-4    an area by another retail electric utility with the written consent
 30-5    of the retail electric utility certificated to serve the area, such
 30-6    consent shall be filed with the commission.  Upon notification of
 30-7    such consent and a request by an affected retail electric utility
 30-8    to amend the relevant certificates, the commission may grant an
 30-9    exception or amend a retail electric utility's certificate.
30-10          (h)  The commission shall not grant an additional retail
30-11    electric utility certificate to serve an area if the effect of the
30-12    grant would cause the area to be multiply certificated unless the
30-13    commission finds that the certificate holders are not providing
30-14    service to any part of the area for which a certificate is sought
30-15    and are not capable of providing adequate service to the area in
30-16    accordance with applicable standards.  However, neither this
30-17    subsection nor the deadline of June 1, 1999, provided by Subsection
30-18    (a) shall apply to any application for multiple certification filed
30-19    with the commission on or before February 1, 1999, and such
30-20    applications may be processed in accordance with applicable law in
30-21    effect on the date the application was filed.  Applications for
30-22    multiple certification filed with the commission on or before
30-23    February 1, 1999, may not be amended to expand the area for which a
30-24    certificate is sought except for contiguous areas within
30-25    municipalities that provide consent, as required by Section
30-26    37.053(b), no later than June 1, 1999.
 31-1          (i)  Notwithstanding any other provision of this section, if
 31-2    requested by a municipally owned utility, the commission shall
 31-3    examine all areas within the municipally owned utility's service
 31-4    area that are also certificated to one or more other retail
 31-5    electric utilities and, after notice and hearing, may amend the
 31-6    retail electric utilities' certificates so that only one retail
 31-7    electric utility is certificated to provide distribution services
 31-8    in the area, provided that:
 31-9                (1)  the application is filed with the commission
31-10    within 12 months of the effective date of this provision and is
31-11    limited to single certification of the area within the
31-12    municipality's boundaries as of February 1, 1999;
31-13                (2)  the commission preserves the right of an electric
31-14    utility or an electric cooperative to serve its existing customers,
31-15    including any property owned or leased by any customer; and
31-16                (3)  the municipality is a member city of a municipal
31-17    power agency as that term is used in Section 40.059.
31-18          Sec. 37.061.  EXISTING SERVICE AREA AGREEMENTS.
31-19    (a)  Notwithstanding any other provision of this title, the
31-20    commission shall allow a municipally owned utility to amend the
31-21    service area boundaries of its certificate if:
31-22                (1)  the municipally owned utility was the holder of a
31-23    certificate as of January 1, 1999;
31-24                (2)  the municipally owned utility has an agreement
31-25    existing prior to January 1, 1999, with a public utility serving
31-26    the area that the public utility will not contest an application to
 32-1    amend the certificate to add municipal territory; and
 32-2                (3)  the area for which a certificate is requested is
 32-3    not certificated to a retail electric utility that is not a party
 32-4    to the agreement and that has not consented in writing to
 32-5    certification of the area to the municipality.
 32-6          (b)  The commission may not amend the certificate of the
 32-7    public utility serving the affected area based upon the granting of
 32-8    a certificate to the municipally owned utility.
 32-9          SECTION 30.  Subsection (a), Section 37.101, Utilities Code,
32-10    is amended to read as follows:
32-11          (a)  If an area is or will be included within a municipality
32-12    as the result of annexation, incorporation, or another reason, each
32-13    electric utility and each electric cooperative that holds or is
32-14    entitled to hold a certificate under this title to provide service
32-15    or operate a facility in the area before the inclusion has the
32-16    right to continue to provide the service or operate the facility
32-17    and extend service within the utility's certificated area in the
32-18    annexed or incorporated area under the rights granted by the
32-19    certificate and this title.
32-20          SECTION 31.  Section 38.001, Utilities Code, is amended to
32-21    read as follows:
32-22          Sec. 38.001.  GENERAL STANDARD.  An electric utility and an
32-23    electric cooperative shall furnish service, instrumentalities, and
32-24    facilities that are safe, adequate, efficient, and reasonable.
32-25          SECTION 32.  Section 38.004, Utilities Code, is amended to
32-26    read as follows:
 33-1          Sec. 38.004.  MINIMUM CLEARANCE STANDARD.  Notwithstanding
 33-2    any other law, a transmission or distribution line owned by an
 33-3    electric utility or an electric cooperative must be constructed,
 33-4    operated, and maintained, as to clearances, in the manner described
 33-5    by the National Electrical Safety Code Standard ANSI (c)(2), as
 33-6    adopted by the American National Safety Institute and in effect at
 33-7    the time of construction.
 33-8          SECTION 33.  Subchapter A, Chapter 38,  Utilities Code, is
 33-9    amended by adding Section 38.005 to read as follows:
33-10          Sec. 38.005.  ELECTRIC SERVICE RELIABILITY MEASURES.
33-11    (a)  The commission shall implement service quality and reliability
33-12    standards relating to the delivery of electricity to retail
33-13    customers by electric utilities and transmission and distribution
33-14    utilities.  The commission by rule shall develop reliability
33-15    standards including but not limited to the following:
33-16                (1)  the system-average interruption frequency index;
33-17                (2)  the system-average interruption duration index;
33-18                (3)  achievement of average response time for customer
33-19    service requests or inquiries; or
33-20                (4)  other standards that the commission finds
33-21    reasonable and appropriate.
33-22          (b)  The standards implemented under Subsection (a) shall
33-23    require each electric utility and transmission and distribution
33-24    utility subject to this section to maintain adequately trained and
33-25    experienced personnel throughout the utility's service area so that
33-26    the utility is able to fully and adequately comply with the
 34-1    appropriate service quality and reliability standards.
 34-2          (c)  The standards shall ensure that electric utilities do
 34-3    not neglect any local neighborhood or geographic area, including
 34-4    rural areas, communities of less than 1,000 persons, and low-income
 34-5    areas, with regard to system reliability.
 34-6          (d)  The commission may require each electric utility and
 34-7    transmission and distribution utility to supply data to assist the
 34-8    commission in developing the reliability standards.
 34-9          (e)  Each electric utility, transmission and distribution
34-10    utility, and generation provider shall be obligated to comply with
34-11    any operational criteria duly established by the independent
34-12    organization as defined by Section 39.151 or adopted by the
34-13    commission.
34-14          SECTION 34.  Section 38.071, Utilities Code, is amended to
34-15    read as follows:
34-16          Sec. 38.071.  Improvements in Service; Interconnecting
34-17    Service.  The commission, after notice and hearing, may:
34-18                (1)  order an electric utility to provide specified
34-19    improvements in its service in a specified area if:
34-20                      (A)  service in the area is inadequate or
34-21    substantially inferior to service in a comparable area; and
34-22                      (B)  requiring the company to provide the
34-23    improved service is reasonable; or
34-24                (2)  order two or more electric utilities or electric
34-25    cooperatives to establish specified facilities for interconnecting
34-26    service.
 35-1          SECTION 35.  Subtitle B, Title 2, Utilities Code, is amended
 35-2    by adding Chapters 39, 40, and 41 to read as follows:
 35-3          CHAPTER 39.  RESTRUCTURING OF ELECTRIC UTILITY INDUSTRY
 35-4                     SUBCHAPTER A.  GENERAL PROVISIONS
 35-5          Sec. 39.001.  LEGISLATIVE POLICY AND PURPOSE.  (a)  The
 35-6    legislature finds that the production and sale of electricity is
 35-7    not by definition or necessity a monopoly warranting regulation of
 35-8    rates, operations, and services and that the public interest in
 35-9    competitive electric markets requires that, except for transmission
35-10    and distribution services and for the recovery of stranded costs,
35-11    electric services and their prices should be determined by customer
35-12    choices and the normal forces of competition.  As a result, this
35-13    chapter is enacted to protect the public interest during the
35-14    transition to and in the establishment of a fully competitive
35-15    electric power industry.
35-16          (b)  The legislature finds that it is in the public interest
35-17    to:
35-18                (1)  implement on January 1, 2002, a competitive retail
35-19    electric market that allows each retail customer to choose the
35-20    customer's provider of electricity and that encourages full and
35-21    fair competition among all providers of electricity;
35-22                (2)  allow utilities with uneconomic generation-related
35-23    assets and purchased power contracts to recover the reasonable
35-24    excess costs over market of such assets and purchased power
35-25    contracts;
35-26                (3)  educate utility customers about anticipated
 36-1    changes in the provision of retail electric service to ensure that
 36-2    the benefits of the competitive market reach all customers; and
 36-3                (4)  protect the competitive process in a manner that
 36-4    ensures the confidentiality of competitively sensitive information
 36-5    during the transition to a competitive market and after the
 36-6    commencement of customer choice.
 36-7          (c)  Regulatory authorities shall not make rules or issue
 36-8    orders regulating competitive electric services, prices, or
 36-9    competitors or restricting or conditioning competition except as
36-10    authorized in this title and shall not discriminate against any
36-11    participant or type of participant during the transition to a
36-12    competitive market and in the competitive market.
36-13          Sec. 39.002.  APPLICABILITY.  This chapter, other than
36-14    Sections 39.155, 39.157(e), 39.203, 39.603, and 39.604, does not
36-15    apply to a municipally owned utility or an electric cooperative.
36-16    Sections 39.157(e), 39.203, and 39.604, however, apply only to a
36-17    municipally owned utility or an electric cooperative that is
36-18    offering customer choice.  If there is a conflict between the
36-19    specific provisions of this chapter and any other provisions of
36-20    this title, except for Chapters 40 and 41, the provisions of this
36-21    chapter control.
36-22          Sec. 39.003.  OPERATIONS IN MULTIPLE POWER REGIONS.  In this
36-23    chapter, a retail electric utility whose certificated service area
36-24    includes areas that are located in a qualifying power region and
36-25    areas that are located in a power region that is not a qualifying
36-26    power region shall be considered a retail electric utility in a
 37-1    qualifying power region for that part of its certificated service
 37-2    area that is located in a qualifying power region and shall be
 37-3    considered a retail electric utility not in a qualifying power
 37-4    region for that part of its certificated service area that is
 37-5    located in a power region that is not a qualifying power region.
 37-6              SUBCHAPTER B.  TRANSITION TO COMPETITIVE RETAIL
 37-7                              ELECTRIC MARKET
 37-8          Sec. 39.051.  UNBUNDLING.  (a)  On or before September 1,
 37-9    2000, each electric utility shall unbundle its costs and rates into
37-10    generation, transmission, distribution, and retail energy services
37-11    and a system benefit fund charge and expected competition
37-12    transition charge.
37-13          (b)  Not later than January 1, 2002, each electric utility
37-14    shall separate its business activities from one another into the
37-15    following units:
37-16                (1)  a power generation company;
37-17                (2)  a retail electric provider; and
37-18                (3)  a transmission and distribution utility.
37-19          (c)  An electric utility may accomplish the separation
37-20    required by Subsection (b) either through the creation of separate
37-21    nonaffiliated companies or separate affiliated companies owned by a
37-22    common holding company or through the sale of assets to a third
37-23    party.
37-24          (d)  Each electric utility shall unbundle under this section
37-25    in a manner that provides for a separation of personnel,
37-26    information flow, functions, and operations.
 38-1          (e)  Each electric utility shall file with the commission a
 38-2    plan to implement this section by January 1, 2000.
 38-3          (f)  Within 120 days of the date the plan required under
 38-4    Subsection (e) is filed with the commission, the commission shall
 38-5    adopt the utility's plan for business separation required by
 38-6    Subsection (b), adopt the plan with changes, or reject the plan and
 38-7    require the utility to file a new plan.
 38-8          (g)  If the commission determines that a power region will
 38-9    not qualify for customer choice under Section 39.152 by January 1,
38-10    2002, it may adjust the filing and implementation dates in this
38-11    section for utilities in that region.
38-12          (h)  Transactions by electric utilities involving sales,
38-13    transfers, or other disposition of assets to accomplish the
38-14    purposes of this section shall not be subject to Section 14.101,
38-15    35.034, or 35.035.
38-16          Sec. 39.052.  FREEZE ON EXISTING RETAIL BASE RATE TARIFFS.
38-17    (a)  Until January 1, 2002, an electric utility shall provide
38-18    retail electric service within its certificated service area in
38-19    accordance with the electric utility's retail base rate tariffs in
38-20    effect on September 1, 1999, including its purchased power cost
38-21    recovery factor.
38-22          (b)  During the freeze period an electric utility may not
38-23    increase its retail base rates above the rates provided by this
38-24    section except for losses caused by force majeure as provided by
38-25    Section 39.055.
38-26          (c)  Notwithstanding any other provision of this title,
 39-1    during the freeze period the regulatory authority may not reduce
 39-2    the retail base rates of an electric utility, except as may be
 39-3    ordered as stipulated to by an electric utility in a proceeding for
 39-4    which a final order had not been issued by January 1, 1999.
 39-5          (d)  During the freeze period the retail base rates, overall
 39-6    revenues, return on invested capital, and net income of an electric
 39-7    utility are not subject to complaint, hearing, or determination as
 39-8    to reasonableness.
 39-9          (e)  An electric utility that has a rate proceeding pending
39-10    before the commission as of January 2, 1999, shall provide service
39-11    in accordance with the tariffs approved in that proceeding from the
39-12    date of approval until the end of the freeze period.
39-13          (f)  Nothing in this section affects the authority of the
39-14    commission to fulfill its obligations under Section 39.262.
39-15          (g)  Nothing in this section shall deny a utility its right
39-16    to have the commission conduct proceedings and issue a final order
39-17    pertaining to any matter that may be remanded to the commission by
39-18    a court having jurisdiction, except that the final order may not
39-19    affect the rates charged to customers during the freeze period but
39-20    shall be taken into account during the utility's true-up proceeding
39-21    under Section 39.262.
39-22          (h)  Nothing in this title shall be construed to prevent an
39-23    electric utility or a transmission and distribution utility from
39-24    filing, and the commission from approving, a change in wholesale
39-25    transmission service rates during the freeze period.
39-26          Sec. 39.053.  COST RECOVERY ADJUSTMENTS.  This subchapter
 40-1    does not limit or alter the ability of an electric utility during
 40-2    the freeze period to revise its fuel factor or to reconcile fuel
 40-3    expenses and to either refund fuel overcollections or surcharge
 40-4    fuel undercollections to customers, as authorized by its tariffs
 40-5    and Sections 36.203 and 36.205.
 40-6          Sec. 39.054.  RETAIL ELECTRIC SERVICE DURING THE FREEZE
 40-7    PERIOD.  (a)  An electric utility shall provide retail electric
 40-8    service during the freeze period in accordance with any contract
 40-9    terms applicable to a particular retail customer approved by the
40-10    regulatory authority and in effect on December 31, 1998.
40-11          (b)  Nothing in Sections 39.052(c) and (d) shall be construed
40-12    to restrict any customer's right to complain during the freeze
40-13    period to the regulatory authority regarding the quality of retail
40-14    electric service provided by the electric utility or the
40-15    applicability of an electric utility's particular tariff to the
40-16    customer.
40-17          (c)  Nothing in this title shall be construed to restrict an
40-18    electric utility, voluntarily and at its sole discretion, from
40-19    offering new services or new tariff options to its customers during
40-20    the freeze period.
40-21          (d)  Any offering of new services or tariff options under
40-22    this section shall be equal to or greater than an electric
40-23    utility's long-run marginal cost and not be unreasonably
40-24    preferential, prejudicial, discriminatory, predatory, or
40-25    anticompetitive.
40-26          (e)  Revenue from any new offering under this section shall
 41-1    be accounted for in a manner consistent with Section 36.007.
 41-2          Sec. 39.055.  FORCE MAJEURE.  (a)  An electric utility may
 41-3    recover losses resulting from force majeure through an increase in
 41-4    its retail base rates during the freeze period.
 41-5          (b)  Notwithstanding Subchapter C, Chapter 36, the regulatory
 41-6    authority, after a hearing to determine the electric utility's
 41-7    losses from force majeure, shall permit the utility to fully
 41-8    collect any approved force majeure increase through an appropriate
 41-9    customer surcharge mechanism.
41-10          (c)  For purposes of this section, "force majeure" means a
41-11    major event or combination of major events, including new or
41-12    expanded state or federal statutory or regulatory requirements;
41-13    hurricanes, tornadoes, ice storms, or other natural disasters; or
41-14    acts of war, terrorism, or civil disturbance, beyond the control of
41-15    an electric utility that the regulatory authority finds increases
41-16    the utility's total reasonable and necessary nonfuel costs or
41-17    decreases the utility's total nonfuel revenues related to the
41-18    generation and delivery of electricity by more than 10 percent for
41-19    any calendar year during the freeze period.  The term does not
41-20    include any changes in general economic conditions such as
41-21    inflation, interest rates, or other factors of general application.
41-22                     SUBCHAPTER C.  RETAIL COMPETITION
41-23          Sec. 39.101.  CUSTOMER SAFEGUARDS. (a)  Before retail
41-24    competition begins on January 1, 2002, the commission shall ensure
41-25    that retail customer protections are established that entitle a
41-26    customer:
 42-1                (1)  to safe, reliable, and reasonably priced
 42-2    electricity, including protection against service disconnections in
 42-3    extreme weather or in cases of medical emergency or nonpayment for
 42-4    unrelated services;
 42-5                (2)  to privacy of customer consumption and credit
 42-6    information;
 42-7                (3)  to bills presented in a clear format and in
 42-8    language readily understandable by customers;
 42-9                (4)  to the option to have all electric services on a
42-10    single bill, except in those instances where multiple bills are
42-11    allowed under Chapters 40 and 41;
42-12                (5)  to protection from discrimination on the basis of
42-13    race, color, sex, nationality, religion, or marital status;
42-14                (6)  to accuracy of metering and billing;
42-15                (7)  to information in English and Spanish and any
42-16    other language as necessary concerning rates, key terms and
42-17    conditions, and the environmental impact of certain production
42-18    facilities;
42-19                (8)  to information in English and Spanish and any
42-20    other language as necessary concerning low-income assistance
42-21    programs and deferred payment plans; and
42-22                (9)  to other information or protections necessary to
42-23    ensure high-quality service to customers.
42-24          (b)  A customer is entitled:
42-25                (1)  to be informed about rights and opportunities in
42-26    the transition to a competitive electric industry;
 43-1                (2)  to choose the customer's retail electric provider
 43-2    consistent with this chapter, to have that choice honored, and to
 43-3    assume that the customer's chosen provider will not be changed
 43-4    without the customer's informed consent;
 43-5                (3)  to have access to providers of energy efficiency
 43-6    services and to providers of energy generated by renewable energy
 43-7    resources;
 43-8                (4)  to be served by a provider of last resort that
 43-9    offers a commission-approved standard service package;
43-10                (5)  to receive sufficient information to make an
43-11    informed choice of service provider;
43-12                (6)  to be protected from unfair, misleading, or
43-13    deceptive practices, including protection from being billed for
43-14    services that were not authorized or provided; and
43-15                (7)  to have an impartial and prompt resolution of
43-16    disputes with its chosen retail electric provider and transmission
43-17    and distribution utility.
43-18          (c)  A retail electric provider, power generation company,
43-19    aggregator, or other entity that provides retail electric service
43-20    may not refuse to provide retail electric or electric generation
43-21    service or otherwise discriminate in the provision of electric
43-22    service to any customer because of race, creed, color, national
43-23    origin, ancestry, sex, marital status, lawful source of income,
43-24    disability, or familial status.  A retail electric provider, power
43-25    generation company, aggregator, or other entity that provides
43-26    retail electric service may not refuse to provide retail electric
 44-1    or electric generation service to a customer because the customer
 44-2    is located in an economically distressed geographic area or
 44-3    qualifies for low-income affordability or energy efficiency
 44-4    services.  The commission shall require a provider to comply with
 44-5    this subsection as a condition of certification or registration.
 44-6          (d)  A retail electric provider, power generation company,
 44-7    aggregator, or other entity that provides retail electric service
 44-8    shall submit reports to the commission and the office annually and
 44-9    on request relating to the person's compliance with this section.
44-10    The commission by rule shall specify the form in which a report
44-11    must be submitted.  A report must include:
44-12                (1)  information regarding the extent of the person's
44-13    coverage;
44-14                (2)  information regarding the service provided,
44-15    compiled by zip code and census tract; and
44-16                (3)  any other information the commission or the office
44-17    considers relevant to determine compliance.
44-18          (e)  The commission has the authority to adopt and enforce
44-19    such rules as may be necessary or appropriate to carry out
44-20    Subsections (a)-(d), including but not limited to rules for minimum
44-21    service standards for a retail electric provider relating to
44-22    customer deposits and the extension of credit, switching fees,
44-23    levelized billing programs, termination of service, and quality of
44-24    service.  The commission has jurisdiction over all providers of
44-25    electric service in enforcing Subsections (a)-(d) and may assess
44-26    civil and administrative penalties under Section 15.023 and seek
 45-1    civil penalties under Section 15.028.
 45-2          (f)  On or before December 31, 2001, the commission shall
 45-3    modify its current rules regarding customer protections to ensure
 45-4    that at least the same level of customer protection against
 45-5    potential abuses and the same quality of service that exists on
 45-6    December 31, 1999, is maintained in a restructured electric
 45-7    industry.
 45-8          Sec. 39.102.  RETAIL CUSTOMER CHOICE.  (a)  Each retail
 45-9    customer in the state, except retail customers in power regions
45-10    that are not certified as qualifying for competition by the
45-11    commission and retail customers of electric cooperatives and
45-12    municipally owned utilities that have not opted for customer
45-13    choice, shall have customer choice on and after January 1, 2002.
45-14          (b)  The affiliated retail electric provider of the electric
45-15    utility serving a retail customer on December 31, 2001, may
45-16    continue to serve that customer until the customer chooses service
45-17    from a different retail electric provider, an electric cooperative
45-18    offering customer choice, or a municipally owned utility offering
45-19    customer choice.
45-20          (c)  An electric utility that has in effect a systemwide
45-21    freeze for residential and commercial customers extending beyond
45-22    December 31, 2001, that has been found by a regulatory authority to
45-23    be in the public interest shall not be subject to this chapter.  At
45-24    the expiration of the utility's freeze period, the utility shall be
45-25    subject to the provisions of this chapter and shall, at that time,
45-26    have no claim for stranded cost recovery.
 46-1          Sec. 39.103.  COMMISSION AUTHORITY TO DELAY COMPETITION AND
 46-2    SET NEW RATES.  If the commission determines under Section 39.104
 46-3    that a power region is unable to offer fair competition and
 46-4    reliable service to all retail customer classes on January 1, 2002,
 46-5    or that the power region fails to meet the requirements of Section
 46-6    39.152, the commission shall delay customer choice for the power
 46-7    region and may on or after January 1, 2002, establish new rates for
 46-8    all electric utilities in the power region as provided by Chapter
 46-9    36.
46-10          Sec. 39.104.  CUSTOMER CHOICE PILOT PROJECTS.  (a)  Customer
46-11    choice pilot projects may be used to allow the commission to
46-12    evaluate the ability of each power region and electric utility to
46-13    implement customer choice.
46-14          (b)  The commission shall require each electric utility
46-15    operating in ERCOT to offer customer choice in its service area
46-16    amounting to five percent of the utility's combined load of all
46-17    customer classes beginning on June 1, 2001.
46-18          (c)  The commission may require an electric utility operating
46-19    outside of ERCOT to offer customer choice in its service area
46-20    within the state amounting to five percent of the utility's
46-21    combined load within the state of all customer classes beginning on
46-22    June 1, 2001.
46-23          (d)  The load designated for customer choice under this
46-24    section shall be distributed among all customer classes of a
46-25    utility consistent with the purpose of this section and subject to
46-26    commission approval.
 47-1          (e)  Customers participating in a pilot project under this
 47-2    section may buy electric energy from any retail electric provider
 47-3    certified by the commission under Section 39.352, including an
 47-4    affiliated retail electric provider; provided, however, that a
 47-5    retail electric provider may not participate in a pilot project in
 47-6    the certificated service area served by the electric utility with
 47-7    which it is affiliated.
 47-8          (f)  Each utility operating a pilot project under this
 47-9    section shall charge residential and small commercial customers in
47-10    accordance with Section 39.052.
47-11          (g)  The commission may prescribe reporting requirements it
47-12    considers necessary to evaluate a pilot project consistent with the
47-13    purpose of this section.
47-14          (h)  Customers having customer choice under this section
47-15    shall be billed as provided by Section 39.107.
47-16          (i)  The commission may prescribe terms and conditions it
47-17    considers necessary to prohibit anticompetitive practices and to
47-18    encourage customer choice offered under this section.
47-19          (j)  Notwithstanding any other provision of this title, a
47-20    retail electric provider participating in a pilot project under
47-21    this section is not an electric utility or a retail electric
47-22    utility.
47-23          Sec. 39.105.  LIMITATION ON SALE OF ELECTRICITY.  (a)  After
47-24    January 1, 2002, in areas in which customer choice has been
47-25    introduced, a transmission and distribution utility may not sell
47-26    electricity or otherwise participate in the market for electricity
 48-1    except for the purpose of buying electricity to serve its own
 48-2    needs.
 48-3          (b)  A person or retail electric utility may not provide,
 48-4    furnish, or make available electric service at retail within the
 48-5    certificated service area of an electric cooperative that has not
 48-6    adopted customer choice or a municipally owned utility that has not
 48-7    adopted customer choice.  However, this subsection shall not
 48-8    prohibit the provision of electric service in multiply certificated
 48-9    service areas to customers of any other retail electric utility.
48-10          Sec. 39.106.  PROVIDER OF LAST RESORT.  (a)  The commission
48-11    shall designate retail electric providers in areas of the state in
48-12    which customer choice is in effect to serve as providers of last
48-13    resort.
48-14          (b)  A provider of last resort shall offer a standard retail
48-15    service package for each class of customers designated by the
48-16    commission at a fixed, nondiscountable rate approved by the
48-17    commission.
48-18          (c)  A provider of last resort shall provide the standard
48-19    retail service package to any requesting customer in the territory
48-20    for which it is the provider of last resort.
48-21          (d)  For all areas of the state for which the commission has
48-22    determined that customer choice is to be introduced on January 1,
48-23    2002, the commission shall designate the provider or providers of
48-24    last resort no later than June 1, 2001.  For areas of the state for
48-25    which customer choice is not to be introduced on January 1, 2002,
48-26    except as provided in Sections 40.053(c) and 41.053(c), the
 49-1    commission shall designate the provider or providers of last resort
 49-2    at the earliest feasible date after determining that conditions for
 49-3    permitting customer choice in that area have been met but no later
 49-4    than 180 days before customer choice is to begin.
 49-5          (e)  The commission shall determine the procedures and
 49-6    criteria, which may include the solicitation of bids, for
 49-7    designating a provider or providers of last resort.  The commission
 49-8    may redesignate the provider of last resort according to a schedule
 49-9    it considers appropriate.
49-10          (f)  In the event that no retail electric provider applies to
49-11    be the provider of last resort for a given area of the state on
49-12    reasonable terms and conditions, the commission may require a
49-13    retail electric provider to become the provider of last resort as a
49-14    condition of receiving or maintaining a certificate pursuant to
49-15    Section 39.352.
49-16          (g)  In the event that a retail electric provider fails to
49-17    serve any or all of its customers, the provider of last resort
49-18    shall offer each such customer the standard retail service package
49-19    for that customer class with no interruption of service to any
49-20    customer.
49-21          Sec. 39.107.  METERING AND BILLING SERVICES.  (a)  On
49-22    introduction of customer choice in a service area, metering
49-23    services for the area shall continue to be provided by the
49-24    transmission and distribution utility affiliate of the electric
49-25    utility that was serving the area prior to the introduction of
49-26    customer choice.  Metering services shall be provided on a
 50-1    competitive basis beginning:
 50-2                (1)  January 1, 2004, in areas in which customer choice
 50-3    is introduced January 1, 2002; and
 50-4                (2)  in areas in which customer choice begins at a
 50-5    later date, two years after the date that customer choice is
 50-6    introduced in the area.
 50-7          (b)  On introduction of customer choice in a service area,
 50-8    tenants of leased or rented property that is separately metered
 50-9    shall have the right to choose a retail electric provider, and the
50-10    owner of the property must grant reasonable and nondiscriminatory
50-11    access to transmission and distribution utilities or retail
50-12    electric providers for metering purposes.
50-13          (c)  Beginning on the date of introduction of customer choice
50-14    in a service area, a transmission and distribution utility shall
50-15    bill a customer's retail electric provider for nonbypassable
50-16    delivery charges as determined pursuant to Section 39.201.  The
50-17    retail electric provider must pay these charges.
50-18          (d)  A transmission and distribution utility may bill retail
50-19    customers at the request of a retail electric provider.  A
50-20    transmission and distribution utility that provides billing service
50-21    at the request of an affiliated retail electric provider shall
50-22    offer billing service on comparable terms and conditions to any
50-23    other requesting retail electric provider of a customer served by
50-24    the transmission and distribution utility.
50-25          (e)  Beginning on the date of introduction of customer choice
50-26    in a service area, any charges for metering and billing services
 51-1    shall comply with rules adopted by the commission relating to
 51-2    nondiscriminatory rates of service.
 51-3          Sec. 39.108.  CONTRACTUAL OBLIGATIONS.  This chapter shall
 51-4    not:
 51-5                (1)  interfere with or abrogate the rights or
 51-6    obligations of any party, including a retail or wholesale customer,
 51-7    to a contract with an investor-owned electric utility, river
 51-8    authority, municipally owned utility, or electric cooperative;
 51-9                (2)  interfere with or abrogate the rights or
51-10    obligations of a party under a contract or agreement concerning
51-11    certificated utility service areas; or
51-12                (3)  result in a change in wholesale power costs to
51-13    wholesale customers in Texas purchasing electricity under wholesale
51-14    power contracts the pricing provisions of which are based on
51-15    formulary rates, fuel adjustments, or average system costs.
51-16                      SUBCHAPTER D.  MARKET STRUCTURE
51-17          Sec. 39.151.  ESSENTIAL ORGANIZATIONS.  (a)  Before obtaining
51-18    commission certification as a qualifying power region, a power
51-19    region must establish one or more independent organizations to
51-20    perform the following functions:
51-21                (1)  ensure access to the transmission and distribution
51-22    systems for all buyers and sellers of electricity on
51-23    nondiscriminatory terms;
51-24                (2)  ensure the reliability and adequacy of the
51-25    regional electrical network;
51-26                (3)  ensure that information relating to a customer's
 52-1    choice of retail electric provider is conveyed in a timely manner
 52-2    to the persons who need such information; and
 52-3                (4)  ensure that electricity production and delivery
 52-4    are accurately accounted for among the generators and wholesale
 52-5    buyers and sellers in the region.
 52-6          (b)  "Independent organization" means an independent system
 52-7    operator or other person that is sufficiently independent of any
 52-8    producer or seller of electricity that its decisions will not be
 52-9    unduly influenced by any producer or seller.  An entity will be
52-10    deemed to be independent if it is governed by a board that has
52-11    three representatives from each segment of the electric market,
52-12    with the consumer segment being represented by one residential
52-13    customer, one commercial customer, and one industrial retail
52-14    customer.
52-15          (c)  The commission shall certify an independent organization
52-16    or organizations to perform the functions set out in this section.
52-17          (d)  An independent organization certified by the commission
52-18    for a power region shall establish and enforce procedures,
52-19    consistent with this title and the commission's rules, relating to
52-20    the reliability of the regional electrical network and accounting
52-21    for the production and delivery of electricity among generators and
52-22    all other market participants.  The procedures shall be subject to
52-23    commission oversight and review.
52-24          (e)  The commission may authorize an independent organization
52-25    that is certified under this section to charge a reasonable and
52-26    competitively neutral rate to wholesale buyers and sellers to cover
 53-1    the independent organization's costs.
 53-2          (f)  In implementing this section, the commission may
 53-3    cooperate with the utility regulatory commission of another state
 53-4    or the federal government and may hold a joint hearing or make a
 53-5    joint investigation with that commission.
 53-6          (g)  If it amends its governance rules to allow
 53-7    representation reflecting the makeup of the retail market on its
 53-8    governing board in accordance with Subsection (b), the existing
 53-9    independent system operator in ERCOT will meet the criteria
53-10    provided by Subsection (a) with respect to ensuring access to the
53-11    transmission systems for all buyers and sellers of electricity in
53-12    the ERCOT region and ensuring the reliability of the regional
53-13    electrical network.  The ERCOT independent system operator may meet
53-14    the criteria relating to the other functions of an independent
53-15    organization provided by Subsection (a) by adopting procedures and
53-16    acquiring resources needed to carry out those functions.
53-17          (h)  The commission may delegate authority to the existing
53-18    independent system operator in ERCOT to enforce operating standards
53-19    within the ERCOT regional electrical network and to establish and
53-20    oversee transaction settlement procedures.  The commission may
53-21    establish the terms and conditions for the ERCOT independent system
53-22    operator's authority to oversee utility dispatch functions after
53-23    the introduction of customer choice.
53-24          (i)  A retail electric provider, municipally owned utility,
53-25    electric cooperative, power marketer, transmission and distribution
53-26    utility, or power generation company shall observe all scheduling,
 54-1    operating, and settlement policies, rules, guidelines, and
 54-2    procedures established by the independent system operator in ERCOT.
 54-3    Failure to comply with this subsection may result in the
 54-4    revocation, suspension, or amendment of a certificate as provided
 54-5    by Section 39.356 or in the imposition of an administrative penalty
 54-6    as provided by Section 39.357.
 54-7          (j)  To the extent the commission has authority over an
 54-8    independent organization outside of ERCOT, the commission may
 54-9    delegate authority to the independent organization consistent with
54-10    Subsection (h).
54-11          (k)  No operational criteria, protocols, or other requirement
54-12    established by an independent organization, including the ERCOT
54-13    independent system operator, may adversely affect or impede any
54-14    manufacturing or other internal process operation associated with
54-15    an industrial generation facility, except to the minimum extent
54-16    necessary to assure reliability of the transmission network.
54-17          Sec. 39.152.  QUALIFYING POWER REGIONS.  (a)  The commission
54-18    shall certify a power region as qualifying for customer choice if:
54-19                (1)  a sufficient number of interconnected utilities in
54-20    the power region fall under the operational control of an
54-21    independent organization as described by Section 39.151;
54-22                (2)  the power region has a generally applicable tariff
54-23    that guarantees open and nondiscriminatory access for all users to
54-24    transmission and distribution facilities in the power region as
54-25    provided by Section 39.203; and
54-26                (3)  no person owns and controls more than 20 percent
 55-1    of the installed generation capacity located in or capable of
 55-2    delivering electricity to a power region, as determined according
 55-3    to Section 39.154, when customer choice is introduced.
 55-4          (b)  In determining whether a power region not entirely
 55-5    within the state meets the requirements of this section, the
 55-6    commission shall consider the extent to which the available
 55-7    transmission facilities limit the delivery of electricity from
 55-8    generators located outside the state to areas of the power region
 55-9    within the state.
55-10          Sec. 39.153.  CAPACITY AUCTION.  (a) Each electric utility
55-11    subject to this section shall sell at auction, at least 60 days
55-12    before the date set for customer choice to begin in the power
55-13    region in which the electric utility serves, entitlements to at
55-14    least 15 percent of the electric utility's installed generation
55-15    capacity.  For the purposes of this section, the term "electric
55-16    utility" includes any affiliated power generation company that is
55-17    unbundled from the electric utility in accordance with Section
55-18    39.051, but does not include any entity owning less than 400
55-19    megawatts of installed generation capacity.
55-20          (b)  The obligation to auction the entitlements shall
55-21    continue until the earlier of 60 months after the date customer
55-22    choice is introduced in the power region or the date the commission
55-23    determines that 40 percent or more of the electric power consumed
55-24    by residential and small commercial customers within the affiliated
55-25    transmission and distribution utility's certificated service area
55-26    before the onset of customer choice is provided by nonaffiliated
 56-1    retail electric providers.
 56-2          (c)  An affiliate of the electric utility selling
 56-3    entitlements in the auction required by this section shall not be
 56-4    allowed to purchase entitlements from the affiliated electric
 56-5    utility at the auction.  Entitlements may only be purchased by
 56-6    entities lawfully able to sell electricity in Texas.
 56-7          (d)  An electric utility may choose to auction additional
 56-8    entitlements beyond those required by Subsection (a) or continue to
 56-9    auction entitlements after the period required by Subsection (b) in
56-10    order to comply with Section 39.154.
56-11          (e)  The commission shall adopt rules by December 31, 2000,
56-12    that define the scope of the capacity entitlements to be auctioned.
56-13    Entitlements may be auctioned in blocks of less than 15 percent.
56-14    The rules shall state the minimum amount of capacity that can be
56-15    sold at auction as an entitlement.  At a minimum, the rules shall
56-16    provide that the entitlements:
56-17                (1)  may be sold and purchased in periods of no less
56-18    than one month nor more than four years;
56-19                (2)  may be resold to any lawful purchaser, except for
56-20    a retail electric provider affiliated with the electric utility
56-21    that originally auctioned the entitlement;
56-22                (3)  include no possessory interest in the unit from
56-23    which the power is produced;
56-24                (4)  include no obligations of a possessory owner of an
56-25    interest in the unit from which the power is produced; and
56-26                (5)  give the purchaser the right to designate the
 57-1    dispatch of the entitlement, subject to planned outages, outages
 57-2    beyond the control of the utility operating the unit, and other
 57-3    considerations subject to the oversight of the applicable
 57-4    independent organization.
 57-5          (f)  The commission shall adopt rules by December 31, 2000,
 57-6    that prescribe the procedure for the auction of the entitlements.
 57-7    Such rules shall include:
 57-8                (1)  a process for conducting the auction or auctions,
 57-9    including who shall conduct it, how often it shall be conducted,
57-10    and how winning bidders shall be determined;
57-11                (2)  a process for the electric utility to designate
57-12    which generation units or combination of units are offered for
57-13    auction;
57-14                (3)  a provision for the utility to establish an
57-15    opening bid price based upon the electric utility's expected cost,
57-16    with the commission prescribing the means for determining the
57-17    opening bid price, which shall not include return on equity; and
57-18                (4)  a provision that allows a bidder to specify the
57-19    magnitude and term of the entitlement, subject to the conditions
57-20    established in Subsection (e).
57-21          (g)  In adopting the process under Subsection (f)(2), the
57-22    commission shall consider the furtherance of the development of the
57-23    competitive market, the cost of transmission, physical constraints
57-24    of the transmission system, the proximity of the generation to
57-25    load, economic efficiency, and such other factors as the commission
57-26    finds relevant.  The process may provide for commission approval of
 58-1    the designation prior to auction.  The commission may consult with
 58-2    the applicable independent organization to develop the process.
 58-3          Sec. 39.154.  LIMITATION OF OWNERSHIP OF INSTALLED CAPACITY.
 58-4    (a)  Beginning on the date of introduction of customer choice, no
 58-5    power generation company may own and control more than 20 percent
 58-6    of the installed generation capacity located in, or capable of
 58-7    delivering electricity to, a qualifying power region.
 58-8          (b)  In a power region not entirely within the state, the
 58-9    commission may waive or modify the requirement in Subsection (a)
58-10    upon a finding of good cause.
58-11          (c)  In determining the percentage shares of installed
58-12    generation capacity under this section, the commission shall
58-13    combine capacity owned and controlled by a power generation company
58-14    and any entity that is affiliated with that power generation
58-15    company within the power region, reduced by the installed
58-16    generation capacity of those facilities that are made subject to
58-17    capacity entitlements auctions under Sections 39.153(a) and (d).
58-18          (d)  In this chapter, "installed generation capacity" means
58-19    all potentially marketable electric generation capacity, including
58-20    the capacity of:
58-21                (1)  generating facilities that are connected with a
58-22    transmission or distribution system;
58-23                (2)  generating facilities used to generate electricity
58-24    for consumption by the person owning or controlling the facility;
58-25    and
58-26                (3)  generating facilities for which the Texas Natural
 59-1    Resource Conservation Commission has issued a permit authorizing
 59-2    the initiation of construction and which are anticipated to be in
 59-3    operation within two years.
 59-4          Sec. 39.155.  COMMISSION ASSESSMENT OF MARKET POWER.
 59-5    (a)  Each person, municipally owned utility, electric cooperative,
 59-6    and river authority that owns generation facilities and offers
 59-7    electricity for sale in this state shall report to the commission
 59-8    its installed generation capacity, the total amount of capacity
 59-9    available for sale to others, the total amount of capacity under
59-10    contract to others, the total amount of capacity dedicated to its
59-11    own use, its annual wholesale power sales in the state, its annual
59-12    retail power sales in the state, and any other information
59-13    necessary for the commission to assess market power or the
59-14    development of a competitive retail market in the state.  The
59-15    commission shall by rule prescribe the nature and detail of such
59-16    reporting requirements and shall administer those reporting
59-17    requirements in a manner that ensures the confidentiality of
59-18    competitively sensitive information.
59-19          (b)  The ERCOT independent system operator shall submit an
59-20    annual report to the commission identifying existing and potential
59-21    transmission and distribution constraints and system needs within
59-22    ERCOT, alternatives for meeting system needs, and recommendations
59-23    for meeting system needs.  The first report shall be submitted on
59-24    or before October 1, 1999.  Subsequent reports shall be submitted
59-25    by January 15 of each year or as determined necessary by the
59-26    commission.
 60-1          (c)  Before the date of introduction of customer choice in a
 60-2    power region other than ERCOT, each electric utility owning
 60-3    transmission and distribution facilities in that region shall
 60-4    submit an annual report to the commission identifying existing and
 60-5    potential transmission and distribution constraints and system
 60-6    needs in the power region, alternatives for meeting system needs,
 60-7    and recommendations for meeting system needs as directed by the
 60-8    commission.
 60-9          (d)  After the introduction of customer choice in a
60-10    qualifying power region, the reports required by Subsections (b)
60-11    and (c) shall be submitted by the independent organization or
60-12    organizations having authority over the power region or discrete
60-13    areas thereof.
60-14          Sec. 39.156.  MARKET POWER MITIGATION PLAN.  (a)  In this
60-15    section, "market power mitigation plan" or "plan" means a written
60-16    proposal by an electric utility or a power generation company for
60-17    reducing its ownership and control of installed generation capacity
60-18    as required by Section 39.154.
60-19          (b)  An electric utility or power generation company owning
60-20    and controlling more than 20 percent of the generation capacity
60-21    located in, or capable of delivering electricity to, a power region
60-22    shall file a market power mitigation plan with the commission no
60-23    later than December 31, 2000.
60-24          (c)  The plan may provide for:
60-25                (1)  the sale or exchange of generation assets to or
60-26    with an unaffiliated person;
 61-1                (2)  the auctioning of generation capacity entitlements
 61-2    subject to commission approval under Section 39.153; or
 61-3                (3)  any reasonable method of mitigation.
 61-4          (d)  For the purposes of this section, generation capacity
 61-5    shall be net of the generation capacity subject to an auction under
 61-6    Section 39.153.
 61-7          (e)  The plan shall be in a form prescribed by the commission
 61-8    and shall provide information the commission finds reasonably
 61-9    necessary to evaluate the plan.
61-10          (f)  The commission shall approve, modify, or reject a plan
61-11    within 180 days after the date of a filing under Subsection (b).
61-12    The commission shall not modify a plan to require divestiture by
61-13    the electric utility or the power generation company.
61-14          (g)  In reaching its determination under Subsection (f), the
61-15    commission shall consider:
61-16                (1)  the degree to which the electric utility's or
61-17    power generation company's stranded costs, if any, are minimized;
61-18                (2)  whether on disposition of the generation assets
61-19    the reasonable value is likely to be received;
61-20                (3)  the effect of the plan on the electric utility's
61-21    or power generation company's federal income taxes;
61-22                (4)  the effect of the plan on current and potential
61-23    competitors in the generation market; and
61-24                (5)  whether the plan is consistent with the public
61-25    interest.
61-26          (h)  An electric utility or power generation company with an
 62-1    approved mitigation plan may request to amend or repeal its plan.
 62-2    Upon a showing of good cause, the commission shall modify or repeal
 62-3    an electric utility's or power generation company's mitigation
 62-4    plan.
 62-5          (i)  If an electric utility's or a power generation company's
 62-6    market power mitigation plan is not approved before January 1 of
 62-7    the year it is to take effect, the commission may order the
 62-8    electric utility or power generation company to auction generation
 62-9    capacity entitlements according to Section 39.153, subject to
62-10    commission approval, of any capacity exceeding the maximum
62-11    allowable capacity prescribed by Section 39.154 until such time a
62-12    mitigation plan is approved.
62-13          (j)  An auction under Subsection (i) shall be held no later
62-14    than 60 days after the order is entered.
62-15          Sec. 39.157.  COMMISSION AUTHORITY TO ADDRESS MARKET POWER.
62-16    (a)  The commission shall monitor market power associated with the
62-17    generation, transmission, distribution, and sale of electricity in
62-18    this state.  On a finding, after notice and opportunity for
62-19    hearing, that market power abuses are occurring, the commission
62-20    shall require reasonable mitigation of the market power by ordering
62-21    the construction of additional transmission or distribution
62-22    facilities, by requiring a reduction of generation capacity through
62-23    the auction of generation capacity entitlements, by instituting
62-24    price cap regulation, by setting appropriate restrictions on sales
62-25    of electricity, by establishing limitations on the use of
62-26    generation, transmission, or distribution facilities, or by any
 63-1    other reasonable remedy.
 63-2          (b)  Beginning on the date of introduction of customer
 63-3    choice, no person that owns generation facilities may own
 63-4    transmission or distribution facilities in this state except for
 63-5    those facilities necessary to interconnect a generation facility
 63-6    with the transmission or distribution network, a facility not
 63-7    dedicated to public use, or a facility otherwise excluded from the
 63-8    definition of electric utility under Section 31.002(6).  However,
 63-9    nothing in this chapter shall prohibit a power generation company
63-10    affiliated with a transmission and distribution utility from owning
63-11    generation facilities.
63-12          (c)  The commission shall monitor market shares of installed
63-13    capacity to ensure that the limitations in Section 39.154 are not
63-14    exceeded.  If the commission finds, after notice and opportunity
63-15    for hearing, that a person has violated a limitation in Section
63-16    39.154, the commission shall order the person to file, within 60
63-17    days of the date of the order, a market power mitigation plan
63-18    consistent with the requirements in Section 39.156.
63-19          (d)  In order to avoid potential market power abuses and
63-20    cross-subsidizations between regulated and unregulated activities,
63-21    the commission shall adopt rules to govern transactions or
63-22    activities between a transmission and distribution utility and its
63-23    affiliates.
63-24          (e)  The commission shall by rule establish a code of conduct
63-25    that must be observed by all market participants and their
63-26    affiliates to protect against anticompetitive practices.
 64-1          (f)  The commission may impose administrative penalties or
 64-2    take another action under Subchapter B, Chapter 15, on a finding,
 64-3    after notice and opportunity for hearing, that a power generation
 64-4    company has engaged in predatory pricing.  In determining whether a
 64-5    power generation company has engaged in predatory pricing, the
 64-6    commission shall apply the elements for a finding of predatory
 64-7    pricing under Sections 15.05(a) and (b), Business & Commerce Code,
 64-8    as applied by the courts of this state.
 64-9          (g)  Beginning on the date of introduction of customer
64-10    choice, and following review of the annual report submitted to it
64-11    under Sections 39.155(b) and (c), the commission shall determine
64-12    whether specific transmission or distribution constraints or
64-13    bottlenecks within this state give rise to market power in specific
64-14    geographic markets in the state.  The commission, on a finding that
64-15    specific transmission or distribution constraints or bottlenecks
64-16    within this state give rise to market power, may order reasonable
64-17    mitigation of that potential market power by ordering, pursuant to
64-18    Section 39.203(e), one or more electric utilities or transmission
64-19    and distribution utilities to construct additional transmission or
64-20    distribution capacity, or both, subject to the certification
64-21    provisions of this title.
64-22          Sec. 39.158.  MERGERS AND CONSOLIDATIONS.  (a)  An owner of
64-23    electric generation facilities that offers electricity for sale in
64-24    the state and proposes to merge, consolidate, or otherwise become
64-25    affiliated with another owner of electric generation facilities
64-26    that offers electricity for sale in this state shall obtain the
 65-1    approval of the commission prior to closing.  Such approval shall
 65-2    be requested at least 120 days prior to the proposed closing.  The
 65-3    commission shall approve the transaction unless the commission
 65-4    finds that the transaction results in a violation of Section
 65-5    39.154.  If the commission finds that the transaction as proposed
 65-6    would violate Section 39.154, the commission may condition approval
 65-7    of the transaction on adoption of reasonable modifications to the
 65-8    transaction as prescribed by the commission to mitigate potential
 65-9    market power abuses.
65-10          (b)  Nothing in this chapter shall be construed to confer
65-11    immunity from state or federal antitrust laws.  This chapter is
65-12    intended to complement other state and federal antitrust
65-13    provisions.  Therefore, antitrust remedies may also be sought in
65-14    state or federal court to remedy anticompetitive activities.
65-15          (c)  This section shall not be deemed to authorize commission
65-16    review or approval of transactions entered into between or among
65-17    municipally owned utilities, river authorities, special districts
65-18    created by law, or other political subdivisions, whether or not
65-19    such transactions may be characterized as mergers, consolidations,
65-20    or other affiliations, when the transaction is authorized or
65-21    structured pursuant to state law.
65-22             SUBCHAPTER E.  PRICE REGULATION AFTER COMPETITION
65-23          Sec. 39.201.  COST OF SERVICE TARIFFS AND CHARGES.  (a)  Each
65-24    electric utility shall, on or before April 1, 2000, file proposed
65-25    tariffs for its proposed transmission and distribution utility.
65-26          (b)  The filing under this section shall include supporting
 66-1    cost data for determination of nonbypassable delivery charges,
 66-2    which shall be the sum of:
 66-3                (1)  transmission and distribution utility charges by
 66-4    customer class based on a forecasted 2002 test year;
 66-5                (2)  a system benefit fund charge; and
 66-6                (3)  an expected competition transition charge, if any.
 66-7          (c)  Each electric utility shall also identify the unbundled
 66-8    generation and retail energy service costs by customer class.
 66-9          (d)  On or before October 1, 2000, and in accordance with a
66-10    schedule and procedures it establishes, the commission shall hold a
66-11    hearing and approve or modify and make effective as of January 1,
66-12    2002, the transmission and distribution utility's proposed tariffs
66-13    for transmission and distribution services, the system benefit fund
66-14    charge, and the expected competition transition charge, if any.
66-15          (e)  The system benefit fund charge shall be that established
66-16    by the commission pursuant to Section 39.603.
66-17          (f)  The expected competition transition charge shall be that
66-18    as determined under Subsections (g) and (h) and as implemented
66-19    under Subsections (i)-(l).
66-20          (g)  The expected competition transition charge approved by
66-21    the commission shall be calculated from the amount of stranded
66-22    costs as defined in Subchapter F which are reasonably projected to
66-23    exist on the last day of the freeze period modified to reflect any
66-24    adjustments determined appropriate by the commission pursuant to
66-25    Section 39.261(c).
66-26          (h)  The electric utility shall use the ECOM administrative
 67-1    model referenced in Section 39.262(h) to determine estimated
 67-2    stranded costs.  The model must include updated company-specific
 67-3    inputs and updated natural gas price forecasts as determined by the
 67-4    commission.
 67-5          (i)  An electric utility may:
 67-6                (1)  at any time after the start of the freeze period,
 67-7    securitize 100 percent of its regulatory assets as defined by
 67-8    Section 39.251(6) and up to 75 percent of its remaining estimated
 67-9    stranded costs as defined by this section and recover such charges
67-10    through a transition charge, pursuant to a financing order issued
67-11    by the commission under Section 39.303;
67-12                (2)  implement, under bond, a nonbypassable charge of
67-13    up to 100 percent of its estimated stranded costs; or
67-14                (3)  use a combination of the two methods under
67-15    Subdivisions (1) and (2).
67-16          (j)  Any competition transition charge shall be allocated
67-17    among retail customer classes based on the relevant customer class
67-18    characteristics as of May 1, 1999, in accordance with the
67-19    methodology used to allocate the costs of the underlying assets in
67-20    the electric utility's most recent commission order addressing rate
67-21    design, unless the utility has agreed to an alternative allocation
67-22    of stranded costs in a settlement agreed to as part of a transition
67-23    plan approved by the commission on or after January 1, 1998, in
67-24    which case the alternative allocation shall apply.
67-25          (k)  In determining the length of time over which costs under
67-26    Subsection (h) may be recovered, the commission shall consider:
 68-1                (1)  the electric utility's rates as of the end of the
 68-2    freeze period;
 68-3                (2)  the sum of the transmission, distribution, and
 68-4    system benefit fund charges;
 68-5                (3)  the proportion of estimated stranded costs to the
 68-6    invested capital of the electric utility; and
 68-7                (4)  any other factor consistent with the public
 68-8    interest as expressed in this chapter.
 68-9          (l)  Two years after customer choice is introduced in the
68-10    electric utility's power region, the stranded cost estimate under
68-11    this section shall be reviewed and, if necessary, adjusted to
68-12    reflect a final, actual valuation in the true-up proceeding under
68-13    Section 39.262.  If, based on that proceeding, the competition
68-14    transition charge is not sufficient, the commission may extend the
68-15    collection period for the charge or, if necessary, increase the
68-16    charge.  Alternatively, if it is found in the true-up proceeding
68-17    that the competition transition charge is larger than is needed to
68-18    recover any remaining stranded costs, the commission may:
68-19                (1)  reduce the competition transition charge, to the
68-20    extent it has not been securitized;
68-21                (2)  reverse, in whole or in part, the depreciation
68-22    expense which has been redirected pursuant to Section 39.256;
68-23                (3)  reduce the transmission and distribution utility's
68-24    rates; or
68-25                (4)  implement a combination of the elements in
68-26    Subdivisions (1)-(3).
 69-1          (m)  If the commission determines that a power region will
 69-2    not qualify for customer choice under Section 39.152 by January 1,
 69-3    2002, it may adjust the filing and implementation dates in this
 69-4    section for utilities in that region.
 69-5          Sec. 39.202.  PRICE TO BEAT.  (a)  On and after January 1,
 69-6    2002, in areas in which customer choice has been introduced, an
 69-7    affiliated retail electric provider shall charge residential and
 69-8    small commercial customers of its affiliated transmission and
 69-9    distribution utility rates which, on a bundled basis, are five
69-10    percent less than the affiliated electric utility's corresponding
69-11    average residential and small commercial rates, on a bundled basis,
69-12    that were in effect on January 1, 1999, adjusted to reflect the
69-13    fuel factor determined as provided by Subsection (b) and adjusted
69-14    for any base rate reduction as stipulated to by an electric utility
69-15    in a proceeding for which a final order had not been issued by
69-16    January 1, 1999.  These rates on a bundled basis shall be known as
69-17    the "price to beat" for residential and small commercial customers.
69-18          (b)  For an area where customer choice is to be introduced on
69-19    January 1, 2002, the commission shall determine the fuel factor for
69-20    each electric utility in the area as of December 31, 2001.  For an
69-21    area where customer choice is to be introduced subsequent to
69-22    January 1, 2002, the commission shall determine the fuel factor for
69-23    each electric utility in the area on the day prior to the day
69-24    customer choice is introduced.
69-25          (c)  Subsequent to the introduction of customer choice, each
69-26    affiliated power generation company shall file a final fuel
 70-1    reconciliation for the period ending the day prior to the day
 70-2    customer choice is introduced.  The final fuel balance from that
 70-3    reconciliation shall be included in the true-up proceeding pursuant
 70-4    to Section 39.262.
 70-5          (d)  An affiliated retail electric provider shall make public
 70-6    its price to beat in a manner that provides adequate disclosure as
 70-7    determined by the commission.
 70-8          (e)  The affiliated retail electric provider may not charge
 70-9    rates that are different from the price to beat until the earlier
70-10    of 60 months after the date customer choice is introduced in the
70-11    power region or the date the commission determines that 40 percent
70-12    or more of the electric power consumed by residential and small
70-13    commercial customers within the affiliated transmission and
70-14    distribution utility's certificated service area before the onset
70-15    of customer choice is committed to be served by nonaffiliated
70-16    retail electric providers.
70-17          (f)  The following standards shall be used for measuring
70-18    electric power consumption during the period prior to the onset of
70-19    customer choice:
70-20                (1)  the consumption of residential and small
70-21    commercial customers with an annual peak demand less than or equal
70-22    to 20 kilowatts shall be based on the average annual consumption of
70-23    those respective groups during the year 2000; and
70-24                (2)  consumption for all small commercial customers
70-25    with an annual peak demand larger than 20 kilowatts shall be based
70-26    on each customer's usage during the year 2000.  If less than 12
 71-1    months of consumption history exists for any such customer, the
 71-2    usage history shall be supplemented with the prior history of that
 71-3    customer's location.  For service to a new location, the annual
 71-4    consumption shall be determined as the transmission and
 71-5    distribution utility's estimate of the maximum annual kilowatt
 71-6    demand used in sizing the electric service to that customer
 71-7    multiplied by 8,760 hours, and that product multiplied by the
 71-8    average annual customer load factor for small commercial customers
 71-9    with loads greater than 20 kilowatts for the year 2000.
71-10          (g)  Upon determining that its affiliated retail electric
71-11    provider has met the requirements of Subsection (e), an electric
71-12    utility or a transmission and distribution utility shall make a
71-13    filing with the commission attesting to the fact that those
71-14    requirements have been met and that the restrictions of this
71-15    section are no longer applicable.  The commission shall accept or
71-16    reject such filing within 30 days.
71-17          (h)  Following the true-up proceedings conducted pursuant to
71-18    Section 39.262, the commission may adjust the price to beat
71-19    consistent with the results of that proceeding.
71-20          (i)  An affiliated retail electric provider may request that
71-21    the commission adjust the fuel factor established under Subsection
71-22    (b) up to twice a year if the affiliated retail electric provider
71-23    demonstrates that the existing fuel factor does not adequately
71-24    reflect significant changes in the market price of natural gas and
71-25    purchased energy used to serve retail customers.
71-26          (j)  In this section, "small commercial customer" means a
 72-1    commercial customer having a peak demand of 1,000 kilowatts or
 72-2    less.
 72-3          (k)  Upon finding that a retail electric provider will be
 72-4    unable to maintain its financial integrity if it complies with
 72-5    Subsection (a), the commission shall set the retail electric
 72-6    provider's price to beat at the minimum level that will allow the
 72-7    retail electric provider to maintain its financial integrity.
 72-8    However, in no event shall the price to beat exceed the level of
 72-9    rates, on a bundled basis, charged by the affiliated electric
72-10    utility on September 1, 1999, adjusted for fuel as provided in
72-11    Subsection (b).
72-12          Sec. 39.203.  TRANSMISSION AND DISTRIBUTION SERVICE.
72-13    (a)  All transmission and distribution utilities shall provide
72-14    transmission service at wholesale under Subchapter A, Chapter 35.
72-15    In addition, on and after January 1, 2002, a transmission and
72-16    distribution utility shall provide transmission or distribution
72-17    service, or both, at retail to an electric utility, a retail
72-18    electric provider, a municipally owned utility, an electric
72-19    cooperative, or an end-use customer at rates, terms of access, and
72-20    conditions that are comparable to those that apply to the
72-21    transmission and distribution utility and its affiliates.  A
72-22    municipally owned utility offering customer choice or an electric
72-23    cooperative offering customer choice shall likewise provide
72-24    transmission or distribution service, or both, at retail to all
72-25    such entities pursuant to the commission's rules applicable to
72-26    terms and conditions of access and at rates adopted in accordance
 73-1    with Sections 40.055(a)(1) and 41.055(1), respectively.
 73-2          (b)  When necessary to serve a wholesale customer an electric
 73-3    utility, an electric cooperative that has not opted for customer
 73-4    choice, or a municipally owned utility that has not opted for
 73-5    customer choice shall provide wholesale transmission service at
 73-6    distribution voltage.
 73-7          (c)  On or before January 1, 2002, the commission shall
 73-8    establish for all retail electric utilities offering customer
 73-9    choice reasonable and comparable terms and conditions, pursuant to
73-10    Section 39.201, that comply with Subsection (a) for open access on
73-11    distribution facilities and shall establish, for all retail
73-12    electric utilities offering customer choice other than municipally
73-13    owned utilities and electric cooperatives, reasonable and
73-14    comparable rates for open access on distribution facilities.
73-15          (d)  The terms of access, conditions, and rates established
73-16    under Subsection (c) shall be comparable to the terms of access,
73-17    conditions, and rates that the electric utility applies to itself
73-18    or its affiliates.  The rules shall also provide that all ancillary
73-19    services provided by the utility to itself or its affiliates are
73-20    also available to third parties on request on a nondiscriminatory
73-21    basis.
73-22          (e)  The commission may require an electric utility or a
73-23    transmission and distribution utility to construct or enlarge
73-24    facilities to ensure safe and reliable service for the state's
73-25    electric markets.  In any proceeding brought pursuant to Chapter
73-26    37, an electric utility or transmission and distribution utility
 74-1    ordered to construct or enlarge facilities pursuant to this
 74-2    subchapter need not prove that the construction ordered is
 74-3    necessary for the service, accommodation, convenience, or safety of
 74-4    the public and need not address the factors listed in Section
 74-5    37.056(c)(1)-(3) and (4)(E).
 74-6          (f)  The commission's rules must be consistent with the
 74-7    standards of this title and may not be contrary to an applicable
 74-8    decision, rule, or policy statement of a federal regulatory agency
 74-9    having jurisdiction.
74-10          (g)  Each qualifying power region shall have generally
74-11    applicable tariffs approved by the commission or a federal
74-12    regulatory agency having jurisdiction that guarantees open and
74-13    nondiscriminatory access as required by Section 39.152.  This
74-14    subsection shall not be deemed to vest in the commission power to
74-15    set or approve distribution access rates of a municipally owned
74-16    utility or an electric cooperative that has adopted customer
74-17    choice.
74-18          Sec. 39.204.  TARIFFS FOR OPEN ACCESS.  Each transmission and
74-19    distribution utility shall file a tariff implementing the open
74-20    access rules with the commission or the federal regulatory
74-21    authority having jurisdiction over the transmission and
74-22    distribution service of the utility not later than the 90th day
74-23    before the date customer choice is offered by that utility.
74-24          Sec. 39.205.  REGULATION OF COSTS FOLLOWING THE FREEZE
74-25    PERIOD.  At the conclusion of the freeze period, any remaining
74-26    costs associated with nuclear decommissioning obligations continue
 75-1    to be subject to cost of service rate regulation and shall be
 75-2    included as a nonbypassable charge to retail customers.
 75-3                 SUBCHAPTER F.  RECOVERY OF STRANDED COSTS
 75-4          Sec. 39.251.  DEFINITIONS.  In this subchapter:
 75-5                (1)  "Above market purchased power costs" means
 75-6    wholesale demand and energy costs that a utility is obligated to
 75-7    pay under an existing purchased power contract to the extent the
 75-8    costs are greater than the purchased power market value.
 75-9                (2)  "Existing purchased power contract" means a
75-10    purchased power contract in effect on January 1, 1999, including
75-11    any amendments and revisions to such contracts resulting from
75-12    litigation initiated prior to January 1, 1999.
75-13                (3)  "Generation assets" means all assets associated
75-14    with the production of electricity, including generation plants,
75-15    electrical interconnections of the generation plant to the
75-16    transmission system, fuel contracts, fuel transportation contracts,
75-17    water contracts, lands, surface or subsurface water rights,
75-18    emissions-related allowances, gas pipeline interconnections, and
75-19    generation-related regulatory assets.
75-20                (4)  "Market value" means, for nonnuclear assets and
75-21    certain nuclear assets, the value the assets would have if bought
75-22    and sold in a bona fide third-party transaction or transactions on
75-23    the open market under Section 39.262(g) or, for certain nuclear
75-24    assets, as described by Section 39.262(h), the value determined
75-25    under the method provided by that subsection.
75-26                (5)  "Purchased power market value" means the value of
 76-1    demand and energy bought and sold in a bona fide third-party
 76-2    transaction or transactions on the open market and determined by
 76-3    using the weighted average costs of the highest three offers from
 76-4    the market for purchase of the demand and energy available under
 76-5    the existing purchased power contracts.
 76-6                (6)  "Regulatory assets" means costs that have been
 76-7    deferred for future recovery as a result of an order by a
 76-8    regulatory authority as of September 1, 1999, offset by the
 76-9    applicable portion of investment tax credits permitted under the
76-10    Internal Revenue Code of 1986, including:
76-11                      (A)  unrecovered deferred income taxes recorded
76-12    under Statement of Financial Accounting Standards No. 109
76-13    ("Accounting for Income Taxes");
76-14                      (B)  plant accounting deferrals, including mirror
76-15    construction work in progress; and
76-16                      (C)  costs associated with reacquisition of
76-17    securities, canceled plants, litigation and settlement costs, and
76-18    voluntary retirement and severance programs.
76-19                (7)  "Retail stranded costs" means that part of net
76-20    stranded cost associated with the provision of retail service.
76-21                (8)  "Stranded cost" means the positive excess of the
76-22    net book value of generation assets over the market value of the
76-23    assets, taking into account all of the electric utility's
76-24    generation assets, and any above market purchased power costs.
76-25          Sec. 39.252.  RIGHT TO RECOVER STRANDED COSTS.  (a)  An
76-26    electric utility is allowed to recover all of its net, verifiable,
 77-1    nonmitigable stranded costs incurred in purchasing power and
 77-2    providing electric generation service.
 77-3          (b)  Recovery of retail stranded costs by an electric utility
 77-4    shall be from all existing or future retail customers, including
 77-5    the facilities, premises, and loads of such retail customers,
 77-6    within the utility's geographical certificated service area as it
 77-7    existed on May 1, 1999.
 77-8          (c)  In multiply certificated areas, a retail customer may
 77-9    not avoid stranded cost recovery charges by switching to another
77-10    electric utility, electric cooperative, or municipally owned
77-11    utility after May 1, 1999.  A customer in a multiply certificated
77-12    service area that requested to switch providers on or before May 1,
77-13    1999, or was not taking service from an electric utility on May 1,
77-14    1999, and does not do so after that date is not responsible for
77-15    paying retail stranded costs of that utility.
77-16          Sec. 39.253.  ALLOCATION OF STRANDED COSTS.  Retail stranded
77-17    costs shall be allocated among retail customer classes, based on
77-18    the relevant customer class characteristics as of May 1, 1999, in
77-19    accordance with the methodology used to allocate the costs of the
77-20    underlying assets in the electric utility's most recent commission
77-21    order addressing rate design, unless the utility has agreed to an
77-22    alternative allocation of stranded costs in a settlement agreed to
77-23    as part of a transition plan approved by the commission on or after
77-24    January 1, 1998, in which case the alternative allocation shall
77-25    apply.
77-26          Sec. 39.254.  USE OF REVENUES FOR UTILITIES WITH STRANDED
 78-1    COSTS.  This subchapter provides a number of tools to an electric
 78-2    utility to mitigate stranded costs.  Each electric utility that was
 78-3    reported by the commission to have positive "excess costs over
 78-4    market" (ECOM), denoted as the "base case" for the amount of
 78-5    stranded costs before full retail competition in 2001 with respect
 78-6    to its Texas jurisdiction, in the April 1998 Report to the Texas
 78-7    Senate Interim Committee on Electric Utility Restructuring entitled
 78-8    "Potentially Strandable Investment (ECOM) Report:  1998 Update,"
 78-9    must use these tools to reduce the net book value of, otherwise
78-10    referred to as "accelerate" the cost recovery of, its stranded
78-11    costs each year.  Any positive difference under the report required
78-12    by Section 39.257(b) shall be applied to the net book value of
78-13    generation assets.
78-14          Sec. 39.255.  USE OF REVENUES FOR UTILITIES WITH NO STRANDED
78-15    COSTS.  (a)  An electric utility that does not have stranded costs
78-16    described by Section 39.254 shall be permitted to use any positive
78-17    difference under the report required by Section 39.257(b) on
78-18    capital expenditures to improve or expand transmission or
78-19    distribution facilities, or on capital expenditures to improve air
78-20    quality, as approved by the commission.  Any such capital
78-21    expenditures shall be made in the calendar year immediately
78-22    following the year for which the report required by Section 39.257
78-23    is calculated.  Such capital expenditures shall be reflected in any
78-24    future proceeding under this chapter to set transmission or
78-25    distribution rates as a reduction to the utility's transmission and
78-26    distribution invested capital, as approved by the commission.
 79-1          (b)  To the extent that positive differences under the report
 79-2    required by Section 39.257(b) are not used for such capital
 79-3    expenditures, such amounts shall be flowed back to the electric
 79-4    utility's Texas jurisdictional customers through the power cost
 79-5    recovery factor.
 79-6          (c)  This section applies only to the use of positive
 79-7    differences under the report required by Section 39.257(b) for each
 79-8    year during the freeze period.
 79-9          Sec. 39.256.  OPTION TO REDIRECT DEPRECIATION.  (a)  During
79-10    the freeze period, an electric utility described in Section 39.254
79-11    may redirect all or a part of the depreciation expense relating to
79-12    transmission and distribution assets to its net generation plant
79-13    assets.
79-14          (b)  The electric utility shall report a decision under
79-15    Subsection (a) to the commission and any other applicable
79-16    regulatory authority.
79-17          (c)  Any adjustments made to the book value of transmission
79-18    and distribution assets or the creation of any related regulatory
79-19    assets resulting from the redirection under this section shall be
79-20    accepted and applied by the commission for establishing net
79-21    invested capital and transmission and distribution rates for retail
79-22    customers in all future proceedings.
79-23          (d)  Notwithstanding the provisions of Subsection (c), the
79-24    design of post-freeze-period retail rates may not:
79-25                (1)  shift the allocation of responsibility for
79-26    stranded costs;
 80-1                (2)  include the adjusted costs in wholesale
 80-2    transmission and distribution rates; or
 80-3                (3)  apply the adjustments for the purpose of
 80-4    establishing net invested capital and transmission and distribution
 80-5    rates for wholesale customers.
 80-6          Sec. 39.257.  ANNUAL REPORT.  (a)  Beginning with the 1999
 80-7    calendar year, each electric utility shall file a report with the
 80-8    commission no later than 90 days after the end of each year during
 80-9    the freeze period under a schedule and a format determined by the
80-10    commission.
80-11          (b)  The report shall identify any positive difference
80-12    between annual revenues, reduced by the amount of annual revenues
80-13    under Sections 36.203 and 36.205, the revenues received under the
80-14    interutility billing process as adopted by the commission to
80-15    implement Sections 35.004, 35.006, and 35.007, revenues associated
80-16    with transition charges as defined by Section 39.302, and annual
80-17    costs.
80-18          Sec. 39.258.  ANNUAL REPORT:  DETERMINATION OF ANNUAL COSTS.
80-19    For the purposes of determining the annual costs in each annual
80-20    report, the following amounts shall be used:
80-21                (1)  the Texas jurisdictional operation and maintenance
80-22    expense reflected in each utility's 1996 Federal Energy Regulatory
80-23    Commission Form 1, plus factoring expenses not included in
80-24    operation and maintenance, adjusted for:
80-25                      (A)  costs under Sections 36.062, 36.203, and
80-26    36.205, and not indexed for inflation or load growth; and
 81-1                      (B)  any difference between the annual revenues
 81-2    and the expenses recorded under the interutility billing process
 81-3    adopted by the commission to implement Sections 35.004, 35.006, and
 81-4    35.007;
 81-5                (2)  the amount of nuclear decommissioning expense
 81-6    approved in the electric utility's last rate proceeding before the
 81-7    commission, as may be required to be adjusted to comply with
 81-8    applicable federal regulatory requirements;
 81-9                (3)  the depreciation rates approved in the electric
81-10    utility's last rate proceeding before the commission;
81-11                (4)  the amortization expense approved in the electric
81-12    utility's last rate proceeding before the commission, except that
81-13    if the items are fully amortized during the freeze period, the
81-14    expense shall be adjusted accordingly;
81-15                (5)  taxes and fees, including municipal franchise fees
81-16    to the extent not included in Subdivision (1), other than federal
81-17    income taxes, and assessments incurred that year;
81-18                (6)  federal income tax expense, computed according to
81-19    the stand-alone methodology and using the actual capital structure
81-20    and actual cost of debt as of December 31 of the report year;
81-21                (7)  return on invested capital, computed by
81-22    multiplying invested capital as of December 31 of the report year,
81-23    determined as provided by Section 39.259, by the cost of capital
81-24    approved in the electric utility's most recent rate proceeding
81-25    before the commission in which the cost of capital was specifically
81-26    adopted, or, in the case of a range, the midpoint of the range, if
 82-1    the final rate order for the proceeding was issued on or after
 82-2    January 1, 1992.  If such an order does not exist, a cost of
 82-3    capital of 9.6 percent shall be used; and
 82-4                (8)  the amount resulting from any operation and
 82-5    maintenance expense savings tracker from a merger of two utilities
 82-6    and contained in a settlement agreement approved by the commission
 82-7    prior to January 1, 1999.
 82-8          Sec. 39.259.  ANNUAL REPORT:  DETERMINATION OF INVESTED
 82-9    CAPITAL.  (a)  For the purposes of determining invested capital in
82-10    each annual report, the net plant in service, regulatory assets,
82-11    and deferred federal income taxes shall be updated each year, and
82-12    generation-related invested capital shall be reduced by the amount
82-13    of securitization under Section 39.201(i) and 39.262(c) to the
82-14    extent otherwise included in invested capital.
82-15          (b)  Capital additions to a plant in an amount less than
82-16    1-1/2 percent of the electric utility's net plant in service on
82-17    December 31, 1998, less plant items previously excluded by the
82-18    commission, for each of the years 1999 through 2001 are presumed
82-19    prudent.
82-20          (c)  All other items in invested capital shall be as approved
82-21    in the electric utility's last rate proceeding before the
82-22    commission.
82-23          Sec. 39.260.  USE OF GENERALLY ACCEPTED ACCOUNTING
82-24    PRINCIPLES.  (a)  The definition and identification of invested
82-25    capital and other terms used in this subchapter that affect the net
82-26    book value of generation assets and the treatment of transactions
 83-1    performed under Section 35.035 and other transactions authorized by
 83-2    this title or approved by the regulatory authority that affect the
 83-3    net book value of generation assets during the freeze period shall
 83-4    be treated in accordance with generally accepted accounting
 83-5    principles as modified by regulatory accounting rules generally
 83-6    applicable to utilities.
 83-7          (b)  The principles and criteria described by Subsection (a),
 83-8    including the criteria for applicability of Statement of Financial
 83-9    Accounting Standards No. 71 ("Accounting for the Effects of Certain
83-10    Types of Regulation"), shall be applied for purposes of this
83-11    subchapter as they existed on January 1, 1999.
83-12          Sec. 39.261.  REVIEW OF ANNUAL REPORT.  (a)  The annual
83-13    report filed under this subchapter is a public document and shall
83-14    be reviewed by the staff of the commission and the office of public
83-15    utility counsel.  Both staffs may review work papers and supporting
83-16    documents and engage in discussions with the utility about the data
83-17    underlying the reports.
83-18          (b)  The staff of the commission and the office of public
83-19    utility counsel shall communicate in writing to an electric utility
83-20    not later than the 180th day after the date the report is filed if
83-21    they have any disagreements with the data or computations.
83-22          (c)  The commission shall finalize and resolve any
83-23    disagreements related to the annual report as follows:
83-24                (1)  for each calendar year, the commission shall
83-25    finalize the annual report prior to establishing the competition
83-26    transition charge pursuant to Section 39.201; and
 84-1                (2)  for each calendar year, the commission shall
 84-2    finalize the annual report and reflect the result as part of the
 84-3    true-up proceeding pursuant to Section 39.262.
 84-4          Sec. 39.262.  TRUE-UP PROCEEDING.  (a)  An electric utility,
 84-5    together with its affiliated retail electric provider and its
 84-6    affiliated transmission and distribution utility, may not be
 84-7    permitted to overrecover stranded costs through the procedures
 84-8    established by this section or through the application of the
 84-9    measures provided by the other sections of this chapter.
84-10          (b)  After the freeze period, an electric utility located in
84-11    a power region not subject to competition pursuant to Section
84-12    39.152 shall continue to file annual reports pursuant to Sections
84-13    39.257, 39.258, and 39.259 as if the freeze period remained in
84-14    effect, until such time as the power region qualifies for
84-15    competition under Section 39.152.  In addition, the commission
84-16    staff and the office of public utility counsel shall continue to
84-17    review the annual reports as provided by Section 39.261.
84-18          (c)  After January 1, 2004, or after two years following the
84-19    beginning of competition in a power region, whichever is later, at
84-20    a schedule and under procedures to be determined by the commission,
84-21    each transmission and distribution utility, its affiliated retail
84-22    electric provider, and its affiliated power generation company
84-23    shall jointly file to finalize stranded costs pursuant to
84-24    Subsections (g) and (h) and reconcile those costs with the
84-25    estimated stranded costs used to develop the competition transition
84-26    charge in the proceeding held under Section 39.201.  Any resulting
 85-1    difference shall be applied to the nonbypassable delivery rates of
 85-2    the transmission and distribution utility, except that at the
 85-3    utility's option, any or all of the remaining stranded costs may be
 85-4    securitized pursuant to Subchapter G.
 85-5          (d)  The affiliated power generation company shall reconcile,
 85-6    and either credit or bill to the transmission and distribution
 85-7    utility, the net sum of:
 85-8                (1)  the former electric utility's final fuel balance
 85-9    determined pursuant to Section 39.202(c); and
85-10                (2)  any difference between the price of power obtained
85-11    through the capacity auctions under Sections 39.153 and 39.156 and
85-12    the power cost projections which were employed for the same time
85-13    period in the ECOM model to estimate stranded costs in the
85-14    proceeding under Section 39.201.
85-15          (e)  To the extent that the price to beat exceeded the market
85-16    price of electricity, the affiliated retail electric provider shall
85-17    reconcile and credit to the affiliated transmission and
85-18    distribution utility any positive difference between the price to
85-19    beat established under Section 39.202, reduced by the nonbypassable
85-20    delivery charge established under Section 39.201, and the
85-21    prevailing market price of electricity during the same time period;
85-22    provided, however, that no such reconciliation shall be required
85-23    under this subsection of any affiliated retail electric provider
85-24    that satisfies the requirements of Section 39.202(e) prior to the
85-25    expiration of two years from the introduction of customer choice in
85-26    the applicable power region.  In no event shall the amount credited
 86-1    exceed 50 percent of the net income reported by the affiliated
 86-2    retail electric provider in its annual report to the Securities and
 86-3    Exchange Commission on Form 10-K.
 86-4          (f)  Based on the credits or bills received from its
 86-5    affiliates pursuant to Subsections (d) and (e), the transmission
 86-6    and distribution utility shall make necessary adjustments to the
 86-7    nonbypassable delivery rates it charges to retail electric
 86-8    providers.  If the commission determines that the nonbypassable
 86-9    delivery rates are not sufficient, the commission may extend the
86-10    original collection period for the charge or, if necessary,
86-11    increase the charge.  Alternatively, if the commission determines
86-12    that the nonbypassable delivery rates are larger than are needed to
86-13    recover the transmission and distribution utility's costs, the
86-14    commission shall correspondingly reduce:
86-15                (1)  the competition transition charge, to the extent
86-16    it has not been securitized;
86-17                (2)  the depreciation expense which has been redirected
86-18    pursuant to Section 39.256;
86-19                (3)  the transmission and distribution utility's rates;
86-20    or
86-21                (4)  a combination of the elements in Subdivisions
86-22    (1)-(3).
86-23          (g)  For the purpose of finalizing the stranded cost estimate
86-24    used to establish the competition transition charge under Section
86-25    39.201, and, except as provided in Subsection (h), the affiliated
86-26    power generation company shall quantify its stranded costs using
 87-1    one or more of the following methods:
 87-2                (1)  Sale of Assets.  If, at any time after December
 87-3    31, 1999, an electric utility or its affiliated power generation
 87-4    company has sold some or all of its generation assets, which sale
 87-5    shall include all generating assets associated with each generating
 87-6    plant that is sold, in a bona fide third-party transaction under a
 87-7    competitive offering, the total net value realized from the sale
 87-8    establishes the market value of the generation assets sold.  If not
 87-9    all assets are sold, the market value of the remaining generation
87-10    assets shall be established by one or more of the other methods in
87-11    this section.
87-12                (2)  Stock Valuation Method.  If, at any time after
87-13    December 31, 1999, an electric utility or its affiliated power
87-14    generation company has transferred some or all of its generation
87-15    assets, including, at the election of the electric utility or power
87-16    generation company, any fuel and fuel transportation contracts
87-17    related to those assets, to one or more separate affiliated or
87-18    nonaffiliated corporations, not less than 51 percent of the common
87-19    stock of each corporation is spun off and sold to public investors
87-20    through a national stock exchange, and the common stock has been
87-21    traded for not less than one year, the resulting average daily
87-22    closing price of the common stock over 30 consecutive trading days
87-23    chosen by the commission out of the last 120 consecutive trading
87-24    days before the filing required under Subsection (c) establishes
87-25    the market value of the common stock equity in each transferee
87-26    corporation.  The book value of each transferee corporation's debt
 88-1    and preferred stock securities shall be added to the market value
 88-2    of its assets.  The market value of each transferee corporation's
 88-3    assets shall be reduced by the corresponding net book value of the
 88-4    assets acquired by each transferee corporation from any entity
 88-5    other than the affiliated electric utility or power generation
 88-6    company.  The resulting market value of the assets establishes the
 88-7    market value of the generation assets transferred by the electric
 88-8    utility or power generation company to each separate corporation.
 88-9    If not all assets are disposed of in this manner, the market value
88-10    of the remaining assets shall be established by one or more of the
88-11    other methods in this section.
88-12                (3)  Partial Stock Valuation Method.  If, at any time
88-13    after December 31, 1999, an electric utility or its affiliated
88-14    power generation company has transferred some or all of its
88-15    generation assets, including, at the election of the electric
88-16    utility or power generation company, any fuel and fuel
88-17    transportation contracts related to those assets, to one or more
88-18    separate affiliated or nonaffiliated corporations, at least 19
88-19    percent, but less than 51 percent, of the common stock of each
88-20    corporation is spun off and sold to public investors through a
88-21    national stock exchange, and the common stock has been traded for
88-22    not less than one year, the resulting average daily closing price
88-23    of the common stock over 30 consecutive trading days chosen by the
88-24    commission out of the last 120 consecutive trading days before the
88-25    filing required under Subsection (c) shall be presumed to establish
88-26    the market value of the common stock equity in each transferee
 89-1    corporation.  The commission may accept the market valuation to
 89-2    conclusively establish the value of the common stock equity in each
 89-3    transferee corporation or convene a valuation panel of three
 89-4    independent financial experts to determine whether the percentage
 89-5    of common stock sold is fairly representative of the total common
 89-6    stock equity or whether a control premium exists for the retained
 89-7    interest.  The valuation panel must consist of financial experts,
 89-8    chosen from proposals submitted in response to commission requests,
 89-9    from the top 10 nationally recognized investment banks with
89-10    demonstrated experience in the United States electric industry as
89-11    indicated by the dollar amount of public offerings of long-term
89-12    debt and equity of United States investor-owned electric companies
89-13    over the immediately preceding three years as ranked by the
89-14    publications "Securities Data" or "Institutional Investor."  If the
89-15    panel determines that a control premium exists for the retained
89-16    interest, the panel shall determine the amount of the control
89-17    premium, and the commission shall adopt the determination but may
89-18    not increase the market value by a control premium greater than 10
89-19    percent.  The costs and expenses of the panel, as approved by the
89-20    commission, shall be paid by each transferee corporation.  The
89-21    determination of the commission based on the finding of the panel
89-22    conclusively establishes the value of the common stock of each
89-23    transferee corporation.  The book value of each transferee
89-24    corporation's debt and preferred stock securities shall be added to
89-25    the market value of its assets.  The market value of each
89-26    transferee corporation's assets shall be reduced by the
 90-1    corresponding net book value of the assets acquired by each
 90-2    transferee corporation from any entity other than the affiliated
 90-3    electric utility or power generation company.  The resulting market
 90-4    value of the assets establishes the market value of the generation
 90-5    assets transferred by the electric utility or power generation
 90-6    company to each separate corporation.
 90-7          (h)  Unless an electric utility or its affiliated power
 90-8    generation company combines all of its generation assets into one
 90-9    or more transferee corporations as described in Subsections (g)(2)
90-10    and (3), the electric utility shall quantify its stranded costs for
90-11    nuclear assets using the ECOM method.  The ECOM method is the
90-12    estimation model prepared for and described by the commission's
90-13    April 1998 Report to the Texas Senate Interim Committee on Electric
90-14    Restructuring entitled "Potentially Strandable Investment (ECOM)
90-15    Report:  1998 Update."  The methodology used in the model must be
90-16    the same as that used in the 1998 report to determine the "base
90-17    case."  At the time of the proceeding under this section, the ECOM
90-18    model shall be rerun using updated company-specific inputs required
90-19    by the model, updating the market price of electricity, and using
90-20    updated natural gas price forecasts and the capacity cost based on
90-21    the long-run marginal cost of the most economic new generation
90-22    technology then available.  Natural gas price projections used in
90-23    the model must be based on the most credible publicly available
90-24    market-based data.  The commission by rule shall establish, before
90-25    June 1, 2000, the precise methodology to be used by the commission
90-26    in updating natural gas forecasts.
 91-1          (i)  The commission shall conduct the hearing in this case as
 91-2    a contested case.
 91-3          (j)  The commission shall issue a final order not later than
 91-4    the 150th day after the date of the filing under this section by
 91-5    the transmission and distribution utility, its affiliated retail
 91-6    electric provider, and its affiliated power generation company, and
 91-7    the resulting order shall be subject to judicial review under
 91-8    Chapter 2001, Government Code.
 91-9          (k)  Notwithstanding Section 39.252, to the extent that a
91-10    customer's actual load has been lawfully served by a fully
91-11    operational qualifying facility before September 1, 2001, or by an
91-12    on-site power production facility with a rated capacity of 10
91-13    megawatts or less, any charge for recovery of stranded costs under
91-14    this section or Subchapter G assessed on that customer after the
91-15    facility becomes fully operational shall be included only in those
91-16    tariffs or charges associated with the services actually provided
91-17    by the transmission and distribution utility, if any, to the
91-18    customer after the facility became fully operational and may not
91-19    include any costs associated with the service provided to the
91-20    customer by the electric utility or its affiliated transmission and
91-21    distribution utility under their tariffs before the operation of
91-22    that qualifying facility.  To qualify under this subsection, a
91-23    qualifying facility must have made substantially complete filings
91-24    on or before December 31, 1999, for all necessary site-specific
91-25    environmental permits under the rules of the Texas Natural Resource
91-26    Conservation Commission in effect at the time of filing.
 92-1          Sec. 39.263.  STRANDED COST RECOVERY OF ENVIRONMENTAL CLEANUP
 92-2    COSTS.  (a)  Subject to the provisions of Subsection (c), capital
 92-3    costs incurred by an electric utility to improve air quality prior
 92-4    to January 1, 2002, are eligible for inclusion as net invested
 92-5    capital under Section 39.259, notwithstanding the limitations
 92-6    imposed under Sections 39.259(b) and (c).
 92-7          (b)  Subject to the provisions of Subsection (c), capital
 92-8    costs incurred by an electric utility to improve air quality
 92-9    subsequent to January 1, 2002, and prior to May 1, 2003, are
92-10    eligible for inclusion in the determination of invested capital in
92-11    the true-up proceeding under Section 39.262.
92-12          (c)  Costs incurred under Subsections (a) and (b) shall be
92-13    included as invested capital and considered in an electric
92-14    utility's stranded cost determination only to the extent that:
92-15                (1)  the cost is applied to offset or reduce the
92-16    emission of airborne contaminants from an electric generating
92-17    facility, where:
92-18                      (A)  the reduction or offset is determined by the
92-19    Texas Natural Resource Conservation Commission to be an essential
92-20    component in  achieving compliance with a national ambient air
92-21    quality standard; or
92-22                      (B)  the reduction or offset is necessary in
92-23    order for an unpermitted electric generating facility to obtain a
92-24    permit;
92-25                (2)  the retrofit decision is determined to be the most
92-26    cost-effective after consideration of alternative measures,
 93-1    including the retirement of the generating facility;
 93-2                (3)  the amount and location of resulting emission
 93-3    reductions is consistent with the air quality goals and policies of
 93-4    the Texas Natural Resource Conservation Commission; and
 93-5                (4)  resulting emission reduction credits are conveyed
 93-6    to the state for inclusion in the state implementation plan.
 93-7          (d)  If the retirement of a generating facility is the most
 93-8    cost-effective alternative, the net book value, including
 93-9    retirement costs and offsetting salvage value, of the affected
93-10    facility shall be included in the electric utility's stranded cost
93-11    determination if the electric utility complies with Subsection
93-12    (c)(4), notwithstanding the provisions of Section 39.259(c).
93-13          (e)  Not later than November 15, 2000, the commission and the
93-14    Texas Natural Resource Conservation Commission shall submit a joint
93-15    report to the governor, the lieutenant governor, the speaker of the
93-16    house of representatives, and the electric utility restructuring
93-17    legislative oversight committee as created in Section 39.607.  The
93-18    report shall include:
93-19                (1)  an update on the scope of and the actual and
93-20    estimated capital costs authorized by this section;
93-21                (2)  the feasibility of an emission reduction credit
93-22    and trading program and the implementation of emission performance
93-23    standards for fossil fuel generation facilities;
93-24                (3)  the feasibility of allowing the Texas Natural
93-25    Resource Conservation Commission to sell or auction the emission
93-26    reduction credits conveyed to the state under Subsection (c)(4) in
 94-1    order to encourage the investment of new and efficient generation
 94-2    technology in Texas, and the impact of using the proceeds to
 94-3    encourage renewable technology development in Texas; and
 94-4                (4)  the feasibility of implementing additional
 94-5    programs that would encourage the reduction of emissions from
 94-6    electric generating facilities in a way that is competitively
 94-7    neutral.
 94-8          Sec. 39.264.  RIGHTS NOT AFFECTED.  This chapter is not
 94-9    intended to alter any rights of utilities to recover stranded costs
94-10    from wholesale customers.
94-11                       SUBCHAPTER G.  SECURITIZATION
94-12          Sec. 39.301.  PURPOSE.  The purpose of this subchapter is to
94-13    enable utilities to use securitization financing to recover
94-14    stranded costs, because this type of debt will lower the carrying
94-15    costs of the assets relative to the costs that would be incurred
94-16    using conventional utility financing methods.  The savings
94-17    associated with securitization shall work to the benefit of
94-18    ratepayers.  The amount securitized may not exceed the present
94-19    value of the revenue requirement over the life of the proposed
94-20    transition bond associated with the regulatory assets or stranded
94-21    costs sought to be securitized.  The present value calculation
94-22    shall use a discount rate equal to the proposed interest rate on
94-23    the transition bonds.
94-24          Sec. 39.302.  DEFINITIONS.  In this subchapter:
94-25                (1)  "Assignee" means any individual, corporation, or
94-26    other legally recognized entity to which an interest in transition
 95-1    property is transferred, other than as security, including any
 95-2    assignee of such party.
 95-3                (2)  "Financing order" means an order of the commission
 95-4    adopted pursuant to Section 39.201 or 39.262 approving the issuance
 95-5    of transition bonds and the creation of transition charges for the
 95-6    recovery of qualified costs.
 95-7                (3)  "Financing party" means a holder of transition
 95-8    bonds, including trustees, collateral agents, and other persons
 95-9    acting for the benefit of such holder.
95-10                (4)  "Qualified costs" means 100 percent of an electric
95-11    utility's regulatory assets and 75 percent of its remaining
95-12    recoverable costs determined by the commission pursuant to Section
95-13    39.201 and any remaining stranded costs determined pursuant to
95-14    Section 39.262 together with the costs of issuing, supporting, and
95-15    servicing transition bonds and any costs of retiring and refunding
95-16    the electric utility's existing debt and equity securities in
95-17    connection with the issuance of transition bonds.  The term
95-18    includes the costs to the commission of acquiring professional
95-19    services for the purpose of evaluating proposed transactions
95-20    pursuant to Section 39.201 and this subchapter.
95-21                (5)  "Transition bonds" means bonds, debentures, notes,
95-22    certificates of participation or of beneficial interest, or other
95-23    evidences of indebtedness or ownership that are issued by an
95-24    electric utility, its successors, or an assignee under a financing
95-25    order, that have a term no longer than 15 years, and that are
95-26    secured by or payable from transition property.  If certificates of
 96-1    participation, beneficial interest, or ownership are issued,
 96-2    references in this subchapter to principal, interest, or premium
 96-3    shall refer to comparable amounts under those certificates.
 96-4                (6)  "Transition charges" means nonbypassable amounts
 96-5    to be charged for the use or availability of electric services,
 96-6    approved by the commission pursuant to a financing order to recover
 96-7    qualified costs, which shall be collected by an electric utility,
 96-8    its successors, an assignee, or other collection agents as provided
 96-9    for in the financing order.
96-10                (7)  "Transition property" means the property described
96-11    in Section 39.304.
96-12          Sec. 39.303.  FINANCING ORDERS; TERMS.  (a)  The commission
96-13    shall adopt a financing order, on application of a utility to
96-14    recover the utility's eligible stranded costs under Section 39.201
96-15    or 39.262, upon making a finding that the total amount of revenues
96-16    to be collected pursuant to the financing order is less than the
96-17    revenue requirement that would be recovered over the remaining life
96-18    of the stranded costs using conventional financing methods.
96-19          (b)  The financing order shall detail the amount of stranded
96-20    costs to be recovered and the period over which the nonbypassable
96-21    transition charges shall be recovered, which period shall not
96-22    exceed 15 years.
96-23          (c)  Transition charges shall be collected and allocated
96-24    among customers in the same manner as competition transition
96-25    charges pursuant to Section 39.201.
96-26          (d)  A financing order shall become effective in accordance
 97-1    with its terms, and the financing order, together with the
 97-2    transition charges authorized in the order, shall thereafter be
 97-3    irrevocable and not subject to reduction, impairment, or adjustment
 97-4    by further action of the commission, except as permitted by Section
 97-5    39.307.
 97-6          (e)  The commission shall issue a financing order pursuant to
 97-7    Subsections (a) and (g) no later than 90 days after the utility
 97-8    files its request for the financing order.
 97-9          (f)  A financing order shall not be subject to rehearing by
97-10    the commission.  A financing order may be reviewed by appeal only
97-11    to a Travis County district court by a party to the proceeding
97-12    filed within 15 days after the financing order is signed by the
97-13    commission.  The judgment of the district court may be reviewed
97-14    only by direct appeal to the Supreme Court of Texas filed within 15
97-15    days after entry of judgment.  All appeals shall be heard and
97-16    determined by the district court and the Supreme Court of Texas as
97-17    expeditiously as possible with lawful precedence over other
97-18    matters.  Review on appeal shall be based solely on the record
97-19    before the commission and briefs to the court and shall be limited
97-20    to whether the financing order conforms to the constitution and
97-21    laws of this state and the United States and is within the
97-22    authority of the commission pursuant to this chapter.
97-23          (g)  At the request of an electric utility, the commission
97-24    may adopt a financing order providing for retiring and refunding
97-25    transition bonds upon making a finding that the future transition
97-26    charges required to service the new transition bonds, including
 98-1    transaction costs, will be less than the future transition charges
 98-2    required to service the transition bonds being refunded.  Upon the
 98-3    retirement of the refunded transition bonds, the commission shall
 98-4    adjust the related transition charges accordingly.
 98-5          Sec. 39.304.  PROPERTY RIGHTS.  (a)  The rights and interests
 98-6    of an electric utility or successor under a financing order,
 98-7    including the right to impose, collect, and receive transition
 98-8    charges authorized in the order, shall be only contract rights
 98-9    until they are first transferred to an assignee or pledged in
98-10    connection with the issuance of transition bonds, at which time
98-11    they will  become "transition property."
98-12          (b)  Transition property shall constitute a present property
98-13    right for purposes of contracts concerning the sale or pledge of
98-14    property, even though the imposition and collection of transition
98-15    charges depends on further acts of the utility or others which have
98-16    not yet occurred; the financing order shall remain in effect and
98-17    the property shall continue to exist for the same period as the
98-18    pledge of the state described in Section 39.310.
98-19          (c)  All revenues and collections resulting from transition
98-20    charges shall constitute proceeds only of the transition property
98-21    arising from the financing order.
98-22          Sec. 39.305.  NO SETOFF.  The interest of an assignee or
98-23    pledgee in transition property and in the revenues and collections
98-24    arising from that property shall not be subject to setoff,
98-25    counterclaim, surcharge, or defense by the electric utility or any
98-26    other person or in connection with the bankruptcy of the electric
 99-1    utility or any other entity.  A financing order shall remain in
 99-2    effect and unabated notwithstanding the bankruptcy of the electric
 99-3    utility, its successors, or assignees.
 99-4          Sec. 39.306.  NO BYPASS.  A financing order shall include
 99-5    terms ensuring that the imposition and collection of transition
 99-6    charges authorized in the order shall be nonbypassable.
 99-7          Sec. 39.307.  TRUE-UP.  A financing order shall include a
 99-8    mechanism requiring that transition charges be reviewed and
 99-9    adjusted at least annually, within 45 days of the anniversary date
99-10    of the issuance of the transition bonds, to correct any
99-11    overcollections or undercollections of the preceding 12 months and
99-12    to ensure the expected recovery of amounts sufficient to timely
99-13    provide all payments of debt service and other required amounts and
99-14    charges in connection with the transition bonds.
99-15          Sec. 39.308.  TRUE SALE.  An agreement by an electric utility
99-16    or assignee to transfer transition property that expressly states
99-17    that the transfer is a sale or other absolute transfer signifies
99-18    that the transaction is a true sale and is not a secured
99-19    transaction and that title, legal and equitable, has passed to the
99-20    entity to which the transition property is transferred.  This true
99-21    sale shall apply regardless of whether the purchaser has any
99-22    recourse against the seller, or any other term of the parties'
99-23    agreement, including the seller's retention of an equity interest
99-24    in the transition property, the fact that the electric utility acts
99-25    as the collector of transition charges relating to the transition
99-26    property, or the treatment of the transfer as a financing for tax,
 100-1   financial reporting, or other purposes.
 100-2         Sec. 39.309.  SECURITY INTERESTS; ASSIGNMENT; COMMINGLING;
 100-3   DEFAULT.  (a)  Transition property shall not constitute an account
 100-4   or general intangible under Section 9.106, Business & Commerce
 100-5   Code.  The creation, granting, perfection, and enforcement of liens
 100-6   and security interests in transition property are governed by this
 100-7   section and not by the Business & Commerce Code.
 100-8         (b)  A valid and enforceable lien and security interest in
 100-9   transition property shall be created only by a financing order and
100-10   the execution and delivery of a security agreement with a financing
100-11   party in connection with the issuance of transition bonds.  The
100-12   lien and security interest shall attach automatically from the time
100-13   that value is received for the bonds and, upon perfection through
100-14   the filing of notice with the secretary of state in accordance with
100-15   the rules prescribed under Subsection (d), shall be a continuously
100-16   perfected lien and security interest in the transition property and
100-17   all proceeds thereof, whether accrued or not, shall have priority
100-18   in the order of filing and take precedence over any subsequent
100-19   judicial or other lien creditor.  If notice is filed within 10 days
100-20   after value is received for the transition bonds, the security
100-21   interest shall be perfected retroactive to the date value was
100-22   received; otherwise, the security interest shall be perfected as of
100-23   the date of filing.
100-24         (c)  Transfer of an interest in transition property to an
100-25   assignee shall be perfected against all third parties, including
100-26   subsequent judicial or other lien creditors, when the financing
 101-1   order becomes effective, transfer documents have been delivered to
 101-2   the assignee, and a notice of that transfer has been filed in
 101-3   accordance with the rules prescribed under Subsection (d);
 101-4   provided, however, that if notice of the transfer has not been
 101-5   filed in accordance with this subsection within 10 days after the
 101-6   delivery of transfer documentation, the transfer of the interest
 101-7   shall not be perfected against third parties until the notice is
 101-8   filed.
 101-9         (d)  The secretary of state shall implement this section by
101-10   establishing and maintaining a separate system of records for the
101-11   filing of notices under this section and prescribing the rules for
101-12   such filings based on Chapter 9, Business & Commerce Code, adapted
101-13   to the provisions of this subchapter and using the terms defined in
101-14   this subchapter.
101-15         (e)  The priority of a lien and security interest perfected
101-16   under this section will not be impaired by any later modification
101-17   of the financing order under Section 39.307 or by the commingling
101-18   of funds arising from transition charges with other funds, and any
101-19   other security interest that may apply to those funds shall be
101-20   terminated when they are transferred to a segregated account for
101-21   the assignee or a financing party.  If transition property has been
101-22   transferred to an assignee, any proceeds of that property shall be
101-23   held in trust for the assignee.
101-24         (f)  If a default or termination occurs under the transition
101-25   bonds, the financing parties or their representatives may foreclose
101-26   on or otherwise enforce their lien and security interest in any
 102-1   transition property as if they were secured parties under Chapter
 102-2   9, Business & Commerce Code, and the commission may order that
 102-3   amounts arising from transition charges be transferred to a
 102-4   separate account for the financing parties' benefit, to which their
 102-5   lien and security interest shall apply.  On application by or on
 102-6   behalf of the financing parties, a district court of Travis County
 102-7   shall order the sequestration and payment to them of revenues
 102-8   arising from the transition charges.
 102-9         Sec. 39.310.  PLEDGE OF STATE.  Transition bonds are not a
102-10   debt or obligation of the state and are not a charge upon its full
102-11   faith and credit or taxing power.  The state pledges, however, for
102-12   the benefit and protection of financing parties and the electric
102-13   utility, that it will not take or permit any action that would
102-14   impair the value of transition property, or, except as permitted by
102-15   Section 39.307, reduce, alter, or impair the transition charges to
102-16   be imposed, collected, and remitted to financing parties, until the
102-17   principal, interest and premium, and any other charges incurred and
102-18   contracts to be performed in connection with the related transition
102-19   bonds have been paid and performed in full.  Any party issuing
102-20   transition bonds is authorized to include this pledge in any
102-21   documentation relating to such bonds.
102-22         Sec. 39.311.  TAX EXEMPTION.  Transactions involving the
102-23   transfer and ownership of transition property and the receipt of
102-24   transition charges shall be exempt from state and local income,
102-25   sales, franchise, gross receipts, and other taxes or similar
102-26   charges.
 103-1         Sec. 39.312.  NO PUBLIC UTILITY.  No assignee or financing
 103-2   party shall be considered to be a public utility or person
 103-3   providing electric service solely by virtue of the transactions
 103-4   described in this subchapter.
 103-5         Sec. 39.313.  SEVERABILITY.  Effective upon the date the
 103-6   first utility transition bonds are issued under this subchapter, if
 103-7   any provision in this title or portion thereof is held to be
 103-8   invalid or is invalidated, superseded, replaced, repealed, or
 103-9   expires for any reason, such occurrence shall not affect the
103-10   validity or continuation of this subchapter, Section 39.201,
103-11   39.251, 39.252, or 39.262, or any part thereof, or any other
103-12   provision of this title that is relevant to the issuance,
103-13   administration, payment, retirement, or refunding of transition
103-14   bonds or to any actions of the electric utility, its successors, an
103-15   assignee, a collection agent, or a financing party related thereto,
103-16   which shall remain in full force and effect.
103-17        SUBCHAPTER H.  CERTIFICATION AND REGISTRATION; PENALTIES
103-18         Sec. 39.351.  REGISTRATION OF POWER GENERATION COMPANIES.
103-19   (a)  A person may not generate electricity unless the person is
103-20   registered with the commission as a power generation company in
103-21   accordance with this section.  A person may register as a power
103-22   generation company by filing the following information with the
103-23   commission:
103-24               (1)  a description of the location of any facility used
103-25   to generate electricity;
103-26               (2)  a description of the type of services provided;
 104-1               (3)  a copy of any information filed with the Federal
 104-2   Energy Regulatory Commission in connection with registration with
 104-3   that commission; and
 104-4               (4)  any other information required by commission rule,
 104-5   provided that in requiring such information the commission shall
 104-6   protect the competitive process in a manner that ensures the
 104-7   confidentiality of competitively sensitive information.
 104-8         (b)  A power generation company shall comply with the
 104-9   reliability standards adopted by an independent organization
104-10   certified by the commission to ensure the reliability of the
104-11   regional electrical network for a power region in which the power
104-12   generation company is generating or selling electricity.
104-13         (c)  A power generation company may register anytime after
104-14   September 1, 2000.
104-15         Sec. 39.352.  CERTIFICATION OF RETAIL ELECTRIC PROVIDERS.
104-16   (a)  In areas where customer choice has been introduced, no person,
104-17   including an affiliate of an electric utility, may provide retail
104-18   electric service in this state unless the person is certified by
104-19   the commission as a retail electric provider, in accordance with
104-20   this section.
104-21         (b)  The commission shall issue a certificate to provide
104-22   retail electric service to a person applying for certification who
104-23   demonstrates:
104-24               (1)  the financial and technical resources to provide
104-25   continuous and reliable electric service to customers in the area
104-26   for which the certification is sought;
 105-1               (2)  the managerial and technical ability to supply
 105-2   electricity at retail in accordance with customer contracts;
 105-3               (3)  the resources needed to meet the customer
 105-4   protection requirements of this title; and
 105-5               (4)  ownership or lease of an office located within
 105-6   this state for the purpose of providing customer service, accepting
 105-7   service of process, and making available in that office books and
 105-8   records sufficient to establish the retail electric provider's
 105-9   compliance with the requirements of this subchapter.
105-10         (c)  A person applying for certification under this section
105-11   shall comply with all applicable customer protection provisions,
105-12   disclosure requirements, and marketing guidelines established by
105-13   the commission and by this title.
105-14         (d)  Notwithstanding Subsections (b)(1)-(3), if a retail
105-15   electric provider files with the commission a signed, notarized
105-16   affidavit from each retail customer with which it has contracted to
105-17   provide one megawatt or more of capacity stating that the customer
105-18   is satisfied that the retail electric provider meets the standards
105-19   set forth in Subsections (b)(1)-(3) and Subsection (c), the retail
105-20   electric provider shall be certified for purposes of serving those
105-21   customers only, so long as it demonstrates that it meets the
105-22   requirements of Subsection (b)(4).
105-23         (e)  A retail electric provider may apply for certification
105-24   anytime after September 1, 2000.
105-25         (f)  The commission shall use any information required in
105-26   this section in a manner that ensures the confidentiality of
 106-1   competitively sensitive information.
 106-2         Sec. 39.353.  REGISTRATION OF AGGREGATORS.  (a)  A person may
 106-3   not provide aggregation services in the state unless the person is
 106-4   registered with the commission as an aggregator.
 106-5         (b)  In this subchapter, "aggregator" means a person joining
 106-6   two or more customers, other than municipalities, into a single
 106-7   purchasing unit to negotiate the purchase of electricity from
 106-8   retail electric providers.  Aggregators may not sell or take title
 106-9   to electricity.  Retail electric providers are not aggregators.
106-10         (c)  A person registering under this section shall comply
106-11   with all customer protection provisions, all disclosure
106-12   requirements, and all marketing guidelines established by the
106-13   commission and by this title.
106-14         (d)  The commission shall establish terms and conditions it
106-15   determines necessary to regulate the reliability and integrity of
106-16   aggregators in the state by June 1, 2000.
106-17         (e)  An aggregator may register anytime after September 1,
106-18   2000.
106-19         (f)  The commission shall have up to 60 days to process
106-20   applications for registration filed by aggregators.
106-21         (g)  Registration is not required of a customer that is
106-22   aggregating loads from its own location or facilities.
106-23         Sec. 39.354.  REGISTRATION OF MUNICIPAL AGGREGATORS.  (a)  A
106-24   municipal aggregator may not provide aggregation services in the
106-25   state unless the municipal aggregator registers with the
106-26   commission.
 107-1         (b)  In this section, "municipal aggregator" means a person
 107-2   authorized by two or more municipal governing bodies to join the
 107-3   bodies into a single purchasing unit to negotiate the purchase of
 107-4   electricity from retail electric providers.
 107-5         (c)  A municipal aggregator may register anytime after
 107-6   September 1, 2000.
 107-7         Sec. 39.355.  REGISTRATION OF POWER MARKETERS.  A person may
 107-8   not sell electric energy at wholesale as a power marketer unless
 107-9   the person registers with the commission.
107-10         Sec. 39.356.  REVOCATION OF CERTIFICATION.  (a)  The
107-11   commission may after notice and opportunity for hearing suspend,
107-12   revoke, or amend a retail electric provider's certificate for
107-13   significant violations of this title or the rules adopted pursuant
107-14   to this title or of any reliability standard adopted by an
107-15   independent organization certified by the commission to ensure the
107-16   reliability of a power region's electrical network, including the
107-17   failure to observe any scheduling, operating, or settlement
107-18   protocols established by the independent organization.  The
107-19   commission may also suspend or revoke a retail electric provider's
107-20   certificate if the provider no longer has the financial or
107-21   technical capability to provide continuous and reliable electric
107-22   service.
107-23         (b)  The commission may suspend or revoke a power generation
107-24   company's registration for significant violations of this title or
107-25   the rules adopted pursuant to this title or of the reliability
107-26   standards adopted by an independent organization certified by the
 108-1   commission to ensure the reliability of a power region's electrical
 108-2   network, including the failure to observe any scheduling,
 108-3   operating, or settlement protocols established by the independent
 108-4   organization.
 108-5         (c)  The commission may suspend or revoke an aggregator's
 108-6   registration for significant violations of this title or of the
 108-7   rules adopted pursuant to this title.
 108-8         Sec. 39.357.  ADMINISTRATIVE PENALTY.  In addition to the
 108-9   suspension, revocation, or amendment of a certification, the
108-10   commission may impose an administrative penalty, as provided by
108-11   Section 15.023, for violations described by Section 39.356.
108-12                 SUBCHAPTER I.  MISCELLANEOUS PROVISIONS
108-13         Sec. 39.601.  SCHOOL FUNDING LOSS MECHANISM.  (a)  Not later
108-14   than March 1 each year, the comptroller shall certify to the Texas
108-15   Education Agency any property wealth reductions, determined by
108-16   taking the difference between current year and prior year appraisal
108-17   values attributable to electric utility restructuring.
108-18         (b)  The Texas Education Agency shall determine the reduction
108-19   of the amount of property taxes recaptured by the state from school
108-20   districts subject to wealth equalization under Chapter 41,
108-21   Education Code, as a result of the property wealth reductions
108-22   certified under Subsection (a) and shall notify the commission of
108-23   the amount necessary to compensate the state for the reduction.
108-24         (c)  The Texas Education Agency shall determine the amount
108-25   necessary to compensate school districts for lost revenue resulting
108-26   from the property wealth reductions under Subsection (a) and shall
 109-1   notify the commission of this amount.  The amounts necessary to
 109-2   compensate districts shall be the sum of:
 109-3               (1)  decreases in the level of funding to which a
 109-4   school district is entitled under Chapters 42 and 46, Education
 109-5   Code, that are directly attributable to the decline in property
 109-6   values caused by utility restructuring; and
 109-7               (2)  losses of property tax collections incurred by
 109-8   school districts that are directly attributable to property value
 109-9   declines caused by utility restructuring and that are not accounted
109-10   for under Subdivision (1), including amounts which a school
109-11   district would be entitled to retain under Chapter 41, Education
109-12   Code.
109-13         (d)  The amounts determined by the comptroller and the Texas
109-14   Education Agency under this section, for the purposes of this
109-15   section, are final and may not be appealed.
109-16         (e)  Not later than May 1 of each year, the commission shall
109-17   transfer from the system benefit fund to the foundation school fund
109-18   the amounts determined by the Texas Education Agency under
109-19   Subsections (b) and (c).  Amounts transferred from the system
109-20   benefit fund pursuant to this section are appropriated for the
109-21   support of the foundation school program and are available, in
109-22   addition to any amounts allocated by the General Appropriations
109-23   Act, to finance actions under Section 41.002(b) or 42.252(e),
109-24   Education Code.
109-25         (f)  The Texas Education Agency shall, upon the transfer of
109-26   funds from the system benefit fund to the foundation school fund,
 110-1   compensate school districts for losses incurred under Subsection
 110-2   (c).
 110-3         (g)  The commissioner of education and the comptroller may
 110-4   adopt rules necessary to implement this section.
 110-5         (h)  This section is effective through the 2006-2007 school
 110-6   year.  This section expires August 31, 2007.
 110-7         Sec. 39.602.  CUSTOMER EDUCATION.  (a)  On or before January
 110-8   1, 2001, the commission shall develop and implement an educational
 110-9   program to inform customers, including low-income and
110-10   non-English-speaking customers, about changes in the provision of
110-11   electric service resulting from the opening of the retail electric
110-12   market and the customer choice pilot program under this chapter.
110-13   The educational program shall be neutral and nonpromotional and
110-14   shall provide customers with the information necessary to make
110-15   informed decisions relating to the source and type of electric
110-16   service available for purchase and other information the commission
110-17   considers necessary.  In planning and implementing this program,
110-18   the commission shall consult with the office, with the Texas
110-19   Department of Housing and Community Affairs, and with customers of
110-20   and providers of retail electric service.  The commission may enter
110-21   contracts for professional services to carry out the customer
110-22   education program.
110-23         (b)  The commission shall report on the status of the
110-24   educational program, developed and implemented as provided by
110-25   Subsection (a), to the electric utility restructuring legislative
110-26   oversight committee on or before December 1, 2001.
 111-1         (c)  After the opening of the retail electric market, the
 111-2   commission shall conduct ongoing customer education designed to
 111-3   help customers make informed choices of electric services and
 111-4   retail electric providers.  As part of ongoing education, the
 111-5   commission may provide customers information concerning specific
 111-6   retail electric providers, including instances of complaints
 111-7   against them and records relating to quality of customer service.
 111-8         Sec. 39.603.  SYSTEM BENEFIT FUND.  (a)  The commission shall
 111-9   establish the system benefit fund.
111-10         (b)  The system benefit fund is financed by a nonbypassable
111-11   charge set by the commission in an amount not to exceed 50 cents
111-12   per MWh.
111-13         (c)  The system benefit fund shall provide funding for:
111-14               (1)  customer education programs;
111-15               (2)  programs to assist low-income electric customers
111-16   provided by Subsections (d)-(i);
111-17               (3)  the school funding loss mechanism provided by
111-18   Section 39.601; and
111-19               (4)  administrative costs incurred by the commission in
111-20   implementing this chapter and Chapters 40 and 41.
111-21         (d)  Notwithstanding Section 39.106(b), the commission shall
111-22   adopt rules regarding programs to assist low-income electric
111-23   customers.  Such programs shall include:
111-24               (1)  reduced electric rates as provided by Subsections
111-25   (e)-(i); and
111-26               (2)  targeted energy efficiency programs to be
 112-1   administered by the Texas Department of Housing and Community
 112-2   Affairs in coordination with existing weatherization programs.
 112-3         (e)  Until January 1, 2002, or such time as customer choice
 112-4   is in effect, an electric utility may not reduce, in any manner,
 112-5   programs already offered to assist low-income electric customers.
 112-6         (f)  Following the introduction of customer choice, the
 112-7   commission shall adopt rules to determine a reduced rate to be
 112-8   discounted off the standard retail service package as approved by
 112-9   the commission pursuant to Section 39.106, or the "price to beat"
112-10   established by Section 39.202, whichever is lower.
112-11         (g)  The commission may provide for a reduced rate:
112-12               (1)  during periods when severe weather occurs or is
112-13   likely to occur; or
112-14               (2)  for customers living in all-electric dwelling
112-15   units or who depend on electrically operated medical equipment.
112-16         (h)  A retail electric provider not subject to the "price to
112-17   beat" shall be reimbursed for the difference between the reduced
112-18   rate and the rate established pursuant to Section 39.106.  A retail
112-19   electric provider who is subject to the "price to beat" shall be
112-20   reimbursed for the difference between the reduced rate and the
112-21   "price to beat."
112-22         (i)  A retail electric provider is prohibited from charging
112-23   the customer a fee for participation in the reduced rate program.
112-24         (j)  For the purposes of this section, a "low-income electric
112-25   customer" is an electric customer who is a qualifying low-income
112-26   consumer as defined by the commission.
 113-1         Sec. 39.604.  GOAL FOR RENEWABLE ENERGY.  (a)  Each retail
 113-2   electric provider, municipally owned utility, and electric
 113-3   cooperative operating in the state shall obtain a minimum of 1.65
 113-4   percent of its annual capacity requirements from renewable energy
 113-5   technologies by January 1, 2003, 2.15 percent of its annual
 113-6   capacity requirements from renewable energy technologies by January
 113-7   1, 2005, 2.75 percent of its annual capacity requirements from
 113-8   renewable energy technologies by January 1, 2007, and 3 percent of
 113-9   its annual capacity requirements from renewable energy technologies
113-10   by January 1, 2009.
113-11         (b)  The commission shall establish a renewable energy
113-12   credits trading program.  Any retail electric provider, municipally
113-13   owned utility, or electric cooperative that does not satisfy the
113-14   requirements of Subsection (a) shall purchase sufficient renewable
113-15   energy credits to satisfy the requirements by holding renewable
113-16   energy credits in lieu of capacity from renewable energy
113-17   technologies.
113-18         (c)  In this section, "renewable energy technology" means any
113-19   technology that exclusively relies on an energy source that is
113-20   naturally regenerated over a short time and derived directly from
113-21   the sun, indirectly from the sun, or from moving water or other
113-22   natural movements and mechanisms of the environment.  Renewable
113-23   energy technologies include, but are not restricted to, those that
113-24   rely on energy derived directly from the sun; on wind, geothermal,
113-25   hydroelectric, wave, or tidal energy; or on biomass or
113-26   biomass-based waste products.  A renewable energy technology does
 114-1   not rely on energy resources derived from fossil fuels, waste
 114-2   products from fossil fuels, or waste products from inorganic
 114-3   sources.
 114-4         Sec. 39.605.  GOAL FOR ENERGY EFFICIENCY.  It is the intent
 114-5   of the legislature that:
 114-6               (1)  regulated utilities shall administer customer
 114-7   information and energy savings incentive programs;
 114-8               (2)  all customers, in all customer classes, shall have
 114-9   a choice of and access to energy efficiency alternatives and other
114-10   choices that allow each customer to reduce energy consumption and
114-11   reduce energy costs;
114-12               (3)  utilities may offer loans at below-market interest
114-13   rates for energy efficiency investments, other energy efficiency
114-14   market transformation programs which result in below-market cost to
114-15   the customer, and grants and other special programs to address the
114-16   needs of small businesses, tenants, low-income consumers, and other
114-17   customer groups not served by market-based incentive programs; and
114-18               (4)  regulated utilities shall acquire, through
114-19   market-based standard offer programs or targeted market
114-20   transformation programs, additional energy efficiency equivalent to
114-21   at least 25 percent of each year's annual growth in demand.
114-22         Sec. 39.606.  DISPLACED WORKERS.  In order to mitigate
114-23   potential negative impacts on utility personnel directly affected
114-24   by electric industry restructuring, the commission may allow the
114-25   recovery of reasonable employee related transition costs.
114-26         Sec. 39.607.  LEGISLATIVE OVERSIGHT COMMITTEE.  (a)  In this
 115-1   section, "committee" means the electric utility restructuring
 115-2   legislative oversight committee.
 115-3         (b)  The committee is composed of six members as follows:
 115-4               (1)  the chair of the Senate Committee on Economic
 115-5   Development, who shall serve as the chair of the committee;
 115-6               (2)  the chair of the House Committee on State Affairs,
 115-7   who shall serve as the vice chair of the committee;
 115-8               (3)  two members of the senate appointed by the
 115-9   lieutenant governor; and
115-10               (4)  two members of the house of representatives
115-11   appointed by the speaker of the house of representatives.
115-12         (c)  An appointed member of the committee serves at the
115-13   pleasure of the appointing official.
115-14         (d)  The committee is subject to Chapter 325, Government Code
115-15   (Texas Sunset Act).  Unless continued in existence as provided by
115-16   that chapter, the committee is abolished September 1, 2005.
115-17         (e)  The committee shall:
115-18               (1)  meet at least annually with the commission;
115-19               (2)  receive information about rules relating to
115-20   electric utility restructuring proposed by the commission and may
115-21   submit comments to the commission on such proposed rules;
115-22               (3)  review recommendations for legislation proposed by
115-23   the commission; and
115-24               (4)  monitor the effectiveness of electric utility
115-25   restructuring, including the fairness of rates, the reliability of
115-26   service, and the effect of stranded costs, market power, and
 116-1   regulation on the normal forces of competition.
 116-2         (f)  The committee may request reports and other information
 116-3   from the commission as necessary to carry out this section.
 116-4         (g)  Not later than November 15 of each even-numbered year,
 116-5   the committee shall report to the governor, lieutenant governor,
 116-6   and speaker of the house of representatives on the committee's
 116-7   activities under Subsection (e).  The report shall include:
 116-8               (1)  an analysis of any problems caused by electric
 116-9   utility restructuring; and
116-10               (2)  recommendations of any legislative action
116-11   necessary to address such problems and to further retail
116-12   competition within the electric power industry.
116-13         Sec. 39.608.  EFFECT OF SUNSET PROVISION.  (a)  If the
116-14   commission is abolished and the other provisions of this title
116-15   expire as provided by Chapter 325, Government Code (Texas Sunset
116-16   Act), this subchapter, including the provisions of this title
116-17   referred to in this subchapter, continues in full force and effect
116-18   and does not expire.
116-19         (b)  The authorities, duties, and functions of the commission
116-20   under this chapter shall be performed and carried out by a
116-21   successor agency to be designated by the legislature before
116-22   abolishment of the commission or, if the legislature does not
116-23   designate the successor, by the secretary of state.
 117-1        CHAPTER 40.  COMPETITION FOR MUNICIPALLY OWNED UTILITIES
 117-2                          AND RIVER AUTHORITIES
 117-3                    SUBCHAPTER A.  GENERAL PROVISIONS
 117-4         Sec. 40.001.  APPLICABLE LAW.  (a)  Notwithstanding any other
 117-5   provision of law, this chapter governs the transition to and the
 117-6   establishment of a fully competitive electric power industry for
 117-7   municipally owned utilities.  This chapter controls over any other
 117-8   provision of this title, except Sections 39.155, 39.157(e), 39.203,
 117-9   39.603, and 39.604.
117-10         (b)  Except as specifically provided in this subsection, the
117-11   provisions of Chapter 39 shall not apply to a river authority
117-12   operating a steam generating plant on or before January 1, 1999, or
117-13   a corporation authorized by Chapter 245, Acts of the 67th
117-14   Legislature, Regular Session, 1981 (Article 717p, Vernon's Texas
117-15   Civil Statutes), or Section 32.053.  A river authority operating a
117-16   steam generating plant on or before January 1, 1999, shall be
117-17   subject to Sections 39.051(a)-(c), 39.108, 39.155, 39.157(e), and
117-18   39.203.
117-19         (c)  For purposes of Section 39.051, hydroelectric assets
117-20   shall not be deemed to be generating assets, and the transfer of
117-21   generating assets to a corporation authorized by Chapter 245, Acts
117-22   of the 67th Legislature, Regular Session, 1981 (Article 717p,
117-23   Vernon's Texas Civil Statutes), shall satisfy the requirements of
117-24   Section 39.051.
117-25         (d)  Accommodation shall be made in the code of conduct
117-26   established under Section 39.157(e) for the provisions of Chapter
 118-1   245, Acts of the 67th Legislature, Regular Session, 1981 (Article
 118-2   717p, Vernon's Texas Civil Statutes), and the commission shall not
 118-3   prohibit a river authority and any related corporation from sharing
 118-4   officers, directors, employees, equipment, and facilities or from
 118-5   providing goods or services to each other at cost without the need
 118-6   for a competitive bid.
 118-7         Sec. 40.002.  DEFINITION.  For purposes of this chapter,
 118-8   "body vested with the power to manage and operate a municipally
 118-9   owned utility" shall mean a body created in accordance with Article
118-10   1115 or 1115a, Revised Statutes, or by municipal charter.
118-11         Sec. 40.003.  SECURITIZATION.  (a)  Municipally owned
118-12   utilities and river authorities may adopt and use securitization
118-13   provisions having the effect of the provisions set out in
118-14   Subchapter G, Chapter 39, to recover through appropriate charges
118-15   their stranded costs, at a recovery level deemed appropriate by the
118-16   municipally owned utility or river authority up to 100 percent,
118-17   under rules and procedures that shall be established:
118-18               (1)  in the case of a municipally owned utility, by the
118-19   municipal governing body or a body vested with the power to manage
118-20   and operate the municipally owned utility, including procedures
118-21   providing for rate orders of such governing body having the effect
118-22   of financing orders, providing for a separate nonbypassable charge
118-23   approved by the governing body, in the nature of a transition
118-24   charge, to be collected from all retail electric customers of the
118-25   municipally owned utility, identified as of a date determined by
118-26   the governing body, to fund the recovery of the stranded costs of
 119-1   the municipally owned utility and of all reasonable related
 119-2   expenses, as determined by the governing body, and providing for
 119-3   the issuance of bonds, having a term and other characteristics as
 119-4   determined by the governing body, as necessary to recover the
 119-5   amount deemed appropriate by the governing body through
 119-6   securitization financing; and
 119-7               (2)  in the case of a river authority, by the
 119-8   commission.
 119-9         (b)  In order to implement securitization financing pursuant
119-10   to the rules and procedures established by and for a municipally
119-11   owned utility under Subsection (a)(1), municipalities are expressly
119-12   authorized and empowered to issue bonds, notes, or other
119-13   obligations, including refunding bonds, payable from and secured by
119-14   a lien on and pledge of the revenues collected under an order of
119-15   the governing body of the municipality, and the bonds shall be
119-16   issued, without an election or any requirement of giving notice of
119-17   intent to issue the bonds, by ordinance adopted by the governing
119-18   body of the municipality, in such form and manner and sold on a
119-19   negotiated basis or upon receipt of bids and on such terms and
119-20   conditions as shall be determined by the governing body of the
119-21   municipality.
119-22         (c)  Bonds issued pursuant to authority conferred under
119-23   Subsections (a)(1) and (2) and Subsection (b) may be issued in such
119-24   form and manner, with or without credit enhancement or liquidity
119-25   enhancement and using such procedures as provided in the Bond
119-26   Procedures Act of 1981 (Article 717k-6, Vernon's Texas Civil
 120-1   Statutes) or other laws applicable to the issuance of bonds,
 120-2   including Chapter 656, Acts of the 68th Legislature, Regular
 120-3   Session, 1983 (Article 717q, Vernon's Texas Civil Statutes),
 120-4   Chapter 503, Acts of the 54th Legislature, Regular Session, 1955
 120-5   (Article 717k, Vernon's Texas Civil Statutes), and Chapter 642,
 120-6   Acts of the 65th Legislature, Regular Session, 1977 (Article
 120-7   1118n-12, Vernon's Texas Civil Statutes) as if such laws were fully
 120-8   restated herein and made a part hereof for all purposes, and a
 120-9   municipality or river authority shall have the right and authority
120-10   to use such other laws, notwithstanding any applicable restrictions
120-11   contained therein, to the extent convenient or necessary to carry
120-12   out any power or authority, express or implied, granted under this
120-13   section, in the issuance of bonds by a municipality or river
120-14   authority in connection with securitization financing; provided,
120-15   however, that the provisions herein contained shall be wholly
120-16   sufficient authority for the issuance of bonds, notes, or other
120-17   obligations, including refunding bonds, and the performance of the
120-18   other acts and procedures herein authorized, without reference to
120-19   any other laws or any restrictions or limitations contained
120-20   therein; and to the extent of any conflict or inconsistency between
120-21   the provisions of this authorization and any provisions of any
120-22   other law or home-rule charter, the authorization and power to
120-23   issue bonds conferred on municipalities or river authorities under
120-24   this section shall prevail and control.
120-25         (d)  The rules and procedures for securitization established
120-26   by the commission under Subsection (a)(2) shall include procedures
 121-1   for the recovery of qualified costs pursuant to the terms of a
 121-2   financing order adopted by the governing body of the river
 121-3   authority.
 121-4         (e)  The rules and procedures for securitization established
 121-5   by the commission under Subsection (a)(2) shall include rules and
 121-6   procedures for the issuance of transition bonds.  Findings made by
 121-7   the governing body of a river authority in a financing order issued
 121-8   pursuant to the rules and procedures described in this subsection
 121-9   shall be conclusive, and any nonbypassable transition charge
121-10   incorporated in the rate order to recover the principal, interest,
121-11   and all reasonable expenses associated with any transition bonds
121-12   shall constitute property rights, as described in Subchapter G,
121-13   Chapter 39, and otherwise conform in all material respects to the
121-14   nonbypassable transition charges set forth in Subchapter G, Chapter
121-15   39.
121-16         (f)  The rules and procedures established under this section
121-17   shall be consistent with other law applicable to municipally owned
121-18   utilities and river authorities and with the terms of any
121-19   resolutions, orders, charter provisions, or ordinances authorizing
121-20   outstanding bonds or other indebtedness of the municipalities or
121-21   river authorities.
121-22         Sec. 40.004.  JURISDICTION OF THE COMMISSION.  Except as
121-23   specifically otherwise provided in this chapter, the commission has
121-24   jurisdiction over municipally owned utilities only for the
121-25   following purposes:
121-26               (1)  to regulate wholesale transmission rates and
 122-1   service, including terms of access, to the extent provided by
 122-2   Subchapter A, Chapter 35;
 122-3               (2)  to regulate certification of retail service areas
 122-4   to the extent provided by Chapter 37;
 122-5               (3)  to regulate rates on appeal pursuant to
 122-6   Subchapters D and E, Chapter 33, subject to the provisions of
 122-7   Section 40.051(c);
 122-8               (4)  to establish a code of conduct as provided by
 122-9   Section 39.157(e) applicable to anticompetitive activities and to
122-10   affiliate activities limited to structurally unbundled affiliates
122-11   of municipally owned utilities, subject to Section 40.054;
122-12               (5)  to establish terms and conditions for open access
122-13   to transmission and distribution facilities for municipally owned
122-14   utilities providing customer choice, as provided by Section 39.203;
122-15               (6)  to require collection of the nonbypassable charge
122-16   established under Section 39.603(b) and to administer the renewable
122-17   energy credits program under Section 39.604(d); and
122-18               (7)  to require reports of municipally owned utility
122-19   operations only to the extent necessary to:
122-20                     (A)  enable the commission to determine the
122-21   aggregate load and energy requirements of the state and the
122-22   resources available to serve that load; or
122-23                     (B)  enable the commission to determine
122-24   information relating to market power as provided by Section 39.155.
122-25             SUBCHAPTER B.  MUNICIPALLY OWNED UTILITY CHOICE
122-26         Sec. 40.051.  GOVERNING BODY DECISION.  (a)  The municipal
 123-1   governing body or a body vested with the power to manage and
 123-2   operate a municipally owned utility has the discretion to decide
 123-3   when or if the municipally owned utility will provide customer
 123-4   choice.
 123-5         (b)  Municipally owned utilities may choose to participate in
 123-6   customer choice at any time on or after January 1, 2002, by
 123-7   adoption of an appropriate resolution of the municipal governing
 123-8   body or a body vested with power to manage and operate the
 123-9   municipally owned utility.  The decision to participate in customer
123-10   choice by the adoption of a resolution is irrevocable.
123-11         (c)  After a decision to offer customer choice has been made,
123-12   Subchapters D and E, Chapter 33, do not apply to any action taken
123-13   under this chapter.
123-14         Sec. 40.052.  UTILITY NOT OFFERING CUSTOMER CHOICE.  (a)  A
123-15   municipally owned utility that has not chosen to participate in
123-16   customer choice may not offer electric energy at unregulated prices
123-17   directly to retail customers outside its certificated retail
123-18   service area.
123-19         (b)  A municipally owned utility under Subsection (a) retains
123-20   the right to offer and provide a full range of customer service and
123-21   pricing programs to the customers within its certificated area and
123-22   to purchase and sell electric energy at wholesale without
123-23   geographic restriction.
123-24         Sec. 40.053.  RETAIL CUSTOMER'S RIGHT OF CHOICE.  (a)  If a
123-25   municipally owned utility chooses to participate in customer
123-26   choice, after that choice all retail customers served by the
 124-1   municipally owned utility within the certificated retail service
 124-2   area of the municipally owned utility shall have the right of
 124-3   customer choice consistent with the provisions of this chapter, and
 124-4   the municipally owned utility shall provide open access for retail
 124-5   service.
 124-6         (b)  Notwithstanding Section 39.107, the metering function
 124-7   shall not be deemed a competitive service for customers of the
 124-8   municipally owned utility within such service area and may, at the
 124-9   option of the municipally owned utility, continue to be offered by
124-10   the municipally owned utility as sole provider.
124-11         (c)  Upon its initiation of customer choice, a municipally
124-12   owned utility shall designate itself or another entity as the
124-13   provider of last resort for customers within the municipally owned
124-14   utility's certificated service area as that area existed on the
124-15   date of the utility's initiation of customer choice.  The
124-16   municipally owned utility shall fulfill the role of default
124-17   provider of last resort in the event no other entity is available
124-18   to act in that capacity.
124-19         (d)  If a customer is unable to obtain service from a retail
124-20   electric provider, upon request by the customer, the provider of
124-21   last resort shall offer the customer the standard retail service
124-22   package for the appropriate customer class, with no interruption of
124-23   service, at a fixed, nondiscountable rate that is at least
124-24   sufficient to cover the reasonable costs of providing such service,
124-25   as approved by the governing body of the municipally owned utility
124-26   which has the authority to set rates.
 125-1         (e)  The governing body of a municipally owned utility may
 125-2   establish the procedures and criteria for designating the provider
 125-3   of last resort and may redesignate the provider of last resort
 125-4   according to a schedule it considers appropriate.
 125-5         Sec. 40.054.  SERVICE OUTSIDE AREA.  (a)  A municipally owned
 125-6   utility participating in customer choice shall have the right to
 125-7   offer electric energy and related services at unregulated prices
 125-8   directly to retail customers within qualifying power regions
 125-9   without regard to geographic location.
125-10         (b)  In providing service under Subsection (a) to retail
125-11   customers outside its certificated retail service area as that area
125-12   exists on the date of adoption of customer choice, a municipally
125-13   owned utility is subject to the commission's rules establishing a
125-14   code of conduct regulating anticompetitive practices.
125-15         (c)  For municipally owned utilities participating in
125-16   customer choice, the commission shall have jurisdiction to
125-17   establish terms and conditions, but not rates, for access by other
125-18   retail electric providers to the municipally owned utility's
125-19   distribution facilities.
125-20         (d)  Accommodation shall be made in the commission's terms
125-21   and conditions for access and in the code of conduct for specific
125-22   legal requirements imposed by state or federal law applicable to
125-23   municipally owned utilities.
125-24         (e)  The commission does not have jurisdiction to require
125-25   unbundling of services or functions of, or to regulate the recovery
125-26   of stranded investment of, a municipally owned utility or, except
 126-1   as provided by this section, jurisdiction with respect to the
 126-2   rates, terms, and conditions of service for retail customers of a
 126-3   municipally owned utility within the utility's certificated service
 126-4   area.
 126-5         (f)  A municipally owned utility shall maintain separate
 126-6   books and records of its operations from those of the operations of
 126-7   any affiliate.
 126-8         Sec. 40.055.  JURISDICTION OF MUNICIPAL GOVERNING BODY.
 126-9   (a)  The municipal governing body or a body vested with the power
126-10   to manage and operate a municipally owned utility has exclusive
126-11   jurisdiction to:
126-12               (1)  set all terms of access, conditions, and rates
126-13   applicable to services provided by the municipally owned utility,
126-14   subject to Sections 40.054 and 40.056, including nondiscriminatory
126-15   and comparable terms of access, conditions, and rates for
126-16   distribution but excluding wholesale transmission rates, terms of
126-17   access, and conditions for wholesale transmission service set by
126-18   the commission under this subtitle, provided that the rates for
126-19   distribution access established by the municipal governing body
126-20   shall be comparable to the distribution access rates that apply to
126-21   the municipally owned utility and the municipally owned utility's
126-22   affiliates;
126-23               (2)  determine whether to unbundle any energy-related
126-24   activities and, if the municipally owned utility chooses to
126-25   unbundle, whether to do so structurally or functionally;
126-26               (3)  reasonably determine the amount of the municipally
 127-1   owned utility's stranded investment;
 127-2               (4)  establish nondiscriminatory transition charges
 127-3   reasonably designed to recover the stranded investment over an
 127-4   appropriate period of time, provided that recovery of retail
 127-5   stranded costs shall be from all existing or future retail
 127-6   customers, including the facilities, premises, and loads of such
 127-7   retail customers, within the utility's geographical certificated
 127-8   service area as it existed on May 1, 1999;
 127-9               (5)  determine the extent to which the municipally
127-10   owned utility will provide various customer services at the
127-11   distribution level, including other services that the municipally
127-12   owned utility is legally authorized to provide, or will accept the
127-13   services from other providers;
127-14               (6)  manage and operate the municipality's electric
127-15   utility systems, including exercise of control over resource
127-16   acquisition and any related expansion programs;
127-17               (7)  establish and enforce service quality and
127-18   reliability standards and consumer safeguards designed to protect
127-19   retail electric customers, including safeguards that will
127-20   accomplish the objectives of Sections 39.101(a) and (b), consistent
127-21   with the provisions of this chapter;
127-22               (8)  determine whether a base rate reduction is
127-23   appropriate for the municipally owned utility;
127-24               (9)  determine any other utility matters that the
127-25   municipal governing body or body vested with power to manage and
127-26   operate the municipally owned utility believes should be included;
 128-1   and
 128-2               (10)  make any other decisions affecting the
 128-3   municipally owned utility's participation in customer choice that
 128-4   are not inconsistent with the provisions of this chapter.
 128-5         (b)  In multiply certificated areas, a retail customer,
 128-6   including a retail customer of an electric cooperative or a
 128-7   municipally owned utility, may not avoid stranded cost recovery
 128-8   charges by switching to another electric utility, electric
 128-9   cooperative, or municipally owned utility.
128-10         Sec. 40.056.  ANTICOMPETITIVE ACTIONS.  (a)  If, upon
128-11   complaint by a retail electric provider, the commission finds that
128-12   a municipal rule, action, or order relating to customer choice is
128-13   anticompetitive or does not provide other retail electric providers
128-14   with nondiscriminatory terms and conditions of access to
128-15   distribution facilities or customers within the municipally owned
128-16   utility's certificated retail service area that are comparable to
128-17   the municipally owned utility's and its affiliates' terms and
128-18   conditions of access to distribution facilities or customers, the
128-19   commission shall notify the municipally owned utility.
128-20         (b)  The municipally owned utility shall have three months to
128-21   cure the anticompetitive or noncompliant behavior described in
128-22   Subsection (a), following opportunity for hearing on the complaint.
128-23   If the rule, action, or order is not fully remedied within that
128-24   time, the commission may prohibit the municipally owned utility or
128-25   affiliate from providing retail service outside its certificated
128-26   retail service area until the rule, action, or order is remedied.
 129-1         Sec. 40.057.  BILLING.  (a)  A municipally owned utility that
 129-2   opts for customer choice may continue to bill directly electric
 129-3   customers located in its certificated retail service area, as that
 129-4   area exists on the date of adoption of customer choice, for all
 129-5   transmission and distribution services.  The municipally owned
 129-6   utility may also bill directly for generation services and customer
 129-7   services provided by the municipally owned utility to those
 129-8   customers.
 129-9         (b)  A municipally owned utility that opts for customer
129-10   choice shall not adopt anticompetitive billing practices that would
129-11   discourage customers in its service area from choosing a retail
129-12   electric provider.
129-13         (c)  A customer that is being provided wires service by a
129-14   municipally owned utility at distribution or transmission voltage
129-15   and that is served by a retail electric provider for retail service
129-16   has the option of being billed directly by each service provider or
129-17   to receive a single bill for distribution, transmission, and
129-18   generation services from the municipally owned utility.
129-19         Sec. 40.058.  TARIFFS FOR OPEN ACCESS.  A municipally owned
129-20   utility that owns or operates transmission and distribution
129-21   facilities shall file with the commission tariffs implementing the
129-22   open access rules established by the commission under Section
129-23   39.203 and shall file with the commission the rates for open access
129-24   on distribution facilities as set by the municipal regulatory
129-25   authority, before the 90th day preceding the date the utility
129-26   offers customer choice.  The commission has no authority to
 130-1   determine the rates for distribution access service for a
 130-2   municipally owned utility.
 130-3         Sec. 40.059.  MUNICIPAL POWER AGENCY; RECOVERY OF STRANDED
 130-4   COSTS.  (a)  In this section, "member city" means a municipality
 130-5   that participated in the creation of a municipal power agency
 130-6   formed pursuant to Chapter 163 by the adoption of a concurrent
 130-7   resolution by the municipality on or before August 1, 1975.
 130-8         (b)  After a member city adopts a resolution choosing to
 130-9   participate in customer choice under Section 40.051(b), a member
130-10   city may include stranded costs described in Subsection (c) in its
130-11   distribution costs and may recover such costs through a
130-12   nonbypassable charge.  The nonbypassable charge shall be as
130-13   determined by the member city's governing body and may be spread
130-14   over 16 years.
130-15         (c)  The stranded costs that may be recovered under this
130-16   section are those costs that were determined by the commission and
130-17   set forth in the commission's April 1998 Report to the Texas Senate
130-18   Interim Committee on Electric Utility Restructuring entitled
130-19   "Potentially Strandable Investment (ECOM) Report:  1998 Update" and
130-20   specifically set forth in the report at Appendix A (ECOM Estimates
130-21   Including the Effects of Transition Plans) under the commission
130-22   base case benchmark base market price for the year 2002.
130-23         (d)  The stranded cost amounts described in this section
130-24   shall not be included in the generation costs used in setting rates
130-25   by the member city's governing body.
130-26         (e)  The provisions of this section are cumulative of all
 131-1   other provisions of this chapter, and nothing in this section shall
 131-2   be construed to limit or restrict the application of any provision
 131-3   of this chapter to the member cities.
 131-4         (f)  The municipal power agency shall extinguish the agency's
 131-5   indebtedness by sale of the electric facility to one or more
 131-6   purchasers, by way of a sale through the issuance of taxable or
 131-7   tax-exempt debt to the member cities, or by any other method.  The
 131-8   agency shall set as an objective the extinguishment of the agency's
 131-9   debt by September 1, 2000.  In the event this objective is not met,
131-10   the agency shall provide detailed reasons to the electric utility
131-11   restructuring legislative oversight committee by November 1, 2000,
131-12   why the agency was not able to meet this objective.
131-13         (g)  The municipal power agency or its successor in interest
131-14   may, at its option, use the rate of return method for calculating
131-15   its transmission cost of service.  If the rate of return method is
131-16   used, the return component for the transmission cost of service
131-17   revenue requirement shall be sufficient to meet the transmission
131-18   function's pro rata share of levelized debt service and debt
131-19   service coverage ratio (1.50) and other annual debt obligations;
131-20   provided, however, that the total levelized debt service may not
131-21   exceed the total debt service under the current payment schedule.
131-22   Any additional revenue generated by the methodology described in
131-23   this subsection shall be applied to reduce the agency's outstanding
131-24   indebtedness.
131-25         Sec. 40.060.  NO POWER TO AMEND CERTIFICATES.  Nothing in
131-26   this chapter empowers a municipal governing body or a body vested
 132-1   with the power to manage and operate a municipally owned utility to
 132-2   issue, amend, or rescind a certificate of public convenience and
 132-3   necessity granted by the commission.  This subsection does not
 132-4   affect the ability of a municipal governing body or a body vested
 132-5   with the power to manage and operate the municipally owned utility
 132-6   to pass a resolution under Section 40.051(b).
 132-7                   SUBCHAPTER C.  RIGHTS NOT AFFECTED
 132-8         Sec. 40.101.  INTERFERENCE WITH CONTRACT.  (a)  This subtitle
 132-9   shall not interfere with or abrogate the rights or obligations of
132-10   parties, including a retail or wholesale customer, to a contract
132-11   with a municipally owned utility or river authority.
132-12         (b)  This subtitle shall not interfere with or abrogate the
132-13   rights or obligations of a party under a contract or agreement
132-14   concerning certificated utility service areas.
132-15         Sec. 40.102.  ACCESS TO WHOLESALE MARKET.  Nothing in this
132-16   subtitle shall limit the access of municipally owned utilities to
132-17   the wholesale electric market.
132-18         Sec. 40.103.  PROTECTION OF BONDHOLDERS.  Nothing in this
132-19   subtitle or any rule adopted under this subtitle shall impair
132-20   contracts, covenants, or obligations between this state, river
132-21   authorities, municipalities, and the bondholders of revenue bonds
132-22   issued by the river authorities or municipalities.
132-23         Sec. 40.104.  TAX-EXEMPT STATUS.  Nothing in this subtitle
132-24   may impair the tax-exempt status of municipalities, electric
132-25   cooperatives, or river authorities, nor shall anything in this
132-26   subtitle compel any municipality, electric cooperative, or river
 133-1   authority to use its facilities in a manner which violates any
 133-2   contractual provisions, bond covenants, or other restrictions
 133-3   applicable to facilities financed by tax-exempt debt.
 133-4   Notwithstanding any other provision of law, the decision to
 133-5   participate in customer choice by the adoption of a resolution in
 133-6   accordance with Section 40.051(b) is irrevocable.
 133-7           CHAPTER 41.  ELECTRIC COOPERATIVES AND COMPETITION
 133-8                    SUBCHAPTER A.  GENERAL PROVISIONS
 133-9         Sec. 41.001.  APPLICABLE LAW.  Notwithstanding any other
133-10   provision of law, except Sections 39.155, 39.157(e), 39.203,
133-11   39.603, and 39.604, this chapter governs the transition to and the
133-12   establishment of a fully competitive electric power industry for
133-13   electric cooperatives.  Regarding the regulation of electric
133-14   cooperatives, this chapter shall control over any other provision
133-15   of this title, except for sections in which the term "electric
133-16   cooperative" is specifically used.
133-17         Sec. 41.002.  DEFINITIONS.  In this chapter:
133-18               (1)  "Board of directors" means the board of directors
133-19   of an electric cooperative as described in Section 161.071.
133-20               (2)  "Rate" includes any compensation, tariff, charge,
133-21   fare, toll, rental, or classification that is directly or
133-22   indirectly demanded, observed, charged, or collected by an electric
133-23   cooperative for any service, product, or commodity and any rule,
133-24   practice, or contract affecting the compensation, tariff, charge,
133-25   fare, toll, rental, or classification.
133-26               (3)  "Stranded investment" means:
 134-1                     (A)  the excess, if any, of the net book value of
 134-2   generation assets over the market value of the generation assets;
 134-3   and
 134-4                     (B)  any above market purchased power costs.
 134-5         Sec. 41.003.  SECURITIZATION.  (a)  Electric cooperatives may
 134-6   adopt and use securitization provisions having the effect of the
 134-7   provisions set out in Subchapter G, Chapter 39, to recover through
 134-8   rates stranded costs at a recovery level deemed appropriate by the
 134-9   board of directors up to 100 percent, under rules and procedures
134-10   that shall be established by the commission.
134-11         (b)  The rules and procedures for securitization established
134-12   under Subsection (a) shall include rules and procedures for the
134-13   recovery of stranded costs pursuant to the terms of a rate order
134-14   adopted by the board of directors of the electric cooperative,
134-15   which rate order shall have the effect of a financing order.
134-16         (c)  The rules and procedures established by the commission
134-17   under Subsection (b) shall include rules and procedures for the
134-18   issuance of transition bonds issued in a securitized financing
134-19   transaction.  The issuance of any transition bonds issued in a
134-20   securitized financing transaction by an electric cooperative is
134-21   expressly authorized and shall be governed by the laws governing
134-22   the issuance of bonds or other obligations by the electric
134-23   cooperative.  Findings made by the board of directors of an
134-24   electric cooperative in a rate order issued under the rules and
134-25   procedures described by this subsection shall be conclusive, and
134-26   any transition charges incorporated in such rate order to recover
 135-1   the principal, interest, and all reasonable expenses associated
 135-2   with any securitized financing transaction shall constitute
 135-3   property rights, as described in Subchapter G, Chapter 39, and
 135-4   shall otherwise conform in all material respects to the transition
 135-5   charges set forth in Subchapter G, Chapter 39.
 135-6         Sec. 41.004.  JURISDICTION OF THE COMMISSION.  Except as
 135-7   specifically provided otherwise in this chapter, the commission has
 135-8   jurisdiction over electric cooperatives only as follows:
 135-9               (1)  to regulate wholesale transmission rates and
135-10   service including terms of access, to the extent provided in
135-11   Subchapter A, Chapter 35;
135-12               (2)  to regulate certification of retail service areas
135-13   to the extent provided in Chapter 37;
135-14               (3)  to establish a code of conduct as provided in
135-15   Section 39.157(e) subject to Section 41.054;
135-16               (4)  to establish terms and conditions, but not rates,
135-17   for open access to distribution facilities for electric
135-18   cooperatives providing customer choice, as provided in Section
135-19   39.203; and
135-20               (5)  to require reports of electric cooperative
135-21   operations only to the extent necessary to:
135-22                     (A)  ensure the public safety;
135-23                     (B)  enable the commission to satisfy its
135-24   responsibilities relating to electric cooperatives under this
135-25   chapter;
135-26                     (C)  enable the commission to determine the
 136-1   aggregate electric load and energy requirements in the state and
 136-2   the resources available to serve that load; or
 136-3                     (D)  enable the commission to determine
 136-4   information relating to market power as provided in Section 39.155.
 136-5         Sec. 41.005.  LIMITATION ON MUNICIPAL AUTHORITY.
 136-6   Notwithstanding any other provision of this title, a municipality
 136-7   may not directly or indirectly regulate the rates, operations, and
 136-8   services of an electric cooperative.  This section shall not
 136-9   prohibit a municipality from making a lawful charge for the use of
136-10   public rights-of-way within the municipality as provided by Section
136-11   182.025, Tax Code.
136-12           SUBCHAPTER B.  ELECTRIC COOPERATIVE UTILITY CHOICE
136-13         Sec. 41.051.  BOARD DECISION.  (a)  The board of directors
136-14   has the discretion to decide when or if the electric cooperative
136-15   will provide customer choice.
136-16         (b)  Electric cooperatives that choose to participate in
136-17   customer choice may do so at any time on or after January 1, 2002,
136-18   by adoption of an appropriate resolution of the board of directors.
136-19   The decision to participate in customer choice by the adoption of
136-20   such a resolution may be revoked only if no customer has opted for
136-21   choice within four years of the resolution's adoption.  An electric
136-22   cooperative may initiate a customer choice pilot project at any
136-23   time.
136-24         Sec. 41.052.  ELECTRIC COOPERATIVES NOT OFFERING CUSTOMER
136-25   CHOICE.  (a)  An electric cooperative that chooses not to
136-26   participate in customer choice may not offer electric energy at
 137-1   unregulated prices directly to retail customers outside its
 137-2   certificated retail service area.
 137-3         (b)  An electric cooperative under Subsection (a) retains the
 137-4   right to offer and provide a full range of customer service and
 137-5   pricing programs to the customers within its certificated retail
 137-6   service area and to purchase and sell electric energy at wholesale
 137-7   without geographic restriction.
 137-8         (c)  A generation and transmission electric cooperative may
 137-9   offer electric energy at unregulated prices directly to retail
137-10   customers outside of its parent electric cooperatives' certificated
137-11   service areas only if a majority of the parent electric
137-12   cooperatives of the generation and transmission electric
137-13   cooperative have chosen to offer customer choice.
137-14         (d)  A subsidiary of an electric cooperative may not provide
137-15   electric energy at unregulated prices outside of its parent
137-16   electric cooperative's certificated retail service area unless the
137-17   electric cooperative offers customer choice inside its certificated
137-18   retail service area.
137-19         Sec. 41.053.  RETAIL CUSTOMER RIGHT OF CHOICE.  (a)  If an
137-20   electric cooperative chooses to participate in customer choice,
137-21   after that choice, all retail customers within the certificated
137-22   service area of the electric cooperative shall have the right of
137-23   customer choice, and the electric cooperative shall provide
137-24   nondiscriminatory open access for retail service.
137-25         (b)  Notwithstanding Section 39.107, the metering function
137-26   shall not be deemed a competitive service for customers of the
 138-1   electric cooperative within such service area and may, at the
 138-2   option of the electric cooperative, continue to be offered by the
 138-3   electric cooperative as sole provider.
 138-4         (c)  Upon its initiation of customer choice, an electric
 138-5   cooperative shall designate itself or another entity as the
 138-6   provider of last resort for retail customers within the electric
 138-7   cooperative's certificated service area and shall fulfill the role
 138-8   of default provider of last resort in the event no other entity is
 138-9   available to act in that capacity.
138-10         (d)  If a retail electric provider fails to serve a customer
138-11   described in Subsection (c), upon request by the customer, the
138-12   provider of last resort shall offer the customer the standard
138-13   retail service package for the appropriate customer class, with no
138-14   interruption of service, at a fixed, nondiscountable rate that is
138-15   at least sufficient to cover the reasonable costs of providing such
138-16   service, as approved by the board of directors.
138-17         (e)  The board of directors may establish the procedures and
138-18   criteria for designating the provider of last resort and may
138-19   redesignate the provider of last resort according to a schedule it
138-20   considers appropriate.
138-21         Sec. 41.054.  SERVICE OUTSIDE CERTIFICATED AREA.  (a)  An
138-22   electric cooperative participating in customer choice shall have
138-23   the right to offer electric energy and related services at
138-24   unregulated prices directly to retail customers within qualifying
138-25   power regions without regard to geographic location.
138-26         (b)  In providing service under Subsection (a) to retail
 139-1   customers outside its certificated service area as that area exists
 139-2   on the date of adoption of customer choice, an electric cooperative
 139-3   becomes subject to commission jurisdiction as to the commission's
 139-4   rules establishing a code of conduct regulating anticompetitive
 139-5   practices under Section 39.157(e), except to the extent such rules
 139-6   conflict with this chapter.
 139-7         (c)  For electric cooperatives participating in customer
 139-8   choice, the commission shall have jurisdiction to establish terms
 139-9   and conditions, but not rates, for access by other electric
139-10   providers to the electric cooperative's distribution facilities.
139-11         (d)  Notwithstanding Subsections (b) and (c), the commission
139-12   shall make accommodation in the code of conduct for specific legal
139-13   requirements imposed by state or federal law applicable to electric
139-14   cooperatives.  The commission shall accommodate the organizational
139-15   structures of electric cooperatives and shall not prohibit an
139-16   electric cooperative and any related entity from sharing officers,
139-17   directors, or employees.
139-18         (e)  The commission does not have jurisdiction to require the
139-19   unbundling of services or functions of, or to regulate the recovery
139-20   of stranded investment of, an electric cooperative or, except as
139-21   provided by this section, jurisdiction with respect to the rates,
139-22   terms, and conditions of service for retail customers of an
139-23   electric cooperative within the electric cooperative's certificated
139-24   service area.
139-25         (f)  An electric cooperative shall maintain separate books
139-26   and records of its operations and the operations of any subsidiary
 140-1   and shall ensure that the rates charged for provision of electric
 140-2   service do not include any costs of its subsidiary or any other
 140-3   costs not related to the provision of electric service.
 140-4         Sec. 41.055.  JURISDICTION OF BOARD OF DIRECTORS.  A board of
 140-5   directors has exclusive jurisdiction to:
 140-6               (1)  set all terms of access, conditions, and rates
 140-7   applicable to services provided by the electric cooperative, except
 140-8   as provided by Sections 41.054 and 41.056, including
 140-9   nondiscriminatory and comparable terms of access, conditions, and
140-10   rates for distribution but excluding wholesale transmission rates,
140-11   terms of access, and conditions for wholesale transmission service
140-12   set by the commission under Subchapter A, Chapter 35, provided that
140-13   the rates for distribution established by the electric cooperative
140-14   shall be comparable to the distribution rates that apply to the
140-15   electric cooperative and its subsidiaries;
140-16               (2)  determine whether to unbundle any energy-related
140-17   activities, and if the board of directors chooses to unbundle,
140-18   whether to do so structurally or functionally;
140-19               (3)  reasonably determine the amount of the electric
140-20   cooperative's stranded investment;
140-21               (4)  establish nondiscriminatory transition charges
140-22   reasonably designed to recover the stranded investment over an
140-23   appropriate period of time;
140-24               (5)  determine the extent to which the electric
140-25   cooperative will provide various customer services, including
140-26   nonelectric services, or accept the services from other providers;
 141-1               (6)  manage and operate the electric cooperative's
 141-2   utility systems, including exercise of control over resource
 141-3   acquisition and any related expansion programs;
 141-4               (7)  establish and enforce service quality standards,
 141-5   reliability standards, and consumer safeguards designed to protect
 141-6   retail electric customers;
 141-7               (8)  determine whether a base rate reduction is
 141-8   appropriate for the electric cooperative;
 141-9               (9)  determine any other utility matters that the board
141-10   of directors believes should be included;
141-11               (10)  sell electric energy and capacity at wholesale,
141-12   regardless of whether the electric cooperative participates in
141-13   customer choice; and
141-14               (11)  make any other decisions affecting the electric
141-15   cooperative's method of conducting business that are not
141-16   inconsistent with the provisions of this chapter.
141-17         Sec. 41.056.  ANTICOMPETITIVE ACTIONS.  (a)  If, after notice
141-18   and hearing, the commission finds that an electric cooperative
141-19   providing customer choice has engaged in anticompetitive behavior
141-20   by not providing other retail electric providers with
141-21   nondiscriminatory terms and conditions of access to distribution
141-22   facilities or customers within the electric cooperative's
141-23   certificated service area that are comparable to the electric
141-24   cooperative's and its subsidiaries' terms and conditions of access
141-25   to distribution facilities or customers, the commission shall
141-26   notify the electric cooperative.
 142-1         (b)  The electric cooperative shall have three months to cure
 142-2   the anticompetitive or noncompliant behavior described in
 142-3   Subsection (a).  If the behavior is not fully remedied within that
 142-4   time, the commission may prohibit the electric cooperative or its
 142-5   subsidiary from providing retail service outside its certificated
 142-6   retail service area until the behavior is remedied.
 142-7         Sec. 41.057.  BILLING.  (a)  An electric cooperative that
 142-8   opts for customer choice may continue to bill directly electric
 142-9   customers located in its certificated service area for all
142-10   transmission and distribution services.  The electric cooperative
142-11   may also bill directly for generation and customer services
142-12   provided by the electric cooperative or its subsidiaries to those
142-13   customers.
142-14         (b)  A customer served by an electric cooperative for
142-15   transmission and distribution services and by a retail electric
142-16   provider for retail service has the option of being billed directly
142-17   by each service provider or receiving a single bill for
142-18   distribution, transmission, and generation services from the
142-19   electric cooperative.
142-20         Sec. 41.058.  TARIFFS FOR OPEN ACCESS.  An electric
142-21   cooperative that owns or operates transmission and distribution
142-22   facilities shall file tariffs implementing the open access rules
142-23   established by the commission under Section 39.203 with the
142-24   appropriate regulatory authorities having jurisdiction over the
142-25   transmission and distribution service of the electric cooperative
142-26   before the 90th day preceding the date the electric cooperative
 143-1   offers customer choice.
 143-2         Sec. 41.059.  NO POWER TO AMEND CERTIFICATES.  Nothing in
 143-3   this chapter empowers a board of directors to issue, amend, or
 143-4   rescind a certificate of public convenience and necessity granted
 143-5   by the commission.
 143-6         Sec. 41.060.  CUSTOMER SERVICE INFORMATION.  (a)  The
 143-7   commission shall keep information submitted by customers and retail
 143-8   electric providers pertaining to the provision of electric service
 143-9   by electric cooperatives.
143-10         (b)  The commission shall notify the appropriate electric
143-11   cooperative of information submitted by a customer or retail
143-12   electric provider, and the electric cooperative shall respond to
143-13   the customer or retail electric provider.  The electric cooperative
143-14   shall notify the commission of its response.
143-15         (c)  The commission shall prepare a report for the Sunset
143-16   Advisory Commission that includes information submitted and
143-17   responses by electric cooperatives pursuant to the Sunset Advisory
143-18   Commission's schedule for reviewing the commission.
143-19         Sec. 41.061.  RETAIL RATE CHANGES BY ELECTRIC COOPERATIVES.
143-20   (a)  This section shall apply to retail rates of an electric
143-21   cooperative that has not adopted customer choice and to the retail
143-22   delivery rates of an electric cooperative that has adopted customer
143-23   choice.  This section shall not apply to rates for:
143-24               (1)  sales of electric energy by an electric
143-25   cooperative that has adopted customer choice; or
143-26               (2)  wholesale sales of electric energy.
 144-1         (b)  An electric cooperative may change its rates by:
 144-2               (1)  adopting a resolution approving the proposed
 144-3   change;
 144-4               (2)  mailing notice of the proposed change to each
 144-5   affected customer whose rate would be increased by the proposed
 144-6   change at least 30 days before implementation of the proposed
 144-7   change, which notice may be included in a monthly billing; and
 144-8               (3)  holding a meeting to discuss the proposed rate
 144-9   changes with affected customers, if any change is expected to
144-10   increase total system annual revenues by more than $100,000 or one
144-11   percent, whichever is greater.
144-12         (c)  An electric cooperative may implement the proposed rates
144-13   upon completion of the requirements under Subsection (b), and such
144-14   rates shall remain in effect until changed by the electric
144-15   cooperative as provided by this section or, for rates other than
144-16   retail delivery rates, until this section is no longer applicable
144-17   because the electric cooperative adopts customer choice.
144-18         (d)  The electric cooperative may reconsider a rate change at
144-19   any time and adjust the rate by board resolution without additional
144-20   notice or meeting of customers if the rate as adjusted is within
144-21   the general scope of the notice previously provided to affected
144-22   customers or is expected to decrease the revenues of the electric
144-23   cooperative.
144-24         (e)  Retail rates set by an electric cooperative that has not
144-25   adopted customer choice and retail delivery rates set by an
144-26   electric cooperative that has adopted customer choice shall be just
 145-1   and reasonable, not unreasonably preferential, prejudicial, or
 145-2   discriminatory; provided, however, that an electric cooperative may
 145-3   charge market-based rates to customers who have energy supply
 145-4   options.
 145-5         (f)  A customer of the electric cooperative who is adversely
 145-6   affected by a resolution of the electric cooperative setting rates
 145-7   is entitled to judicial review.  A person initiates judicial review
 145-8   by filing a petition in the district court of Travis County not
 145-9   later than the 60th day after the date the resolution is
145-10   implemented.
145-11         (g)  The resolution of the electric cooperative setting
145-12   rates, as it may have been amended as described in Subsection (d),
145-13   shall be presumed valid, and the burden of showing that the
145-14   resolution is invalid rests upon the persons challenging the
145-15   resolution.  A court reviewing a rate change by an electric
145-16   cooperative may consider any relevant factor that may be considered
145-17   by a court in reviewing a decision of the commission including the
145-18   cost of providing service.
145-19         (h)  If the court finds that the electric cooperative's
145-20   resolution setting rates violates the standards contained in
145-21   Subsection (e), the court shall enter an order:
145-22               (1)  stating the specific basis for its determination
145-23   that the rates set in the electric cooperative's resolution violate
145-24   Subsection (e); and
145-25               (2)  directing the electric cooperative to:
145-26                     (A)  set, within 60 days, revised retail rates
 146-1   that do not violate the standards of Subsection (e); and
 146-2                     (B)  refund or credit against future bills, at
 146-3   the electric cooperative's option, revenues collected under the
 146-4   rate found to violate the standards of Subsection (e) that exceed
 146-5   the revenues that would have been collected under the revised
 146-6   rates.  The refund or credit shall be made over a period of not
 146-7   more than 12 months, as determined by the electric cooperative.
 146-8         (i)  No remedy other than or additional to a remedy under
 146-9   Subsection (h) may be ordered by the court.  The court may not set
146-10   revised rates either for the period the challenged resolution was
146-11   in effect or prospectively.
146-12         (j)  Except as provided by this section, and Subchapter A,
146-13   Chapter 35, with regard to wholesale transmission rates, the rates
146-14   of an electric cooperative are not subject to review.
146-15         Sec. 41.062.  ALLOCATION OF STRANDED INVESTMENT.  Any
146-16   competition transition charge shall be allocated among retail
146-17   customer classes based on the relevant customer class
146-18   characteristics as of the end of the electric cooperative's most
146-19   recent fiscal year prior to implementation of customer choice, in
146-20   accordance with the methodology used to allocate the costs of the
146-21   underlying assets or expenses in the electric cooperative's most
146-22   recent cost of service study certified by a professional engineer
146-23   or certified public accountant or approved by the commission.  In
146-24   multiply certificated areas, a retail customer may not avoid
146-25   stranded cost recovery charges by switching to another electric
146-26   cooperative, an electric utility, or a municipally owned utility.
 147-1                   SUBCHAPTER C.  RIGHTS NOT AFFECTED
 147-2         Sec. 41.101.  INTERFERENCE WITH CONTRACT.  (a)  This subtitle
 147-3   shall not interfere with or abrogate the rights or obligations of
 147-4   parties, including a retail or wholesale customer, to a contract
 147-5   with an electric cooperative or its subsidiary.
 147-6         (b)  No provision of this subtitle may interfere with or be
 147-7   deemed to abrogate the rights or obligations of a party under a
 147-8   contract or an agreement concerning certificated service areas.
 147-9         Sec. 41.102.  ACCESS TO WHOLESALE MARKET.  Nothing in this
147-10   subtitle shall limit the access of an electric cooperative or its
147-11   subsidiary, either on its own behalf or on behalf of its customers,
147-12   to the wholesale electric market.
147-13         Sec. 41.103.  PROTECTION OF BONDHOLDERS.  Nothing in this
147-14   subtitle or any rule adopted under this subtitle shall impair
147-15   contracts, covenants, or obligations between an electric
147-16   cooperative and its lenders and holders of bonds issued on behalf
147-17   of or by the electric cooperative.
147-18         Sec. 41.104.  TAX-EXEMPT STATUS.  Nothing in this subtitle
147-19   may impair the tax-exempt status of electric cooperatives, nor
147-20   shall anything in this subtitle compel any electric cooperative to
147-21   use its facilities in a manner which violates any contractual
147-22   provisions, bond covenants, or other restrictions applicable to
147-23   facilities financed by tax-exempt or federally insured or
147-24   guaranteed debt.
147-25         SECTION 36.  Section 252.022, Local Government Code, is
147-26   amended by adding Subsection (c) to read as follows:
 148-1         (c)  This chapter does not apply to expenditures by a
 148-2   municipally owned electric or gas utility or unbundled divisions of
 148-3   a municipally owned electric or gas utility in connection with any
 148-4   purchases by the municipally owned utility or divisions of a
 148-5   municipally owned utility made in accordance with procurement
 148-6   procedures adopted by a resolution of the body vested with
 148-7   authority for management and operation of the municipally owned
 148-8   utility or its divisions that sets out the public purpose to be
 148-9   achieved by such procedures.  This subsection shall not be deemed
148-10   to exempt a municipally owned utility from any other applicable
148-11   statute, charter provision, or ordinance.
148-12         SECTION 37.  Section 272.001, Local Government Code, is
148-13   amended by adding Subsection (j) to read as follows:
148-14         (j)  This section does not apply to sales or exchanges of
148-15   land owned by a municipality operating a municipally owned electric
148-16   or gas utility if the land is held or managed by the municipally
148-17   owned utility, or by a division of the municipally owned electric
148-18   or gas utility that constitutes the unbundled electric or gas
148-19   operations of the utility, provided that the governing body of the
148-20   municipally owned utility shall adopt a resolution stating the
148-21   conditions and circumstances for the sale or exchange and the
148-22   public purpose that will be achieved by the sale or exchange.  For
148-23   purposes of this subsection, "municipally owned utility" includes a
148-24   river authority engaged in the generation, transmission, or
148-25   distribution of electric energy to the public, and "unbundled"
148-26   operations are those operations of the utility that have, in the
 149-1   discretion of the utility's governing body, been functionally
 149-2   separated.
 149-3         SECTION 38.  Subsection (c), Section 402.002, Local
 149-4   Government Code, is amended to read as follows:
 149-5         (c)  The municipality may manufacture its own electricity,
 149-6   gas, or anything else needed or used by the public.  It may
 149-7   purchase, and make contracts for the purchase of, gas, electricity,
 149-8   oil, or any other commodity or article used by the public and may
 149-9   sell it to the public on terms as provided by the municipal
149-10   charter, ordinance, or resolution of the governing body of the
149-11   municipally owned utility.
149-12         SECTION 39.  Subchapter D, Chapter 551, Government Code, is
149-13   amended by adding Section 551.086 to read as follows:
149-14         Sec. 551.086.  CERTAIN PUBLIC POWER UTILITIES:  COMPETITIVE
149-15   MATTERS.  (a)  Notwithstanding anything in this chapter to the
149-16   contrary, the rules provided by this section apply to competitive
149-17   matters of a public power utility.
149-18         (b)  In this section:
149-19               (1)  "Public power utility" means an entity providing
149-20   electric or gas utility services that is subject to the provisions
149-21   of this chapter.
149-22               (2)  "Public power utility governing body" means the
149-23   board of trustees or other applicable governing body, including a
149-24   city council, of a public power utility.
149-25               (3)(A)  "Competitive matter" means a utility-related
149-26   matter that the public power utility governing body in good faith
 150-1   determines, by a vote under this section:  (i) is related to the
 150-2   public power utility's competitive activity, including commercial
 150-3   information and (ii) would, if disclosed, give advantage to
 150-4   competitors or prospective competitors.
 150-5                     (B)  The following categories of information
 150-6   shall not be deemed to be competitive matters:
 150-7                           (i)  information relating to the provision
 150-8   of distribution access service, including the terms and conditions
 150-9   of such service and the rates charged for the service but not
150-10   including information concerning utility-related services or
150-11   products that are competitive;
150-12                           (ii)  information relating to the provision
150-13   of transmission service that is required to be filed with the
150-14   Public Utility Commission of Texas, subject to any confidentiality
150-15   provided for under the rules of the commission;
150-16                           (iii)  information for the distribution
150-17   system pertaining to reliability and continuity of service, to the
150-18   extent not security-sensitive, that relates to emergency
150-19   management, identification of critical loads such as hospitals and
150-20   police, records of interruption, and distribution feeder standards;
150-21                           (iv)  any substantive rule of general
150-22   applicability regarding service offerings, service regulation,
150-23   customer protections, or customer service adopted by the public
150-24   power utility as authorized by law;
150-25                           (v)  aggregate information reflecting
150-26   receipts or expenditures of funds of the public power utility, of
 151-1   the type that would be included in audited financial statements;
 151-2                           (vi)  information relating to equal
 151-3   employment opportunities for minority groups, as filed with local,
 151-4   state, or federal agencies;
 151-5                           (vii)  information relating to the public
 151-6   power utility's performance in contracting with minority business
 151-7   entities;
 151-8                           (viii)  information relating to nuclear
 151-9   decommissioning trust agreements, of the type required to be
151-10   included in audited financial statements;
151-11                           (ix)  information relating to the amount
151-12   and timing of any transfer to an owning city's general fund;
151-13                           (x)  information relating to environmental
151-14   compliance as required to be filed with any local, state, or
151-15   national environmental authority, subject to any confidentiality
151-16   provided under the rules of such authorities;
151-17                           (xi)  names of public officers of the
151-18   public power utility and the voting records of such officers for
151-19   all matters other than those within the scope of a competitive
151-20   resolution provided for by this section;
151-21                           (xii)  a description of the public power
151-22   utility's central and field organization, including the established
151-23   places at which the public may obtain information, submit
151-24   information and requests, or obtain decisions and the
151-25   identification of employees from whom the public may obtain
151-26   information, submit information or requests, or obtain decisions;
 152-1   and
 152-2                           (xiii)  information identifying the general
 152-3   course and method by which the public power utility's functions are
 152-4   channeled and determined, including the nature and requirements of
 152-5   all formal and informal policies and procedures.
 152-6         (c)  This chapter does not require a public power utility
 152-7   governing body to conduct an open meeting to deliberate, vote, or
 152-8   take final action on any competitive matter, as that term is
 152-9   defined in Subsection (b)(3).  Before a public power utility
152-10   governing body may deliberate, vote, or take final action on any
152-11   such competitive matter in a closed meeting, the public power
152-12   utility governing body must first make a good-faith determination,
152-13   by majority vote of its members, that such matter is a competitive
152-14   matter that satisfies the requirements of Subsection (b)(3).  The
152-15   vote shall be taken during the closed meeting and be included in
152-16   the certified agenda or tape recording of the closed meeting.  If a
152-17   public power utility governing body fails to determine by such vote
152-18   that the matter satisfies the requirements of Subsection (b)(3),
152-19   the public power utility governing body may not deliberate or take
152-20   any further action on the matter in the closed meeting.  This
152-21   section does not limit the right of a public power utility
152-22   governing body to hold a closed session pursuant to any other
152-23   exception provided for in this chapter.
152-24         (d)  For purposes of Section 551.041, the notice of the
152-25   subject matter of an item that may be considered as a competitive
152-26   matter under this section is required to contain no more than a
 153-1   general representation of the subject matter to be considered, such
 153-2   that the competitive activity of the public power utility with
 153-3   respect to the issue in question is not compromised or disclosed.
 153-4         (e)  With respect to municipally owned utilities subject to
 153-5   this section, this section shall apply whether or not the
 153-6   municipally owned utility has adopted customer choice or serves in
 153-7   a multiply certificated service area under the Utilities Code.
 153-8         (f)  Nothing in this section is intended to preclude the
 153-9   application of the enforcement and remedies provisions of
153-10   Subchapter G.
153-11         SECTION 40.  Subchapter C, Chapter 552, Government Code, is
153-12   amended by adding Section 552.131 to read as follows:
153-13         Sec. 552.131.  EXCEPTION:  PUBLIC POWER UTILITY COMPETITIVE
153-14   MATTERS.  (a)  In this section:
153-15               (1)  "Public power utility" means an entity providing
153-16   electric or gas utility services that is subject to the provisions
153-17   of this chapter.
153-18               (2)  "Public power utility governing body" means the
153-19   board of trustees or other applicable governing body, including a
153-20   city council, of a public power utility.
153-21               (3)(A)  "Competitive matter" means a utility-related
153-22   matter which the public power utility governing body in good faith
153-23   determines by a vote under this section:  (i) is related to the
153-24   public power utility's competitive activity, including commercial
153-25   information; and (ii) would, if disclosed, give advantage to
153-26   competitors or prospective competitors.
 154-1                     (B)  The following categories of information
 154-2   shall not be deemed to be competitive matters:
 154-3                           (i)  information relating to the provision
 154-4   of distribution access service, including the terms and conditions
 154-5   of such service and the rates charged for the service but not
 154-6   including information concerning utility related services or
 154-7   products that are competitive;
 154-8                           (ii)  information relating to the provision
 154-9   of transmission service that is required to be filed with the
154-10   Public Utility Commission of Texas, subject to any confidentiality
154-11   provided for under the rules of the commission;
154-12                           (iii)  information for the distribution
154-13   system pertaining to reliability and continuity of service, to the
154-14   extent not security-sensitive, that relates to emergency
154-15   management, identification of critical loads such as hospitals and
154-16   police, records of interruption, and distribution feeder standards;
154-17                           (iv)  any substantive rule of general
154-18   applicability regarding service offerings, service regulation,
154-19   customer protections, or customer service adopted by the public
154-20   power utility as authorized by law;
154-21                           (v)  aggregate information reflecting
154-22   receipts or expenditures of funds of the public power utility, of
154-23   the type that would be included in audited financial statements;
154-24                           (vi)  information relating to equal
154-25   employment opportunities for minority groups, as filed with local,
154-26   state, or federal agencies;
 155-1                           (vii)  information relating to the public
 155-2   power utility's performance in contracting with minority business
 155-3   entities;
 155-4                           (viii)  information relating to nuclear
 155-5   decommissioning trust agreements, of the type required to be
 155-6   included in audited financial statements;
 155-7                           (ix)  information relating to the amount
 155-8   and timing of any transfer to an owning city's general fund;
 155-9                           (x)  information relating to environmental
155-10   compliance as required to be filed with any local, state, or
155-11   national environmental authority, subject to any confidentiality
155-12   provided under the rules of such authorities;
155-13                           (xi)  names of public officers of the
155-14   public power utility and the voting records of such officers for
155-15   all matters other than those within the scope of a competitive
155-16   resolution provided for by this section;
155-17                           (xii)  a description of the public power
155-18   utility's central and field organization, including the established
155-19   places at which the public may obtain information, submit
155-20   information and requests, or obtain decisions and the
155-21   identification of employees from whom the public may obtain
155-22   information, submit information or requests, or obtain decisions;
155-23   and
155-24                           (xiii)  information identifying the general
155-25   course and method by which the public power utility's functions are
155-26   channeled and determined, including the nature and requirements of
 156-1   all formal and informal policies and procedures.
 156-2         (b)  Information or records are excepted from the
 156-3   requirements of Section 552.021 if the information or records are
 156-4   reasonably related  to a competitive matter, as defined in this
 156-5   section.  Such information or records include the text of any
 156-6   resolution of the public power utility governing body determining
 156-7   which issues, activities, or matters constitute competitive
 156-8   matters.  Information or records of a municipally owned utility
 156-9   that are reasonably related to a competitive matter are not subject
156-10   to disclosure under this chapter, whether or not, under the
156-11   Utilities Code, the municipally owned utility has adopted customer
156-12   choice or serves in a multiply certificated service area.  This
156-13   section does not limit the right of a public power utility
156-14   governing body to withhold from disclosure information deemed to be
156-15   within the scope of any other exception provided for in this
156-16   chapter, subject to the provisions of this chapter.
156-17         (c)  In connection with any request for an opinion of the
156-18   attorney general under Section 552.301 with respect to information
156-19   alleged to fall under this exception, in rendering a written
156-20   opinion under Section 552.306 the attorney general shall find the
156-21   requested information to be outside the scope of this exception
156-22   only if the attorney general determines, based on the information
156-23   provided in connection with the request:  (i) that the public power
156-24   utility governing body has failed to act in good faith in making
156-25   the determination that the issue, matter, or activity in question
156-26   is a competitive matter; or (ii) that the information or records
 157-1   sought to be withheld are not reasonably related to a competitive
 157-2   matter.
 157-3         SECTION 41.  Subsection (d), Section 791.011, Government
 157-4   Code, is amended to read as follows:
 157-5         (d)  An interlocal contract must:
 157-6               (1)  be authorized by the governing body of each party
 157-7   to the contract; however, if a party to the contract is a
 157-8   municipally owned electric utility, the governing body may
 157-9   establish procedures for entering into interlocal contracts that do
157-10   not exceed $100,000 without requiring the approval of the governing
157-11   body;
157-12               (2)  state the purpose, terms, rights, and duties of
157-13   the contracting parties; and
157-14               (3)  specify that each party paying for the performance
157-15   of governmental functions or services must make those payments from
157-16   current revenues available to the paying party.
157-17         SECTION 42.  Subchapter A, Chapter 2256, Government Code, is
157-18   amended by adding Section 2256.0201 to read as follows:
157-19         Sec. 2256.0201.  AUTHORIZED INVESTMENTS; MUNICIPAL UTILITY.
157-20   (a)  A municipality that owns a municipal electric utility that is
157-21   engaged in the distribution and sale of electric energy or natural
157-22   gas to the public may enter into a hedging contract and related
157-23   security and insurance agreements in relation to fuel oil, natural
157-24   gas, and electric energy to protect against loss due to price
157-25   fluctuations.  A hedging transaction must comply with the
157-26   regulations of the Commodity Futures Trading Commission and the
 158-1   Securities and Exchange Commission.  If there is a conflict between
 158-2   the municipal charter of the municipality and this chapter, this
 158-3   chapter prevails.
 158-4         (b)  A payment by a municipally owned electric or gas utility
 158-5   under a hedging contract or related agreement in relation to fuel
 158-6   supplies or fuel reserves is a fuel expense, and the utility may
 158-7   credit any amounts it receives under the contract or agreement
 158-8   against fuel expenses.
 158-9         (c)  The governing body of a municipally owned electric or
158-10   gas utility or the body vested with power to manage and operate the
158-11   municipally owned electric or gas utility may set policy regarding
158-12   hedging transactions.
158-13         (d)  In this section, "hedging" means the buying and selling
158-14   of fuel oil, natural gas, and electric energy futures or options or
158-15   similar contracts on those commodity futures as a protection
158-16   against loss due to price fluctuation.
158-17         SECTION 43.  Subsections (a), (c), and (d), Section 52.133,
158-18   Natural Resources Code, are amended to read as follows:
158-19         (a)  Each oil or gas lease covering land leased by the board,
158-20   by a board for lease [other than the Board for Lease of University
158-21   Lands], or by the surface owner of land under which the state owns
158-22   the minerals, commonly referred to as Relinquishment Act land,
158-23   which shall be subject to approval by the commissioner before it is
158-24   effective, shall include a provision granting the board authorized
158-25   to lease the land or the owner of the soil of Relinquishment Act
158-26   land and the commissioner authority to take their royalty in kind,
 159-1   and the commissioner and the boards for lease may include any other
 159-2   reasonable provisions that are not inconsistent with this section.
 159-3         (c)  The commissioner, the owner of the soil under Subchapter
 159-4   F [of this chapter], or the commissioner[,] acting on the behalf of
 159-5   and at the direction of an owner of the soil under Subchapter F [of
 159-6   this chapter], the board, or a board for lease, or at the direction
 159-7   of the Board for Lease of University Lands, may negotiate and
 159-8   execute contracts or any other instruments or agreements necessary
 159-9   to dispose of or enhance their portion of the royalty taken in
159-10   kind, including contracts for sale, purchase, transportation, and
159-11   storage and including insurance contracts or other agreements, to
159-12   secure or guarantee payment.
159-13         (d)  The commissioner, the owner of the soil under Subchapter
159-14   F, or the commissioner acting on behalf of and at the direction of
159-15   an owner of the soil under Subchapter F, the board, or a board for
159-16   lease, may negotiate and execute contracts or any other instruments
159-17   or agreements necessary to convert that portion of the royalty
159-18   taken in kind into other forms of energy, including electricity.
159-19   [This section does not apply to or have any effect on the Board for
159-20   Lease of University Lands or any lease executed on university
159-21   land.]
159-22         SECTION 44.  Section 53.026, Natural Resources Code, is
159-23   amended to read as follows:
159-24         Sec. 53.026.  In Kind Royalty.  (a)  The commissioner or the
159-25   commissioner acting on behalf of and at the direction of the board
159-26   or a board for lease may negotiate and execute a contract or any
 160-1   other instrument or agreement necessary to dispose of or enhance
 160-2   their portion of the royalty taken in kind, including contracts [a
 160-3   contract] for sale, purchase, transportation, or storage.
 160-4         (b)  The commissioner or the commissioner acting on behalf of
 160-5   and at the direction of the board or a board for lease may
 160-6   negotiate and execute a contract or any other instrument or
 160-7   agreement necessary to convert that portion of the royalty taken in
 160-8   kind to other forms of energy, including electricity.
 160-9         (c)  This section shall not be construed to surrender or in
160-10   any way affect the right of the state under an existing or future
160-11   lease to receive monetary royalty from its lessee.
160-12         SECTION 45.  Section 53.077, Natural Resources Code, is
160-13   amended to read as follows:
160-14         Sec. 53.077.  In Kind Royalty.  (a)  The commissioner, each
160-15   owner of the soil under this subchapter, or the commissioner acting
160-16   on the behalf of and at the direction of an owner of the soil under
160-17   this subchapter may negotiate and execute a contract or any other
160-18   instrument or agreement necessary to dispose of or enhance their
160-19   portion of the royalty taken in kind, including a contract for
160-20   sale, transportation, or storage.
160-21         (b)  The commissioner, each owner of the soil under this
160-22   subchapter, or the commissioner acting on behalf of and at the
160-23   direction of the owner of the soil under this subchapter may
160-24   negotiate and execute a contract or any other instrument or
160-25   agreement necessary to convert that portion of the royalty taken in
160-26   kind to other forms of energy, including electricity.
 161-1         (c)  This section shall not be construed to surrender or in
 161-2   any way affect the right of the state or the owner of the soil
 161-3   under an existing or future lease to receive monetary royalty from
 161-4   its lessee.
 161-5         SECTION 46.  Chapter 245, Acts of the 67th Legislature,
 161-6   Regular Session, 1981 (Article 717p, Vernon's Texas Civil
 161-7   Statutes), is amended by adding Section 4C to read as follows:
 161-8         Sec. 4C.  (a)  This section applies only to a river authority
 161-9   that is engaged in the distribution and sale of electric energy to
161-10   the public.
161-11         (b)  Notwithstanding any other law, a river authority may:
161-12               (1)  provide transmission services, as defined by the
161-13   Utilities Code or the Public Utility Commission of Texas, on a
161-14   regional basis to any eligible transmission customer at any
161-15   location within or outside the boundaries of the river authority;
161-16   and
161-17               (2)  acquire, including by lease-purchase; lease from
161-18   or to any person; finance; construct; rebuild; operate; or sell
161-19   electric transmission facilities at any location within or outside
161-20   the boundaries of the river authority; provided, however, that
161-21   nothing in this section shall:
161-22                     (A)  allow a river authority to construct
161-23   transmission facilities to an ultimate consumer of electricity to
161-24   enable an ultimate consumer to bypass the transmission or
161-25   distribution facilities of its existing provider; or
161-26                     (B)  relieve a river authority from an obligation
 162-1   to comply with the provisions of the Utilities Code concerning a
 162-2   certificate of convenience and necessity for a transmission
 162-3   facility.
 162-4         SECTION 47.  Sections 1 and 2, Article 1115a, Revised
 162-5   Statutes, are amended to read as follows:
 162-6         Sec. 1.  This article applies only to a home-rule
 162-7   municipality that owns an electric utility system, that by
 162-8   ordinance or charter elects to have the management and control of
 162-9   the system governed by a board of trustees [this article], and
162-10   that:
162-11               (1)  has outstanding obligations payable in whole or
162-12   part [solely] from and secured by a lien on and pledge of net
162-13   revenues of the system; or
162-14               (2)  issues obligations that are payable in whole or
162-15   part [solely] from and secured by a lien on and pledge of the net
162-16   revenues of the system and that are approved by the attorney
162-17   general.
162-18         Sec. 2.  A municipality by ordinance may transfer management
162-19   and control of the electric utility system to a [five-member] board
162-20   of trustees appointed by the municipality's governing body.  The
162-21   municipality by ordinance shall determine [set] the qualifications
162-22   for appointment to the board and the number of members.  The
162-23   municipality may by ordinance vest the power to establish rates and
162-24   related terms and conditions for its municipally owned electric
162-25   utility in the board of trustees appointed under this section,
162-26   notwithstanding any charter provision to the contrary.
 163-1         SECTION 48.  Subsection (a), Section 151.0101, Tax Code, is
 163-2   amended to read as follows:
 163-3         (a)  "Taxable services" means:
 163-4               (1)  amusement services;
 163-5               (2)  cable television services;
 163-6               (3)  personal services;
 163-7               (4)  motor vehicle parking and storage services;
 163-8               (5)  the repair, remodeling, maintenance, and
 163-9   restoration of tangible personal property, except:
163-10                     (A)  aircraft;
163-11                     (B)  a ship, boat, or other vessel, other than:
163-12                           (i)  a taxable boat or motor as defined by
163-13   Section 160.001;
163-14                           (ii)  a sports fishing boat; or
163-15                           (iii)  any other vessel used for pleasure;
163-16                     (C)  the repair, maintenance, and restoration of
163-17   a motor vehicle; and
163-18                     (D)  the repair, maintenance, creation, and
163-19   restoration of a computer program, including its development and
163-20   modification, not sold by the person performing the repair,
163-21   maintenance, creation, or restoration service;
163-22               (6)  telecommunications services;
163-23               (7)  credit reporting services;
163-24               (8)  debt collection services;
163-25               (9)  insurance services;
163-26               (10)  information services;
 164-1               (11)  real property services;
 164-2               (12)  data processing services;
 164-3               (13)  real property repair and remodeling;
 164-4               (14)  security services; [and]
 164-5               (15)  telephone answering services; and
 164-6               (16)  a sale by a transmission and distribution
 164-7   utility, as defined in Section 31.002, Utilities Code, of
 164-8   transmission or delivery of service directly to an electricity
 164-9   end-use customer whose consumption of electricity is subject to
164-10   taxation under this chapter.
164-11         SECTION 49.  Subdivision (1), Section 182.021, Tax Code, is
164-12   amended to read as follows:
164-13               (1)  "Utility company" means a person:
164-14                     (A)  who owns or operates a gas[, electric light,
164-15   electric power,] or water works, or water [and light] plant used
164-16   for local sale and distribution located within an incorporated city
164-17   or town in this state; or
164-18                     (B)  who owns or operates an electric light or
164-19   electric power works, or light plant used for local sale and
164-20   distribution located within an incorporated city or town in this
164-21   state, or who is a retail electric provider, as that term is
164-22   defined in Section 31.002, Utilities Code, that makes local sales
164-23   within an incorporated city or town in this state; provided,
164-24   however, that a person who owns an electric light or electric power
164-25   or gas plant used for distribution but who does not make retail
164-26   sales to the ultimate consumer within an incorporated city or town
 165-1   in this state is not included in this definition.
 165-2         SECTION 50.  Subchapter B, Chapter 182, Tax Code, is amended
 165-3   by adding Section 182.027 to read as follows:
 165-4         Sec. 182.027.  NO EXEMPTION.  Notwithstanding anything to the
 165-5   contrary in Chapter 161, Utilities Code, this subchapter applies to
 165-6   a retail electric provider that is an organizational unit of an
 165-7   electric cooperative organized under Chapter 161, Utilities Code,
 165-8   that is subject to retail competition under Chapter 41, Utilities
 165-9   Code.
165-10         SECTION 51.  The following provisions are repealed:
165-11         (1)  Section 12.104, Utilities Code;
165-12         (2)  Chapter 34, Utilities Code;
165-13         (3)  Subchapters F and G, Chapter 36, Utilities Code; and
165-14         (4)  Section 37.058, Utilities Code.
165-15         SECTION 52.  (a)  Nothing in this Act shall restrict or limit
165-16   a municipality's historical right to control and receive reasonable
165-17   compensation for use of public streets, alleys, rights-of-way, or
165-18   other public property to convey or provide electricity.
165-19         (b)  Nothing in this Act shall affect a retail electric
165-20   utility's right to provide electric service in accordance with its
165-21   certificate of public convenience and necessity.  A certificate of
165-22   convenience and necessity may, however, be revoked or modified as
165-23   provided by Section 37.059, Utilities Code, and Section 37.060,
165-24   Utilities Code, as added by this Act.
165-25         SECTION 53.  The Public Utility Commission of Texas shall
165-26   study and make recommendations by December 15, 2000, to the 77th
 166-1   Legislature for additional legislation that would move to and
 166-2   establish a competitive electric market on January 1, 2002, in
 166-3   accordance with the changes in law made by this Act.
 166-4         SECTION 54.  No later than 180 days after the effective date
 166-5   of this Act, the Public Utility Commission of Texas shall establish
 166-6   rules and procedures for the securitization of stranded costs for
 166-7   river authorities, as provided by Subdivision (2), Subsection (a),
 166-8   Section 40.003, Utilities Code, as added by this Act, and for
 166-9   electric cooperatives, as provided by Section 41.003, Utilities
166-10   Code.
166-11         SECTION 55.  This Act takes effect September 1, 1999.
166-12         SECTION 56.  The importance of this legislation and the
166-13   crowded condition of the calendars in both houses create an
166-14   emergency and an imperative public necessity that the
166-15   constitutional rule requiring bills to be read on three several
166-16   days in each house be suspended, and this rule is hereby suspended.