76R16147 E                          
         By Sibley, et al.                                        S.B. No. 7
         Substitute the following for S.B. No. 7:
         By Wolens                                            C.S.S.B. No. 7
                                A BILL TO BE ENTITLED
 1-1                                   AN ACT
 1-2     relating to electric utility restructuring and to the powers and
 1-3     duties of the Public Utility Commission of Texas, Office of Public
 1-4     Utility Counsel, and Texas Natural Resource Conservation
 1-5     Commission; providing penalties.
 1-6           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
 1-7           SECTION 1.  Section 11.003, Utilities Code, is amended to
 1-8     read as follows:
 1-9           Sec. 11.003.  DEFINITIONS.  In this title:
1-10                 (1)  "Affected person" means:
1-11                       (A)  a public utility or electric cooperative
1-12     affected by an action of a regulatory authority;
1-13                       (B)  a person whose utility service or rates are
1-14     affected by a proceeding before a regulatory authority; or
1-15                       (C)  a person who:
1-16                             (i)  is a competitor of a public utility
1-17     with respect to a service performed by the utility; or
1-18                             (ii)  wants to enter into competition with
1-19     a public utility.
1-20                 (2)  "Affiliate" means:
1-21                       (A)  a person who directly or indirectly owns or
1-22     holds at least five percent of the voting securities of a public
1-23     utility;
 2-1                       (B)  a person in a chain of successive ownership
 2-2     of at least five percent of the voting securities of a public
 2-3     utility;
 2-4                       (C)  a corporation that has at least five percent
 2-5     of its voting securities owned or controlled, directly or
 2-6     indirectly, by a public utility;
 2-7                       (D)  a corporation that has at least five percent
 2-8     of its voting securities owned or controlled, directly or
 2-9     indirectly, by:
2-10                             (i)  a person who directly or indirectly
2-11     owns or controls at least five percent of the voting securities of
2-12     a public utility; or
2-13                             (ii)  a person in a chain of successive
2-14     ownership of at least five percent of the voting securities of a
2-15     public utility;
2-16                       (E)  a person who is an officer or director of a
2-17     public utility or of a corporation in a chain of successive
2-18     ownership of at least five percent of the voting securities of a
2-19     public utility; or
2-20                       (F)  a person determined to be an affiliate under
2-21     Section 11.006.
2-22                 (3)  "Allocation" means the division among
2-23     municipalities or among municipalities and unincorporated areas of
2-24     the plant, revenues, expenses, taxes, and reserves of a utility
2-25     used to provide public utility service in a municipality or for a
2-26     municipality and unincorporated areas.
2-27                 (4)  "Commission" means the Public Utility Commission
 3-1     of Texas.
 3-2                 (5)  "Commissioner" means a member of the Public
 3-3     Utility Commission of Texas.
 3-4                 (6)  "Cooperative corporation" means:
 3-5                       (A)  an electric cooperative [corporation
 3-6     organized under Chapter 161 or a predecessor statute to Chapter 161
 3-7     and operating under that chapter]; or
 3-8                       (B)  a telephone cooperative corporation
 3-9     organized under Chapter 162 or a predecessor statute to Chapter 162
3-10     and operating under that chapter.
3-11                 (7)  "Corporation" means a domestic or foreign
3-12     corporation, joint-stock company, or association, and each lessee,
3-13     assignee, trustee, receiver, or other successor in interest of the
3-14     corporation, company, or association, that has any of the powers or
3-15     privileges of a corporation not possessed by an individual or
3-16     partnership.  The term does not include a municipal corporation or
3-17     electric cooperative, except as expressly provided by this title.
3-18                 (8)  "Counsellor" means the public utility counsel.
3-19                 (9)  "Electric cooperative" means:
3-20                       (A)  a corporation organized under Chapter 161 or
3-21     a predecessor statute to Chapter 161 and operating under that
3-22     chapter;
3-23                       (B)  a corporation organized as an electric
3-24     cooperative in a state other than Texas that has obtained a
3-25     certificate of authority to conduct affairs in the State of Texas;
3-26     or
3-27                       (C)  a successor to an electric cooperative
 4-1     created before June 1, 1999, in accordance with a conversion plan
 4-2     approved by a vote of the members of the electric cooperative,
 4-3     regardless of whether the successor later purchases, acquires,
 4-4     merges with, or consolidates with other electric cooperatives.
 4-5                 (10)  "Facilities" means all of the plant and equipment
 4-6     of a public utility, and includes the tangible and intangible
 4-7     property, without limitation, owned, operated, leased, licensed,
 4-8     used, controlled, or supplied for, by, or in connection with the
 4-9     business of the public utility.
4-10                 (11) [(10)]  "Municipally owned utility" means a
4-11     utility owned, operated, and controlled by a municipality or by a
4-12     nonprofit corporation the directors of which are appointed by one
4-13     or more municipalities.
4-14                 (12) [(11)]  "Office" means the Office of Public
4-15     Utility Counsel.
4-16                 (13) [(12)]  "Order" means all or a part of a final
4-17     disposition by a regulatory authority in a matter other than
4-18     rulemaking, without regard to whether the disposition is
4-19     affirmative or negative or injunctive or declaratory.  The term
4-20     includes:
4-21                       (A)  the issuance of a certificate of convenience
4-22     and necessity; and
4-23                       (B)  the setting of a rate.
4-24                 (14) [(13)]  "Person" includes an individual, a
4-25     partnership of two or more persons having a joint or common
4-26     interest, a mutual or cooperative association, and a corporation,
4-27     but does not include an electric cooperative.
 5-1                 (15) [(14)]  "Proceeding" means a hearing,
 5-2     investigation, inquiry, or other procedure for finding facts or
 5-3     making a decision under this title.  The term includes a denial of
 5-4     relief or dismissal of a complaint.
 5-5                 (16) [(15)]  "Rate" includes:
 5-6                       (A)  any compensation, tariff, charge, fare,
 5-7     toll, rental, or classification that is directly or indirectly
 5-8     demanded, observed, charged, or collected by a public utility for a
 5-9     service, product, or commodity described in the definition of
5-10     utility in Section 31.002 or 51.002; and
5-11                       (B)  a rule, practice, or contract affecting the
5-12     compensation, tariff, charge, fare, toll, rental, or
5-13     classification.
5-14                 (17) [(16)]  "Ratemaking proceeding" means[:]
5-15                       [(A)]  a proceeding in which a rate is changed[;
5-16     and]
5-17                       [(B)  a proceeding initiated under Chapter 34].
5-18                 (18) [(17)]  "Regulatory authority" means either the
5-19     commission or the governing body of a municipality, in accordance
5-20     with the context.
5-21                 (19) [(18)]  "Service" has its broadest and most
5-22     inclusive meaning.  The term includes any act performed, anything
5-23     supplied, and any facilities used or supplied by a public utility
5-24     in the performance of the utility's duties under this title to its
5-25     patrons, employees, other public utilities, an electric
5-26     cooperative, and the public.  The term also includes the
5-27     interchange of facilities between two or more public utilities.
 6-1     The term does not include the printing, distribution, or sale of
 6-2     advertising in a telephone directory.
 6-3                 (20) [(19)]  "Test year" means the most recent 12
 6-4     months, beginning on the first day of a calendar or fiscal year
 6-5     quarter, for which operating data for a public utility are
 6-6     available.
 6-7                 (21) [(20)]  "Trade association" means a nonprofit,
 6-8     cooperative, and voluntarily joined association of business or
 6-9     professional persons who are employed by public utilities or
6-10     utility competitors to assist the public utility industry, a
6-11     utility competitor, or the industry's or competitor's employees in
6-12     dealing with mutual business or professional problems and in
6-13     promoting their common interest.
6-14           SECTION 2.  Section 12.005, Utilities Code, is amended to
6-15     read as follows:
6-16           Sec. 12.005.  APPLICATION OF SUNSET ACT.  The Public Utility
6-17     Commission of Texas is subject to Chapter 325, Government Code
6-18     (Texas Sunset Act).  Unless continued in existence as provided by
6-19     that chapter or by Chapter 39, the commission is abolished and this
6-20     title expires September 1, 2005 [2001].
6-21           SECTION 3.  Section 12.101, Utilities Code, is amended to
6-22     read as follows:
6-23           Sec. 12.101.  COMMISSION EMPLOYEES.  The commission shall
6-24     employ:
6-25                 (1)  an executive director; and
6-26                 (2)  [a general counsel; and]
6-27                 [(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
7-27     supplier, or other entity affected by a commission decision in a
 8-1     manner other than by the setting of rates for that class of
 8-2     customer;
 8-3                       (C)  uses or receives a substantial amount of
 8-4     tangible goods, services, or funds from the commission, other than
 8-5     compensation or reimbursement authorized by law for commission
 8-6     membership, attendance, or expenses; or
 8-7                       (D)  notwithstanding Paragraph (B), has an
 8-8     interest in a mutual fund or retirement fund in which more than 10
 8-9     percent of the fund's holdings at the time of appointment is in a
8-10     single utility, utility competitor, or utility supplier in this
8-11     state and the person does not disclose this information to the
8-12     governor, senate, commission, or other entity, as appropriate.
8-13           (b)  A person otherwise ineligible because of Subsection
8-14     (a)(2)(B) may be appointed to the commission and serve as a
8-15     commissioner or may be employed as [the general counsel or]
8-16     executive director if the person:
8-17                 (1)  notifies the attorney general and commission that
8-18     the person is ineligible because of Subsection (a)(2)(B); and
8-19                 (2)  divests the person or the person's spouse of the
8-20     ownership or control:
8-21                       (A)  before beginning service or employment; or
8-22                       (B)  if the person is already serving or
8-23     employed, within a reasonable time.
8-24           SECTION 5.  Section 13.002, Utilities Code, is amended to
8-25     read as follows:
8-26           Sec. 13.002.  APPLICATION OF SUNSET ACT.  The Office of
8-27     Public Utility Counsel is subject to Chapter 325, Government Code
 9-1     (Texas Sunset Act).  Unless continued in existence as provided by
 9-2     that chapter, the office is abolished and this chapter expires
 9-3     September 1, 2005 [2001].
 9-4           SECTION 6.  Subsection (a), Section 13.003, Utilities Code,
 9-5     is amended to read as follows:
 9-6           (a)  The office:
 9-7                 (1)  shall assess the effect of utility rate changes
 9-8     and other regulatory actions on residential consumers in this
 9-9     state;
9-10                 (2)  shall advocate in the office's own name a position
9-11     determined by the counsellor to be most advantageous to a
9-12     substantial number of residential consumers;
9-13                 (3)  may appear or intervene, as a party or otherwise,
9-14     as a matter of right on behalf of:
9-15                       (A)  residential consumers, as a class, in any
9-16     proceeding before the commission, including an alternative dispute
9-17     resolution proceeding; and
9-18                       (B)  small commercial consumers, as a class, in
9-19     any proceeding in which the counsellor determines that small
9-20     commercial consumers are in need of representation, including an
9-21     alternative dispute resolution proceeding;
9-22                 (4)  may initiate or intervene as a matter of right or
9-23     otherwise appear in a judicial proceeding:
9-24                       (A)  that involves an action taken by an
9-25     administrative agency in a proceeding, including an alternative
9-26     dispute resolution proceeding, in which the counsellor is
9-27     authorized to appear; or
 10-1                      (B)  in which the counsellor determines that
 10-2    residential electricity consumers or small commercial electricity
 10-3    consumers are in need of representation;
 10-4                (5)  is entitled to the same access as a party, other
 10-5    than commission staff, to records gathered by the commission under
 10-6    Section 14.204;
 10-7                (6)  is entitled to discovery of any nonprivileged
 10-8    matter that is relevant to the subject matter of a proceeding or
 10-9    petition before the commission;
10-10                (7)  may represent an individual residential or small
10-11    commercial consumer with respect to the consumer's disputed
10-12    complaint concerning utility services that is unresolved before the
10-13    commission; and
10-14                (8)  may recommend legislation to the legislature that
10-15    the office determines would positively affect the interests of
10-16    residential and small commercial consumers.
10-17          SECTION 7.  Section 13.024, Utilities Code, is amended to
10-18    read as follows:
10-19          Sec. 13.024.  Prohibited Acts.  (a)  The counsellor may not[:]
10-20                [(1)]  have a direct or indirect interest in a utility
10-21    company regulated under this title[; or]
10-22                [(2)  provide legal services directly or indirectly to
10-23    or be employed in any capacity by a utility company regulated under
10-24    this title], its parent, or its subsidiary companies, corporations,
10-25    or cooperatives or a utility competitor, utility supplier, or other
10-26    entity affected in a manner other than by the setting of rates for
10-27    that class of customer.
 11-1          (b)  The prohibition under Subsection (a) applies during the
 11-2    period of the counsellor's service [and until the second
 11-3    anniversary of the date the counsellor ceases to serve as
 11-4    counsellor.]
 11-5          [(c)  This section does not prohibit a person from otherwise
 11-6    engaging in the private practice of law after the person ceases to
 11-7    serve as counsellor].
 11-8          SECTION 8.  Section 13.043, Utilities Code, is amended to
 11-9    read as follows:
11-10          Sec. 13.043.  PROHIBITION ON EMPLOYMENT OR REPRESENTATION.
11-11    (a)  A former counsel may not make any communication to or
11-12    appearance before the commission or an officer or employee of the
11-13    commission before the second anniversary of the date the person
11-14    ceases to serve as counsel if the communication or appearance is
11-15    made:
11-16                (1)  on behalf of another person in connection with any
11-17    matter on which the person seeks official action; or
11-18                (2)  with the intent to influence a commission decision
11-19    or action.
11-20          (b)  A former counsel may not represent any person or receive
11-21    compensation for services rendered on behalf of any person
11-22    regarding a matter before the commission before the second
11-23    anniversary of the date the person ceases to serve as counsel.
11-24          (c)  A person commits an offense if the person violates this
11-25    section.  An offense under this subsection is a Class A
11-26    misdemeanor.
11-27          (d)  An [The counsellor or an] employee of the office may
 12-1    not:
 12-2                (1)  be employed by a public utility that was in the
 12-3    scope of the [counsellor's or] employee's official responsibility
 12-4    while the [counsellor or] employee was associated with the office;
 12-5    or
 12-6                (2)  represent a person before the commission or a
 12-7    court in a matter:
 12-8                      (A)  in which the [counsellor or] employee was
 12-9    personally involved while associated with the office; or
12-10                      (B)  that was within the [counsellor's or]
12-11    employee's official responsibility while the [counsellor or]
12-12    employee was associated with the office.
12-13          (e) [(b)]  The prohibition of Subsection (d)(1) [(a)(1)]
12-14    applies until the[:]
12-15                [(1)  second anniversary of the date the counsellor
12-16    ceases to serve as a counsellor; and]
12-17                [(2)]  first anniversary of the date the employee's
12-18    employment with the office ceases.
12-19          (f) [(c)]  The prohibition of Subsection (d)(2) [(a)(2)]
12-20    applies while an [a counsellor or] employee of the office is
12-21    associated with the office and at any time after.
12-22          (g)  For purposes of this section, "person" includes an
12-23    electric cooperative.
12-24          SECTION 9.  Subsection (d), Section 14.101, Utilities Code,
12-25    is amended to read as follows:
12-26          (d)  This section does not apply to:
12-27                (1)  the purchase of a unit of property for
 13-1    replacement; [or]
 13-2                (2)  an addition to the facilities of a public utility
 13-3    by construction; or
 13-4                (3)  transactions that facilitate unbundling, asset
 13-5    valuation, minimization of ownership or control of generation
 13-6    assets, or other purposes consistent with Chapter 39.
 13-7          SECTION 10.  Subsections (a) and (b), Section 16.001,
 13-8    Utilities Code, are amended to read as follows:
 13-9          (a)  To defray the expenses incurred in the administration of
13-10    this title, an assessment is imposed on each public utility, retail
13-11    electric provider, and electric cooperative within the jurisdiction
13-12    of the commission that serves the ultimate consumer, including each
13-13    interexchange telecommunications carrier.
13-14          (b)  An assessment under this section is equal to one-sixth
13-15    of one percent of the public utility's, retail electric provider's,
13-16    or electric cooperative's gross receipts from rates charged to the
13-17    ultimate consumer in this state.
13-18          SECTION 11.  Section 31.002, Utilities Code, is amended to
13-19    read as follows:
13-20          Sec. 31.002.  DEFINITIONS.  In this subtitle:
13-21                (1)  "Affiliated power generation company" means a
13-22    power generation company that is affiliated with or the successor
13-23    in interest of an electric utility certificated to serve an area.
13-24                (2)  "Affiliated retail electric provider" means a
13-25    retail electric provider that is affiliated with or the successor
13-26    in interest of an electric utility certificated to serve an area.
13-27                (3)  "Aggregation" includes the following:
 14-1                      (A)  the purchase of electricity from a retail
 14-2    electric provider, a municipally owned utility, or an electric
 14-3    cooperative by an electricity customer for its own use in multiple
 14-4    locations; or
 14-5                      (B)  the purchase of electricity by an
 14-6    electricity customer as part of a voluntary association of
 14-7    electricity customers.
 14-8                (4)  "Customer choice" means the freedom of a retail
 14-9    customer to purchase electric services, either individually or
14-10    through voluntary aggregation with other retail customers, from the
14-11    provider or providers of the customer's choice and to choose among
14-12    various fuel types, energy efficiency programs, and renewable power
14-13    suppliers.
14-14                (5)  "Electric Reliability Council of Texas" or "ERCOT"
14-15    means the area in Texas served by electric utilities, municipally
14-16    owned utilities, and electric cooperatives that is not
14-17    synchronously interconnected with electric utilities outside the
14-18    state.
14-19                (6)  "Electric utility" means a person or river
14-20    authority that owns or operates for compensation in this state
14-21    equipment or facilities to produce, generate, transmit, distribute,
14-22    sell, or furnish electricity in this state.  The term includes a
14-23    lessee, trustee, or receiver of an electric utility and a
14-24    recreational vehicle park owner who does not comply with Subchapter
14-25    C, Chapter 184, with regard to the metered sale of electricity at
14-26    the recreational vehicle park.  The term does not include:
14-27                      (A)  a municipal corporation;
 15-1                      (B)  a qualifying facility;
 15-2                      (C)  a power generation company;
 15-3                      (D)  an exempt wholesale generator;
 15-4                      (E) [(D)]  a power marketer;
 15-5                      (F) [(E)]  a corporation described by Section
 15-6    32.053 to the extent the corporation sells electricity exclusively
 15-7    at wholesale and not to the ultimate consumer;
 15-8                      (G)  an electric cooperative;
 15-9                      (H)  a retail electric provider;
15-10                      (I)  this state or an agency of this state; or
15-11                      (J) [(F)]  a person not otherwise an electric
15-12    utility who:
15-13                            (i)  furnishes an electric service or
15-14    commodity only to itself, its employees, or its tenants as an
15-15    incident of employment or tenancy, if that service or commodity is
15-16    not resold to or used by others;
15-17                            (ii)  owns or operates in this state
15-18    equipment or facilities to produce, generate, transmit, distribute,
15-19    sell, or furnish electric energy to an electric utility, if the
15-20    equipment or facilities are used primarily to produce and generate
15-21    electric energy for consumption by that person; or
15-22                            (iii)  owns or operates in this state a
15-23    recreational vehicle park that provides metered electric service in
15-24    accordance with Subchapter C, Chapter 184.
15-25                (7) [(2)]  "Exempt wholesale generator" means a person
15-26    who is engaged directly or indirectly through one or more
15-27    affiliates exclusively in the business of owning or operating all
 16-1    or part of a facility for generating electric energy and selling
 16-2    electric energy at wholesale and who:
 16-3                      (A)  does not own a facility for the transmission
 16-4    of electricity, other than an essential interconnecting
 16-5    transmission facility necessary to effect a sale of electric energy
 16-6    at wholesale; and
 16-7                      (B)  has:
 16-8                            (i)  applied to the Federal Energy
 16-9    Regulatory Commission for a determination under 15 U.S.C. Section
16-10    79z-5a; or
16-11                            (ii)  registered as an exempt wholesale
16-12    generator as required by Section 35.032.
16-13                (8)  "Freeze period" means the period beginning on
16-14    January 1, 1999, and ending on December 31, 2001.
16-15                (9)  "Independent system operator" means an entity
16-16    supervising the collective transmission facilities of a power
16-17    region that is charged with nondiscriminatory coordination of
16-18    market transactions, systemwide transmission planning, and network
16-19    reliability.
16-20                (10)  "Power generation company" means a person that:
16-21                      (A)  generates electricity that is intended to be
16-22    sold at wholesale;
16-23                      (B)  does not own a transmission or distribution
16-24    facility in this state other than an essential interconnecting
16-25    facility, a facility not dedicated to public use, or a facility
16-26    otherwise excluded from the definition of "electric utility" under
16-27    this section; and
 17-1                      (C)  does not have a certificated service area,
 17-2    although its affiliated electric utility or transmission and
 17-3    distribution utility may have a certificated service area.
 17-4                (11) [(3)]  "Power marketer" means a person who:
 17-5                      (A)  becomes an owner of electric energy in this
 17-6    state for the purpose of selling the electric energy at wholesale;
 17-7                      (B)  does not own generation, transmission, or
 17-8    distribution facilities in this state;
 17-9                      (C)  does not have a certificated service area;
17-10    and
17-11                      (D)  has:
17-12                            (i)  been granted authority by the Federal
17-13    Energy Regulatory Commission to sell electric energy at
17-14    market-based rates; or
17-15                            (ii)  registered as a power marketer under
17-16    Section 35.032.
17-17                (12)  "Power region" means a contiguous geographical
17-18    area which is a distinct region of the North American Electric
17-19    Reliability Council.
17-20                (13) [(4)]  "Qualifying cogenerator" and "qualifying
17-21    small power producer" have the meanings assigned those terms by 16
17-22    U.S.C. Sections 796(18)(C) and 796(17)(D).  A qualifying
17-23    cogenerator that provides electricity to the purchaser of the
17-24    cogenerator's thermal output is not for that reason considered to
17-25    be a retail electric provider or a power generation company.
17-26                (14) [(5)]  "Qualifying facility" means a qualifying
17-27    cogenerator or qualifying small power producer.
 18-1                (15) [(6)]  "Rate" includes a compensation, tariff,
 18-2    charge, fare, toll, rental, or classification that is directly or
 18-3    indirectly demanded, observed, charged, or collected by an electric
 18-4    utility for a service, product, or commodity described in the
 18-5    definition of electric utility in this section and a rule,
 18-6    practice, or contract affecting the compensation, tariff, charge,
 18-7    fare, toll, rental, or classification that must be approved by a
 18-8    regulatory authority.
 18-9                (16)  "Retail customer" means the separately metered
18-10    end-use customer who purchases and ultimately consumes electricity.
18-11                (17)  "Retail electric provider" means a person that
18-12    sells electric energy to retail customers in this state.  A retail
18-13    electric provider may not own or operate generation assets.
18-14                (18)  "Separately metered" means metered by an
18-15    individual meter that is used to measure electric energy
18-16    consumption by a retail customer and for which the customer is
18-17    directly billed by a utility, retail electric provider, electric
18-18    cooperative, or municipally owned utility.
18-19                (19)  "Transmission and distribution utility" means a
18-20    person or river authority that owns or operates for compensation in
18-21    this state equipment or facilities to transmit or distribute
18-22    electricity, except for facilities necessary to interconnect a
18-23    generation facility with the transmission or distribution network,
18-24    a facility not dedicated to public use, or a facility otherwise
18-25    excluded from the definition of "electric utility" under this
18-26    section, in a qualifying power region certified under Section
18-27    39.152, but does not include a municipally owned utility or an
 19-1    electric cooperative.
 19-2                (20) [(7)]  "Transmission service" includes
 19-3    construction or enlargement of facilities, transmission over
 19-4    distribution facilities, control area services, scheduling
 19-5    resources, regulation services, reactive power support, voltage
 19-6    control, provision of operating reserves, and any other associated
 19-7    electrical service the commission determines appropriate, except
 19-8    that, on and after the implementation of customer choice, control
 19-9    area services, scheduling resources, regulation services, provision
19-10    of operating reserves, and reactive power, voltage control, and
19-11    other services provided by generation resources are not
19-12    "transmission service."[.]
19-13          SECTION 12.  Subchapter A, Chapter 32, Utilities Code, is
19-14    amended by adding Section 32.0015 to read as follows:
19-15          Sec. 32.0015.  REGULATION OF SUCCESSOR ELECTRIC UTILITY OR
19-16    ELECTRIC COOPERATIVE.  If an electric utility purchases, acquires,
19-17    merges, or consolidates with or acquires 50 percent or more of the
19-18    stock of an electric utility or electric cooperative, the
19-19    commission shall regulate the successor electric utility or
19-20    electric cooperative in the same manner that the commission would
19-21    regulate the entity that was subject to the stricter regulation
19-22    before the purchase, acquisition, merger, or consolidation.
19-23          SECTION 13.  Sections 32.051 and 32.052, Utilities Code, are
19-24    amended to read as follows:
19-25          Sec. 32.051.  Exemption of River Authority From Wholesale
19-26    Rate Regulation.  Notwithstanding any other provision of this
19-27    title, the commission may not directly or indirectly regulate
 20-1    revenue requirements, rates, fuel costs, fuel charges, or fuel
 20-2    acquisitions that are related to the generation and sale of
 20-3    electricity at wholesale, and not to ultimate consumers, by a river
 20-4    authority operating a steam generating plant on or before
 20-5    January 1, 1999.
 20-6          Sec. 32.052.  Ability of Certain River Authorities to
 20-7    Construct Improvements.  A river authority operating a steam
 20-8    generating plant on or before January 1, 1999, may acquire,
 20-9    finance, construct, rebuild, repower, and use new or existing power
20-10    plants, equipment, transmission lines, or other assets to sell
20-11    electricity exclusively at wholesale to:
20-12                (1)  a purchaser in San Saba, Llano, Burnet, Travis,
20-13    Bastrop, Blanco, Colorado, or Fayette County; or
20-14                (2)  a purchaser in an area served by the river
20-15    authority on January 1, 1975.
20-16          SECTION 14.  Section 32.053, Utilities Code, is amended by
20-17    amending Subsections (b) and (f) and adding Subsections (g) and (h)
20-18    to read as follows:
20-19          (b)  Notwithstanding a river authority's enabling legislation
20-20    or Chapter 245, Acts of the 67th Legislature, Regular Session, 1981
20-21    (Article 717p, Vernon's Texas Civil Statutes), a corporation may:
20-22                (1)  acquire, finance, construct, rebuild, repower,
20-23    operate, or sell a facility directly related to the generation of
20-24    electricity; [and]
20-25                (2)  sell, at wholesale only, the output of the
20-26    facility to a purchaser, other than an ultimate consumer, at any
20-27    location in this state; and
 21-1                (3)  purchase and sell electricity, at wholesale only,
 21-2    to a purchaser, other than an ultimate consumer, at any location in
 21-3    this state.
 21-4          (f)  The proceeds from the sale of bonds or other obligations
 21-5    the interest on which is exempt from taxation and that are issued
 21-6    by a corporation or river authority subject to this section, other
 21-7    than a bond or obligation available to an investor-owned utility or
 21-8    exempt wholesale generator, may not be used by the corporation[,
 21-9    and may not have been used,] to finance the construction or
21-10    acquisition of or the rebuilding or repowering of a facility for
21-11    the generation of electricity by the corporation.
21-12          (g)  Notwithstanding any other law, the board of directors of
21-13    a river authority may sell, lease, loan, or otherwise transfer
21-14    some, all, or substantially all of the electric generation property
21-15    of the river authority to a nonprofit corporation authorized under
21-16    this section or Chapter 245, Acts of the 67th Legislature, Regular
21-17    Session, 1981 (Article 717p, Vernon's Texas Civil Statutes).  The
21-18    property transfer shall be made under terms and conditions approved
21-19    by the board of directors of the river authority.
21-20          (h)  Subsections (a)-(f) do not apply to a corporation
21-21    created under Chapter 245, Acts of the 67th Legislature, Regular
21-22    Session, 1981 (Article 717p, Vernon's Texas Civil Statutes), to
21-23    serve an area described in Section 32.052.
21-24          SECTION 15.  Subchapter A, Chapter 33, Utilities Code, is
21-25    amended by adding Section 33.008 to read as follows:
21-26          Sec. 33.008.  FRANCHISE CHARGES.  (a)  Following the end of
21-27    the freeze period for a municipality that has been served by an
 22-1    electric utility, and following the date a municipally owned
 22-2    utility or an electric cooperative has implemented customer choice
 22-3    for a municipality that has been served by that municipally owned
 22-4    utility or electric cooperative, a municipality may impose on an
 22-5    electric utility, transmission and distribution utility,
 22-6    municipally owned utility, or electric cooperative, as appropriate,
 22-7    that provides distribution service within the municipality a
 22-8    reasonable charge as specified in Subsection (b) for the use of a
 22-9    municipal street, alley, or public way to deliver electricity to a
22-10    retail customer.  A municipality may not impose a charge on:
22-11                (1)  an electric utility, or transmission and
22-12    distribution utility, municipally owned utility, or electric
22-13    cooperative for electric service provided outside the municipality;
22-14                (2)  a qualifying facility;
22-15                (3)  an exempt wholesale generator;
22-16                (4)  a power marketer;
22-17                (5)  a retail electric provider;
22-18                (6)  a power generation company;
22-19                (7)  a person that generates electricity on and after
22-20    January 1, 2002; or
22-21                (8)  an aggregator, as that term is defined by Section
22-22    39.353.
22-23          (b)  If a municipality collected a charge or fee for a
22-24    franchise to use a municipal street, alley, or public way from an
22-25    electric utility, a municipally owned utility, or an electric
22-26    cooperative before the end of the freeze period, the municipality,
22-27    after the end of the freeze period or after implementation of
 23-1    customer choice by the municipally owned utility or electric
 23-2    cooperative, as appropriate, is entitled to collect from each
 23-3    electric utility, transmission and distribution utility,
 23-4    municipally owned utility, or electric cooperative that uses the
 23-5    municipality's streets, alleys, or public ways to provide
 23-6    distribution service a charge based on each kilowatt hour of
 23-7    electricity delivered by the utility to each retail customer whose
 23-8    consuming facility's point of delivery is located within the
 23-9    municipality's boundaries.  The charge imposed shall be equal to
23-10    the total electric franchise fee revenue due the municipality from
23-11    electric utilities, municipally owned utilities, or electric
23-12    cooperatives, as appropriate, for calendar year 1998 divided by the
23-13    total kilowatt hours delivered during 1998 by the applicable
23-14    electric utility, municipally owned utility, or electric
23-15    cooperative to retail customers whose consuming facilities' points
23-16    of delivery were located within the municipality's boundaries.  The
23-17    compensation a municipality may collect from each electric utility,
23-18    transmission and distribution utility, municipally owned utility,
23-19    or electric cooperative providing distribution service shall be
23-20    equal to the charge per kilowatt-hour determined for 1998
23-21    multiplied times the number of kilowatt-hours delivered within the
23-22    municipality's boundaries.
23-23          (c)  The municipal franchise charges authorized by this
23-24    section shall be considered a reasonable and necessary operating
23-25    expense of each electric utility, transmission and distribution
23-26    utility, municipally owned utility, or electric cooperative that is
23-27    subject to a charge under this section.  The charge shall be
 24-1    included in the nonbypassable delivery charges that a customer's
 24-2    retail electric provider must pay under Section 39.107 to the
 24-3    utility serving the customer.
 24-4          (d)  The municipal franchise charges authorized by this
 24-5    section are in lieu of any franchise charges or fees payable under
 24-6    a franchise agreement in effect before the expiration of the freeze
 24-7    period or, as appropriate, before the implementation of customer
 24-8    choice by a municipally owned utility or electric cooperative.
 24-9    Except as otherwise provided by this section, this section does not
24-10    affect a provision of a franchise agreement in effect before the
24-11    end of the freeze period or, as appropriate, before the
24-12    implementation of customer choice by a municipally owned utility or
24-13    electric cooperative.
24-14          (e)  A municipality may conduct an audit or other inquiry or
24-15    may pursue any cause of action in relation to an electric
24-16    utility's, transmission and distribution utility's, municipally
24-17    owned utility's, or electric cooperative's payment of charges
24-18    authorized by this section only if such audit, inquiry, or pursuit
24-19    of a cause of action concerns a payment made less than two years
24-20    before commencement of such audit, inquiry, or pursuit of a cause
24-21    of action, provided, however, that this subsection does not apply
24-22    to an audit, inquiry, or cause of action commenced before September
24-23    1, 1999.  An electric utility, transmission and distribution
24-24    utility, municipally owned utility, or electric cooperative shall,
24-25    on request of the municipality in connection with a municipal
24-26    audit, identify the service provider and the type of service
24-27    delivered for any service in addition to electricity delivered
 25-1    directly to retail customers through the utility's
 25-2    electricity-conducting facilities that are located in the
 25-3    municipality's streets, alleys, or public ways and for which the
 25-4    utility receives compensation.
 25-5          (f)  Notwithstanding any other provision of this section, on
 25-6    the expiration of a franchise agreement existing on September 1,
 25-7    1999, an electric utility, transmission and distribution utility,
 25-8    municipally owned utility, or electric cooperative and a
 25-9    municipality may mutually agree to a different level of
25-10    compensation or to a different method for determining the amount
25-11    the municipality may charge for the use of a municipal street,
25-12    alley, or public way in connection with the delivery of electricity
25-13    at retail within the municipality.
25-14          (g)  After the end of the freeze period or after
25-15    implementation of customer choice by the municipally owned utility
25-16    or electric cooperative, as appropriate, a newly incorporated
25-17    municipality or a municipality that has not previously collected
25-18    compensation for the delivery of electricity at retail within the
25-19    municipality may adopt and collect compensation based on the same
25-20    rate per kilowatt hour that is collected by any other municipality
25-21    in the same county that is served by the same electric utility,
25-22    transmission and distribution utility, municipally owned utility,
25-23    or electric cooperative.
25-24          (h)  In this section, "distribution service" means the
25-25    delivery of electricity to all retail customers.
25-26          SECTION 16.  Section 35.001, Utilities Code, is amended to
25-27    read as follows:
 26-1          Sec. 35.001.  Definition.  In this subchapter, "electric
 26-2    utility" includes a municipally owned utility and an electric
 26-3    cooperative.
 26-4          SECTION 17.  Section 35.004, Utilities Code, is amended to
 26-5    read as follows:
 26-6          Sec. 35.004.  PROVISION OF TRANSMISSION SERVICE.  (a)  An
 26-7    electric utility or transmission and distribution utility that owns
 26-8    or operates transmission facilities shall provide wholesale
 26-9    transmission service at rates and terms, including terms of access,
26-10    that are comparable to the rates and terms of the utility's own use
26-11    of its system.
26-12          (b)  The commission shall ensure that an electric utility or
26-13    transmission and distribution utility provides nondiscriminatory
26-14    access to wholesale transmission service for qualifying facilities,
26-15    exempt wholesale generators, power marketers, power generation
26-16    companies, retail electric providers, and other electric utilities
26-17    or transmission and distribution utilities.
26-18          (c)  When an electric utility, electric cooperative, or
26-19    transmission and distribution utility provides wholesale
26-20    transmission service within ERCOT at the request of a third party,
26-21    the commission shall ensure that the utility recovers the utility's
26-22    reasonable costs in providing wholesale transmission services
26-23    necessary for the transaction from the entity for which the
26-24    transmission is provided so that the utility's other customers do
26-25    not bear the costs of the service.
26-26          (d)  The commission shall price wholesale transmission
26-27    services within ERCOT based on the postage stamp method of pricing
 27-1    under which a transmission-owning utility's rate is based on the
 27-2    ERCOT utilities' combined annual costs of transmission divided by
 27-3    the total demand placed on the combined transmission systems of all
 27-4    such transmission-owning utilities within a power region.  An
 27-5    electric utility subject to the freeze period imposed by Section
 27-6    39.052 may treat transmission costs in excess of transmission
 27-7    revenues during the freeze period as an expense for purposes of
 27-8    determining annual costs in the annual report filed under Section
 27-9    39.257.  Notwithstanding Section 36.201, the commission may approve
27-10    wholesale rates that may be periodically adjusted to ensure timely
27-11    recovery of transmission investment.
27-12          (e)  The commission shall ensure that ancillary services
27-13    necessary to facilitate the transmission of electric energy are
27-14    available at reasonable prices with terms and conditions that are
27-15    not unreasonably preferential, prejudicial, discriminatory,
27-16    predatory, or anticompetitive.  In this subsection, "ancillary
27-17    services" means services necessary to facilitate the transmission
27-18    of electric energy including load following, standby power, backup
27-19    power, reactive power, and any other services as the commission may
27-20    determine by rule.  On the introduction of customer choice in the
27-21    ERCOT power region, acquisition of generation-related ancillary
27-22    services on a nondiscriminatory basis by the independent
27-23    organization in ERCOT on behalf of entities selling electricity at
27-24    retail shall be deemed to meet the requirements of this subsection.
27-25          SECTION 18.  Subsection (b), Section 35.005, Utilities Code,
27-26    is amended to read as follows:
27-27          (b)  The commission may require transmission service at
 28-1    wholesale, including the construction or enlargement of a
 28-2    facility[, in a proceeding not related to approval of an integrated
 28-3    resource plan].
 28-4          SECTION 19.  Section 35.033, Utilities Code, is amended to
 28-5    read as follows:
 28-6          Sec. 35.033.  Affiliate Wholesale Provider.  An affiliate of
 28-7    an electric utility may be an exempt wholesale generator or power
 28-8    marketer and may sell electric energy to its affiliated electric
 28-9    utility in accordance with [Chapter 34 and other] laws governing
28-10    wholesale sales of electric energy.
28-11          SECTION 20.  Section 35.034, Utilities Code, is amended by
28-12    adding Subsection (c) to read as follows:
28-13          (c)  For purposes of this section, "electric utility" does
28-14    not include a river authority.
28-15          SECTION 21.  Section 35.035, Utilities Code, is amended by
28-16    adding Subsection (d) to read as follows:
28-17          (d)  For purposes of this section, "electric utility" does
28-18    not include a river authority.
28-19          SECTION 22.  Subchapter C, Chapter 35, Utilities Code, is
28-20    amended by adding Section 35.067 to read as follows:
28-21          Sec. 35.067.  APPLICATION FOR RECERTIFICATION.  (a)  An
28-22    electric cooperative or a qualifying facility may submit to the
28-23    commission for recertification an agreement previously certified
28-24    under Section 35.062 or a predecessor statute if the agreement:
28-25                (1)  permits recertification; or
28-26                (2)  the qualifying facility agrees to submission.
28-27          (b)  The commission may deny recertification if the
 29-1    commission determines that a material condition or fact on which
 29-2    the commission based the original certification, including the
 29-3    facility's status as a qualifying facility under 16 U.S.C. 796(18)
 29-4    or as determined by the Federal Energy Regulatory Commission, has
 29-5    changed or is no longer true.
 29-6          SECTION 23.  Chapter 35, Utilities Code, is amended by adding
 29-7    Subchapter D to read as follows:
 29-8          SUBCHAPTER D.  STATE AUTHORITY TO SELL OR CONVEY POWER
 29-9          Sec. 35.101.  DEFINITIONS.  In this subchapter:
29-10                (1)  "Commissioner" means the commissioner of the
29-11    General Land Office.
29-12                (2)  "Public retail customer" means a retail customer
29-13    that is an agency of this state, an institution of higher
29-14    education, a public school district, or a political subdivision of
29-15    this state.
29-16          Sec. 35.102.  STATE AUTHORITY TO SELL OR CONVEY POWER.  The
29-17    commissioner, acting on behalf of the state, may sell or otherwise
29-18    convey power directly to a public retail customer regardless of
29-19    whether the public retail customer is also classified as a
29-20    wholesale customer under other provisions of this title.
29-21          Sec. 35.103.  ACCESS TO TRANSMISSION AND DISTRIBUTION
29-22    SYSTEMS; RATES.  (a)  Except as provided in Section 35.104, the
29-23    state is entitled to have access to all transmission and
29-24    distribution systems of all electric utilities, transmission and
29-25    distribution utilities, municipally owned utilities, and electric
29-26    cooperatives that serve public retail customers.
29-27          (b)  An entity described by Subsection (a) shall provide any
 30-1    utility service, including transmission, distribution, and other
 30-2    services, which must include any applicable stranded costs or
 30-3    system benefit fees, to the state at the lowest applicable rate
 30-4    charged for similar service to other customers.
 30-5          Sec. 35.104.  LIMIT IN CERTAIN AREAS.  Sections 35.102 and
 30-6    35.103 do not apply to the rates, retail service area, facilities,
 30-7    or public retail customers of a municipally owned electric utility
 30-8    that has not adopted customer choice or an electric cooperative
 30-9    that has not adopted customer choice.  In a certificated service
30-10    area of an electric utility in which customer choice has not been
30-11    introduced, the state may not engage in retail transactions that
30-12    exceed 2.5 percent of a retail electric utility's total retail
30-13    load.
30-14          Sec. 35.105.  WHOLESALE CUSTOMERS.  This subchapter does not
30-15    prevent the commissioner, acting on behalf of this state, from
30-16    registering as a power marketer.
30-17          SECTION 24.  Section 36.008, Utilities Code, is amended to
30-18    read as follows:
30-19          Sec. 36.008.  STATE TRANSMISSION SYSTEM.  In establishing
30-20    rates for an electric utility [not required to file an integrated
30-21    resource plan], the commission may review the state's transmission
30-22    system and make recommendations to the utility on the need to build
30-23    new power lines, upgrade power lines, and make other necessary
30-24    improvements and additions.
30-25          SECTION 25.  Section 36.052, Utilities Code, is amended to
30-26    read as follows:
30-27          Sec. 36.052.  ESTABLISHING REASONABLE RETURN.  In
 31-1    establishing a reasonable return on invested capital, the
 31-2    regulatory authority shall consider applicable factors, including:
 31-3                (1)  [the efforts of the electric utility to comply
 31-4    with its most recently approved integrated resource plan;]
 31-5                [(2)]  the efforts and achievements of the utility in
 31-6    conserving resources;
 31-7                (2) [(3)]  the quality of the utility's services;
 31-8                (3) [(4)]  the efficiency of the utility's operations;
 31-9    and
31-10                (4) [(5)]  the quality of the utility's management.
31-11          SECTION 26.  Subsection (d), Section 36.058, Utilities Code,
31-12    is amended to read as follows:
31-13          (d)  In making a finding regarding an affiliate transaction,
31-14    [including an affiliate transaction subject to Chapter 34,] the
31-15    regulatory authority shall:
31-16                (1)  determine the extent to which the conditions and
31-17    circumstances of that transaction are reasonably comparable
31-18    relative to quantity, terms, date of contract, and place of
31-19    delivery; and
31-20                (2)  allow for appropriate differences based on that
31-21    determination.
31-22          SECTION 27.  Section 36.201, Utilities Code, is amended to
31-23    read as follows:
31-24          Sec. 36.201.  AUTOMATIC ADJUSTMENT FOR CHANGES IN COSTS.
31-25    Except as permitted by [Chapter 34 or] Section 36.204, the
31-26    commission may not establish a rate or tariff that authorizes an
31-27    electric utility to automatically adjust and pass through to the
 32-1    utility's customers a change in the utility's fuel or other costs.
 32-2          SECTION 28.  Section 36.204, Utilities Code, is amended to
 32-3    read as follows:
 32-4          Sec. 36.204.  COST RECOVERY AND INCENTIVES.  In establishing
 32-5    rates for an electric utility [not required to file an integrated
 32-6    resource plan], the commission may:
 32-7                (1)  allow timely recovery of the reasonable costs of
 32-8    conservation, load management, and purchased power, notwithstanding
 32-9    Section 36.201; and
32-10                (2)  authorize additional incentives for conservation,
32-11    load management, purchased power, and renewable resources.
32-12          SECTION 29.  Section 36.207, Utilities Code, is amended to
32-13    read as follows:
32-14          Sec. 36.207.  USE OF MARK-UPS.  Any mark-ups approved under
32-15    [Chapter 34 or] Section 36.206 are an exceptional form of rate
32-16    relief that the electric utility may recover from ratepayers only
32-17    on a finding by the commission that the relief is necessary to
32-18    maintain the utility's financial integrity.
32-19          SECTION 30.  Section 37.001, Utilities Code, is amended to
32-20    read as follows:
32-21          Sec. 37.001.  DEFINITIONS.  In this chapter:
32-22                (1)  "Certificate" means a certificate of convenience
32-23    and necessity.
32-24                (2)  "Electric utility" includes an electric
32-25    cooperative.
32-26                (3)  "Retail electric utility" means a person,
32-27    political subdivision, electric cooperative, or agency that
 33-1    operates, maintains, or controls in this state a facility to
 33-2    provide retail electric utility service.  The term does not include
 33-3    a corporation described by Section 32.053 to the extent that the
 33-4    corporation sells electricity exclusively at wholesale and not to
 33-5    the ultimate consumer.  A qualifying cogenerator that sells
 33-6    electric energy at retail to the sole purchaser of the
 33-7    cogenerator's thermal output under Sections 35.061 and 36.007 is
 33-8    not for that reason considered to be a retail electric utility.
 33-9    The owner or operator of a qualifying cogeneration facility who was
33-10    issued the necessary environmental permits from the Texas Natural
33-11    Resource Conservation Commission after January 1, 1998, and who
33-12    commenced construction of such qualifying facility before July 1,
33-13    1998, may provide electricity to the purchasers of the thermal
33-14    output of that qualifying facility and shall not for that reason be
33-15    considered an electric utility or a retail electric utility,
33-16    provided that the purchasers of the thermal output are owners of
33-17    manufacturing or process operation facilities that are located on a
33-18    site entirely owned before September 1987 by one owner who retained
33-19    ownership after September 1987 of some portion of the facilities
33-20    and that those facilities now share some integrated operations,
33-21    such as the provision of services and raw materials.
33-22          SECTION 31.  Section 37.051, Utilities Code, is amended by
33-23    adding Subsection (c) to read as follows:
33-24          (c)  Notwithstanding any other provision of this chapter,
33-25    including Subsection (a), an electric cooperative is not required
33-26    to obtain a certificate of public convenience and necessity for the
33-27    construction, installation, operation, or extension of any
 34-1    generating facilities or necessary interconnection facilities.
 34-2          SECTION 32.  Section 37.054(b), Utilities Code, is amended to
 34-3    read as follows:
 34-4          (b)  A person or electric cooperative interested in the
 34-5    application may intervene at the hearing.
 34-6          SECTION 33.  Subchapter B, Chapter 37, Utilities Code, is
 34-7    amended by adding Sections 37.060 and 37.061 to read as follows:
 34-8          Sec. 37.060.  DIVISION OF MULTIPLY CERTIFICATED SERVICE
 34-9    AREAS.  (a)  This subsection and Subsections (b)-(g) apply only to
34-10    areas in which each retail electric utility that is authorized to
34-11    provide retail electric utility service to the area is providing
34-12    customer choice.  For purposes of this subsection, an electric
34-13    cooperative or a municipally owned electric utility shall be deemed
34-14    to be providing customer choice if it has approved a resolution
34-15    adopting customer choice that is effective on January 1, 2002, or
34-16    effective within 24 months after the date of the resolution
34-17    adopting customer choice.  All other retail electric utilities
34-18    shall be deemed to be providing customer choice if customer choice
34-19    will be allowed for customers of the retail electric utility on
34-20    January 1, 2002.  In areas in which each certificated retail
34-21    electric utility is providing customer choice, the commission, if
34-22    requested by a retail electric utility, shall examine all areas
34-23    within the service area of the retail electric utility making the
34-24    request that are also certificated to one or more other retail
34-25    electric utilities and, after notice and hearing, shall amend the
34-26    retail electric utilities' certificates so that only one retail
34-27    electric utility is certificated to provide distribution services
 35-1    in any such area.  Only retail electric utilities certificated to
 35-2    serve an area on June 1, 1999, may continue to serve the area or
 35-3    portion of the area under an amended certificate issued under this
 35-4    subsection.
 35-5          (b)  This section does not apply in any area in which a
 35-6    municipally owned utility is certificated to provide retail
 35-7    electric utility service if the municipally owned utility serving
 35-8    the area files with the commission by February 1, 2000, a request
 35-9    that areas within the certificated service area of the municipally
35-10    owned utility remain as presently certificated.
35-11          (c)  The commission shall enter its order dividing multiply
35-12    certificated areas within one year of the date a request is
35-13    received.
35-14          (d)  In amending certificates under this section, the
35-15    commission shall take into consideration the factors prescribed by
35-16    Section 37.056.
35-17          (e)  Notwithstanding Section 37.059, the commission shall
35-18    revoke certificates to the extent necessary to achieve the division
35-19    of retail electric service areas as provided by this section.
35-20          (f)  Unless otherwise agreed by the affected retail electric
35-21    utilities, each retail electric utility shall be allowed to
35-22    continue to provide service to the location of
35-23    electricity-consuming facilities it is serving on the date an
35-24    application for division of the affected multiply certificated
35-25    service areas is filed.  No customer located within the affected
35-26    multiply certificated service areas shall be permitted to switch
35-27    from one retail electric utility to another while an application
 36-1    for division of the affected multiply certificated service areas is
 36-2    pending.
 36-3          (g)  If on June 1, 1999, retail service is being provided in
 36-4    an area by another retail electric utility with the written consent
 36-5    of the retail electric utility certificated to serve the area, that
 36-6    consent shall be filed with the commission.  On notification of
 36-7    that consent and a request by an affected retail electric utility
 36-8    to amend the relevant certificates, the commission may grant an
 36-9    exception or amend a retail electric utility's certificate.  This
36-10    provision shall not be construed to limit the commission's
36-11    authority to grant exceptions or to amend a retail electric
36-12    utility's certificate, upon request and notification, for areas to
36-13    which retail service is being provided pursuant to written consent
36-14    granted after June 1, 1999.
36-15          (h)  The commission may not grant an additional retail
36-16    electric utility certificate to serve an area if the effect of the
36-17    grant would cause the area to be multiply certificated unless the
36-18    commission finds that the certificate holders are not providing
36-19    service to any part of the area for which a certificate is sought
36-20    and are not capable of providing adequate service to the area in
36-21    accordance with applicable standards.  However, neither this
36-22    subsection nor the deadline of June 1, 1999, provided by Subsection
36-23    (a) shall apply to any application for multiple certification filed
36-24    with the commission on or before February 1, 1999, and those
36-25    applications may be processed in accordance with applicable law in
36-26    effect on the date the application was filed.  Applications for
36-27    multiple certification filed with the commission on or before
 37-1    February 1, 1999, may not be amended to expand the area for which a
 37-2    certificate is sought except for contiguous areas within
 37-3    municipalities that provide consent, as required by Section
 37-4    37.053(b), not later than June 1, 1999.
 37-5          (i)  Notwithstanding any other provision of this section, if
 37-6    requested by a municipally owned utility, the commission shall
 37-7    examine all areas within the municipally owned utility's service
 37-8    area that are also certificated to one or more other retail
 37-9    electric utilities and, after notice and hearing, may amend the
37-10    retail electric utilities' certificates so that only one retail
37-11    electric utility is certificated to provide distribution services
37-12    in the area, provided that:
37-13                (1)  the application is filed with the commission
37-14    within 12 months of the effective date of this provision and is
37-15    limited to single certification of the area within the
37-16    municipality's boundaries as of February 1, 1999;
37-17                (2)  the commission preserves the right of an electric
37-18    utility or an electric cooperative to serve its existing customers,
37-19    including any property owned or leased by any customer; and
37-20                (3)  the municipality is a member city of a municipal
37-21    power agency, as that term is used in Section 40.059.
37-22          Sec. 37.061.  EXISTING SERVICE AREA AGREEMENTS.
37-23    (a)  Notwithstanding any other provision of this title, the
37-24    commission shall allow a municipally owned utility to amend the
37-25    service area boundaries of its certificate if:
37-26                (1)  the municipally owned utility was the holder of a
37-27    certificate as of January 1, 1999;
 38-1                (2)  the municipally owned utility has an agreement
 38-2    existing before January 1, 1999, with a public utility serving the
 38-3    area that the public utility will not contest an application to
 38-4    amend the certificate to add municipal territory; and
 38-5                (3)  the area for which a certificate is requested is
 38-6    not certificated to a retail electric utility that is not a party
 38-7    to the agreement and that has not consented in writing to
 38-8    certification of the area to the municipality.
 38-9          (b)  The commission may not amend the certificate of the
38-10    public utility serving the affected area based on the granting of a
38-11    certificate to the municipally owned utility.
38-12          SECTION 34.  Subsection (a), Section 37.101, Utilities Code,
38-13    is amended to read as follows:
38-14          (a)  If an area is or will be included within a municipality
38-15    as the result of annexation, incorporation, or another reason, each
38-16    electric utility and each electric cooperative that holds or is
38-17    entitled to hold a certificate under this title to provide service
38-18    or operate a facility in the area before the inclusion has the
38-19    right to continue to provide the service or operate the facility
38-20    and extend service within the utility's or cooperative's
38-21    certificated area in the annexed or incorporated area under the
38-22    rights granted by the certificate and this title.
38-23          SECTION 35.  Section 38.001, Utilities Code, is amended to
38-24    read as follows:
38-25          Sec. 38.001.  GENERAL STANDARD.  An electric utility and an
38-26    electric cooperative shall furnish service, instrumentalities, and
38-27    facilities that are safe, adequate, efficient, and reasonable.
 39-1          SECTION 36.  Section 38.004, Utilities Code, is amended to
 39-2    read as follows:
 39-3          Sec. 38.004.  MINIMUM CLEARANCE STANDARD.  Notwithstanding
 39-4    any other law, a transmission or distribution line owned by an
 39-5    electric utility or an electric cooperative must be constructed,
 39-6    operated, and maintained, as to clearances, in the manner described
 39-7    by the National Electrical Safety Code Standard ANSI (c)(2), as
 39-8    adopted by the American National Safety Institute and in effect at
 39-9    the time of construction.
39-10          SECTION 37.  Subchapter A, Chapter 38,  Utilities Code, is
39-11    amended by adding Section 38.005 to read as follows:
39-12          Sec. 38.005.  ELECTRIC SERVICE RELIABILITY MEASURES.
39-13    (a)  The commission shall implement service quality and reliability
39-14    standards relating to the delivery of electricity to retail
39-15    customers by electric utilities and transmission and distribution
39-16    utilities.  The commission by rule shall develop reliability
39-17    standards, including:
39-18                (1)  the system-average interruption frequency index
39-19    (SAIFI);
39-20                (2)  the system-average interruption duration index
39-21    (SAIDI);
39-22                (3)  achievement of average response time for customer
39-23    service requests or inquiries; or
39-24                (4)  other standards that the commission finds
39-25    reasonable and appropriate.
39-26          (b)  The commission shall take appropriate enforcement action
39-27    under this section, including but not limited to action against a
 40-1    utility if any feeder with 10 or more customers appears on the
 40-2    utility's list of worst 10 percent performing feeders for any two
 40-3    consecutive years or has had a SAIDI or SAIFI average that is more
 40-4    than 300 percent greater than the system average of all feeders
 40-5    during any two-year period, beginning in the year 2000.
 40-6          (c)  The standards implemented under Subsection (a) shall
 40-7    require each electric utility and transmission and distribution
 40-8    utility subject to this section to maintain adequately trained and
 40-9    experienced personnel throughout the utility's service area so that
40-10    the utility is able to fully and adequately comply with the
40-11    appropriate service quality and reliability standards.
40-12          (d)  The standards shall ensure that electric utilities do
40-13    not neglect any local neighborhood or geographic area, including
40-14    rural areas, communities of less than 1,000 persons, and low-income
40-15    areas, with regard to system reliability.
40-16          (e)  The commission may require each electric utility and
40-17    transmission and distribution utility to supply data to assist the
40-18    commission in developing the reliability standards.
40-19          (f)  Each electric utility, transmission and distribution
40-20    utility, electric cooperative, municipally owned utility, and
40-21    generation provider shall be obligated to comply with any
40-22    operational criteria duly established by the independent
40-23    organization as defined by Section 39.151 or adopted by the
40-24    commission.
40-25          SECTION 38.  Section 38.022, Utilities Code, is amended to
40-26    read as follows:
40-27          Sec. 38.022.  DISCRIMINATION AND RESTRICTION ON COMPETITION.
 41-1    An electric utility may not:
 41-2                (1)  discriminate against a person or electric
 41-3    cooperative who sells or leases equipment or performs services in
 41-4    competition with the electric utility; or
 41-5                (2)  engage in a practice that tends to restrict or
 41-6    impair that competition.
 41-7          SECTION 39.  Section 38.071, Utilities Code, is amended to
 41-8    read as follows:
 41-9          Sec. 38.071.  Improvements in Service; Interconnecting
41-10    Service.  The commission, after notice and hearing, may:
41-11                (1)  order an electric utility to provide specified
41-12    improvements in its service in a specified area if:
41-13                      (A)  service in the area is inadequate or
41-14    substantially inferior to service in a comparable area; and
41-15                      (B)  requiring the company to provide the
41-16    improved service is reasonable; or
41-17                (2)  order two or more electric utilities or electric
41-18    cooperatives to establish specified facilities for interconnecting
41-19    service.
41-20          SECTION 40.  Subtitle B, Title 2, Utilities Code, is amended
41-21    by adding Chapters 39, 40, and 41 to read as follows:
41-22          CHAPTER 39.  RESTRUCTURING OF ELECTRIC UTILITY INDUSTRY
41-23                     SUBCHAPTER A.  GENERAL PROVISIONS
41-24          Sec. 39.001.  LEGISLATIVE POLICY AND PURPOSE.  (a)  The
41-25    legislature finds that the production and sale of electricity is
41-26    not a monopoly warranting regulation of rates, operations, and
41-27    services and that the public interest in competitive electric
 42-1    markets requires that, except for transmission and distribution
 42-2    services and for the recovery of stranded costs, electric services
 42-3    and their prices should be determined by customer choices and the
 42-4    normal forces of competition.  As a result, this chapter is enacted
 42-5    to protect the public interest during the transition to and in the
 42-6    establishment of a fully competitive electric power industry.
 42-7          (b)  The legislature finds that it is in the public interest
 42-8    to:
 42-9                (1)  implement on January 1, 2002, a competitive retail
42-10    electric market that allows each retail customer to choose the
42-11    customer's provider of electricity and that encourages full and
42-12    fair competition among all providers of electricity;
42-13                (2)  allow utilities with uneconomic generation-related
42-14    assets and purchased power contracts to recover the reasonable
42-15    excess costs over market of those assets and purchased power
42-16    contracts;
42-17                (3)  educate utility customers about anticipated
42-18    changes in the provision of retail electric service to ensure that
42-19    the benefits of the competitive market reach all customers; and
42-20                (4)  protect the competitive process in a manner that
42-21    ensures the confidentiality of competitively sensitive information
42-22    during the transition to a competitive market and after the
42-23    commencement of customer choice.
42-24          (c)  Regulatory authorities, excluding the governing body of
42-25    a municipally owned electric utility that has not opted for
42-26    customer choice or the body vested with power to manage and operate
42-27    a municipally owned electric utility that has not opted for
 43-1    customer choice, may not make rules or issue orders regulating
 43-2    competitive electric services, prices, or competitors or
 43-3    restricting or conditioning competition except as authorized in
 43-4    this title and may not discriminate against any participant or type
 43-5    of participant during the transition to a competitive market and in
 43-6    the competitive market.
 43-7          (d)  Regulatory authorities, excluding the governing body of
 43-8    a municipally owned electric utility that has not opted for
 43-9    customer choice or the body vested with power to manage and operate
43-10    a municipally owned electric utility that has not opted for
43-11    customer choice, shall authorize or order competitive rather than
43-12    regulatory methods to achieve the goals of this chapter to the
43-13    greatest extent feasible and shall adopt rules and issue orders
43-14    that are both practical and limited so as to impose the least
43-15    impact on competition.
43-16          (e)  Judicial review of competition rules adopted by the
43-17    commission shall be conducted under Chapter 2001, Government Code,
43-18    except as otherwise provided by this chapter.  Judicial review of
43-19    the validity of competition rules shall be commenced in the Court
43-20    of Appeals for the Third Court of Appeals District and shall be
43-21    limited to the commission's rulemaking record. The rulemaking
43-22    record consists of:
43-23                (1)  the notice of the proposed rule;
43-24                (2)  the comments of all interested persons;
43-25                (3)  all studies, reports, memoranda, or other
43-26    materials on which the commission relied in adopting the rule; and
43-27                (4)  the order adopting the rule.
 44-1          (f)  A person who challenges the validity of a competition
 44-2    rule must file a notice of appeal with the court of appeals and
 44-3    serve the notice on the commission not later than the 15th day
 44-4    after the date on which the rule as adopted is published in the
 44-5    Texas Register.  The notice of appeal shall designate the person
 44-6    challenging the rule as the appellant and the commission as the
 44-7    appellee.  The commission shall prepare the rulemaking record and
 44-8    file it with the court of appeals not later than the 30th day after
 44-9    the date the notice of appeal is served on the commission.  The
44-10    court of appeals shall hear and determine each appeal as
44-11    expeditiously as possible with lawful precedence over other
44-12    matters.  The appellant, and any person who is permitted by the
44-13    court to intervene in support of the appellant's claims, shall file
44-14    and serve briefs not later than the 30th day after the date the
44-15    commission files the rulemaking record.  The commission, and any
44-16    person who is permitted by the court to intervene in support of the
44-17    rule, shall file and serve briefs not later than the 60th day after
44-18    the date the appellant files the appellant's brief.  The court of
44-19    appeals may, on its own motion or on motion of any person for good
44-20    cause, modify the filing deadlines prescribed by this subsection.
44-21    The court of appeals shall render judgment affirming the rule or
44-22    reversing and, if appropriate on reversal, remanding the rule to
44-23    the commission for further proceedings, consistent with the court's
44-24    opinion and judgment.  The Texas Rules of Appellate Procedure apply
44-25    to an appeal brought under this section to the extent not
44-26    inconsistent with this section.
44-27          Sec. 39.002.  APPLICABILITY.  This chapter, other than
 45-1    Sections 39.155, 39.157(e), 39.203, 39.903, and 39.904, does not
 45-2    apply to a municipally owned utility or an electric cooperative.
 45-3    Sections 39.157(e), 39.203, and 39.904, however, apply only to a
 45-4    municipally owned utility or an electric cooperative that is
 45-5    offering customer choice.  If there is a conflict between the
 45-6    specific provisions of this chapter and any other provisions of
 45-7    this title, except for Chapters 40 and 41, the provisions of this
 45-8    chapter control.
 45-9          Sec. 39.003.  CONTESTED CASES.  Unless specifically provided
45-10    otherwise, each commission proceeding under this chapter, other
45-11    than a rulemaking proceeding, report, notification, or
45-12    registration, shall be conducted as a contested case and the burden
45-13    of proof is on the incumbent electric utility.
45-14              (Sections 39.004-39.050 reserved for expansion
45-15              SUBCHAPTER B.  TRANSITION TO COMPETITIVE RETAIL
45-16                              ELECTRIC MARKET
45-17          Sec. 39.051.  UNBUNDLING.  (a)  On or before September 1,
45-18    2000, each electric utility shall separate from its regulated
45-19    utility activities its customer energy services business activities
45-20    that are otherwise also already widely available in the competitive
45-21    market.
45-22          (b)  Not later than January 1, 2002, each electric utility
45-23    shall separate its business activities from one another into the
45-24    following units:
45-25                (1)  a power generation company;
45-26                (2)  a retail electric provider; and
45-27                (3)  a transmission and distribution utility.
 46-1          (c)  An electric utility may accomplish the separation
 46-2    required by Subsection (b) either through the creation of separate
 46-3    nonaffiliated companies or separate affiliated companies owned by a
 46-4    common holding company or through the sale of assets to a third
 46-5    party.  An electric utility may create separate transmission and
 46-6    distribution utilities.
 46-7          (d)  Each electric utility shall unbundle under this section
 46-8    in a manner that provides for a separation of personnel,
 46-9    information flow, functions, and operations, consistent with
46-10    Section 39.157(d).
46-11          (e)  Each electric utility shall file with the commission a
46-12    plan to implement this section by January 10, 2000.
46-13          (f)  The commission shall adopt the utility's plan for
46-14    business separation required by Subsection (b), adopt the plan with
46-15    changes, or reject the plan and require the utility to file a new
46-16    plan.
46-17          (g)  Transactions by electric utilities involving sales,
46-18    transfers, or other disposition of assets to accomplish the
46-19    purposes of this section are not subject to Section 14.101, 35.034,
46-20    or 35.035.
46-21          Sec. 39.052.  FREEZE ON EXISTING RETAIL BASE RATE TARIFFS.
46-22    (a)  Until January 1, 2002, an electric utility shall provide
46-23    retail electric service within its certificated service area in
46-24    accordance with the electric utility's retail base rate tariffs in
46-25    effect on September 1, 1999, including its purchased power cost
46-26    recovery factor.
46-27          (b)  During the freeze period, an electric utility may not
 47-1    increase its retail base rates above the rates provided by this
 47-2    section except for losses caused by force majeure as provided by
 47-3    Section 39.055.
 47-4          (c)  Notwithstanding any other provision of this title,
 47-5    during the freeze period the regulatory authority may not reduce
 47-6    the retail base rates of an electric utility, except as may be
 47-7    ordered as stipulated to by an electric utility in a proceeding for
 47-8    which a final order had not been issued by January 1, 1999.
 47-9          (d)  During the freeze period, the retail base rates, overall
47-10    revenues, return on invested capital, and net income of an electric
47-11    utility are not subject to complaint, hearing, or determination as
47-12    to reasonableness.
47-13          (e)  An electric utility that has a rate proceeding pending
47-14    before the commission as of January 2, 1999, shall provide service
47-15    in accordance with the tariffs approved in that proceeding from the
47-16    date of approval until the end of the freeze period.
47-17          (f)  Nothing in this section affects the authority of the
47-18    commission to fulfill its obligations under Section 39.262.
47-19          (g)  Nothing in this section shall deny a utility its right
47-20    to have the commission conduct proceedings and issue a final order
47-21    pertaining to any matter that may be remanded to the commission by
47-22    a court having jurisdiction, except that the final order may not
47-23    affect the rates charged to customers during the freeze period but
47-24    shall be taken into account during the utility's true-up proceeding
47-25    under Section 39.262.
47-26          (h)  Nothing in this title shall be construed to prevent an
47-27    electric utility or a transmission and distribution utility from
 48-1    filing, and the commission from approving, a change in wholesale
 48-2    transmission service rates during the freeze period.
 48-3          Sec. 39.053.  COST RECOVERY ADJUSTMENTS.  This subchapter
 48-4    does not limit or alter the ability of an electric utility during
 48-5    the freeze period to revise its fuel factor or to reconcile fuel
 48-6    expenses and to either refund fuel overcollections or surcharge
 48-7    fuel undercollections to customers, as authorized by its tariffs
 48-8    and Sections 36.203 and 36.205.
 48-9          Sec. 39.054.  RETAIL ELECTRIC SERVICE DURING FREEZE PERIOD.
48-10    (a)  An electric utility shall provide retail electric service
48-11    during the freeze period in accordance with any contract terms
48-12    applicable to a particular retail customer approved by the
48-13    regulatory authority and in effect on December 31, 1998.
48-14          (b)  Nothing in Sections 39.052(c) and (d) shall be construed
48-15    to restrict any customer's right to complain during the freeze
48-16    period to the regulatory authority regarding the quality of retail
48-17    electric service provided by the electric utility or the
48-18    applicability of an electric utility's particular tariff to the
48-19    customer.
48-20          (c)  Nothing in this title shall be construed to restrict an
48-21    electric utility, voluntarily and at its sole discretion, from
48-22    offering new services or new tariff options to its customers during
48-23    the freeze period, consistent with Section 39.051(a).
48-24          (d)  Any offering of new services or tariff options under
48-25    this section shall be equal to or greater than an electric
48-26    utility's long-run marginal cost and may not be unreasonably
48-27    preferential, prejudicial, discriminatory, predatory, or
 49-1    anticompetitive.
 49-2          (e)  Revenue from any new offering under this section shall
 49-3    be accounted for in a manner consistent with Section 36.007.
 49-4          Sec. 39.055.  FORCE MAJEURE.  (a)  An electric utility may
 49-5    recover losses resulting from force majeure through an increase in
 49-6    its retail base rates during the freeze period.
 49-7          (b)  Notwithstanding Subchapter C, Chapter 36, the regulatory
 49-8    authority, after a hearing to determine the electric utility's
 49-9    losses from force majeure, shall permit the utility to fully
49-10    collect any approved force majeure increase through an appropriate
49-11    customer surcharge mechanism.
49-12          (c)  For purposes of this section, "force majeure" means a
49-13    major event or combination of major events, including new or
49-14    expanded state or federal statutory or regulatory requirements;
49-15    hurricanes, tornadoes, ice storms, or other natural disasters; or
49-16    acts of war, terrorism, or civil disturbance, beyond the control of
49-17    an electric utility that the regulatory authority finds increases
49-18    the utility's total reasonable and necessary nonfuel costs or
49-19    decreases the utility's total nonfuel revenues related to the
49-20    generation and delivery of electricity by more than 10 percent for
49-21    any calendar year during the freeze period.  The term does not
49-22    include any changes in general economic conditions such as
49-23    inflation, interest rates, or other factors of general application.
49-24              (Sections 39.056-39.100 reserved for expansion
49-25                     SUBCHAPTER C.  RETAIL COMPETITION
49-26          Sec. 39.101.  CUSTOMER SAFEGUARDS.  (a)  Before customer
49-27    choice begins on January 1, 2002, the commission shall ensure that
 50-1    retail customer protections are established that entitle a
 50-2    customer:
 50-3                (1)  to safe, reliable, and reasonably priced
 50-4    electricity, including protection against service disconnections in
 50-5    extreme weather or in cases of medical emergency or nonpayment for
 50-6    unrelated services;
 50-7                (2)  to privacy of customer consumption and credit
 50-8    information;
 50-9                (3)  to bills presented in a clear format and in
50-10    language readily understandable by customers;
50-11                (4)  to the option to have all electric services on a
50-12    single bill, except in those instances where multiple bills are
50-13    allowed under Chapters 40 and 41;
50-14                (5)  to protection from discrimination on the basis of
50-15    race, color, sex, nationality, religion, or marital status;
50-16                (6)  to accuracy of metering and billing;
50-17                (7)  to information in English and Spanish and any
50-18    other language as necessary concerning rates, key terms and
50-19    conditions, in a standard format that will permit comparisons
50-20    between price and service offerings, and the environmental impact
50-21    of certain production facilities;
50-22                (8)  to information in English and Spanish and any
50-23    other language as necessary concerning low-income assistance
50-24    programs and deferred payment plans; and
50-25                (9)  to other information or protections necessary to
50-26    ensure high-quality service to customers.
50-27          (b)  A customer is entitled:
 51-1                (1)  to be informed about rights and opportunities in
 51-2    the transition to a competitive electric industry;
 51-3                (2)  to choose the customer's retail electric provider
 51-4    consistent with this chapter, to have that choice honored, and to
 51-5    assume that the customer's chosen provider will not be changed
 51-6    without the customer's informed consent;
 51-7                (3)  to have access to providers of energy efficiency
 51-8    services, to on-site distributed generation, and to providers of
 51-9    energy generated by renewable energy resources;
51-10                (4)  to be served by a provider of last resort that
51-11    offers a commission-approved standard service package;
51-12                (5)  to receive sufficient information to make an
51-13    informed choice of service provider;
51-14                (6)  to be protected from unfair, misleading, or
51-15    deceptive practices, including protection from being billed for
51-16    services that were not authorized or provided; and
51-17                (7)  to have an impartial and prompt resolution of
51-18    disputes with its chosen retail electric provider and transmission
51-19    and distribution utility.
51-20          (c)  A retail electric provider, power generation company,
51-21    aggregator, or other entity that provides retail electric service
51-22    may not refuse to provide retail electric or electric generation
51-23    service or otherwise discriminate in the provision of electric
51-24    service to any customer because of race, creed, color, national
51-25    origin, ancestry, sex, marital status, lawful source of income,
51-26    disability, or familial status.  A retail electric provider, power
51-27    generation company, aggregator, or other entity that provides
 52-1    retail electric service may not refuse to provide retail electric
 52-2    or electric generation service to a customer because the customer
 52-3    is located in an economically distressed geographic area or
 52-4    qualifies for low-income affordability or energy efficiency
 52-5    services.  The commission shall require a provider to comply with
 52-6    this subsection as a condition of certification or registration.
 52-7          (d)  A retail electric provider, power generation company,
 52-8    aggregator, or other entity that provides retail electric service
 52-9    shall submit reports to the commission and the office annually and
52-10    on request relating to the person's compliance with this section.
52-11    The commission by rule shall specify the form in which a report
52-12    must be submitted.  A report must include:
52-13                (1)  information regarding the extent of the person's
52-14    coverage;
52-15                (2)  information regarding the service provided,
52-16    compiled by zip code and census tract; and
52-17                (3)  any other information the commission or the office
52-18    considers relevant to determine compliance.
52-19          (e)  The commission has the authority to adopt and enforce
52-20    such rules as may be necessary or appropriate to carry out
52-21    Subsections (a)-(d), including rules for minimum service standards
52-22    for a retail electric provider relating to customer deposits and
52-23    the extension of credit, switching fees, levelized billing
52-24    programs, interconnection and use of on-site generation,
52-25    termination of service, and quality of service.  The commission has
52-26    jurisdiction over all providers of electric service in enforcing
52-27    Subsections (a)-(d) and may assess civil and administrative
 53-1    penalties under Section 15.023 and seek civil penalties under
 53-2    Section 15.028.
 53-3          (f)  On or before June 30, 2001, the commission shall modify
 53-4    its current rules regarding customer protections to ensure that at
 53-5    least the same level of customer protection against potential
 53-6    abuses and the same quality of service that exists on December 31,
 53-7    1999, is maintained in a restructured electric industry.
 53-8          (g)  Compliance with Subsections (a)-(e) of this section by a
 53-9    provider of electric service which is a municipally owned utility
53-10    shall be administered solely by the governing body of the
53-11    municipally owned utility, which shall adopt, implement, and
53-12    enforce, as to the municipally owned utility, rules having the
53-13    effect of accomplishing the objectives of Subsections (a)-(e).
53-14    Reports containing the information required by Subsection (d) shall
53-15    be filed by the municipally owned utility with the governing body.
53-16          Sec. 39.102.  RETAIL CUSTOMER CHOICE.  (a)  Each retail
53-17    customer in this state, except retail customers of electric
53-18    cooperatives and municipally owned utilities that have not opted
53-19    for customer choice, shall have customer choice on and after
53-20    January 1, 2002.
53-21          (b)  The affiliated retail electric provider of the electric
53-22    utility serving a retail customer on December 31, 2001, may
53-23    continue to serve that customer until the customer chooses service
53-24    from a different retail electric provider, an electric cooperative
53-25    offering customer choice, or a municipally owned utility offering
53-26    customer choice.
53-27          (c)  An electric utility that has in effect a systemwide
 54-1    freeze for residential and commercial customers in effect September
 54-2    1, 1997, extending beyond December 31, 2001, that has been found by
 54-3    a regulatory authority to be in the public interest is not subject
 54-4    to this chapter.  At the expiration of the utility's freeze period,
 54-5    the utility shall be subject to this chapter and, at that time, has
 54-6    no claim for stranded cost recovery.
 54-7          Sec. 39.1025.  LIMITATIONS ON TELEPHONE SOLICITATION.  (a)  A
 54-8    person may not make or cause to be made a telephone solicitation to
 54-9    an electricity customer who has given notice to the commission of
54-10    the customer's objection to receiving telephone solicitations
54-11    relating to the customer's choice of retail electric providers.
54-12          (b)  The commission shall establish and provide for the
54-13    operation of a database to compile a list of customers who object
54-14    to receiving telephone solicitations. The commission may operate
54-15    the database or contract with another entity to operate the
54-16    database.
54-17          (c)  A customer shall pay a fee of not more than $5 for
54-18    inclusion in the database.  The commission shall prescribe the
54-19    amount of the fee.
54-20          Sec. 39.103.  COMMISSION AUTHORITY TO DELAY COMPETITION AND
54-21    SET NEW RATES.  If the commission determines under Section 39.104
54-22    that a power region is unable to offer fair competition and
54-23    reliable service to all retail customer classes on January 1, 2002,
54-24    the commission shall delay customer choice for the power region and
54-25    may on or after January 1, 2002, establish new rates for all
54-26    electric utilities in the power region as provided by Chapter 36.
54-27          Sec. 39.104.  CUSTOMER CHOICE PILOT PROJECTS.  (a)  Customer
 55-1    choice pilot projects may be used to allow the commission to
 55-2    evaluate the ability of each power region and electric utility to
 55-3    implement customer choice.  However, in a multiply certificated
 55-4    area, an electric utility may not include customers that were
 55-5    served by an electric cooperative or a municipally owned utility on
 55-6    May 1, 1999.
 55-7          (b)  The commission shall require each electric utility to
 55-8    offer customer choice in its service area within this state
 55-9    amounting to five percent of the utility's combined load of all
55-10    customer classes within this state beginning on June 1, 2001.
55-11          (c)  The load designated for customer choice under this
55-12    section shall be distributed among all customer classes of a
55-13    utility consistent with the purpose of this section and subject to
55-14    commission approval.
55-15          (d)  Customers participating in a pilot project under this
55-16    section may buy electric energy from any retail electric provider
55-17    certified by the commission under Section 39.352, including an
55-18    affiliated retail electric provider; provided, however, that a
55-19    retail electric provider may not participate in a pilot project in
55-20    the certificated service area served by the electric utility with
55-21    which it is affiliated.
55-22          (e)  Each utility operating a pilot project under this
55-23    section shall charge residential and small commercial customers in
55-24    accordance with Section 39.052.
55-25          (f)  The commission may prescribe reporting requirements it
55-26    considers necessary to evaluate a pilot project consistent with the
55-27    purpose of this section.
 56-1          (g)  Customers having customer choice under this section
 56-2    shall be billed as provided by Section 39.107.
 56-3          (h)  The commission may prescribe terms and conditions it
 56-4    considers necessary to prohibit anticompetitive practices and to
 56-5    encourage customer choice offered under this section.
 56-6          (i)  Notwithstanding any other provision of this title, a
 56-7    retail electric provider participating in a pilot project under
 56-8    this section is not an electric utility or a retail electric
 56-9    utility.
56-10          (j)  Twenty percent of the load designated for customer
56-11    choice under this section shall be initially set aside for
56-12    aggregated loads.
56-13          Sec. 39.105.  LIMITATION ON SALE OF ELECTRICITY.  (a)  After
56-14    January 1, 2002, a transmission and distribution utility may not
56-15    sell electricity or otherwise participate in the market for
56-16    electricity except for the purpose of buying electricity to serve
56-17    its own needs.
56-18          (b)  A person or retail electric utility may not provide,
56-19    furnish, or make available electric service at retail within the
56-20    certificated service area of an electric cooperative that has not
56-21    adopted customer choice or a municipally owned utility that has not
56-22    adopted customer choice.  However, this subsection does not
56-23    prohibit the provision of electric service in multiply certificated
56-24    service areas to customers of any other retail electric utility.
56-25          Sec. 39.106.  PROVIDER OF LAST RESORT.  (a)  The commission
56-26    shall designate retail electric providers in areas of the state in
56-27    which customer choice is in effect to serve as providers of last
 57-1    resort.
 57-2          (b)  A provider of last resort shall offer a standard retail
 57-3    service package for each class of customers designated by the
 57-4    commission at a fixed, nondiscountable rate approved by the
 57-5    commission.
 57-6          (c)  A provider of last resort shall provide the standard
 57-7    retail service package to any requesting customer in the territory
 57-8    for which it is the provider of last resort.
 57-9          (d)  The commission shall designate the provider or providers
57-10    of last resort not later than June 1, 2001.
57-11          (e)  The commission shall determine the procedures and
57-12    criteria, which may include the solicitation of bids, for
57-13    designating a provider or providers of last resort.  The commission
57-14    may redesignate the provider of last resort according to a schedule
57-15    it considers appropriate.
57-16          (f)  In the event that no retail electric provider applies to
57-17    be the provider of last resort for a given area of the state on
57-18    reasonable terms and conditions, the commission may require a
57-19    retail electric provider to become the provider of last resort as a
57-20    condition of receiving or maintaining a certificate under Section
57-21    39.352.
57-22          (g)  In the event that a retail electric provider fails to
57-23    serve any or all of its customers, the provider of last resort
57-24    shall offer that customer the standard retail service package for
57-25    that customer class with no interruption of service to any
57-26    customer.
57-27          Sec. 39.107.  METERING AND BILLING SERVICES.  (a)  On
 58-1    introduction of customer choice in a service area, metering
 58-2    services for the area shall continue to be provided by the
 58-3    transmission and distribution utility affiliate of the electric
 58-4    utility that was serving the area before the introduction of
 58-5    customer choice.  Metering services provided to commercial and
 58-6    industrial customers shall be provided on a competitive basis
 58-7    beginning on January 1, 2004.
 58-8          (b)  Metering and billing services provided to residential
 58-9    customers shall continue to be provided by the transmission and
58-10    distribution utility affiliate of the electric utility that was
58-11    serving the area before the introduction of customer choice until
58-12    the later of September 1, 2005, or the date on which at least 40
58-13    percent of those residential customers are taking service from
58-14    unaffiliated retail electric providers.  Metering and billing
58-15    services provided to residential customers shall be governed by the
58-16    customer safeguards adopted by the commission under Section 39.101.
58-17          (c)  Beginning on the date of introduction of customer choice
58-18    in a service area, tenants of leased or rented property that is
58-19    separately metered shall have the right to choose a retail electric
58-20    provider, an electric cooperative offering customer choice, or a
58-21    municipally owned utility offering customer choice, and the owner
58-22    of the property must grant reasonable and nondiscriminatory access
58-23    to transmission and distribution utilities, retail electric
58-24    providers, electric cooperatives, and municipally owned utilities
58-25    for metering purposes.
58-26          (d)  Beginning on the date of introduction of customer choice
58-27    in a service area, a transmission and distribution utility, or an
 59-1    electric cooperative or municipally owned utility providing the
 59-2    customer's energy requirements shall bill a customer's retail
 59-3    electric provider for nonbypassable delivery charges as determined
 59-4    under Section 39.201.  The retail electric provider or the electric
 59-5    cooperative or municipally owned utility, as appropriate, must pay
 59-6    these charges.
 59-7          (e)  A transmission and distribution utility may bill retail
 59-8    customers at the request of a retail electric provider or, if an
 59-9    electric cooperative or municipally owned utility is providing the
59-10    customer's energy requirements, at the request of the electric
59-11    cooperative or municipally owned utility.  A transmission and
59-12    distribution utility that provides billing service on such request
59-13    shall offer billing service on comparable terms and conditions to
59-14    those of any such requesting retail electric provider or, as
59-15    applicable, the electric cooperative or municipally owned utility
59-16    providing energy requirements to a customer served by the
59-17    transmission and distribution utility.
59-18          (f)  Beginning on the date of introduction of customer choice
59-19    in a service area, any charges for metering and billing services
59-20    shall comply with rules adopted by the commission relating to
59-21    nondiscriminatory rates of service.
59-22          (g)  Metered electric service sold to residential customers
59-23    on a prepaid basis may not be sold at a price that is higher than
59-24    the price charged by the provider of last resort.
59-25          Sec. 39.108.  CONTRACTUAL OBLIGATIONS.  This chapter may not:
59-26                (1)  interfere with or abrogate the rights or
59-27    obligations of any party, including a retail or wholesale customer,
 60-1    to a contract with an investor-owned electric utility, river
 60-2    authority, municipally owned utility, or electric cooperative;
 60-3                (2)  interfere with or abrogate the rights or
 60-4    obligations of a party under a contract or agreement concerning
 60-5    certificated utility service areas; or
 60-6                (3)  result in a change in wholesale power costs to
 60-7    wholesale customers in Texas purchasing electricity under wholesale
 60-8    power contracts the pricing provisions of which are based on
 60-9    formulary rates, fuel adjustments, or average system costs.
60-10          Sec. 39.109.  NEW OWNER OR SUCCESSOR.  (a)  To ensure the
60-11    continued safe and reliable operation of electric generating
60-12    facilities, the commission shall require a generating facility that
60-13    is transferred to a new owner or successor in interest between June
60-14    1, 1999, and January 1, 2002, to continue to be operated and
60-15    maintained by the same operating personnel for not less than two
60-16    years, except that the personnel may be dismissed for cause.
60-17          (b)  This section shall apply only if the facility is
60-18    actually operated during the two-year period after the sale.
60-19          (c)  This section shall not require that the purchaser cause
60-20    the facility to be operated in whole or in part, nor shall it
60-21    preclude a temporary closure of the facility during the two-year
60-22    period.
60-23          (d)  This section shall not create any obligation extending
60-24    after the two-year period following the sale.
60-25              (Sections 39.110-39.150 reserved for expansion
60-26                      SUBCHAPTER D.  MARKET STRUCTURE
60-27          Sec. 39.151.  ESSENTIAL ORGANIZATIONS.  (a)  A power region
 61-1    must establish one or more independent organizations to perform the
 61-2    following functions:
 61-3                (1)  ensure access to the transmission and distribution
 61-4    systems for all buyers and sellers of electricity on
 61-5    nondiscriminatory terms;
 61-6                (2)  ensure the reliability and adequacy of the
 61-7    regional electrical network;
 61-8                (3)  ensure that information relating to a customer's
 61-9    choice of retail electric provider is conveyed in a timely manner
61-10    to the persons who need that information; and
61-11                (4)  ensure that electricity production and delivery
61-12    are accurately accounted for among the generators and wholesale
61-13    buyers and sellers in the region.
61-14          (b)  "Independent organization" means an independent system
61-15    operator or other person that is sufficiently independent of any
61-16    producer or seller of electricity that its decisions will not be
61-17    unduly influenced by any producer or seller.  An entity will be
61-18    deemed to be independent if it is governed by a board that has
61-19    three representatives from each segment of the electric market,
61-20    with the consumer segment being represented by one residential
61-21    customer, one commercial customer, and one industrial retail
61-22    customer.
61-23          (c)  The commission shall certify an independent organization
61-24    or organizations to perform the functions prescribed by this
61-25    section.
61-26          (d)  An independent organization certified by the commission
61-27    for a power region shall establish and enforce procedures,
 62-1    consistent with this title and the commission's rules, relating to
 62-2    the reliability of the regional electrical network and accounting
 62-3    for the production and delivery of electricity among generators and
 62-4    all other market participants.  The procedures shall be subject to
 62-5    commission oversight and review.
 62-6          (e)  The commission may authorize an independent organization
 62-7    that is certified under this section to charge a reasonable and
 62-8    competitively neutral rate to wholesale buyers and sellers to cover
 62-9    the independent organization's costs.
62-10          (f)  In implementing this section, the commission may
62-11    cooperate with the utility regulatory commission of another state
62-12    or the federal government and may hold a joint hearing or make a
62-13    joint investigation with that commission.
62-14          (g)  If it amends its governance rules to provide that its
62-15    governing body is composed as prescribed by this subsection, the
62-16    existing independent system operator in ERCOT will meet the
62-17    criteria provided by Subsection (a) with respect to ensuring access
62-18    to the transmission systems for all buyers and sellers of
62-19    electricity in the ERCOT region and ensuring the reliability of the
62-20    regional electrical network.  To comply with this subsection, the
62-21    governing body must be composed of:
62-22                (1)  the chairman of the commission as an ex officio
62-23    nonvoting member;
62-24                (2)  the counsellor as an ex officio voting member;
62-25                (3)  the director of the independent system operator as
62-26    an ex officio voting member;
62-27                (4)  four representatives of the power generation
 63-1    sector as voting members;
 63-2                (5)  four representatives of the transmission and
 63-3    distribution sector as voting members;
 63-4                (6)  four representatives of the power sales sector as
 63-5    voting members; and
 63-6                (7)  the following people as voting members, appointed
 63-7    by the commission:
 63-8                      (A)  one representative of residential customers;
 63-9                      (B)  one representative of commercial customers;
63-10    and
63-11                      (C)  one representative of industrial customers.
63-12    The four representatives specified in each of Subdivisions (4),
63-13    (5), and (6) shall be selected in a manner that ensures equitable
63-14    representation for the various sectors of industry participants.
63-15          (h)  The ERCOT independent system operator may meet the
63-16    criteria relating to the other functions of an independent
63-17    organization provided by Subsection (a) by adopting procedures and
63-18    acquiring resources needed to carry out those functions.
63-19          (i)  The commission may delegate authority to the existing
63-20    independent system operator in ERCOT to enforce operating standards
63-21    within the ERCOT regional electrical network and to establish and
63-22    oversee transaction settlement procedures.  The commission may
63-23    establish the terms and conditions for the ERCOT independent system
63-24    operator's authority to oversee utility dispatch functions after
63-25    the introduction of customer choice.
63-26          (j)  A retail electric provider, municipally owned utility,
63-27    electric cooperative, power marketer, transmission and distribution
 64-1    utility, or power generation company shall observe all scheduling,
 64-2    operating, planning, reliability, and settlement policies, rules,
 64-3    guidelines, and procedures established by the independent system
 64-4    operator in ERCOT.  Failure to comply with this subsection may
 64-5    result in the revocation, suspension, or amendment of a certificate
 64-6    as provided by Section 39.356 or in the imposition of an
 64-7    administrative penalty as provided by Section 39.357.
 64-8          (k)  To the extent the commission has authority over an
 64-9    independent organization outside of ERCOT, the commission may
64-10    delegate authority to the independent organization consistent with
64-11    Subsection (i).
64-12          (l)  No operational criteria, protocols, or other requirement
64-13    established by an independent organization, including the ERCOT
64-14    independent system operator, may adversely affect or impede any
64-15    manufacturing or other internal process operation associated with
64-16    an industrial generation facility, except to the minimum extent
64-17    necessary to assure reliability of the transmission network.
64-18          (m)  A power region outside of ERCOT shall be deemed to have
64-19    met the requirement to establish an independent organization to
64-20    perform the transmission functions specified in Subsection (a) if
64-21    the Federal Energy Regulatory Commission has approved a regional
64-22    transmission organization for the region and found that the
64-23    regional transmission organization meets the requirements of
64-24    Subsection (a).
64-25          Sec. 39.152.  QUALIFYING POWER REGIONS.  (a)  The commission
64-26    shall certify a power region if:
64-27                (1)  a sufficient number of interconnected utilities in
 65-1    the power region fall under the operational control of an
 65-2    independent organization as described by Section 39.151;
 65-3                (2)  the power region has a generally applicable tariff
 65-4    that guarantees open and nondiscriminatory access for all users to
 65-5    transmission and distribution facilities in the power region as
 65-6    provided by Section 39.203; and
 65-7                (3)  no person owns and controls more than 20 percent
 65-8    of the installed generation capacity located in or capable of
 65-9    delivering electricity to a power region, as determined according
65-10    to Section 39.154.
65-11          (b)  In determining whether a power region not entirely
65-12    within the state meets the requirements of this section, the
65-13    commission shall consider the extent to which the available
65-14    transmission facilities limit the delivery of electricity from
65-15    generators located outside the state to areas of the power region
65-16    within the state.
65-17          (c)  For a power region outside of ERCOT, the requirements of
65-18    Subsection (a)(2) shall be deemed to have been met if power
65-19    aggregating to approximately 50,000 megawatts can be delivered to
65-20    the portion of the power region that is in this state through the
65-21    payment of not more than one transmission tariff.
65-22          (d)  For a power region outside of ERCOT, a power generation
65-23    company that is affiliated with an electric utility may elect to
65-24    demonstrate that it meets the requirements of Subsection (a)(3) by
65-25    showing that it does not own and control more than 20 percent  of
65-26    the installed capacity in a geographic market that includes the
65-27    power region, using the guidelines, standards, and methods adopted
 66-1    by the Federal Energy Regulatory Commission.
 66-2          (e)  In a power region outside of ERCOT, if customer choice
 66-3    is introduced before the requirements of Subsection (a)  are met,
 66-4    an affiliated retail electric provider may not compete for retail
 66-5    customers in any area of the power region that is within this state
 66-6    and outside of the affiliated transmission and distribution
 66-7    utility's certificated service area unless the affiliated power
 66-8    generation company makes a commitment to maintain and does maintain
 66-9    rates that are based on cost of service for any electric
66-10    cooperative or municipal utility that was a wholesale customer on
66-11    January 1, 1999, and was purchasing power at rates that were based
66-12    on cost of service.  This subsection requires a power generation
66-13    company to sell power at rates that are based on cost of service,
66-14    notwithstanding the expiration of a contract for that service,
66-15    until the requirements of Subsection (a) are met.
66-16          (f)  If the commission determines that the available
66-17    transmission facilities limit the delivery of electricity from
66-18    generators located outside this state to areas of the power region
66-19    within this state and that the requirements of Subsection (a) have
66-20    not been met for that region, any utility-affiliated power
66-21    generation company in the power region shall maintain adequate
66-22    supply and facilities to provide electric service to persons who
66-23    were or would have been retail customers of the affiliated retail
66-24    electric provider on December 31, 2001.  The obligation provided by
66-25    this subsection remains in effect until the commission determines
66-26    that the available transmission facilities do not limit the
66-27    delivery of electricity from generators located outside this state
 67-1    to the power region or that the requirements of Subsection (a) have
 67-2    been met for the region.
 67-3          Sec. 39.153.  CAPACITY AUCTION.  (a)  Each electric utility
 67-4    subject to this section shall sell at auction, at least 60 days
 67-5    before the date set for customer choice to begin, entitlements to
 67-6    at least 15 percent of the electric utility's Texas jurisdictional
 67-7    installed generation capacity.  For the purposes of this section,
 67-8    the term "electric utility" includes any affiliated power
 67-9    generation company that is unbundled from the electric utility in
67-10    accordance with Section 39.051, but does not include any entity
67-11    owning less than 400 megawatts of installed generation capacity.
67-12          (b)  The obligation to auction the entitlements shall
67-13    continue until the earlier of 60 months after the date customer
67-14    choice is introduced or the date the commission determines that 40
67-15    percent or more of the electric power consumed by residential and
67-16    small commercial customers within the affiliated transmission and
67-17    distribution utility's certificated service area before the onset
67-18    of customer choice is provided by nonaffiliated retail electric
67-19    providers.
67-20          (c)  An affiliate of the electric utility selling
67-21    entitlements in the auction required by this section may not
67-22    purchase entitlements from the affiliated electric utility at the
67-23    auction.  Entitlements may only be purchased by entities lawfully
67-24    able to sell electricity in Texas.
67-25          (d)  An electric utility may choose to auction additional
67-26    entitlements beyond those required by Subsection (a) or continue to
67-27    auction entitlements after the period required by Subsection (b) in
 68-1    order to comply with Section 39.154.
 68-2          (e)  The commission shall adopt rules by December 31, 2000,
 68-3    that define the scope of the capacity entitlements to be auctioned.
 68-4    Entitlements may be auctioned in blocks of less than 15 percent.
 68-5    The rules shall state the minimum amount of capacity that can be
 68-6    sold at auction as an entitlement.  At a minimum, the rules shall
 68-7    provide that the entitlements:
 68-8                (1)  may be sold and purchased in periods of not less
 68-9    than one month nor more than four years;
68-10                (2)  may be resold to any lawful purchaser, except for
68-11    a retail electric provider affiliated with the electric utility
68-12    that originally auctioned the entitlement;
68-13                (3)  include no possessory interest in the unit from
68-14    which the power is produced;
68-15                (4)  include no obligations of a possessory owner of an
68-16    interest in the unit from which the power is produced; and
68-17                (5)  give the purchaser the right to designate the
68-18    dispatch of the entitlement, subject to planned outages, outages
68-19    beyond the control of the utility operating the unit, and other
68-20    considerations subject to the oversight of the applicable
68-21    independent organization.
68-22          (f)  The commission shall adopt rules by December 31, 2000,
68-23    that prescribe the procedure for the auction of the entitlements.
68-24    The rules shall include:
68-25                (1)  a process for conducting the auction or auctions,
68-26    including who shall conduct it, how often it shall be conducted,
68-27    and how winning bidders shall be determined;
 69-1                (2)  a process for the electric utility to designate
 69-2    which generation units or combination of units are offered for
 69-3    auction;
 69-4                (3)  a provision for the utility to establish an
 69-5    opening bid price based on the electric utility's expected cost,
 69-6    with the commission prescribing the means for determining the
 69-7    opening bid price, which may not include return on equity; and
 69-8                (4)  a provision that allows a bidder to specify the
 69-9    magnitude and term of the entitlement, subject to the conditions
69-10    established in Subsection (e).
69-11          (g)  In adopting the process under Subsection (f)(2), the
69-12    commission shall consider the furtherance of the development of the
69-13    competitive market, the cost of transmission, physical constraints
69-14    of the transmission system, the proximity of the generation to
69-15    load, economic efficiency, and any other factors the commission
69-16    finds relevant.  The process may provide for commission approval of
69-17    the designation before auction.  The commission may consult with
69-18    the applicable independent organization to develop the process.
69-19          Sec. 39.154.  LIMITATION OF OWNERSHIP OF INSTALLED CAPACITY.
69-20    (a)  Beginning on the date of introduction of customer choice, a
69-21    power generation company may not own and control more than 20
69-22    percent of the installed generation capacity located in, or capable
69-23    of delivering electricity to, a power region.
69-24          (b)  In a power region not entirely within the state, the
69-25    commission may waive or modify the requirement in Subsection (a) on
69-26    a finding of good cause.
69-27          (c)  In determining the percentage shares of installed
 70-1    generation capacity under this section, the commission shall
 70-2    combine capacity owned and controlled by a power generation company
 70-3    and any entity that is affiliated with that power generation
 70-4    company within the power region, reduced by the installed
 70-5    generation capacity of those facilities that are made subject to
 70-6    capacity auctions under Sections 39.153(a) and (d).
 70-7          (d)  In this chapter, "installed generation capacity" means
 70-8    all potentially marketable electric generation capacity, including
 70-9    the capacity of:
70-10                (1)  generating facilities that are connected with a
70-11    transmission or distribution system;
70-12                (2)  generating facilities used to generate electricity
70-13    for consumption by the person owning or controlling the facility;
70-14    and
70-15                (3)  generating facilities that will be connected with
70-16    a transmission or distribution system and operating within 12
70-17    months.
70-18          (e)  In determining the percentage shares of installed
70-19    generation capacity owned and controlled by a power generation
70-20    company under this section and Section 39.156, the commission
70-21    shall, for purposes of calculating the numerator, reduce the
70-22    installed generation capacity owned and controlled by that power
70-23    generation company by the installed generation capacity of any
70-24    "grandfathered facility" within an ozone nonattainment area as of
70-25    September 1, 1999, for which that power generation company has
70-26    commenced complying or made a binding commitment to comply with
70-27    Section 39.264.
 71-1          Sec. 39.155.  COMMISSION ASSESSMENT OF MARKET POWER.  (a)
 71-2    Each person, municipally owned utility, electric cooperative, and
 71-3    river authority that owns generation facilities and offers
 71-4    electricity for sale in this state shall report to the commission
 71-5    its installed generation capacity, the total amount of capacity
 71-6    available for sale to others, the total amount of capacity under
 71-7    contract to others, the total amount of capacity dedicated to its
 71-8    own use, its annual wholesale power sales in the state, its annual
 71-9    retail power sales in the state, and any other information
71-10    necessary for the commission to assess market power or the
71-11    development of a competitive retail market in the state.  The
71-12    commission shall by rule prescribe the nature and detail of the
71-13    reporting requirements and shall administer those reporting
71-14    requirements in a manner that ensures the confidentiality of
71-15    competitively sensitive information.
71-16          (b)  The ERCOT independent system operator shall submit an
71-17    annual report to the commission identifying existing and potential
71-18    transmission and distribution constraints and system needs within
71-19    ERCOT, alternatives for meeting system needs, and recommendations
71-20    for meeting system needs.  The first report shall be submitted on
71-21    or before October 1, 1999.  Subsequent reports shall be submitted
71-22    by January 15 of each year or as determined necessary by the
71-23    commission.
71-24          (c)  Before the date of introduction of customer choice in a
71-25    power region other than ERCOT, each electric utility owning
71-26    transmission and distribution facilities in that region shall
71-27    submit an annual report to the commission identifying existing and
 72-1    potential transmission and distribution constraints and system
 72-2    needs in the power region, alternatives for meeting system needs,
 72-3    and recommendations for meeting system needs as directed by the
 72-4    commission.
 72-5          (d)  In a qualifying power region, the reports required by
 72-6    Subsections (b) and (c) shall be submitted by the independent
 72-7    organization or organizations having authority over the power
 72-8    region or discrete areas thereof.
 72-9          Sec. 39.156.  MARKET POWER MITIGATION PLAN.  (a)  In this
72-10    section, "market power mitigation plan" or "plan" means a written
72-11    proposal by an electric utility or a power generation company for
72-12    reducing its ownership and control of installed generation capacity
72-13    as required by Section 39.154.
72-14          (b)  An electric utility or power generation company owning
72-15    and controlling more than 20 percent of the generation capacity
72-16    located in, or capable of delivering electricity to, a power region
72-17    shall file a market power mitigation plan with the commission not
72-18    later than December 1, 2000.
72-19          (c)  The plan may provide for:
72-20                (1)  the sale of generation assets to a nonaffiliated
72-21    person;
72-22                (2)  the exchange of generation assets with a
72-23    nonaffiliated person located in a different power region;
72-24                (3)  the auctioning of generation capacity entitlements
72-25    as part of a capacity auction required by Section 39.153;
72-26                (4)  the sale of the right to capacity to a
72-27    nonaffiliated person for at least four years; or
 73-1                (5)  any reasonable method of mitigation.
 73-2          (d)  For the purposes of this section, generation capacity
 73-3    shall be net of the generation capacity subject to an auction under
 73-4    Section 39.153.
 73-5          (e)  The plan shall be in a form prescribed by the commission
 73-6    and shall provide information the commission finds reasonably
 73-7    necessary to evaluate the plan.
 73-8          (f)  The commission shall approve, modify, or reject a plan
 73-9    within 180 days after the date of a filing under Subsection (b).
73-10    The commission may not modify a plan to require divestiture by the
73-11    electric utility or the power generation company.
73-12          (g)  In reaching its determination under Subsection (f), the
73-13    commission shall consider:
73-14                (1)  the degree to which the electric utility's or
73-15    power generation company's stranded costs, if any, are minimized;
73-16                (2)  whether on disposition of the generation assets
73-17    the reasonable value is likely to be received;
73-18                (3)  the effect of the plan on the electric utility's
73-19    or power generation company's federal income taxes;
73-20                (4)  the effect of the plan on current and potential
73-21    competitors in the generation market; and
73-22                (5)  whether the plan is consistent with the public
73-23    interest.
73-24          (h)  An electric utility or power generation company with an
73-25    approved mitigation plan may request to amend or repeal its plan.
73-26    On a showing of good cause, the commission shall modify or repeal
73-27    an electric utility's or power generation company's mitigation
 74-1    plan.
 74-2          (i)  If an electric utility's or a power generation company's
 74-3    market power mitigation plan is not approved before January 1 of
 74-4    the year it is to take effect, the commission may order the
 74-5    electric utility or power generation company to auction generation
 74-6    capacity entitlements according to Section 39.153, subject to
 74-7    commission approval, of any capacity exceeding the maximum
 74-8    allowable capacity prescribed by Section 39.154 until the time a
 74-9    mitigation plan is approved.
74-10          (j)  An auction under Subsection (i) shall be held not later
74-11    than 60 days after the date the order is entered.
74-12          Sec. 39.157.  COMMISSION AUTHORITY TO ADDRESS MARKET POWER.
74-13    (a)  The commission shall monitor market power associated with the
74-14    generation, transmission, distribution, and sale of electricity in
74-15    this state.  On a finding that market power abuses or other
74-16    violations of this section are occurring, the commission shall
74-17    require reasonable mitigation of the market power by ordering the
74-18    construction of additional transmission or distribution facilities,
74-19    by seeking an injunction or civil penalties as necessary to
74-20    eliminate or to remedy the market power abuse or violation as
74-21    authorized by Chapter 15, by imposing an administrative penalty as
74-22    authorized by Chapter 15, or by suspending, revoking, or amending a
74-23    certificate or registration as authorized by Section 39.356.
74-24    Section 15.024(c) does not apply to an administrative penalty
74-25    imposed under this section.  For purposes of this subchapter,
74-26    market power abuses are practices by persons possessing market
74-27    power that are unreasonably discriminatory or tend to unreasonably
 75-1    restrict, impair, or reduce the level of competition, including
 75-2    practices that tie unregulated products or services to regulated
 75-3    products or services or unreasonably discriminate in the provision
 75-4    of regulated services.  For purposes of this section, "market power
 75-5    abuses" include predatory pricing, withholding of production,
 75-6    precluding entry, and collusion.  A violation of the code of
 75-7    conduct provided by Subsection (d) that materially impairs the
 75-8    ability of a person to compete in a competitive market shall be
 75-9    deemed to be an abuse of market power.  The possession of a high
75-10    market share in a market open to competition may not, of itself, be
75-11    deemed to be an abuse of market power; however, this sentence shall
75-12    not affect the application of state and federal antitrust laws.
75-13          (b)  Beginning on the date of introduction of customer
75-14    choice, a person that owns generation facilities may not own
75-15    transmission or distribution facilities in this state except for
75-16    those facilities necessary to interconnect a generation facility
75-17    with the transmission or distribution network, a facility not
75-18    dedicated to public use, or a facility otherwise excluded from the
75-19    definition of "electric utility" under Section 31.002.  However,
75-20    nothing in this chapter shall prohibit a power generation company
75-21    affiliated with a transmission and distribution utility from owning
75-22    generation facilities.
75-23          (c)  The commission shall monitor market shares of installed
75-24    capacity to ensure that the limitations in Section 39.154 are not
75-25    exceeded.  If the commission finds that a person has violated a
75-26    limitation in Section 39.154, the commission shall order the person
75-27    to file, within 60 days of the date of the order, a market power
 76-1    mitigation plan consistent with the requirements in Section 39.156.
 76-2          (d)  Not later than January 10, 2000, the commission shall
 76-3    adopt rules and enforcement procedures to govern transactions or
 76-4    activities between a transmission and distribution utility and its
 76-5    competitive affiliates to avoid potential market power abuses and
 76-6    cross-subsidizations between regulated and competitive activities
 76-7    both during the transition to and after the introduction of
 76-8    competition. Nothing in this subsection is intended to affect or
 76-9    modify the obligations or duties relating to any rules or standards
76-10    of conduct that may apply to a utility or the utility's affiliates
76-11    under orders or regulations of the Federal Energy Regulatory
76-12    Commission or the Securities and Exchange Commission.  A utility
76-13    that is subject to statutes or regulations in other states that
76-14    conflict with a provision of this section may petition the
76-15    commission for a waiver of the conflicting provision on a showing
76-16    of good cause.  The rules adopted under this section shall ensure
76-17    that:
76-18                (1)  a utility makes any products and services, other
76-19    than corporate support services, that it provides to a competitive
76-20    affiliate available, contemporaneously and in the same manner, to
76-21    the competitive affiliate's competitors and applies its tariffs,
76-22    prices, terms, conditions, and discounts for those products and
76-23    services in the same manner to all similarly situated entities;
76-24                (2)  a utility does not:
76-25                      (A)  give a competitive affiliate or a
76-26    competitive affiliate's customers any preferential advantage,
76-27    access, or treatment regarding services other than corporate
 77-1    support services; or
 77-2                      (B)  act in a manner that is discriminatory or
 77-3    anticompetitive with respect to a nonaffiliated competitor of a
 77-4    competitive affiliate;
 77-5                (3)  a utility providing electric transmission or
 77-6    distribution services:
 77-7                      (A)  provides those services on nondiscriminatory
 77-8    terms and conditions;
 77-9                      (B)  does not establish as a condition for the
77-10    provision of those services the purchase of other goods or services
77-11    from the utility or the competitive affiliate; and
77-12                      (C)  does not provide competitive affiliates
77-13    preferential access to the utility's transmission and distribution
77-14    systems or to information about those systems;
77-15                (4)  a utility does not release any proprietary
77-16    customer information to a competitive affiliate or any other
77-17    entity, other than an independent organization as defined by
77-18    Section 39.151 or a provider of corporate support services for the
77-19    purposes of providing the services, without obtaining prior
77-20    verifiable authorization, as determined from the commission, from
77-21    the customer;
77-22                (5)  a utility does not:
77-23                      (A)  communicate with a current or potential
77-24    customer about products or services offered by a competitive
77-25    affiliate in a manner that favors a competitive affiliate; or
77-26                      (B)  allow a competitive affiliate, before
77-27    September 1, 2005, to use the utility's corporate name, trademark,
 78-1    brand, or logo unless the competitive affiliate includes on
 78-2    employee business cards and in its advertisements of specific
 78-3    services to existing or potential residential or small commercial
 78-4    customers locating within the utility's certificated service area a
 78-5    disclaimer that states, "(Name of competitive affiliate) is not the
 78-6    same company as (name of utility) and is not regulated by the
 78-7    Public Utility Commission of Texas, and you do not have to buy
 78-8    (name of competitive affiliate)'s products to continue to receive
 78-9    quality regulated services from (name of utility).";
78-10                (6)  a utility does not conduct joint advertising or
78-11    promotional activities with a competitive affiliate in a manner
78-12    that favors the competitive affiliate;
78-13                (7)  a utility is a separate, independent entity from
78-14    any competitive affiliates and, except as provided by Subdivisions
78-15    (8) and (9),  does not share employees, facilities, information, or
78-16    other resources, other than permissible corporate support services,
78-17    with those competitive affiliates unless the utility can prove to
78-18    the commission that the sharing will not compromise the public
78-19    interest;
78-20                (8)  a utility's office space is physically separated
78-21    from the office space of the utility's competitive affiliates by
78-22    being located in separate buildings or, if within the same
78-23    building, by a method such as having the offices on separate floors
78-24    or with separate access, unless otherwise approved by the
78-25    commission;
78-26                (9)  a utility and a competitive affiliate:
78-27                      (A)  may, to the extent the utility implements
 79-1    adequate safeguards precluding employees of a competitive affiliate
 79-2    from gaining access to information in a manner inconsistent with
 79-3    Subsection (g) or (i), share common officers and directors,
 79-4    property, equipment, offices to the extent consistent with
 79-5    Subdivision (8), credit, investment, or financing arrangements to
 79-6    the extent consistent with Subdivision (17), computer systems,
 79-7    information systems, and corporate support services; and
 79-8                      (B)  are not required to enter into prior written
 79-9    contracts or competitive solicitations for non-tariffed
79-10    transactions between the utility and the competitive affiliate,
79-11    except that the commission by rule may require the utility and the
79-12    competitive affiliate to enter into prior written contracts or
79-13    competitive solicitations for certain classes of transactions,
79-14    other than corporate support services, that have a per unit value
79-15    of more than $75,000 or that total more than $1 million;
79-16                (10)  a utility does not temporarily assign, for less
79-17    than one year, employees engaged in transmission or distribution
79-18    system operations to a competitive affiliate unless the employee
79-19    does not have knowledge of information that is intended to be
79-20    protected under this section;
79-21                (11)  a utility does not subsidize the business
79-22    activities of an affiliate with revenues from a regulated service;
79-23                (12)  a utility and its affiliates fully allocate costs
79-24    for any shared services, corporate support services, and other
79-25    items described by Subdivisions (8) and (9);
79-26                (13)  a utility and its affiliates keep separate books
79-27    of accounts and records and the commission may review records
 80-1    relating to a transaction between a utility and an affiliate;
 80-2                (14)  assets transferred or services provided between a
 80-3    utility and an affiliate, other than transfers that facilitate
 80-4    unbundling under Section 39.051 or asset valuation under Section
 80-5    39.262,  are priced at a level that is fair and reasonable to the
 80-6    customers of the utility and reflects the market value of the
 80-7    assets or services or the utility's fully allocated cost to provide
 80-8    those assets or services;
 80-9                (15)  regulated services that a utility provides on a
80-10    routine or recurring basis are included in a tariff that is subject
80-11    to commission approval;
80-12                (16)  each transaction between a utility and a
80-13    competitive affiliate is conducted at arm's length; and
80-14                (17)  a utility does not allow an affiliate to obtain
80-15    credit under an arrangement that would include a specific pledge of
80-16    assets in the rate base of the utility or a pledge of cash
80-17    reasonably necessary for utility operations.
80-18          (e)  The commission shall by rule establish a code of conduct
80-19    that must be observed by electric cooperatives and municipally
80-20    owned utilities and their affiliates to protect against
80-21    anticompetitive practices.  The rules adopted by the commission
80-22    under this subsection shall be consistent with Chapters 40 and 41
80-23    and may not be more restrictive than the rules adopted under
80-24    Subsection (d).
80-25          (f)  Following review of the annual report submitted to it
80-26    under Sections 39.155(b) and (c), the commission shall determine
80-27    whether specific transmission or distribution constraints or
 81-1    bottlenecks within this state give rise to market power in specific
 81-2    geographic markets in the state.  The commission, on a finding that
 81-3    specific transmission or distribution constraints or bottlenecks
 81-4    within this state give rise to market power, may order reasonable
 81-5    mitigation of that potential market power by ordering, under
 81-6    Section 39.203(e), one or more electric utilities or transmission
 81-7    and distribution utilities to construct additional transmission or
 81-8    distribution capacity, or both, subject to the certification
 81-9    provisions of this title.
81-10          (g)  The sharing of corporate support services in accordance
81-11    with this section may not allow or provide a means for the transfer
81-12    of confidential information from a utility to an affiliate, create
81-13    the opportunity for preferential treatment or an unfair competitive
81-14    advantage, lead to customer confusion, or create significant
81-15    opportunities for cross-subsidization of affiliates.
81-16          (h)  A utility or competitive affiliate may not circumvent
81-17    the provisions or the intent of the provisions of Subsection (d) by
81-18    using any utility affiliate to provide information, services, or
81-19    subsidies between the utility and a competitive affiliate.
81-20          (i)  In this section:
81-21                (1)  "Competitive affiliate" means an affiliate of a
81-22    utility that provides services or sells products in a competitive
81-23    energy-related market in this state, including telecommunications
81-24    services, to the extent those services are energy related.
81-25                (2)  "Corporate support services" means services shared
81-26    by a utility, its parent holding company, or a separate affiliate
81-27    created to perform corporate support services, with its affiliates
 82-1    of joint corporate oversight, governance, support systems, and
 82-2    personnel.  Examples of services that may be shared, to the extent
 82-3    the services comply with the requirements prescribed by Subsections
 82-4    (d) and (g), include human resources, procurement, information
 82-5    technology, regulatory services, administrative services, real
 82-6    estate services, legal services, accounting, environmental
 82-7    services, research and development, internal audit, community
 82-8    relations, corporate communications, financial services, financial
 82-9    planning and management support, corporate services, corporate
82-10    secretary, lobbying, and corporate planning.  Examples of services
82-11    that may not be shared include engineering, purchasing of electric
82-12    transmission, transmission and distribution system operations, and
82-13    marketing.
82-14          Sec. 39.158.  MERGERS AND CONSOLIDATIONS.  (a)  An owner of
82-15    electric generation facilities that offers electricity for sale in
82-16    the state and proposes to merge, consolidate, or otherwise become
82-17    affiliated with another owner of electric generation facilities
82-18    that offers electricity for sale in this state shall obtain the
82-19    approval of the commission before closing if the electricity
82-20    offered for sale in the power region by the merged, consolidated,
82-21    or affiliated entity will exceed one percent of the total
82-22    electricity for sale in the power region.  The approval shall be
82-23    requested at least 120 days before the date of the proposed
82-24    closing.  The commission shall approve the transaction unless the
82-25    commission finds that the transaction results in a violation of
82-26    Section 39.154.  If the commission finds that the transaction as
82-27    proposed would violate Section 39.154, the commission may condition
 83-1    approval of the transaction on adoption of reasonable modifications
 83-2    to the transaction as prescribed by the commission to mitigate
 83-3    potential market power abuses.
 83-4          (b)  Nothing in this chapter shall be construed to confer
 83-5    immunity from state or federal antitrust laws.  This chapter is
 83-6    intended to complement other state and federal antitrust
 83-7    provisions.  Therefore, antitrust remedies may also be sought in
 83-8    state or federal court to remedy anticompetitive activities.
 83-9          (c)  This section may not be deemed to authorize commission
83-10    review or approval of transactions entered into between or among
83-11    municipally owned utilities, river authorities, special districts
83-12    created by law, or other political subdivisions, whether or not
83-13    those transactions may be characterized as mergers, consolidations,
83-14    or other affiliations, when the transaction is authorized or
83-15    structured under state law.
83-16              (Sections 39.159-39.200 reserved for expansion
83-17             SUBCHAPTER E.  PRICE REGULATION AFTER COMPETITION
83-18          Sec. 39.201.  COST OF SERVICE TARIFFS AND CHARGES.  (a)  Each
83-19    electric utility shall, on or before April 1, 2000, file proposed
83-20    tariffs for its proposed transmission and distribution utility.
83-21          (b)  The filing under this section shall include supporting
83-22    cost data for determination of nonbypassable delivery charges,
83-23    which shall be the sum of:
83-24                (1)  transmission and distribution utility charges by
83-25    customer class based on a forecasted 2002 test year;
83-26                (2)  a system benefit fund fee; and
83-27                (3)  an expected competition transition charge, if any.
 84-1          (c)  Each electric utility shall also identify the unbundled
 84-2    generation and retail energy service costs by customer class.
 84-3          (d)  In accordance with a schedule and procedures it
 84-4    establishes, the commission shall hold a hearing and approve or
 84-5    modify and make effective as of January 1, 2002, the transmission
 84-6    and distribution utility's proposed tariffs for transmission and
 84-7    distribution services, the system benefit fund fee, and the
 84-8    expected competition transition charge as determined under
 84-9    Subsections (g) and (h) and as implemented under Subsections
84-10    (i)-(l), if any.
84-11          (e)  The system benefit fund fee shall be that established by
84-12    the commission under Section 39.903.
84-13          (f)  The expected competition transition charge shall be that
84-14    as determined under Subsections (g) and (h) and as implemented
84-15    under Subsections (i)-(l).
84-16          (g)  The expected competition transition charge approved by
84-17    the commission shall be calculated from the amount of stranded
84-18    costs as defined in Subchapter F that are reasonably projected to
84-19    exist on the last day of the freeze period modified to reflect any
84-20    adjustments determined appropriate by the commission under Section
84-21    39.261(c).
84-22          (h)  The electric utility shall use the ECOM administrative
84-23    model referenced in Section 39.262 to determine estimated stranded
84-24    costs.  The model must include updated company-specific inputs.
84-25    Natural gas prices used in the model must be market-based natural
84-26    gas forward prices, where available.  Growth rates in generating
84-27    plant operations and maintenance costs and allocated administrative
 85-1    and general costs shall be benchmarked by comparing those costs to
 85-2    the best available information on cost trends for comparable
 85-3    generating plants.  Capital additions shall be benchmarked using
 85-4    the limitation in Section 39.259(b).
 85-5          (i)  An electric utility may:
 85-6                (1)  at any time after the start of the freeze period,
 85-7    securitize 100 percent of its regulatory assets as defined by
 85-8    Section 39.302 and up to 75 percent of its estimated stranded costs
 85-9    as defined by this section and recover those charges through a
85-10    transition charge, in accordance with a financing order issued by
85-11    the commission under Section 39.303;
85-12                (2)  implement, under bond, a nonbypassable charge of
85-13    up to 100 percent of its estimated stranded costs; or
85-14                (3)  use a combination of the two methods under
85-15    Subdivisions (1) and (2).
85-16          (j)  Any competition transition charge shall be allocated
85-17    among retail customer classes based on the relevant customer class
85-18    characteristics as of May 1, 1999, adjusted for normal weather
85-19    conditions, in accordance with the methodology used to allocate the
85-20    costs of the underlying assets in the electric utility's most
85-21    recent commission order addressing rate design, unless the utility
85-22    has agreed to an alternative allocation of stranded costs in a
85-23    settlement agreed to as part of a transition plan approved by the
85-24    commission on or after January 1, 1998, in which case the
85-25    alternative allocation shall apply.
85-26          (k)  In determining the length of time over which stranded
85-27    costs under Subsection (h) may be recovered, the commission shall
 86-1    consider:
 86-2                (1)  the electric utility's rates as of the end of the
 86-3    freeze period;
 86-4                (2)  the sum of the transmission and distribution
 86-5    charges and the system benefit fund fees;
 86-6                (3)  the proportion of estimated stranded costs to the
 86-7    invested capital of the electric utility; and
 86-8                (4)  any other factor consistent with the public
 86-9    interest as expressed in this chapter.
86-10          (l)  Two years after customer choice is introduced, the
86-11    stranded cost estimate under this section shall be reviewed and, if
86-12    necessary, adjusted to reflect a final, actual valuation in the
86-13    true-up proceeding under Section 39.262.  If, based on that
86-14    proceeding, the competition transition charge is not sufficient,
86-15    the commission may extend the collection period for the charge or,
86-16    if necessary, increase the charge.  Alternatively, if it is found
86-17    in the true-up proceeding that the competition transition charge is
86-18    larger than is needed to recover any remaining stranded costs, the
86-19    commission may:
86-20                (1)  reduce the competition transition charge, to the
86-21    extent it has not been securitized;
86-22                (2)  reverse, in whole or in part, the depreciation
86-23    expense that has been redirected under Section 39.256;
86-24                (3)  reduce the transmission and distribution utility's
86-25    rates; or
86-26                (4)  implement a combination of the elements in
86-27    Subdivisions (1)-(3).
 87-1          Sec. 39.202.  PRICE TO BEAT.  (a)  From January 1, 2002,
 87-2    until January 1, 2007, an affiliated retail electric provider shall
 87-3    make available to residential and small commercial customers of its
 87-4    affiliated transmission and distribution utility rates that, on a
 87-5    bundled basis, are six percent less than the affiliated electric
 87-6    utility's corresponding average residential and small commercial
 87-7    rates, on a bundled basis, that were in effect on January 1, 1999,
 87-8    adjusted to reflect the fuel factor determined as provided by
 87-9    Subsection (b) and adjusted for any base rate reduction as
87-10    stipulated to by an electric utility in a proceeding for which a
87-11    final order had not been issued by January 1, 1999.  These rates on
87-12    a bundled basis shall be known as the "price to beat" for
87-13    residential and small commercial customers, except that the "price
87-14    to beat" for a utility is the rate in effect as a result of a
87-15    settlement approved by the commission after January 1, 1999, if the
87-16    commission determines that base rates for that utility have been
87-17    reduced by more than 12 percent as a result of a final order issued
87-18    by the commission after October 1, 1998.
87-19          (b)  The commission shall determine the fuel factor for each
87-20    electric utility as of December 31, 2001.
87-21          (c)  After the date of customer choice, each affiliated power
87-22    generation company shall file a final fuel reconciliation for the
87-23    period ending the day before the date customer choice is
87-24    introduced.  The final fuel balance from that reconciliation shall
87-25    be included in the true-up proceeding under Section 39.262.
87-26          (d)  An affiliated retail electric provider shall make public
87-27    its price to beat in a manner that provides adequate disclosure as
 88-1    determined by the commission.
 88-2          (e)  The affiliated retail electric provider may not charge
 88-3    rates for residential or small commercial customers that are
 88-4    different from the price to beat until the earlier of 36 months
 88-5    after the date customer choice is introduced or:
 88-6                (1)  for service to residential customers, the date the
 88-7    commission determines that 40 percent or more of the electric power
 88-8    consumed by residential customers within the affiliated
 88-9    transmission and distribution utility's certificated service area
88-10    before the onset of customer choice is committed to be served by
88-11    nonaffiliated retail electric providers; or
88-12                (2)  for service to small commercial customers, the
88-13    date the commission determines that 40 percent or more of the
88-14    electric power consumed by small commercial customers within the
88-15    affiliated transmission and distribution utility's certificated
88-16    service area before the onset of customer choice is committed to be
88-17    served by nonaffiliated retail electric providers.
88-18          (f)  Notwithstanding Subsection (e), the affiliated retail
88-19    electric provider may charge rates that are different from the
88-20    price to beat for service to aggregated loads of nonresidential
88-21    customers having an aggregated peak demand greater than 1,000
88-22    kilowatts, provided that all affected customers are:
88-23                (1)  commonly owned; or
88-24                (2)  franchisees of the same franchisor.
88-25          (g)  The affiliated retail electric provider may not
88-26    encourage or provide an incentive to a customer to switch to a
88-27    nonaffiliated retail electric provider, promote any nonaffiliated
 89-1    retail electric provider, or exchange customers with any
 89-2    nonaffiliated retail electric provider to comply with the
 89-3    requirements of Subsection (e)(1) or (2).
 89-4          (h)  The following standards shall be used for measuring
 89-5    electric power consumption during the period before the onset of
 89-6    customer choice:
 89-7                (1)  the consumption of residential and small
 89-8    commercial customers with an annual peak demand less than or equal
 89-9    to 20 kilowatts shall be based on the average annual consumption of
89-10    those respective groups during the year 2000;
89-11                (2)  consumption for all small commercial customers
89-12    with an annual peak demand larger than 20 kilowatts shall be based
89-13    on each customer's usage during the year 2000; and
89-14                (3)  for purposes of determining whether an affiliated
89-15    retail electric provider has met the requirements of Subsection
89-16    (e)(2), the aggregated loads of nonresidential customers having a
89-17    peak demand greater than 1,000 kilowatts that are served by the
89-18    affiliated retail electric provider at a rate different from the
89-19    price to beat under Subsection (f) shall be deducted from the
89-20    electric power consumption of small commercial customers during the
89-21    period before the onset of customer choice.
89-22          (i)  For purposes of Subsection (h)(2), if less than 12
89-23    months of consumption history exists for any such customer, the
89-24    usage history shall be supplemented with the prior history of that
89-25    customer's location.  For service to a new location, the annual
89-26    consumption shall be determined as the transmission and
89-27    distribution utility's estimate of the maximum annual kilowatt
 90-1    demand used in sizing the electric service to that customer
 90-2    multiplied by 8,760 hours, and that product multiplied by the
 90-3    average annual customer load factor for small commercial customers
 90-4    with loads greater than 20 kilowatts for the year 2000.
 90-5          (j)  On determining that its affiliated retail electric
 90-6    provider has met the requirements of Subsection (e)(1) or (2), an
 90-7    electric utility or a transmission and distribution utility shall
 90-8    make a filing with the commission attesting to the fact that those
 90-9    requirements have been met and that the restrictions of Subsection
90-10    (e)(1) or (2) and the true-up in Section 39.262(e) are no longer
90-11    applicable.  The commission shall adopt appropriate procedures to
90-12    enable it to accept or reject the filing within 30 days.
90-13          (k)  Following the true-up proceedings conducted under
90-14    Section 39.262, the commission may adjust the price to beat.
90-15          (l)  An affiliated retail electric provider may request that
90-16    the commission adjust the fuel factor established under Subsection
90-17    (b) not more than twice a year if the affiliated retail electric
90-18    provider demonstrates that the existing fuel factor does not
90-19    adequately reflect significant changes in the market price of
90-20    natural gas and purchased energy used to serve retail customers.
90-21          (m)  In a power region outside of ERCOT, if customer choice
90-22    is introduced before the requirements of Section 39.152(a) are met,
90-23    an affiliated retail electric provider shall charge rates to
90-24    customers other than residential and small commercial customers
90-25    that are no higher than the rates that, on a bundled basis, were in
90-26    effect on January 1, 1999, adjusted to reflect the fuel factor as
90-27    provided by Subsection (b) and adjusted for any base rate reduction
 91-1    as stipulated to by an electric utility in a proceeding for which a
 91-2    final order had not been issued by January 1, 1999.
 91-3          (n)  Notwithstanding Subsection (a), in  a power region
 91-4    outside of ERCOT, if customer choice is introduced before the
 91-5    requirements of Section 39.152(a) are met, an affiliated retail
 91-6    electric provider shall continue to offer the price to beat to
 91-7    residential and small commercial customers, unless the price is
 91-8    changed by the commission in accordance with this chapter, until
 91-9    the later of 60 months after the date customer choice is introduced
91-10    or the requirements of Section 39.152(a) are met.
91-11          (o)  In this section, "small commercial customer" means a
91-12    commercial customer having a peak demand of 1,000 kilowatts or
91-13    less.
91-14          (p)  On finding that a retail electric provider will be
91-15    unable to maintain its financial integrity if it complies with
91-16    Subsection (a), the commission shall set the retail electric
91-17    provider's price to beat at the minimum level that will allow the
91-18    retail electric provider to maintain its financial integrity.
91-19    However, in no event shall the price to beat exceed the level of
91-20    rates, on a bundled basis, charged by the affiliated electric
91-21    utility on September 1, 1999, adjusted for fuel as provided by
91-22    Subsection (b).
91-23          Sec. 39.203.  TRANSMISSION AND DISTRIBUTION SERVICE.  (a)
91-24    All transmission and distribution utilities shall provide
91-25    transmission service at wholesale under Subchapter A, Chapter 35.
91-26    In addition, on and after January 1, 2002, a transmission and
91-27    distribution utility shall provide transmission or distribution
 92-1    service, or both, at retail to an electric utility, a retail
 92-2    electric provider, a municipally owned utility, an electric
 92-3    cooperative, or an end-use customer at rates, terms of access, and
 92-4    conditions that are comparable to those that apply to the
 92-5    transmission and distribution utility and its affiliates.  A
 92-6    municipally owned utility offering customer choice or an electric
 92-7    cooperative offering customer choice shall likewise provide
 92-8    transmission or distribution service, or both, at retail to all
 92-9    such entities in accordance with the commission's rules applicable
92-10    to terms and conditions of access and at rates adopted in
92-11    accordance with Sections 40.055(a)(1) and 41.055(1), respectively.
92-12          (b)  When necessary to serve a wholesale customer an electric
92-13    utility, an electric cooperative that has not opted for customer
92-14    choice, or a municipally owned utility that has not opted for
92-15    customer choice shall provide wholesale transmission service at
92-16    distribution voltage.  A customer of a municipally owned utility
92-17    that has not opted for customer choice or of an electric
92-18    cooperative that has not opted for customer choice may not claim
92-19    the status of a wholesale customer or be designated as a wholesale
92-20    customer if the customer is being or has been served under a retail
92-21    rate schedule of the municipally owned utility or electric
92-22    cooperative.
92-23          (c)  On or before January 1, 2002, the commission shall
92-24    establish for all retail electric utilities offering customer
92-25    choice reasonable and comparable terms and conditions, in
92-26    accordance with Section 39.201, that comply with Subsection (a) for
92-27    open access on distribution facilities and shall establish, for all
 93-1    retail electric utilities offering customer choice other than
 93-2    municipally owned utilities and electric cooperatives, reasonable
 93-3    and comparable rates for open access on distribution facilities.
 93-4          (d)  The terms of access, conditions, and rates established
 93-5    under Subsection (c) shall be comparable to the terms of access,
 93-6    conditions, and rates that the electric utility applies to itself
 93-7    or its affiliates.  The rules shall also provide that all ancillary
 93-8    services provided by the utility to itself or its affiliates are
 93-9    also available to third parties on request on a nondiscriminatory
93-10    basis.
93-11          (e)  The commission may require an electric utility or a
93-12    transmission and distribution utility to construct or enlarge
93-13    facilities to ensure safe and reliable service for the state's
93-14    electric markets.  In any proceeding brought under Chapter 37, an
93-15    electric utility or transmission and distribution utility ordered
93-16    to construct or enlarge facilities under this subchapter need not
93-17    prove that the construction ordered is necessary for the service,
93-18    accommodation, convenience, or safety of the public and need not
93-19    address the factors listed in Sections 37.056(c)(1)-(3) and (4)(E).
93-20          (f)  The commission's rules must be consistent with the
93-21    standards of this title and may not be contrary to an applicable
93-22    decision, rule, or policy statement of a federal regulatory agency
93-23    having jurisdiction.
93-24          (g)  Each power region shall have generally applicable
93-25    tariffs approved by the commission or a federal regulatory agency
93-26    having jurisdiction that guarantees open and nondiscriminatory
93-27    access as required by Section 39.152.  This subsection may not be
 94-1    deemed to vest in the commission power to set or approve
 94-2    distribution access rates of a municipally owned utility or an
 94-3    electric cooperative that has adopted customer choice.
 94-4          Sec. 39.204.  TARIFFS FOR OPEN ACCESS.  Each transmission and
 94-5    distribution utility shall file a tariff implementing the open
 94-6    access rules with the commission or the federal regulatory
 94-7    authority having jurisdiction over the transmission and
 94-8    distribution service of the utility not later than the 90th day
 94-9    before the date customer choice is offered by that utility.
94-10          Sec. 39.205.  REGULATION OF COSTS FOLLOWING FREEZE PERIOD.
94-11    At the conclusion of the freeze period, any remaining costs
94-12    associated with nuclear decommissioning obligations continue to be
94-13    subject to cost of service rate regulation and shall be included as
94-14    a nonbypassable charge to retail customers.
94-15              (Sections 39.206-39.250 reserved for expansion
94-16                 SUBCHAPTER F.  RECOVERY OF STRANDED COSTS
94-17                   THROUGH COMPETITION TRANSITION CHARGE
94-18          Sec. 39.251.  DEFINITIONS.  In this subchapter:
94-19                (1)  "Above market purchased power costs" means
94-20    wholesale demand and energy costs that a utility is obligated to
94-21    pay under an existing purchased power contract to the extent the
94-22    costs are greater than the purchased power market value.
94-23                (2)  "Existing purchased power contract" means a
94-24    purchased power contract in effect on January 1, 1999, including
94-25    any amendments and revisions to that contract resulting from
94-26    litigation initiated before January 1, 1999.
94-27                (3)  "Generation assets" means all assets associated
 95-1    with the production of electricity, including generation plants,
 95-2    electrical interconnections of the generation plant to the
 95-3    transmission system, fuel contracts, fuel transportation contracts,
 95-4    water contracts, lands, surface or subsurface water rights,
 95-5    emissions-related allowances, and gas pipeline interconnections.
 95-6                (4)  "Market value" means, for nonnuclear assets and
 95-7    certain nuclear assets, the value the assets would have if bought
 95-8    and sold in a bona fide third-party transaction or transactions on
 95-9    the open market under Section 39.262(h) or, for certain nuclear
95-10    assets, as described by Section 39.262(i), the value determined
95-11    under the method provided by that subsection.
95-12                (5)  "Purchased power market value" means the value of
95-13    demand and energy bought and sold in a bona fide third-party
95-14    transaction or transactions on the open market and determined by
95-15    using the weighted average costs of the highest three offers from
95-16    the market for purchase of the demand and energy available under
95-17    the existing purchased power contracts.
95-18                (6)  "Retail stranded costs" means that part of net
95-19    stranded cost associated with the provision of retail service.
95-20                (7)  "Stranded cost" means the positive excess of the
95-21    net book value of generation assets over the market value of the
95-22    assets, taking into account all of the electric utility's
95-23    generation assets, any above market purchased power costs, and any
95-24    deferred debit related to a utility's discontinuance of the
95-25    application of Statement of Financial Accounting Standards No. 71
95-26    ("Accounting for the Effects of Certain Types of Regulation") for
95-27    generation-related assets if required by the provisions of this
 96-1    chapter.  For purposes of Section 39.262, book value shall be
 96-2    established as of December 31, 2001, or the date a market value is
 96-3    established through a market valuation method under Section
 96-4    39.262(h), whichever is earlier, and shall include stranded costs
 96-5    incurred under Section 39.263.
 96-6          Sec. 39.252.  RIGHT TO RECOVER STRANDED COSTS.  (a)  An
 96-7    electric utility is allowed to recover all of its net, verifiable,
 96-8    nonmitigable stranded costs incurred in purchasing power and
 96-9    providing electric generation service.
96-10          (b)  Recovery of retail stranded costs by an electric utility
96-11    shall be from all existing or future retail customers, including
96-12    the facilities, premises, and loads of those retail customers,
96-13    within the utility's geographical certificated service area as it
96-14    existed on May 1, 1999.
96-15          (c)  In multiply certificated areas, a retail customer may
96-16    not avoid stranded cost recovery charges by switching to another
96-17    electric utility, electric cooperative, or municipally owned
96-18    utility after May 1, 1999.  A customer in a multiply certificated
96-19    service area that requested to switch providers on or before May 1,
96-20    1999, or was not taking service from an electric utility on May 1,
96-21    1999, and does not do so after that date is not responsible for
96-22    paying retail stranded costs of that utility.
96-23          (d)  An electric utility shall pursue commercially reasonable
96-24    means to reduce its potential stranded costs, including good faith
96-25    attempts to renegotiate above-cost fuel and purchased power
96-26    contracts or the exercise of normal business practices to protect
96-27    the value of its assets.  The commission shall consider the
 97-1    utility's efforts under this subsection when determining the amount
 97-2    of the utility's stranded costs, provided, however, that nothing in
 97-3    this section authorizes the commission to substitute its judgment
 97-4    for a market valuation of generation assets determined under
 97-5    Sections 39.262(h) and (i).
 97-6          Sec. 39.253.  ALLOCATION OF STRANDED COSTS.  (a)  In
 97-7    allocating retail stranded costs among retail customer classes, the
 97-8    commission shall determine a cost allocation methodology that
 97-9    incorporates the following factors:
97-10                (1)  the type of generation plant for which the
97-11    stranded costs exist;
97-12                (2)  the load that the plant serves; and
97-13                (3)  the average demand of each customer class
97-14    throughout the year for the output of the plant.
97-15          (b)  Retail stranded costs not directly related to a
97-16    generation plant shall be allocated to retail customer classes
97-17    based on the kilowatt hour usage of each class.
97-18          (c)  Except as provided by Section 39.262(k), no customer or
97-19    customer class may avoid the obligation to pay the amount of
97-20    stranded costs allocated to that customer or class.
97-21          Sec. 39.254.  USE OF REVENUES FOR UTILITIES WITH STRANDED
97-22    COSTS.  This subchapter provides a number of tools to an electric
97-23    utility to mitigate stranded costs.  Each electric utility that was
97-24    reported by the commission to have positive "excess costs over
97-25    market" (ECOM), denoted as the "base case" for the amount of
97-26    stranded costs before full retail competition in 2001 with respect
97-27    to its Texas jurisdiction, in the April 1998 Report to the Texas
 98-1    Senate Interim Committee on Electric Utility Restructuring entitled
 98-2    "Potentially Strandable Investment (ECOM) Report:  1998 Update,"
 98-3    must use these tools to reduce the net book value of, otherwise
 98-4    referred to as "accelerate" the cost recovery of, its stranded
 98-5    costs each year.  Any positive difference under the report required
 98-6    by Section 39.257(b) shall be applied to the net book value of
 98-7    generation assets.
 98-8          Sec. 39.255.  USE OF REVENUES FOR UTILITIES WITH NO STRANDED
 98-9    COSTS.  (a)  An electric utility that does not have stranded costs
98-10    described by Section 39.254 shall be permitted to use any positive
98-11    difference under the report required by Section 39.257(b) on
98-12    capital expenditures to improve or expand transmission or
98-13    distribution facilities, or on capital expenditures to improve air
98-14    quality, as approved by the commission.  Any such capital
98-15    expenditures shall be made in the calendar year immediately
98-16    following the year for which the report required by Section 39.257
98-17    is calculated.  The capital expenditures shall be reflected in any
98-18    future proceeding under this chapter to set transmission or
98-19    distribution rates as a reduction to the utility's transmission and
98-20    distribution invested capital, as approved by the commission.
98-21          (b)  To the extent that positive differences under the report
98-22    required by Section 39.257(b) are not used for capital
98-23    expenditures, the amounts shall be flowed back to the electric
98-24    utility's Texas jurisdictional customers through the power cost
98-25    recovery factor.
98-26          (c)  This section applies only to the use of positive
98-27    differences under the report required by Section 39.257(b) for each
 99-1    year during the freeze period.
 99-2          Sec. 39.256.  OPTION TO REDIRECT DEPRECIATION.  (a)  For the
 99-3    calendar years of 1998, 1999, 2000, and 2001, an electric utility
 99-4    described by Section 39.254 may redirect all or a part of the
 99-5    depreciation expense relating to transmission and distribution
 99-6    assets to its net generation plant assets.
 99-7          (b)  The electric utility shall report a decision under
 99-8    Subsection (a) to the commission and any other applicable
 99-9    regulatory authority.
99-10          (c)  Any adjustments made to the book value of transmission
99-11    and distribution assets or the creation of any related regulatory
99-12    assets resulting from the redirection under this section shall be
99-13    accepted and applied by the commission for establishing net
99-14    invested capital and transmission and distribution rates for retail
99-15    customers in all future proceedings.
99-16          (d)  Notwithstanding Subsection (c), the design of
99-17    post-freeze-period retail rates may not:
99-18                (1)  shift the allocation of responsibility for
99-19    stranded costs;
99-20                (2)  include the adjusted costs in wholesale
99-21    transmission and distribution rates; or
99-22                (3)  apply the adjustments for the purpose of
99-23    establishing net invested capital and transmission and distribution
99-24    rates for wholesale customers.
99-25          Sec. 39.257.  ANNUAL REPORT.  (a)  Beginning with the 1999
99-26    calendar year, each electric utility shall file a report with the
99-27    commission not later than 90 days after the end of each year during
 100-1   the freeze period under a schedule and a format determined by the
 100-2   commission.
 100-3         (b)  The report shall identify any positive difference
 100-4   between annual revenues, reduced by the amount of annual revenues
 100-5   under Sections 36.203 and 36.205, the revenues received under the
 100-6   interutility billing process as adopted by the commission to
 100-7   implement Sections 35.004, 35.006, and 35.007, revenues associated
 100-8   with transition charges as defined by Section 39.302, and annual
 100-9   costs.
100-10         Sec. 39.258.  ANNUAL REPORT:  DETERMINATION OF ANNUAL COSTS.
100-11   For the purposes of determining the annual costs in each annual
100-12   report, the following amounts shall be used:
100-13               (1)  the lesser of:
100-14                     (A)  the utility's Texas jurisdictional operation
100-15   and maintenance expense reflected in each utility's Federal Energy
100-16   Regulatory Commission Form 1 of the report year, plus factoring
100-17   expenses not included in operation and maintenance, adjusted for:
100-18                           (i)  costs under Sections 36.062, 36.203,
100-19   and 36.205; and
100-20                           (ii)  revenues recorded under the
100-21   interutility billing process adopted by the commission to implement
100-22   Sections 35.004, 35.006, and 35.007; or
100-23                     (B)  the Texas jurisdictional operation and
100-24   maintenance expense reflected in each utility's 1996 Federal Energy
100-25   Regulatory Commission Form 1, plus factoring expenses not included
100-26   in operation and maintenance, adjusted for:
100-27                           (i)  costs under Sections 36.062, 36.203,
 101-1   and 36.205, and not indexed for inflation;
 101-2                           (ii)  any difference between the annual
 101-3   revenues and the expenses recorded under the interutility billing
 101-4   process adopted by the commission to implement Sections 35.004,
 101-5   35.006, and 35.007; and
 101-6                           (iii)  the annual percentage change in the
 101-7   average number of utility customers;
 101-8               (2)  the amount of nuclear decommissioning expense
 101-9   approved in the electric utility's last rate proceeding before the
101-10   commission, as may be required to be adjusted to comply with
101-11   applicable federal regulatory requirements;
101-12               (3)  the depreciation rates approved in the electric
101-13   utility's last rate proceeding before the commission;
101-14               (4)  the amortization expense approved in the electric
101-15   utility's last rate proceeding before the commission or in any
101-16   other proceeding in which deferred costs and the amortization of
101-17   those costs are established, except that if the items are fully
101-18   amortized during the freeze period, the expense shall be adjusted
101-19   accordingly;
101-20               (5)  taxes and fees, including municipal franchise fees
101-21   to the extent not included in Subdivision (1), other than federal
101-22   income taxes, and assessments incurred that year;
101-23               (6)  federal income tax expense, computed according to
101-24   the stand-alone methodology and using the actual capital structure
101-25   and actual cost of debt as of December 31 of the report year;
101-26               (7)  return on invested capital, computed by
101-27   multiplying invested capital as of December 31 of the report year,
 102-1   determined as provided by Section 39.259, by the cost of capital
 102-2   approved in the electric utility's most recent rate proceeding
 102-3   before the commission in which the cost of capital was specifically
 102-4   adopted, or, in the case of a range, the midpoint of the range, if
 102-5   the final rate order for the proceeding was issued on or after
 102-6   January 1, 1992, or if such an order does not exist, a cost of
 102-7   capital of 9.6 percent shall be used; and
 102-8               (8)  the amount resulting from any operation and
 102-9   maintenance expense savings tracker from a merger of two utilities
102-10   and contained in a settlement agreement approved by the commission
102-11   before January 1, 1999.
102-12         Sec. 39.259.  ANNUAL REPORT:  DETERMINATION OF INVESTED
102-13   CAPITAL.  (a)  For the purposes of determining invested capital in
102-14   each annual report, the net plant in service, regulatory assets,
102-15   and deferred federal income taxes shall be updated each year, and
102-16   generation-related invested capital shall be reduced by the amount
102-17   of securitization under Sections 39.201(i) and 39.262(c) to the
102-18   extent otherwise included in invested capital.
102-19         (b)  Capital additions to a plant in an amount less than
102-20   1-1/2 percent of the electric utility's net plant in service on
102-21   December 31, 1998, less plant items previously excluded by the
102-22   commission, for each of the years 1999 through 2001 are presumed
102-23   prudent.
102-24         (c)  All other items in invested capital shall be as approved
102-25   in the electric utility's last rate proceeding before the
102-26   commission.
102-27         Sec. 39.260.  USE OF GENERALLY ACCEPTED ACCOUNTING
 103-1   PRINCIPLES.  (a)  The definition and identification of invested
 103-2   capital and other terms used in this subchapter and Subchapter G
 103-3   that affect the net book value of generation assets and the
 103-4   treatment of transactions performed under Section 35.035 and other
 103-5   transactions authorized by this title or approved by the regulatory
 103-6   authority that affect the net book value of generation assets
 103-7   during the freeze period shall be treated in accordance with
 103-8   generally accepted accounting principles as modified by regulatory
 103-9   accounting rules generally applicable to utilities.
103-10         (b)  The principles and criteria described by Subsection (a),
103-11   including the criteria for applicability of Statement of Financial
103-12   Accounting Standards No. 71 ("Accounting for the Effects of Certain
103-13   Types of Regulation"), shall be applied for purposes of this
103-14   subchapter as they existed on January 1, 1999.
103-15         Sec. 39.261.  REVIEW OF ANNUAL REPORT.  (a)  The annual
103-16   report filed under this subchapter is a public document and shall
103-17   be reviewed by the staff of the commission and the office.  Both
103-18   staffs may review work papers and supporting documents and engage
103-19   in discussions with the utility about the data underlying the
103-20   reports.
103-21         (b)  The staff of the commission and the office shall
103-22   communicate in writing to an electric utility not later than the
103-23   180th day after the date the report is filed if they have any
103-24   disagreements with the data or computations.
103-25         (c)  The commission shall finalize and resolve any
103-26   disagreements related to the annual report, consistent with the
103-27   requirements of Section 39.258, as follows:
 104-1               (1)  for each calendar year, the commission shall
 104-2   finalize the annual report before establishing the competition
 104-3   transition charge under Section 39.201; and
 104-4               (2)  for each calendar year, the commission shall
 104-5   finalize the annual report and reflect the result as part of the
 104-6   true-up proceeding under  Section 39.262.
 104-7         Sec. 39.262.  TRUE-UP PROCEEDING.  (a)  An electric utility,
 104-8   together with its affiliated retail electric provider and its
 104-9   affiliated transmission and distribution utility, may not be
104-10   permitted to overrecover stranded costs through the procedures
104-11   established by this section or through the application of the
104-12   measures provided by the other sections of this chapter.
104-13         (b)  After the freeze period, an electric utility located in
104-14   a power region that is not certified under Section 39.152 shall
104-15   continue to file annual reports under Sections 39.257, 39.258, and
104-16   39.259 as if the freeze period remained in effect, until the time
104-17   the power region qualifies as certified under Section 39.152.  In
104-18   addition, the commission staff and the office shall continue to
104-19   review the annual reports as provided by Section 39.261.
104-20         (c)  After January 10, 2004, at a schedule and under
104-21   procedures to be determined by the commission, each transmission
104-22   and distribution utility, its affiliated retail electric provider,
104-23   and its affiliated power generation company shall jointly file to
104-24   finalize stranded costs under Subsections (h) and (i) and reconcile
104-25   those costs with the estimated stranded costs used to develop the
104-26   competition transition charge in the proceeding held under Section
104-27   39.201.  Any resulting difference shall be applied to the
 105-1   nonbypassable delivery rates of the transmission and distribution
 105-2   utility, except that at the utility's option, any or all of the
 105-3   remaining stranded costs may be securitized under Subchapter G.
 105-4         (d)  The affiliated power generation company shall reconcile,
 105-5   and either credit or bill to the transmission and distribution
 105-6   utility, the net sum of:
 105-7               (1)  the former electric utility's final fuel balance
 105-8   determined under Section 39.202(c); and
 105-9               (2)  any difference between the price of power obtained
105-10   through the capacity auctions under Sections 39.153 and 39.156 and
105-11   the power cost projections that were employed for the same time
105-12   period in the ECOM model to estimate stranded costs in the
105-13   proceeding under Section 39.201.
105-14         (e)  To the extent that the price to beat exceeded the market
105-15   price of electricity, the affiliated retail electric provider shall
105-16   reconcile and credit to the affiliated transmission and
105-17   distribution utility any positive difference between the price to
105-18   beat established under Section 39.202, reduced by the nonbypassable
105-19   delivery charge established under Section 39.201, and the
105-20   prevailing market price of electricity during the same time period.
105-21   A reconciliation for the applicable customer class is not required
105-22   under this subsection for an affiliated retail electric provider
105-23   that satisfies the requirements of Section 39.202(e)(1) or (2)
105-24   before the expiration of two years from the introduction of
105-25   customer choice.  If a reconciliation is required, in no event
105-26   shall the amount credited exceed an amount equal to the number of
105-27   residential or small commercial customers served by the affiliated
 106-1   transmission and distribution utility that are buying electricity
 106-2   from the affiliated retail electric provider at the price to beat
 106-3   on the second anniversary of the beginning of competition, minus
 106-4   the number of new customers obtained outside the service area,
 106-5   multiplied by $150.
 106-6         (f)  To the extent that any amount of regulatory assets
 106-7   included in a securitization charge or competitive transition
 106-8   charge exceeds the amount of regulatory assets approved in a rate
 106-9   order which became effective on or before September 1, 1999, the
106-10   commission shall conduct a review during the true-up proceeding to
106-11   determine whether such amounts were appropriately calculated and
106-12   constituted reasonable and necessary costs pursuant to Subchapter
106-13   B, Chapter 36.  If the commission finds that the amount of
106-14   regulatory assets specified in Section 39.302(5) is subject to
106-15   modification, a credit or other rate adjustment shall be made to
106-16   the transmission and distribution utility's non-bypassable delivery
106-17   rates; provided, however, that no adjustment may be made to a
106-18   transition charge established under Subchapter G.
106-19         (g)  Based on the credits or bills received from its
106-20   affiliates under Subsections (d), (e), and (f), the transmission
106-21   and distribution utility shall make necessary adjustments to the
106-22   nonbypassable delivery rates it charges to retail electric
106-23   providers.  If the commission determines that the nonbypassable
106-24   delivery rates are not sufficient, the commission may extend the
106-25   original collection period for the charge or, if necessary,
106-26   increase the charge.  Alternatively, if the commission determines
106-27   that the nonbypassable delivery rates are larger than are needed to
 107-1   recover the transmission and distribution utility's costs, the
 107-2   commission shall correspondingly reduce:
 107-3               (1)  the competition transition charge, to the extent
 107-4   it has not been securitized;
 107-5               (2)  the depreciation expense that has been redirected
 107-6   under Section 39.256;
 107-7               (3)  the transmission and distribution utility's rates;
 107-8   or
 107-9               (4)  a combination of the elements in Subdivisions
107-10   (1)-(3).
107-11         (h)  Except as provided in Subsection (i), for the purpose of
107-12   finalizing the stranded cost estimate used to establish the
107-13   competition transition charge under Section 39.201, the affiliated
107-14   power generation company shall quantify its stranded costs using
107-15   one or more of the following methods:
107-16               (1)  Sale of Assets.  If, at any time after December
107-17   31, 1999, an electric utility or its affiliated power generation
107-18   company has sold some or all of its generation assets, which sale
107-19   shall include all generating assets associated with each generating
107-20   plant that is sold, in a bona fide third-party transaction under a
107-21   competitive offering, the total net value realized from the sale
107-22   establishes the market value of the generation assets sold.  If not
107-23   all assets are sold, the market value of the remaining generation
107-24   assets shall be established by one or more of the other methods in
107-25   this section.
107-26               (2)  Stock Valuation Method.  If, at any time after
107-27   December 31, 1999, an electric utility or its affiliated power
 108-1   generation company has transferred some or all of its generation
 108-2   assets, including, at the election of the electric utility or power
 108-3   generation company, any fuel and fuel transportation contracts
 108-4   related to those assets, to one or more separate affiliated or
 108-5   nonaffiliated corporations, not less than 51 percent of the common
 108-6   stock of each corporation is spun off and sold to public investors
 108-7   through a national stock exchange, and the common stock has been
 108-8   traded for not less than one year, the resulting average daily
 108-9   closing price of the common stock over 30 consecutive trading days
108-10   chosen by the commission out of the last 120 consecutive trading
108-11   days before the filing required under Subsection (c) establishes
108-12   the market value of the common stock equity in each transferee
108-13   corporation.  The book value of each transferee corporation's debt
108-14   and preferred stock securities shall be added to the market value
108-15   of its assets.  The market value of each transferee corporation's
108-16   assets shall be reduced by the corresponding net book value of the
108-17   assets acquired by each transferee corporation from any entity
108-18   other than the affiliated electric utility or power generation
108-19   company.  The resulting market value of the assets establishes the
108-20   market value of the generation assets transferred by the electric
108-21   utility or power generation company to each separate corporation.
108-22   If not all assets are disposed of in this manner, the market value
108-23   of the remaining assets shall be established by one or more of the
108-24   other methods in this section.
108-25               (3)  Partial Stock Valuation Method.  If, at any time
108-26   after December 31, 1999, an electric utility or its affiliated
108-27   power generation company has transferred some or all of its
 109-1   generation assets, including, at the election of the electric
 109-2   utility or power generation company, any fuel and fuel
 109-3   transportation contracts related to those assets, to one or more
 109-4   separate affiliated or nonaffiliated corporations, at least 19
 109-5   percent, but less than 51 percent, of the common stock of each
 109-6   corporation is spun off and sold to public investors through a
 109-7   national stock exchange, and the common stock has been traded for
 109-8   not less than one year, the resulting average daily closing price
 109-9   of the common stock over 30 consecutive trading days chosen by the
109-10   commission out of the last 120 consecutive trading days before the
109-11   filing required under Subsection (c) shall be presumed to establish
109-12   the market value of the common stock equity in each transferee
109-13   corporation.  The commission may accept the market valuation to
109-14   conclusively establish the value of the common stock equity in each
109-15   transferee corporation or convene a valuation panel of three
109-16   independent financial experts to determine whether the percentage
109-17   of common stock sold is fairly representative of the total common
109-18   stock equity or whether a control premium exists for the retained
109-19   interest.  The valuation panel must consist of financial experts,
109-20   chosen from proposals submitted in response to commission requests,
109-21   from the top 10 nationally recognized investment banks with
109-22   demonstrated experience in the United States electric industry as
109-23   indicated by the dollar amount of public offerings of long-term
109-24   debt and equity of United States investor-owned electric companies
109-25   over the immediately preceding three years as ranked by the
109-26   publications "Securities Data" or "Institutional Investor."  If the
109-27   panel determines that a control premium exists for the retained
 110-1   interest, the panel shall determine the amount of the control
 110-2   premium, and the commission shall adopt the determination but may
 110-3   not increase the market value by a control premium greater than 10
 110-4   percent.  The costs and expenses of the panel, as approved by the
 110-5   commission, shall be paid by each transferee corporation.  The
 110-6   determination of the commission based on the finding of the panel
 110-7   conclusively establishes the value of the common stock of each
 110-8   transferee corporation.  The book value of each transferee
 110-9   corporation's debt and preferred stock securities shall be added to
110-10   the market value of its assets.  The market value of each
110-11   transferee corporation's assets shall be reduced by the
110-12   corresponding net book value of the assets acquired by each
110-13   transferee corporation from any entity other than the affiliated
110-14   electric utility or power generation company.  The resulting market
110-15   value of the assets establishes the market value of the generation
110-16   assets transferred by the electric utility or power generation
110-17   company to each separate corporation.
110-18               (4)  Exchange of Assets.  If, at any time after
110-19   December 31, 1999, an electric utility or its affiliated power
110-20   generation company has transferred some or all of its generation
110-21   assets, including any fuel and fuel transportation contracts
110-22   related to those assets, in a bona fide third-party exchange
110-23   transaction, the stranded costs related to the transferred assets
110-24   shall be the difference between the book value and the market value
110-25   of the transferred assets at the time of the exchange, taking into
110-26   account any other consideration received or given.  The market
110-27   value of the transferred assets may be determined through an
 111-1   appraisal by a nationally recognized independent appraisal firm, if
 111-2   the market value is subject to a market valuation by means of an
 111-3   offer of sale in accordance with this subdivision.  To obtain a
 111-4   market valuation by means of an offer of sale, the owner of the
 111-5   asset shall offer it for sale to other parties under procedures
 111-6   that provide broad public notice of the offer and a reasonable
 111-7   opportunity for other parties to bid on the asset.  The owner of
 111-8   the asset may establish a reserve price for any offer based on the
 111-9   sum of the appraised value of the asset and the tax impact of
111-10   selling the asset, as determined by the commission.
111-11         (i)  Unless an electric utility or its affiliated power
111-12   generation company combines all of its remaining generation assets
111-13   into one or more transferee corporations as described in
111-14   Subsections (g)(2) and (3), the electric utility shall quantify its
111-15   stranded costs for nuclear assets using the ECOM method.  The ECOM
111-16   method is the estimation model prepared for and described by the
111-17   commission's April 1998 Report to the Texas Senate Interim
111-18   Committee on Electric Restructuring entitled "Potentially
111-19   Strandable Investment (ECOM) Report:  1998 Update."  The
111-20   methodology used in the model must be the same as that used in the
111-21   1998 report to determine the "base case."  At the time of the
111-22   proceeding under this section, the ECOM model shall be rerun using
111-23   updated company-specific inputs required by the model, updating the
111-24   market price of electricity, and using updated natural gas price
111-25   forecasts and the capacity cost based on the long-run marginal cost
111-26   of the most economic new generation technology then available.
111-27   Natural gas price projections used in the model must be
 112-1   market-based natural gas forward prices, where available.  Growth
 112-2   rates in generating plant operations and maintenance costs and
 112-3   allocated administrative and general costs shall be benchmarked by
 112-4   comparing those costs to the best available information on cost
 112-5   trends for comparable generating plants.  Capital additions shall
 112-6   be benchmarked using the limitation in Section 39.259(b).
 112-7         (j)  The commission shall issue a final order not later than
 112-8   the 150th day after the date of the filing under this section by
 112-9   the transmission and distribution utility, its affiliated retail
112-10   electric provider, and its affiliated power generation company, and
112-11   the resulting order shall be subject to judicial review under
112-12   Chapter 2001, Government Code.
112-13         (k)  Notwithstanding Section 39.252, to the extent that a
112-14   customer's actual load has been lawfully served by a fully
112-15   operational qualifying facility before September 1, 2001, or by an
112-16   on-site power production facility with a rated capacity of 10
112-17   megawatts or less, any charge for recovery of stranded costs under
112-18   this section or Subchapter G assessed on that customer after the
112-19   facility becomes fully operational shall be included only in those
112-20   tariffs or charges associated with the services actually provided
112-21   by the transmission and distribution utility, if any, to the
112-22   customer after the facility became fully operational and may not
112-23   include any costs associated with the service provided to the
112-24   customer by the electric utility or its affiliated transmission and
112-25   distribution utility under their tariffs before the operation of
112-26   that qualifying facility.  To qualify under this subsection, a
112-27   qualifying facility must have made substantially complete filings
 113-1   on or before December 31, 1999, for all necessary site-specific
 113-2   environmental permits under the rules of the Texas Natural Resource
 113-3   Conservation Commission in effect at the time of filing.
 113-4         Sec. 39.263.  STRANDED COST RECOVERY OF ENVIRONMENTAL CLEANUP
 113-5   COSTS.   (a)  Subject to Subsection (c), capital costs incurred by
 113-6   an electric utility to improve air quality before January 1, 2002,
 113-7   are eligible for inclusion as net invested capital under Section
 113-8   39.259, notwithstanding the limitations imposed under Sections
 113-9   39.259(b) and (c).
113-10         (b)  Subject to Subsection (c), capital costs incurred by an
113-11   electric utility or an affiliated power generation company to
113-12   improve air quality after January 1, 2002, and before May 1, 2003,
113-13   are eligible for inclusion in the determination of invested capital
113-14   in the true-up proceeding under Section 39.262.
113-15         (c)  Reasonable costs incurred under Subsections (a) and (b)
113-16   shall be included as invested capital and considered in an electric
113-17   utility's stranded cost determination only to the extent that:
113-18               (1)  the cost is applied to offset or reduce the
113-19   emission of airborne contaminants from an electric generating
113-20   facility, where:
113-21                     (A)  the reduction or offset is determined by the
113-22   Texas Natural Resource Conservation Commission to be an essential
113-23   component in  achieving compliance with a national ambient air
113-24   quality standard; or
113-25                     (B)  the reduction or offset is necessary in
113-26   order for an unpermitted electric generating facility to obtain a
113-27   permit in the manner provided by Section 39.264;
 114-1               (2)  the retrofit decision is determined to be the most
 114-2   cost-effective after consideration of alternative measures,
 114-3   including the retirement of the generating facility; and
 114-4               (3)  the amount and location of resulting emission
 114-5   reductions is consistent with the air quality goals and policies of
 114-6   the Texas Natural Resource Conservation Commission.
 114-7         (d)  If the retirement of a generating facility is the most
 114-8   cost-effective alternative, taking into account the cost of
 114-9   replacement generating capacity, the net book value, including
114-10   retirement costs and offsetting salvage value, of the affected
114-11   facility shall be included in the electric utility's stranded cost
114-12   determination, notwithstanding Section 39.259(c).
114-13         Sec. 39.264.  EMISSIONS REDUCTIONS OF "GRANDFATHERED
114-14   FACILITIES."  (a)  In this section:
114-15               (1)  "Conservation commission" means the Texas Natural
114-16   Resource Conservation Commission.
114-17               (2)  "Electric generating facility" means a facility
114-18   that generates electric energy for compensation and is owned or
114-19   operated by a person in this state, including a municipal
114-20   corporation, electric cooperative, or river authority.
114-21         (b)  This section applies only to an electric generating
114-22   facility existing on January 1, 1999, that is not subject to the
114-23   requirement to obtain a permit under Section 382.0518(g), Health
114-24   and Safety Code.
114-25         (c)  It is the intent of the legislature that, for the
114-26   12-month period beginning on May 1, 2003, and for each 12-month
114-27   period after the end of that period, total annual emissions of
 115-1   nitrogen oxides from facilities subject to this section may not
 115-2   exceed levels equal to 50 percent of the total emissions of that
 115-3   pollutant during 1997, as reported to the conservation commission,
 115-4   and total annual emissions of sulphur dioxides from coal-fired
 115-5   facilities subject to this section may not exceed levels equal to
 115-6   75 percent of the total emissions of that pollutant during 1997, as
 115-7   reported to the conservation commission.  The limitations
 115-8   prescribed by this subsection may be met through an emissions
 115-9   allocation and allowance transfer system described by this section.
115-10         (d)  A municipal corporation, electric cooperative, or river
115-11   authority may exclude any electric generating facilities of 25
115-12   megawatts or less from the requirements prescribed by this section.
115-13   Not later than January 1, 2000, a municipal corporation, electric
115-14   cooperative, or river authority must inform the conservation
115-15   commission of its intent to exclude those facilities.
115-16         (e)  The owner or operator of an electric generating facility
115-17   shall apply to the conservation commission for a permit for the
115-18   emission of air contaminants on or before September 1, 2000.  A
115-19   permit issued by the conservation commission under this section
115-20   shall require the facility to achieve emissions reductions or
115-21   trading emissions allowances as provided by this section.  If the
115-22   facility uses coal as a fuel, the permit must also be conditioned
115-23   on the facility's emissions meeting opacity limitations provided by
115-24   conservation commission rules.  Notwithstanding Section
115-25   382.0518(g), Health and Safety Code, a facility that does not
115-26   obtain a permit as required by this subsection may not operate
115-27   after May 1, 2003, unless the conservation commission finds good
 116-1   cause for an extension.
 116-2         (f)  The conservation commission shall develop rules for the
 116-3   permitting of electric generating facilities.  The rules adopted
 116-4   under this subsection shall provide, by region, for the allocation
 116-5   of emissions allowances of sulphur dioxides and nitrogen oxides
 116-6   among electric generating facilities and for facilities to trade
 116-7   emissions allowances for those contaminants.
 116-8         (g)  The conservation commission by rule shall establish an
 116-9   East Texas Region, a West Texas Region, and an El Paso Region for
116-10   allocation of air contaminants under the permitting program under
116-11   Subsection (f).  The East Texas Region must contain all counties
116-12   traversed by or east of Interstate Highway 35 or Interstate Highway
116-13   37, including Bosque, Coryell, Hood, Parker, Somervell, and Wise
116-14   counties.  The West Texas Region includes all of the state not
116-15   contained in the East Texas Region or the El Paso Region.  The El
116-16   Paso Region includes El Paso County.
116-17         (h)  Not later than January 1, 2000, the conservation
116-18   commission shall allocate to each electric generating facility in
116-19   each region a number of annual emissions allowances, with each
116-20   allowance equal to one ton of sulphur dioxides or of nitrogen
116-21   oxides emitted in a year, that permit emissions of the contaminants
116-22   from the facility in that year.  The conservation commission must
116-23   allocate to each facility a number of emissions allowances equal to
116-24   an emissions rate measured in pounds per million British thermal
116-25   units divided by 2,000 and multiplied by the facility's total heat
116-26   input in terms of million British thermal units during 1997.  For
116-27   the East Texas Region, the emissions rate shall be 0.14 pounds per
 117-1   million British thermal units for nitrogen oxides and 1.38 pounds
 117-2   per million British thermal units for sulphur dioxides.  For the
 117-3   West Texas and El Paso regions, the emissions rate shall be 0.195
 117-4   pounds per million British thermal units for nitrogen oxides.
 117-5   Allowances for sulphur dioxides may only be allocated among
 117-6   coal-fired facilities.
 117-7         (i)  A person, municipal corporation, electric cooperative,
 117-8   or river authority that owns and operates an electric generating
 117-9   facility not covered by this section may elect to designate that
117-10   facility to become subject to the requirements of this section and
117-11   to receive emissions allowances for the purpose of complying with
117-12   the emissions limitations prescribed by Subsection (c).  The
117-13   conservation commission shall adopt rules governing this election
117-14   that:
117-15               (1)  require an owner or operator of an electric
117-16   generation facility to designate to the conservation commission in
117-17   its permit application under Subsection (e) any facilities that
117-18   will become subject to this section;
117-19               (2)  require the conservation commission,
117-20   notwithstanding the allocation mechanism provided by Subsection
117-21   (h), to allocate additional allowances to facilities governed by
117-22   this subsection in an amount equal to each facility's actual
117-23   emissions in tons in 1997;
117-24               (3)  provide that any unit designated under this
117-25   subsection may not transfer or bank allowances conserved as a
117-26   result of reduced utilization or shutdown, except that the
117-27   allowances may be transferred or carried forward for use in
 118-1   subsequent years to the extent that the reduced utilization or
 118-2   shutdown results from the replacement of thermal energy from the
 118-3   unit designated under this subsection with thermal energy generated
 118-4   by any other unit; and
 118-5               (4)  provide that emissions reductions from electing
 118-6   facilities designated in this subsection may only be used to
 118-7   satisfy the emissions reductions for grandfathered facilities
 118-8   defined in Subsection (c) to the extent that reductions used to
 118-9   satisfy the limitations in Subsection (c) are beyond the
118-10   requirements of any other state or federal standard, or both.
118-11         (j)  The conservation commission by rule shall permit a
118-12   facility to trade emissions allocations with other electric
118-13   generating facilities only in the same region.
118-14         (k)  The conservation commission by rule shall provide
118-15   methods for the conservation commission to determine whether a
118-16   facility complies with the permit issued under this section.  The
118-17   rules must provide for:
118-18               (1)  monitoring and reporting actual emissions of
118-19   sulphur dioxides and nitrogen oxides from each facility;
118-20               (2)  provisions for saving unused allowances for use in
118-21   later years; and
118-22               (3)  a system for tracking traded allowances.
118-23         (l)  A facility may not trade an unused allowance for a
118-24   contaminant for use as a credit for another contaminant.
118-25         (m)  A person possessing market power shall not withhold
118-26   emissions allowances from the market in a manner that is
118-27   unreasonably discriminatory or tends to unreasonably restrict,
 119-1   impair, or reduce the level of competition.
 119-2         (n)  The conservation commission shall penalize a facility
 119-3   that emits an air contaminant that exceeds the facility's
 119-4   allowances for that contaminant by:
 119-5               (1)  enforcing an administrative penalty, in an amount
 119-6   determined by conservation commission rules, for each ton of air
 119-7   contaminant emissions by which the facility exceeds its allocated
 119-8   emissions allowances; and
 119-9               (2)  reducing the facility's emissions allowances for
119-10   the next year by an amount of emissions equal to the excessive
119-11   emissions in the year the facility emitted the excessive air
119-12   contaminants.
119-13         (o)  The conservation commission may penalize a facility that
119-14   emits  an air contaminant that exceeds the facility's allowances
119-15   for that contaminant by:
119-16               (1)  ordering the facility to cease operations; or
119-17               (2)  taking other enforcement action provided by
119-18   conservation commission rules.
119-19         (p)  The conservation commission by rule shall provide for a
119-20   facility in the El Paso Region to meet emissions allowances by
119-21   using credits from emissions reductions achieved in Ciudad Juarez,
119-22   United Mexican States.
119-23         (q)  If the conservation commission or the United States
119-24   Environmental Protection Agency determines that reductions in
119-25   nitrogen oxides emissions in the El Paso Region otherwise required
119-26   by this section would result in increased ambient ozone levels in
119-27   El Paso County, facilities in the El Paso Region are exempt from
 120-1   the nitrogen oxides reduction requirements.
 120-2         (r)  An applicant for a permit under Subsection (e) shall
 120-3   publish notice of intent to obtain the permit in accordance with
 120-4   Section 382.056, Health and Safety Code.  The conservation
 120-5   commission shall provide an opportunity for a public hearing and
 120-6   the submission of public comment and send notice of a decision on
 120-7   an application for a permit under Subsection (e) in the same manner
 120-8   as provided by Sections 382.0561 and 382.0562, Health and Safety
 120-9   Code.  The conservation commission shall review and renew a permit
120-10   issued under this section in accordance with Section 382.055,
120-11   Health and Safety Code.
120-12         (s)  This section does not limit the authority of the
120-13   conservation commission to require further reductions of nitrogen
120-14   oxides, sulphur dioxides, or any other pollutant from generating
120-15   facilities subject to this section or Section 39.263.
120-16         Sec. 39.265.  RIGHTS NOT AFFECTED.  This chapter is not
120-17   intended to alter any rights of utilities to recover stranded costs
120-18   from wholesale customers.
120-19             (Sections 39.266-39.300 reserved for expansion
120-20                      SUBCHAPTER G.  SECURITIZATION
120-21         Sec. 39.301.  PURPOSE.  The purpose of this subchapter is to
120-22   enable utilities to use securitization financing to recover
120-23   regulatory assets and stranded costs, because this type of debt
120-24   will lower the carrying costs of the assets relative to the costs
120-25   that would be incurred using conventional utility financing
120-26   methods.  The savings associated with securitization shall work to
120-27   the benefit of ratepayers.  The amount securitized may not exceed
 121-1   the present value of the revenue requirement over the life of the
 121-2   proposed transition bond associated with the regulatory assets or
 121-3   stranded costs sought to be securitized.  The present value
 121-4   calculation shall use a discount rate equal to the proposed
 121-5   interest rate on the transition bonds.
 121-6         Sec. 39.302.  DEFINITIONS.  In this subchapter:
 121-7               (1)  "Assignee" means any individual, corporation, or
 121-8   other legally recognized entity to which an interest in transition
 121-9   property is transferred, other than as security, including any
121-10   assignee of that party.
121-11               (2)  "Financing order" means an order of the commission
121-12   adopted under Section 39.201 or 39.262 approving the issuance of
121-13   transition bonds and the creation of transition charges for the
121-14   recovery of qualified costs.
121-15               (3)  "Financing party" means a holder of transition
121-16   bonds, including trustees, collateral agents, and other persons
121-17   acting for the benefit of the holder.
121-18               (4)  "Qualified costs" means 100 percent of an electric
121-19   utility's regulatory assets and 75 percent of its recoverable costs
121-20   determined by the commission under Section 39.201 and any remaining
121-21   stranded costs determined under Section 39.262 together with the
121-22   costs of issuing, supporting, and servicing transition bonds and
121-23   any costs of retiring and refunding the electric utility's existing
121-24   debt and equity securities in connection with the issuance of
121-25   transition bonds.  The term includes the costs to the commission of
121-26   acquiring professional services for the purpose of evaluating
121-27   proposed transactions under Section 39.201 and this subchapter.
 122-1               (5)  "Regulatory assets" means the generation-related
 122-2   portion of the Texas jurisdictional portion of the amount reported
 122-3   by the electric utility in its 1998 annual report on Securities and
 122-4   Exchange Commission Form 10-K as regulatory assets and liabilities,
 122-5   offset by the applicable portion of generation-related investment
 122-6   tax credits permitted under the Internal Revenue Code of 1986.
 122-7               (6)  "Transition bonds" means bonds, debentures, notes,
 122-8   certificates of participation or of beneficial interest, or other
 122-9   evidences of indebtedness or ownership that are issued by an
122-10   electric utility, its successors, or an assignee under a financing
122-11   order, that have a term not longer than 15 years, and that are
122-12   secured by or payable from transition property.  If certificates of
122-13   participation, beneficial interest, or ownership are issued,
122-14   references in this subchapter to principal, interest, or premium
122-15   shall refer to comparable amounts under those certificates.
122-16               (7)  "Transition charges" means nonbypassable amounts
122-17   to be charged for the use or availability of electric services,
122-18   approved by the commission under a financing order to recover
122-19   qualified costs, that shall be collected by an electric utility,
122-20   its successors, an assignee, or other collection agents as provided
122-21   for in the financing order.
122-22               (8)  "Transition property" means the property described
122-23   in Section 39.304.
122-24         Sec. 39.303.  FINANCING ORDERS; TERMS.  (a)  The commission
122-25   shall adopt a financing order, on application of a utility to
122-26   recover the utility's regulatory assets and eligible stranded costs
122-27   under Section 39.201 or 39.262, on making a finding that the total
 123-1   amount of revenues to be collected under the financing order is
 123-2   less than the revenue requirement that would be recovered over the
 123-3   remaining life of the stranded costs using conventional financing
 123-4   methods and that the financing order is consistent with the
 123-5   standards in Section 39.301.
 123-6         (b)  The financing order shall detail the amount of
 123-7   regulatory assets and stranded costs to be recovered and the period
 123-8   over which the nonbypassable transition charges shall be recovered,
 123-9   which period may not exceed 15 years.
123-10         (c)  Transition charges shall be collected and allocated
123-11   among customers in the same manner as competition transition
123-12   charges under Section 39.201.
123-13         (d)  A financing order shall become effective in accordance
123-14   with its terms, and the financing order, together with the
123-15   transition charges authorized in the order, shall thereafter be
123-16   irrevocable and not subject to reduction, impairment, or adjustment
123-17   by further action of the commission, except as permitted by Section
123-18   39.307.
123-19         (e)  The commission shall issue a financing order under
123-20   Subsections (a) and (g) not later than 90 days after the utility
123-21   files its request for the financing order.
123-22         (f)  A financing order is not subject to rehearing by the
123-23   commission.  A financing order may be reviewed by appeal only to a
123-24   Travis County district court by a party to the proceeding filed
123-25   within 15 days after the financing order is signed by the
123-26   commission.  The judgment of the district court may be reviewed
123-27   only by direct appeal to the Supreme Court of Texas filed within 15
 124-1   days after entry of judgment.  All appeals shall be heard and
 124-2   determined by the district court and the Supreme Court of Texas as
 124-3   expeditiously as possible with lawful precedence over other
 124-4   matters.  Review on appeal shall be based solely on the record
 124-5   before the commission and briefs to the court and shall be limited
 124-6   to whether the financing order conforms to the constitution and
 124-7   laws of this state and the United States and is within the
 124-8   authority of the commission under this chapter.
 124-9         (g)  At the request of an electric utility, the commission
124-10   may adopt a financing order providing for retiring and refunding
124-11   transition bonds on making a finding that the future transition
124-12   charges required to service the new transition bonds, including
124-13   transaction costs, will be less than the future transition charges
124-14   required to service the transition bonds being refunded.  On the
124-15   retirement of the refunded transition bonds, the commission shall
124-16   adjust the related transition charges accordingly.
124-17         Sec. 39.304.  PROPERTY RIGHTS.  (a)  The rights and interests
124-18   of an electric utility or successor under a financing order,
124-19   including the right to impose, collect, and receive transition
124-20   charges authorized in the order, shall be only contract rights
124-21   until they are first transferred to an assignee or pledged in
124-22   connection with the issuance of transition bonds, at which time
124-23   they will  become "transition property."
124-24         (b)  Transition property shall constitute a present property
124-25   right for purposes of contracts concerning the sale or pledge of
124-26   property, even though the imposition and collection of transition
124-27   charges depends on further acts of the utility or others that have
 125-1   not yet occurred.  The financing order shall remain in effect and
 125-2   the property shall continue to exist for the same period as the
 125-3   pledge of the state described in Section 39.310.
 125-4         (c)  All revenues and collections resulting from transition
 125-5   charges shall constitute proceeds only of the transition property
 125-6   arising from the financing order.
 125-7         Sec. 39.305.  NO SETOFF.  The interest of an assignee or
 125-8   pledgee in transition property and in the revenues and collections
 125-9   arising from that property are not subject to setoff, counterclaim,
125-10   surcharge, or defense by the electric utility or any other person
125-11   or in connection with the bankruptcy of the electric utility or any
125-12   other entity.  A financing order shall remain in effect and
125-13   unabated notwithstanding the bankruptcy of the electric utility,
125-14   its successors, or assignees.
125-15         Sec. 39.306.  NO BYPASS.  A financing order shall include
125-16   terms ensuring that the imposition and collection of transition
125-17   charges authorized in the order shall be nonbypassable.
125-18         Sec. 39.307.  TRUE-UP.  A financing order shall include a
125-19   mechanism requiring that transition charges be reviewed and
125-20   adjusted at least annually, within 45 days of the anniversary date
125-21   of the issuance of the transition bonds, to correct any
125-22   overcollections or undercollections of the preceding 12 months and
125-23   to ensure the expected recovery of amounts sufficient to timely
125-24   provide all payments of debt service and other required amounts and
125-25   charges in connection with the transition bonds.
125-26         Sec. 39.308.  TRUE SALE.  An agreement by an electric utility
125-27   or assignee to transfer transition property that expressly states
 126-1   that the transfer is a sale or other absolute transfer signifies
 126-2   that the transaction is a true sale and is not a secured
 126-3   transaction and that title, legal and equitable, has passed to the
 126-4   entity to which the transition property is transferred.  This true
 126-5   sale shall apply regardless of whether the purchaser has any
 126-6   recourse against the seller, or any other term of the parties'
 126-7   agreement, including the seller's retention of an equity interest
 126-8   in the transition property, the fact that the electric utility acts
 126-9   as the collector of transition charges relating to the transition
126-10   property, or the treatment of the transfer as a financing for tax,
126-11   financial reporting, or other purposes.
126-12         Sec. 39.309.  SECURITY INTERESTS; ASSIGNMENT; COMMINGLING;
126-13   DEFAULT.  (a)  Transition property does not constitute an account
126-14   or general intangible under Section 9.106, Business & Commerce
126-15   Code.  The creation, granting, perfection, and enforcement of liens
126-16   and security interests in transition property are governed by this
126-17   section and not by the Business & Commerce Code.
126-18         (b)  A valid and enforceable lien and security interest in
126-19   transition property may be created only by a financing order and
126-20   the execution and delivery of a security agreement with a financing
126-21   party in connection with the issuance of transition bonds.  The
126-22   lien and security interest shall attach automatically from the time
126-23   that value is received for the bonds and, on perfection through the
126-24   filing of notice with the secretary of state in accordance with the
126-25   rules prescribed under Subsection (d), shall be a continuously
126-26   perfected lien and security interest in the transition property and
126-27   all proceeds of the property, whether accrued or not, shall have
 127-1   priority in the order of filing and take precedence over any
 127-2   subsequent judicial or other lien creditor.  If notice is filed
 127-3   within 10 days after value is received for the transition bonds,
 127-4   the security interest shall be perfected retroactive to the date
 127-5   value was received, otherwise, the security interest shall be
 127-6   perfected as of the date of filing.
 127-7         (c)  Transfer of an interest in transition property to an
 127-8   assignee shall be perfected against all third parties, including
 127-9   subsequent judicial or other lien creditors, when the financing
127-10   order becomes effective, transfer documents have been delivered to
127-11   the assignee, and a notice of that transfer has been filed in
127-12   accordance with the rules prescribed under Subsection (d),
127-13   provided, however, that if notice of the transfer has not been
127-14   filed in accordance with this subsection within 10 days after the
127-15   delivery of transfer documentation, the transfer of the interest is
127-16   not perfected against third parties until the notice is filed.
127-17         (d)  The secretary of state shall implement this section by
127-18   establishing and maintaining a separate system of records for the
127-19   filing of notices under this section and prescribing the rules for
127-20   those filings based on Chapter 9, Business & Commerce Code, adapted
127-21   to this subchapter and using the terms defined in this subchapter.
127-22         (e)  The priority of a lien and security interest perfected
127-23   under this section is not impaired by any later modification of the
127-24   financing order under Section 39.307 or by the commingling of funds
127-25   arising from transition charges with other funds, and any other
127-26   security interest that may apply to those funds shall be terminated
127-27   when they are transferred to a segregated account for the assignee
 128-1   or a financing party.  If transition property has been transferred
 128-2   to an assignee, any proceeds of that property shall be held in
 128-3   trust for the assignee.
 128-4         (f)  If a default or termination occurs under the transition
 128-5   bonds, the financing parties or their representatives may foreclose
 128-6   on or otherwise enforce their lien and security interest in any
 128-7   transition property as if they were secured parties under Chapter
 128-8   9, Business & Commerce Code, and the commission may order that
 128-9   amounts arising from transition charges be transferred to a
128-10   separate account for the financing parties' benefit, to which their
128-11   lien and security interest shall apply.  On application by or on
128-12   behalf of the financing parties, a district court of Travis County
128-13   shall order the sequestration and payment to them of revenues
128-14   arising from the transition charges.
128-15         Sec. 39.310.  PLEDGE OF STATE.  Transition bonds are not a
128-16   debt or obligation of the state and are not a charge on its full
128-17   faith and credit or taxing power.  The state pledges, however, for
128-18   the benefit and protection of financing parties and the electric
128-19   utility, that it will not take or permit any action that would
128-20   impair the value of transition property, or, except as permitted by
128-21   Section 39.307, reduce, alter, or impair the transition charges to
128-22   be imposed, collected, and remitted to financing parties, until the
128-23   principal, interest and premium, and any other charges incurred and
128-24   contracts to be performed in connection with the related transition
128-25   bonds have been paid and performed in full.  Any party issuing
128-26   transition bonds is authorized to include this pledge in any
128-27   documentation relating to those bonds.
 129-1         Sec. 39.311.  TAX EXEMPTION.  Transactions involving the
 129-2   transfer and ownership of transition property and the receipt of
 129-3   transition charges are exempt from state and local income, sales,
 129-4   franchise, gross receipts, and other taxes or similar charges.
 129-5         Sec. 39.312.  NOT PUBLIC UTILITY.  An assignee or financing
 129-6   party may not be considered to be a public utility or person
 129-7   providing electric service solely by virtue of the transactions
 129-8   described in this subchapter.
 129-9         Sec. 39.313.  SEVERABILITY.  Effective on the date the first
129-10   utility transition bonds are issued under this subchapter, if any
129-11   provision in this title or portion of this title is held to be
129-12   invalid or is invalidated, superseded, replaced, repealed, or
129-13   expires for any reason, that occurrence does not affect the
129-14   validity or continuation of this subchapter, Section 39.201,
129-15   39.251, 39.252, or 39.262, or any part of those provisions, or any
129-16   other provision of this title that is relevant to the issuance,
129-17   administration, payment, retirement, or refunding of transition
129-18   bonds or to any actions of the electric utility, its successors, an
129-19   assignee, a collection agent, or a financing party, which shall
129-20   remain in full force and effect.
129-21             (Sections 39.314-39.350 reserved for expansion
129-22        SUBCHAPTER H.  CERTIFICATION AND REGISTRATION; PENALTIES
129-23         Sec. 39.351.  REGISTRATION OF POWER GENERATION COMPANIES.
129-24   (a)  A person may not generate electricity unless the person is
129-25   registered with the commission as a power generation company in
129-26   accordance with this section.  A person may register as a power
129-27   generation company by filing the following information with the
 130-1   commission:
 130-2               (1)  a description of the location of any facility used
 130-3   to generate electricity;
 130-4               (2)  a description of the type of services provided;
 130-5               (3)  a copy of any information filed with the Federal
 130-6   Energy Regulatory Commission in connection with registration with
 130-7   that commission; and
 130-8               (4)  any other information required by commission rule,
 130-9   provided that in requiring that information the commission shall
130-10   protect the competitive process in a manner that ensures the
130-11   confidentiality of competitively sensitive information.
130-12         (b)  A power generation company shall comply with the
130-13   reliability standards adopted by an independent organization
130-14   certified by the commission to ensure the reliability of the
130-15   regional electrical network for a power region in which the power
130-16   generation company is generating or selling electricity.
130-17         (c)  A power generation company may register any time after
130-18   September 1, 2000.
130-19         Sec. 39.352.  CERTIFICATION OF RETAIL ELECTRIC PROVIDERS.
130-20   (a)  After the date of customer choice, a person, including an
130-21   affiliate of an electric utility, may not provide retail electric
130-22   service in this state unless the person is certified by the
130-23   commission as a retail electric provider, in accordance with this
130-24   section.
130-25         (b)  The commission shall issue a certificate to provide
130-26   retail electric service to a person applying for certification who
130-27   demonstrates:
 131-1               (1)  the financial and technical resources to provide
 131-2   continuous and reliable electric service to customers in the area
 131-3   for which the certification is sought;
 131-4               (2)  the managerial and technical ability to supply
 131-5   electricity at retail in accordance with customer contracts;
 131-6               (3)  the resources needed to meet the customer
 131-7   protection requirements of this title; and
 131-8               (4)  ownership or lease of an office located within
 131-9   this state for the purpose of providing customer service, accepting
131-10   service of process, and making available in that office books and
131-11   records sufficient to establish the retail electric provider's
131-12   compliance with the requirements of this subchapter.
131-13         (c)  A person applying for certification under this section
131-14   shall comply with all applicable customer protection provisions,
131-15   disclosure requirements, and marketing guidelines established by
131-16   the commission and by this title.
131-17         (d)  Notwithstanding Subsections (b)(1)-(3), if a retail
131-18   electric provider files with the commission a signed, notarized
131-19   affidavit from each retail customer with which it has contracted to
131-20   provide one megawatt or more of capacity stating that the customer
131-21   is satisfied that the retail electric provider meets the standards
131-22   prescribed by Subsections (b)(1)-(3) and Subsection (c), the retail
131-23   electric provider shall be certified for purposes of serving those
131-24   customers only, so long as it demonstrates that it meets the
131-25   requirements of Subsection (b)(4).
131-26         (e)  A retail electric provider may apply for certification
131-27   any time after September 1, 2000.
 132-1         (f)  The commission shall use any information required in
 132-2   this section in a manner that ensures the confidentiality of
 132-3   competitively sensitive information.
 132-4         (g)  If a retail electric provider serves an aggregate load
 132-5   in excess of 300 megawatts within this state, not less than five
 132-6   percent of the load in megawatt hours must consist of residential
 132-7   customers.  This requirement applies to an affiliated retail
 132-8   electric provider only with respect to load served outside of the
 132-9   electric utility's service area, and, in relation to that load, the
132-10   affiliated retail electric provider shall meet the requirements of
132-11   this subsection by serving residential customers outside of the
132-12   electric utility's service area.  For the purpose of this
132-13   subsection, the load served by retail electric providers that are
132-14   under common ownership shall be combined.  A retail electric
132-15   provider may meet the requirements of this subsection by
132-16   demonstrating on an annual basis that it serves residential load
132-17   amounting to five percent of its total load, by demonstrating that
132-18   another retail electric provider serves sufficient qualifying
132-19   residential load on its behalf, or by paying an amount into the
132-20   system benefit fund equal to $1 multiplied by a number equal to the
132-21   difference between the number of megawatt hours it sold to
132-22   residential customers and the number of megawatt hours it was
132-23   required to sell to such customers, or in the case of an affiliated
132-24   retail electric provider, $1 multiplied by a number equal to the
132-25   difference between the number of megawatt hours sold to residential
132-26   customers outside of the electric utility's service area and the
132-27   number of megawatt hours it was required to sell to such customers
 133-1   outside of the electric utility's service area.  Qualifying
 133-2   residential load may not include customers served by an affiliated
 133-3   retail electric provider in its own service area.  Each retail
 133-4   electric provider shall file reports with the commission that are
 133-5   necessary to implement this subsection.  This subsection applies
 133-6   for 36 months after retail competition begins.  The commission
 133-7   shall adopt rules to implement this subsection.
 133-8         Sec. 39.353.  REGISTRATION OF AGGREGATORS.  (a)  A person may
 133-9   not provide aggregation services in the state unless the person is
133-10   registered with the commission as an aggregator.
133-11         (b)  In this subchapter, "aggregator" means a person joining
133-12   two or more customers, other than municipalities and political
133-13   subdivision corporations, into a single purchasing unit to
133-14   negotiate the purchase of electricity from retail electric
133-15   providers.  Aggregators may not sell or take title to electricity.
133-16   Retail electric providers are not aggregators.
133-17         (c)  A person registering under this section shall comply
133-18   with all customer protection provisions, all disclosure
133-19   requirements, and all marketing guidelines established by the
133-20   commission and by this title.
133-21         (d)  The commission shall establish terms and conditions it
133-22   determines necessary to regulate the reliability and integrity of
133-23   aggregators in the state by June 1, 2000.
133-24         (e)  An aggregator may register any time after September 1,
133-25   2000.
133-26         (f)  The commission shall have up to 60 days to process
133-27   applications for registration filed by aggregators.
 134-1         (g)  Registration is not required of a customer that is
 134-2   aggregating loads from its own location or facilities.
 134-3         Sec. 39.354.  REGISTRATION OF MUNICIPAL AGGREGATORS.  (a)  A
 134-4   municipal aggregator may not provide aggregation services in the
 134-5   state unless the municipal aggregator registers with the
 134-6   commission.
 134-7         (b)  In this section, "municipal aggregator" means a person
 134-8   authorized by two or more municipal governing bodies to join the
 134-9   bodies into a single purchasing unit to negotiate the purchase of
134-10   electricity from retail electric providers.
134-11         (c)  A municipal aggregator may register any time after
134-12   September 1, 2000.
134-13         Sec. 39.3545.  REGISTRATION OF POLITICAL SUBDIVISION
134-14   AGGREGATORS.  (a)  A political subdivision aggregator may not
134-15   provide aggregation services in the state unless the political
134-16   subdivision aggregator registers with the commission.
134-17         (b)  In this section, "political subdivision aggregator"
134-18   means a person or political subdivision corporation authorized by
134-19   two or more political subdivision governing bodies to join the
134-20   bodies into a single purchasing unit or multiple purchasing units
134-21   to negotiate the purchase of electricity from retail electric
134-22   providers for the facilities of the aggregated political
134-23   subdivisions.
134-24         (c)  A political subdivision aggregator may register any time
134-25   after September 1, 2000.
134-26         Sec. 39.355.  REGISTRATION OF POWER MARKETERS.  A person may
134-27   not sell electric energy at wholesale as a power marketer unless
 135-1   the person registers with the commission.
 135-2         Sec. 39.356.  REVOCATION OF CERTIFICATION.  (a)  The
 135-3   commission may suspend, revoke, or amend a retail electric
 135-4   provider's certificate for significant violations of this title or
 135-5   the rules adopted under this title or of any reliability standard
 135-6   adopted by an independent organization certified by the commission
 135-7   to ensure the reliability of a power region's electrical network,
 135-8   including the failure to observe any scheduling, operating,
 135-9   planning, reliability, or settlement protocols established by the
135-10   independent organization.  The commission may also suspend or
135-11   revoke a retail electric provider's certificate if the provider no
135-12   longer has the financial or technical capability to provide
135-13   continuous and reliable electric service.
135-14         (b)  The commission may suspend or revoke a power generation
135-15   company's registration for significant violations of this title or
135-16   the rules adopted under this title or of the reliability standards
135-17   adopted by an independent organization certified by the commission
135-18   to ensure the reliability of a power region's electrical network,
135-19   including the failure to observe any scheduling, operating,
135-20   planning, reliability, or settlement protocols established by the
135-21   independent organization.
135-22         (c)  The commission may suspend or revoke an aggregator's
135-23   registration for significant violations of this title or of the
135-24   rules adopted under this title.
135-25         Sec. 39.357.  ADMINISTRATIVE PENALTY.  In addition to the
135-26   suspension, revocation, or amendment of a certification, the
135-27   commission may impose an administrative penalty, as provided by
 136-1   Section 15.023, for violations described by Section 39.356.
 136-2         Sec. 39.358.  LOCAL REGISTRATION OF RETAIL ELECTRIC PROVIDER.
 136-3   (a)  A municipality may require a retail electric provider to
 136-4   register with the municipality as a condition of serving residents
 136-5   of the municipality.  The municipality may assess a reasonable
 136-6   administrative fee for this purpose.
 136-7         (b)  The municipality may suspend or revoke a retail electric
 136-8   provider's registration and operation in that municipality for
 136-9   significant violations of this chapter or the rules adopted under
136-10   this chapter.
136-11             (Sections 39.359-39.400 reserved for expansion
136-12        SUBCHAPTER I.  PROVISIONS FOR CERTAIN NON-ERCOT UTILITIES
136-13         Sec. 39.401.  APPLICABILITY.  This subchapter shall apply to
136-14   investor-owned electric utilities operating solely outside of ERCOT
136-15   having fewer than six synchronous interconnections with voltage
136-16   levels above 69 kilovolts systemwide on the effective date of this
136-17   subchapter.  This subchapter recognizes that circumstances exist
136-18   that require that areas served by such utilities be treated as
136-19   competitive development areas in which full retail customer choice
136-20   may develop on a more structured schedule than is anticipated for
136-21   the rest of the state.  If there are any conflicts between this
136-22   subchapter and any other provisions of this chapter, the provisions
136-23   of this subchapter shall control, but shall not be deemed to limit
136-24   or in any way restrict any provision of this title that governs
136-25   customer protection or quality or reliability of service.
136-26         Sec. 39.402.  TRANSITION TO COMPETITION PLAN.  All electric
136-27   utilities subject to this subchapter shall file a transition to
 137-1   competition plan with the commission not later than December 1,
 137-2   2000.  This transition to competition plan shall identify how
 137-3   utilities subject to this subchapter shall achieve full customer
 137-4   choice, including specific alternatives for constructing additional
 137-5   transmission facilities, auctioning rights to generation capacity,
 137-6   divesting generation capacity, or any other measure necessary for
 137-7   the electric utility to meet the requirements of Section 39.152(a)
 137-8   and that is consistent with the public interest.  The commission
 137-9   shall approve, modify, or reject a plan within 180 days after the
137-10   date of a filing under this section.  The transition to competition
137-11   plan may be updated or amended as circumstances change, subject to
137-12   commission approval.
137-13         Sec. 39.403.  UNBUNDLING.  Electric utilities subject to this
137-14   subchapter shall unbundle as required by Section 39.051.
137-15         Sec. 39.404.  RATE FREEZE.  Electric utilities subject to
137-16   this subchapter shall freeze their rates until January 1, 2002, as
137-17   required by Section 39.052.  The price to beat established pursuant
137-18   to Section 39.406 shall become effective January 1, 2002.  For
137-19   customer classes other than residential and small commercial
137-20   customers, an electric utility subject to this subchapter may not
137-21   charge rates that are higher than the rates that, on a bundled
137-22   basis, were in effect January 1, 1999, until the region qualifies
137-23   for competition or until rates are reset pursuant to Section
137-24   39.405(c).
137-25         Sec. 39.405.  PILOT PROJECT.  (a)  Electric utilities subject
137-26   to this subchapter shall undertake a pilot project as set forth in
137-27   Section 39.104.  As part of approving an electric utility's
 138-1   transition to competition plan pursuant to Section 39.402, the
 138-2   commission shall extend the duration of the pilot project beyond
 138-3   January 1, 2002, and expand the percentage of participation in the
 138-4   pilot project beyond the five percent level prescribed by Section
 138-5   39.104 based on the market conditions in the region and consistent
 138-6   with the level of competition that the region can support.  The
 138-7   commission shall review the pilot project as circumstances change
 138-8   and may adjust the percentage level of participation consistent
 138-9   with this subsection.
138-10         (b)  An electric utility subject to this subchapter shall
138-11   design any customer choice pilot project it undertakes pursuant to
138-12   Section 39.104 in such a manner that there is a proportional
138-13   participation between customers receiving service from the utility
138-14   located in a service area that is certificated solely to the
138-15   utility and those customers of the utility that are located in a
138-16   multiply certificated area.  The utility shall file reports
138-17   pursuant to this section with the commission to permit it to
138-18   monitor whether proportional participation is achieved.  Nothing in
138-19   this section requires a utility to design a pilot project to serve
138-20   in multiply certificated areas.
138-21         (c)  If any electric utility subject to this subchapter fails
138-22   to meet the requirements of Section 39.152(a), a proceeding under
138-23   Section 36.102 or 36.151 may be filed after January 1, 2006, to set
138-24   its rates effective one year after the date of the filing.
138-25         Sec. 39.406.  PRICE TO BEAT.  Electric utilities subject to
138-26   this subchapter shall include within their transition to
138-27   competition plans pursuant to Section 39.402 a provision to
 139-1   establish the price to beat under Section 39.202.  The commission
 139-2   may reduce rates by six percent consistent with Section 39.202(a)
 139-3   unless it determines that a lesser reduction is necessary and
 139-4   consistent with the capital requirements needed to develop the
 139-5   infrastructure necessary to facilitate competition among electric
 139-6   generators.
 139-7         Sec. 39.407.  RELEVANT MARKET AND RELATED MATTERS.  (a)  The
 139-8   commission shall certify that the requirements of Section
 139-9   39.152(a)(3) are met for electric utilities subject to this
139-10   subchapter, only upon a finding that the total capacity owned and
139-11   controlled by each such electric utility and its affiliates does
139-12   not exceed 20 percent of the total installed generation capacity
139-13   within the constrained geographic region served by each such
139-14   electric utility plus the total available transmission capacity
139-15   capable of delivering firm power and energy to that constrained
139-16   geographic region.
139-17         (b)  In the area of a power region served by an electric
139-18   utility subject to this subchapter, if customer choice is
139-19   introduced before the requirements of Section 39.152(a) are met, an
139-20   affiliated retail electric provider of an electric utility subject
139-21   to this subchapter may not compete for retail customers in any area
139-22   of the power region that is within this state and outside of the
139-23   affiliated transmission and distribution utility's certificated
139-24   service area unless the affiliated power generation company makes a
139-25   commitment to maintain and does maintain rates that are based on
139-26   cost of service for any electric cooperative or municipal utility
139-27   that was a wholesale customer on January 1, 1999, and was
 140-1   purchasing power at rates that were based on cost of service.  This
 140-2   subsection requires a power generation company to sell power at
 140-3   rates that are based on cost of service, notwithstanding the
 140-4   expiration of a contract for that service, until the requirements
 140-5   of Section 39.152(a) are met.
 140-6         (c)  If the requirements of Section 39.152(a) have not been
 140-7   met for an electric utility subject to this subchapter, then any
 140-8   power generation company in the power region affiliated with an
 140-9   electric utility subject to this subchapter shall maintain adequate
140-10   supply and facilities to provide electric service to persons who
140-11   were or would have been retail customers of the affiliated retail
140-12   electric provider on December 31, 2001.  The obligation provided by
140-13   this subsection remains in effect until the commission determines
140-14   that the requirements of Section 39.152(a) have been met for the
140-15   region.
140-16         Sec. 39.408.  USE OF REVENUES FOR UTILITIES WITH NO STRANDED
140-17   COSTS.  In addition to the permitted uses for any positive
140-18   difference under the report required by Section 39.257(b) set forth
140-19   in Section 39.255, during the freeze period ending December 31,
140-20   2001, electric utilities subject to this subchapter may request,
140-21   subject to approval by the commission, to use such positive
140-22   differences to accelerate the amortization of their regulatory
140-23   assets.
140-24             (Sections 39.409-39.900 reserved for expansion
140-25                 SUBCHAPTER Z.  MISCELLANEOUS PROVISIONS
140-26         Sec. 39.901.  SCHOOL FUNDING LOSS MECHANISM.  (a)  Not later
140-27   than March 1 each year, the comptroller shall certify to the Texas
 141-1   Education Agency any property wealth reductions, determined by
 141-2   taking the difference between current year and prior year appraisal
 141-3   values attributable to electric utility restructuring.
 141-4         (b)  The Texas Education Agency shall determine the reduction
 141-5   of the amount of property taxes recaptured by the state from school
 141-6   districts subject to wealth equalization under Chapter 41,
 141-7   Education Code, as a result of the property wealth reductions
 141-8   certified under Subsection (a) and shall notify the commission of
 141-9   the amount necessary to compensate the state for the reduction.
141-10         (c)  The Texas Education Agency shall determine the amount
141-11   necessary to compensate school districts for lost revenue resulting
141-12   from the property wealth reductions under Subsection (a) and shall
141-13   notify the commission of this amount.  The amounts necessary to
141-14   compensate districts shall be the sum of:
141-15               (1)  decreases in the level of funding to which a
141-16   school district is entitled under Chapters 42 and 46, Education
141-17   Code, that are directly attributable to the decline in property
141-18   values caused by utility restructuring; and
141-19               (2)  losses of property tax collections incurred by
141-20   school districts that are directly attributable to property value
141-21   declines caused by utility restructuring and that are not accounted
141-22   for under Subdivision (1), including amounts that a school district
141-23   would be entitled to retain under Chapter 41, Education Code.
141-24         (d)  The amounts determined by the comptroller and the Texas
141-25   Education Agency under this section, for the purposes of this
141-26   section, are final and may not be appealed.
141-27         (e)  Not later than May 1 of each year, the commission shall
 142-1   transfer from the system benefit fund to the foundation school fund
 142-2   the amounts determined by the Texas Education Agency under
 142-3   Subsections (b) and (c).  If in any year the system benefit fund is
 142-4   insufficient to make the transfer designated by the Texas Education
 142-5   Agency, the shortfall shall be included in the projected revenue
 142-6   requirement for the system benefit fund the next time the
 142-7   commission sets the fee under Section 39.903, and the shortfall
 142-8   amount shall be transferred to the Foundation School Program the
 142-9   following year.  Amounts transferred from the system benefit fund
142-10   under this section may be appropriated only for the support of the
142-11   Foundation School Program and are available, in addition to any
142-12   amounts allocated by the General Appropriations Act, to finance
142-13   actions under Section 41.002(b) or 42.252(e), Education Code.
142-14         (f)  The Texas Education Agency shall, on the transfer of
142-15   funds from the system benefit fund to the foundation school fund,
142-16   compensate school districts for losses incurred under Subsection
142-17   (c).
142-18         (g)  The commissioner of education and the comptroller shall
142-19   adopt rules necessary to implement this section, including rules
142-20   providing for public input.
142-21         (h)  This section is effective through the 2006-2007 school
142-22   year.  This section expires August 31, 2007.
142-23         Sec. 39.902.  CUSTOMER EDUCATION.  (a)  On or before January
142-24   1, 2001, the commission shall develop and implement an educational
142-25   program to inform customers, including low-income and
142-26   non-English-speaking customers, about changes in the provision of
142-27   electric service resulting from the opening of the retail electric
 143-1   market and the customer choice pilot program under this chapter.
 143-2   The educational program shall be neutral and nonpromotional and
 143-3   shall provide customers with the information necessary to make
 143-4   informed decisions relating to the source and type of electric
 143-5   service available for purchase and other information the commission
 143-6   considers necessary.  The educational program may not be targeted
 143-7   to areas served by municipally owned utilities or electric
 143-8   cooperatives that have not adopted customer choice.  In planning
 143-9   and implementing this program, the commission shall consult with
143-10   the office, with the Texas Department of Housing and Community
143-11   Affairs, and with customers of and providers of retail electric
143-12   service.  The commission may enter into contracts for professional
143-13   services to carry out the customer education program.
143-14         (b)  The commission shall report on the status of the
143-15   educational program, developed and implemented as provided by
143-16   Subsection (a), to the electric utility restructuring legislative
143-17   oversight committee on or before December 1, 2001.
143-18         (c)  After the opening of the retail electric market, the
143-19   commission shall conduct ongoing customer education designed to
143-20   help customers make informed choices of electric services and
143-21   retail electric providers.  As part of ongoing education, the
143-22   commission may provide customers information concerning specific
143-23   retail electric providers, including instances of complaints
143-24   against them and records relating to quality of customer service.
143-25         Sec. 39.903.  SYSTEM BENEFIT FUND.  (a)  The commission shall
143-26   establish the system benefit fund.
143-27         (b)  The system benefit fund is financed by a nonbypassable
 144-1   fee set by the commission in an amount not to exceed 50 cents per
 144-2   megawatt hour, provided that, in any year, the sum of the revenue
 144-3   collected through the nonbypassable fee and any retained surplus in
 144-4   the system benefit fund may not exceed 125 percent of the projected
 144-5   revenue requirements for the fund.
 144-6         (c)  The nonbypassable fee may not be imposed on the retail
 144-7   electric customers of a municipally owned utility or electric
 144-8   cooperative before the sixth month preceding the date on which the
 144-9   utility or cooperative implements customer choice.  On request by a
144-10   municipally owned utility or electric cooperative, the commission
144-11   shall reduce the nonbypassable fee imposed on retail electric
144-12   customers served by the municipally owned utility or electric
144-13   cooperative by an amount equal to the amount provided by the
144-14   municipally owned utility or electric cooperative or its ratepayers
144-15   for local low-income programs and local programs that educate
144-16   customers about the retail electric market in a neutral and
144-17   nonpromotional manner.
144-18         (d)  Not later than March 1 of each year, the commission
144-19   shall review and approve system benefit fund accounts, projected
144-20   revenue requirements, and proposed nonbypassable fees.
144-21         (e)  The system benefit fund shall provide funding solely for
144-22   the following regulatory purposes:
144-23               (1)  customer education programs;
144-24               (2)  programs to assist low-income electric customers
144-25   provided by Subsections (f)-(k); and
144-26               (3)  the school funding loss mechanism provided by
144-27   Section 39.901.
 145-1         (f)  Notwithstanding Section 39.106(b), the commission shall
 145-2   adopt rules regarding programs to assist low-income electric
 145-3   customers.  The programs may not be targeted to areas served by
 145-4   municipally owned utilities or electric cooperatives that have not
 145-5   adopted customer choice.  The programs shall include:
 145-6               (1)  reduced electric rates as provided by Subsections
 145-7   (g)-(k); and
 145-8               (2)  targeted energy efficiency programs to be
 145-9   administered by the Texas Department of Housing and Community
145-10   Affairs in coordination with existing weatherization programs.
145-11         (g)  Until January 1, 2002, an electric utility may not
145-12   reduce, in any manner, programs already offered to assist
145-13   low-income electric customers.
145-14         (h)  Following the introduction of customer choice, the
145-15   commission shall adopt rules to determine a reduced rate to be
145-16   discounted off the standard retail service package as approved by
145-17   the commission under Section 39.106, or the price to beat
145-18   established by Section 39.202, whichever is lower.
145-19         (i)  The commission may provide for a reduced rate:
145-20               (1)  during periods when severe weather occurs or is
145-21   likely to occur; or
145-22               (2)  for customers living in all-electric dwelling
145-23   units or who depend on electrically operated medical equipment.
145-24         (j)  A retail electric provider not subject to the price to
145-25   beat shall be reimbursed for the difference between the reduced
145-26   rate and the rate established under Section 39.106.  A retail
145-27   electric provider who is subject to the price to beat shall be
 146-1   reimbursed for the difference between the reduced rate and the
 146-2   price to beat.
 146-3         (k)  A retail electric provider is prohibited from charging
 146-4   the customer a fee for participation in the reduced rate program.
 146-5         (l)  For the purposes of this section, a "low-income electric
 146-6   customer" is an electric customer who is a qualifying low-income
 146-7   consumer as defined by the commission.
 146-8         Sec. 39.904.  GOAL FOR RENEWABLE ENERGY.  (a)  It is the
 146-9   intent of the legislature that by January 1, 2009, an additional
146-10   2,000 megawatts of generating capacity from renewable technologies
146-11   will have been installed in this state.  The cumulative installed
146-12   renewable capacity in this state shall total 1,280 megawatts by
146-13   January 1, 2003, 1,730 megawatts by January 1, 2005, 2,280
146-14   megawatts by January 1, 2007, and 2,880 megawatts by January 1,
146-15   2009.
146-16         (b)  The commission shall establish a renewable energy
146-17   credits trading program.  Any retail electric provider, municipally
146-18   owned utility, or electric cooperative that does not satisfy the
146-19   requirements of Subsection (a) by directly owning or purchasing
146-20   capacity using renewable energy technologies shall purchase
146-21   sufficient renewable energy credits to satisfy the requirements by
146-22   holding renewable energy credits in lieu of capacity from renewable
146-23   energy technologies.
146-24         (c)  Not later than January 1, 2000, the commission shall
146-25   adopt rules necessary to administer and enforce this section.  At a
146-26   minimum, the rules shall:
146-27               (1)  establish the minimum annual renewable energy
 147-1   requirement for each retail electric provider, municipally owned
 147-2   utility, and electric cooperative operating in this state in a
 147-3   manner reasonably calculated by the commission to produce, on a
 147-4   statewide basis, compliance with the requirement prescribed by
 147-5   Subsection (a); and
 147-6               (2)  specify reasonable performance standards that all
 147-7   renewable capacity additions must meet to count against the
 147-8   requirement prescribed by Subsection (a)  and that:
 147-9                     (A)  are designed and operated so as to maximize
147-10   the energy output from the capacity additions in accordance with
147-11   then-current industry standards; and
147-12                     (B)  encourage the development, construction, and
147-13   operation of new renewable energy projects at those sites in this
147-14   state that have the greatest economic potential for capture and
147-15   development of this state's environmentally beneficial renewable
147-16   resources.
147-17         (d)  In this section, "renewable energy technology" means any
147-18   technology that exclusively relies on an energy source that is
147-19   naturally regenerated over a short time and derived directly from
147-20   the sun, indirectly from the sun, or from moving water or other
147-21   natural movements and mechanisms of the environment.  Renewable
147-22   energy technologies include those that rely on energy derived
147-23   directly from the sun, on wind, geothermal, hydroelectric, wave, or
147-24   tidal energy, or on biomass or biomass-based waste products,
147-25   including landfill gas.  A renewable energy technology does not
147-26   rely on energy resources derived from fossil fuels, waste products
147-27   from fossil fuels, or waste products from inorganic sources.
 148-1         (e)  A municipally owned utility operating a gas distribution
 148-2   system may credit toward satisfaction of the requirements of this
 148-3   section any production or acquisition of landfill gas supplied to
 148-4   the gas distribution system, based on conversion to kilowatt hours
 148-5   of the thermal energy content in British thermal units of the
 148-6   renewable source and using for the conversion factor the annual
 148-7   heat rate of the most efficient gas-fired unit of the combined
 148-8   utility's electric system as measured in British thermal units per
 148-9   kilowatt hour and using the British thermal unit measurement based
148-10   on the higher heating value measurement.
148-11         Sec. 39.9044.  GOAL FOR NATURAL GAS.  (a)  It is the intent
148-12   of the legislature that 50 percent of the megawatts of generating
148-13   capacity installed in this state after January 1, 2000, use natural
148-14   gas. To the extent permitted by law, the commission shall establish
148-15   a program to encourage utilities to comply with this section by
148-16   using natural gas produced in this state as the preferential fuel.
148-17   This section does not apply to generating capacity for renewable
148-18   technologies.
148-19         (b)  The commission shall establish a natural gas energy
148-20   credits trading program.  Any power generation company, municipally
148-21   owned utility, or electric cooperative that does not satisfy the
148-22   requirements of Subsection (a) by directly owning or purchasing
148-23   capacity using natural gas technologies shall purchase sufficient
148-24   natural gas energy credits to satisfy the requirements by holding
148-25   natural gas energy credits in lieu of capacity from natural gas
148-26   energy technologies.
148-27         (c)  Not later than January 1, 2000, the commission shall
 149-1   adopt rules necessary to administer and enforce this section and to
 149-2   perform any necessary studies in cooperation with the Railroad
 149-3   Commission of Texas.  At a minimum, the rules shall:
 149-4               (1)  establish the minimum annual natural gas
 149-5   generation requirement for each power generation company,
 149-6   municipally owned utility, and electric cooperative operating in
 149-7   this state in a manner reasonably calculated by the commission to
 149-8   produce, on a statewide basis, compliance with the requirement
 149-9   prescribed by Subsection (a); and
149-10               (2)  specify reasonable performance standards that all
149-11   natural gas capacity additions must meet to count against the
149-12   requirement prescribed by Subsection (a) and that:
149-13                     (A)  are designed and operated so as to maximize
149-14   the energy output from the capacity additions in accordance with
149-15   then-current industry standards and best industry standards; and
149-16                     (B)  encourage the development, construction, and
149-17   operation of new natural gas energy projects at those sites in this
149-18   state that have the greatest economic potential for capture and
149-19   development of this state's environmentally beneficial natural gas
149-20   resources.
149-21         (d)  The commission, with the assistance of the Railroad
149-22   Commission of Texas, shall adopt rules allowing and encouraging
149-23   retail electric providers and municipally owned utilities and
149-24   electric cooperatives that have adopted customer choice to market
149-25   electricity generated using natural gas produced in this state as
149-26   environmentally beneficial.  The rules shall allow a provider,
149-27   municipally owned utility, or cooperative to:
 150-1               (1)  emphasize that natural gas produced in this state
 150-2   is the cleanest-burning fossil fuel; and
 150-3               (2)  label the electricity generated using natural gas
 150-4   produced in this state as "green" electricity.
 150-5         (e)  In this section, "natural gas technology" means any
 150-6   technology that exclusively relies on natural gas as a primary fuel
 150-7   source.
 150-8         Sec. 39.9048.  NATURAL GAS FUEL.  It is the intent of the
 150-9   legislature that:
150-10               (1)  the cost of generating electricity remain as low
150-11   as possible;
150-12               (2)  the state establish and publicize a program to
150-13   keep the costs of fuel, such as natural gas, used for generating
150-14   electricity low; and
150-15               (3)  as part of the program relating to natural gas
150-16   established under Subdivision (1), the commission work with the
150-17   comptroller in implementing, administering, and publicizing the tax
150-18   refunds and credits provided by Sections 191.0825 and 201.059, Tax
150-19   Code.
150-20         Sec. 39.905.  GOAL FOR ENERGY EFFICIENCY.  (a)  It is the
150-21   intent of the legislature that:
150-22               (1)  electric utilities administer customer information
150-23   and energy savings incentive programs in a market-neutral,
150-24   nondiscriminatory manner, but not offer underlying competitive
150-25   services;
150-26               (2)  all customers, in all customer classes, have a
150-27   choice of and access to energy efficiency alternatives and other
 151-1   choices from the market that allows each customer to reduce energy
 151-2   consumption and reduce energy costs;
 151-3               (3)  electric utilities be allowed to offer loans at
 151-4   below-market interest rates for energy efficiency investments,
 151-5   other energy efficiency market transformation programs that result
 151-6   in below-market cost to the customer, and grants and other special
 151-7   programs to address the needs of small businesses, tenants,
 151-8   low-income consumers, and other customer groups not served by
 151-9   market-based incentive programs; and
151-10               (4)  electric utilities acquire, through market-based
151-11   standard offer programs or limited targeted market transformation
151-12   programs, additional cost-effective energy efficiency equivalent to
151-13   at least 25 percent of each year's annual growth in demand.
151-14         (b)  The commission shall provide oversight and adopt rules,
151-15   procedures, and penalties, as necessary, to ensure that the intent
151-16   of this section is achieved.
151-17         Sec. 39.906.  DISPLACED WORKERS.  In order to mitigate
151-18   potential negative impacts on utility personnel directly affected
151-19   by electric industry restructuring, the commission shall allow the
151-20   recovery of reasonable employee related transition costs incurred
151-21   and projected for severance, retraining, early retirement,
151-22   outplacement, and related expenses for the employees.
151-23         Sec. 39.907.  LEGISLATIVE OVERSIGHT COMMITTEE.  (a)  In this
151-24   section, "committee" means the electric utility restructuring
151-25   legislative oversight committee.
151-26         (b)  The committee is composed of six members as follows:
151-27               (1)  the chair of the Senate Committee on Economic
 152-1   Development and the chair of the House Committee on State Affairs,
 152-2   who shall serve as joint chairs of the committee;
 152-3               (2)  two members of the senate appointed by the
 152-4   lieutenant governor; and
 152-5               (3)  two members of the house of representatives
 152-6   appointed by the speaker of the house of representatives.
 152-7         (c)  An appointed member of the committee serves at the
 152-8   pleasure of the appointing official.
 152-9         (d)  The committee is subject to Chapter 325, Government Code
152-10   (Texas Sunset Act).  Unless continued in existence as provided by
152-11   that chapter, the committee is abolished September 1, 2005.
152-12         (e)  The committee shall:
152-13               (1)  meet at least annually with the commission;
152-14               (2)  receive information about rules relating to
152-15   electric utility restructuring proposed by the commission and may
152-16   submit comments to the commission on those proposed rules;
152-17               (3)  review recommendations for legislation proposed by
152-18   the commission; and
152-19               (4)  monitor the effectiveness of electric utility
152-20   restructuring, including the fairness of rates, the reliability of
152-21   service, and the effect of stranded costs, market power, and
152-22   regulation on the normal forces of competition.
152-23         (f)  The committee may request reports and other information
152-24   from the commission as necessary to carry out this section.
152-25         (g)  Not later than November 15 of each even-numbered year,
152-26   the committee shall report to the governor, lieutenant governor,
152-27   and speaker of the house of representatives on the committee's
 153-1   activities under Subsection (e).  The report shall include:
 153-2               (1)  an analysis of any problems caused by electric
 153-3   utility restructuring; and
 153-4               (2)  recommendations of any legislative action
 153-5   necessary to address those problems and to further retail
 153-6   competition within the electric power industry.
 153-7         Sec. 39.908.  EFFECT OF SUNSET PROVISION.  (a)  If the
 153-8   commission is abolished and the other provisions of this title
 153-9   expire as provided by Chapter 325, Government Code (Texas Sunset
153-10   Act), this subchapter, including the provisions of this title
153-11   referred to in this subchapter, continues in full force and effect
153-12   and does not expire.
153-13         (b)  The authorities, duties, and functions of the commission
153-14   under this chapter shall be performed and carried out by a
153-15   successor agency to be designated by the legislature before
153-16   abolishment of the commission or, if the legislature does not
153-17   designate the successor, by the secretary of state.
153-18        CHAPTER 40.  COMPETITION FOR MUNICIPALLY OWNED UTILITIES
153-19                          AND RIVER AUTHORITIES
153-20                    SUBCHAPTER A.  GENERAL PROVISIONS
153-21         Sec. 40.001.  APPLICABLE LAW.  (a)  Notwithstanding any other
153-22   provision of law, except Sections 39.155, 39.157(e), 39.203,
153-23   39.903, and 39.904, this chapter governs the transition to and the
153-24   establishment of a fully competitive electric power industry for
153-25   municipally owned utilities.  With respect to the regulation of
153-26   municipally owned utilities, this chapter controls over any other
153-27   provision of this title, except for sections in which the term
 154-1   "municipally owned utility" is specifically used.
 154-2         (b)  Except as specifically provided in this subsection,
 154-3   Chapter 39 does not apply to a river authority operating a steam
 154-4   generating plant on or before January 1, 1999, or a corporation
 154-5   authorized by Chapter 245, Acts of the 67th Legislature, Regular
 154-6   Session, 1981 (Article 717p, Vernon's Texas Civil Statutes), or
 154-7   Section 32.053.  A river authority operating a steam generating
 154-8   plant on or before January 1, 1999, is subject to Sections
 154-9   39.051(a)-(c), 39.108, 39.155, 39.157(e), and 39.203.
154-10         (c)  For purposes of Section 39.051, hydroelectric assets may
154-11   not be deemed to be generating assets, and the transfer of
154-12   generating assets to a corporation authorized by Chapter 245, Acts
154-13   of the 67th Legislature, Regular Session, 1981 (Article 717p,
154-14   Vernon's Texas Civil Statutes), satisfies the requirements of
154-15   Section 39.051.
154-16         (d)  Accommodation shall be made in the code of conduct
154-17   established under Section 39.157(e) for the provisions of Chapter
154-18   245, Acts of the 67th Legislature, Regular Session, 1981 (Article
154-19   717p, Vernon's Texas Civil Statutes), and the commission may not
154-20   prohibit a river authority and any related corporation from sharing
154-21   officers, directors, employees, equipment, and facilities or from
154-22   providing goods or services to each other at cost without the need
154-23   for a competitive bid.
154-24         Sec. 40.002.  DEFINITION.  For purposes of this chapter,
154-25   "body vested with the power to manage and operate a municipally
154-26   owned utility" shall mean a body created in accordance with Article
154-27   1115 or 1115a, Revised Statutes, or by municipal charter.
 155-1         Sec. 40.003.  SECURITIZATION.  (a)  Municipally owned
 155-2   utilities and river authorities may adopt and use securitization
 155-3   provisions having the effect of the provisions provided by
 155-4   Subchapter G, Chapter 39, to recover through appropriate charges
 155-5   their stranded costs, at a recovery level deemed appropriate by the
 155-6   municipally owned utility or river authority up to 100 percent,
 155-7   under rules and procedures that shall be established:
 155-8               (1)  in the case of a municipally owned utility, by the
 155-9   municipal governing body or a body vested with the power to manage
155-10   and operate the municipally owned utility, including procedures
155-11   providing for rate orders of the governing body having the effect
155-12   of financing orders, providing for a separate nonbypassable charge
155-13   approved by the governing body, in the nature of a transition
155-14   charge, to be collected from all retail electric customers of the
155-15   municipally owned utility, identified as of a date determined by
155-16   the governing body, to fund the recovery of the stranded costs of
155-17   the municipally owned utility and of all reasonable related
155-18   expenses, as determined by the governing body, and providing for
155-19   the issuance of bonds, having a term and other characteristics as
155-20   determined by the governing body, as necessary to recover the
155-21   amount deemed appropriate by the governing body through
155-22   securitization financing; and
155-23               (2)  in the case of a river authority, by the
155-24   commission.
155-25         (b)  In order to implement securitization financing under the
155-26   rules and procedures established by and for a municipally owned
155-27   utility under Subsection (a)(1), municipalities are expressly
 156-1   authorized and empowered to issue bonds, notes, or other
 156-2   obligations, including refunding bonds, payable from and secured by
 156-3   a lien on and pledge of the revenues collected under an order of
 156-4   the governing body of the municipality, and the bonds shall be
 156-5   issued, without an election or any requirement of giving notice of
 156-6   intent to issue the bonds, by ordinance adopted by the governing
 156-7   body of the municipality, in the form and manner and sold on a
 156-8   negotiated basis or on receipt of bids and on the terms and
 156-9   conditions as shall be determined by the governing body of the
156-10   municipality.
156-11         (c)  Bonds issued under the authority conferred by
156-12   Subsections (a)(1) and (2) and Subsection (b) may be issued in the
156-13   form and manner, with or without credit enhancement or liquidity
156-14   enhancement and using the procedures as provided in the Bond
156-15   Procedures Act of 1981 (Article 717k-6, Vernon's Texas Civil
156-16   Statutes) or other laws applicable to the issuance of bonds,
156-17   including Chapter 656, Acts of the 68th Legislature, Regular
156-18   Session, 1983 (Article 717q, Vernon's Texas Civil Statutes),
156-19   Chapter 503, Acts of the 54th Legislature, Regular Session, 1955
156-20   (Article 717k, Vernon's Texas Civil Statutes), and Chapter 642,
156-21   Acts of the 65th Legislature, Regular Session, 1977 (Article
156-22   1118n-12, Vernon's Texas Civil Statutes) as if those laws were
156-23   fully restated in this section and made a part of this section for
156-24   all purposes, and a municipality or river authority shall have the
156-25   right and authority to use those other laws, notwithstanding any
156-26   applicable restrictions contained in those laws, to the extent
156-27   convenient or necessary to carry out any power or authority,
 157-1   express or implied, granted under this section, in the issuance of
 157-2   bonds by a municipality or river authority in connection with
 157-3   securitization financing.  This section is wholly sufficient
 157-4   authority for the issuance of bonds, notes, or other obligations,
 157-5   including refunding bonds, and the performance of the other
 157-6   authorized acts and procedures, without reference to any other laws
 157-7   or any restrictions or limitations contained in those laws.  To the
 157-8   extent of any conflict or inconsistency between the provisions of
 157-9   this authorization and any provisions of any other law or home-rule
157-10   charter, the authorization and power to issue bonds conferred on
157-11   municipalities or river authorities under this section shall
157-12   prevail and control.
157-13         (d)  The rules and procedures for securitization established
157-14   by the commission under Subsection (a)(2) shall include procedures
157-15   for the recovery of qualified costs under the terms of a financing
157-16   order adopted by the governing body of the river authority.
157-17         (e)  The rules and procedures for securitization established
157-18   by the commission under Subsection (a)(2) shall include rules and
157-19   procedures for the issuance of transition bonds.  Findings made by
157-20   the governing body of a river authority in a financing order issued
157-21   under the rules and procedures described in this subsection shall
157-22   be conclusive, and any nonbypassable transition charge incorporated
157-23   in the rate order to recover the principal, interest, and all
157-24   reasonable expenses associated with any transition bonds shall
157-25   constitute property rights, as described in Subchapter G, Chapter
157-26   39, and otherwise conform in all material respects to the
157-27   nonbypassable transition charges provided by Subchapter G, Chapter
 158-1   39.
 158-2         (f)  The rules and procedures established under this section
 158-3   shall be consistent with other law applicable to municipally owned
 158-4   utilities and river authorities and with the terms of any
 158-5   resolutions, orders, charter provisions, or ordinances authorizing
 158-6   outstanding bonds or other indebtedness of the municipalities or
 158-7   river authorities.
 158-8         Sec. 40.004.  JURISDICTION OF COMMISSION.  Except as
 158-9   specifically otherwise provided in this chapter, the commission has
158-10   jurisdiction over municipally owned utilities only for the
158-11   following purposes:
158-12               (1)  to regulate wholesale transmission rates and
158-13   service, including terms of access, to the extent provided by
158-14   Subchapter A, Chapter 35;
158-15               (2)  to regulate certification of retail service areas
158-16   to the extent provided by Chapter 37;
158-17               (3)  to regulate rates on appeal under Subchapters D
158-18   and E, Chapter 33, subject to Section 40.051(c);
158-19               (4)  to establish a code of conduct as provided by
158-20   Section 39.157(e) applicable to anticompetitive activities and to
158-21   affiliate activities limited to structurally unbundled affiliates
158-22   of municipally owned utilities, subject to Section 40.054;
158-23               (5)  to establish terms and conditions for open access
158-24   to transmission and distribution facilities for municipally owned
158-25   utilities providing customer choice, as provided by Section 39.203;
158-26               (6)  to require collection of the nonbypassable fee
158-27   established under Section 39.903(b) and to administer the renewable
 159-1   energy credits program under Section 39.904(b); and
 159-2               (7)  to require reports of municipally owned utility
 159-3   operations only to the extent necessary to:
 159-4                     (A)  enable the commission to determine the
 159-5   aggregate load and energy requirements of the state and the
 159-6   resources available to serve that load; or
 159-7                     (B)  enable the commission to determine
 159-8   information relating to market power as provided by Section 39.155.
 159-9             (Sections 40.005-40.050 reserved for expansion
159-10             SUBCHAPTER B.  MUNICIPALLY OWNED UTILITY CHOICE
159-11         Sec. 40.051.  GOVERNING BODY DECISION.  (a)  The municipal
159-12   governing body or a body vested with the power to manage and
159-13   operate a municipally owned utility has the discretion to decide
159-14   when or if the municipally owned utility will provide customer
159-15   choice.
159-16         (b)  Municipally owned utilities may choose to participate in
159-17   customer choice at any time on or after January 1, 2002, by
159-18   adoption of an appropriate resolution of the municipal governing
159-19   body or a body vested with power to manage and operate the
159-20   municipally owned utility.  The decision to participate in customer
159-21   choice by the adoption of a resolution is irrevocable.
159-22         (c)  After a decision to offer customer choice has been made,
159-23   Subchapters D and E, Chapter 33, do not apply to any action taken
159-24   under this chapter.
159-25         Sec. 40.052.  UTILITY NOT OFFERING CUSTOMER CHOICE.  (a)  A
159-26   municipally owned utility that has not chosen to participate in
159-27   customer choice may not offer electric energy at unregulated prices
 160-1   directly to retail customers outside its certificated retail
 160-2   service area.
 160-3         (b)  A municipally owned utility under Subsection (a) retains
 160-4   the right to offer and provide a full range of customer service and
 160-5   pricing programs to the customers within its certificated area and
 160-6   to purchase and sell electric energy at wholesale without
 160-7   geographic restriction.
 160-8         Sec. 40.053.  RETAIL CUSTOMER'S RIGHT OF CHOICE.  (a)  If a
 160-9   municipally owned utility chooses to participate in customer
160-10   choice, after that choice all retail customers served by the
160-11   municipally owned utility within the certificated retail service
160-12   area of the municipally owned utility shall have the right of
160-13   customer choice consistent with the provisions of this chapter, and
160-14   the municipally owned utility shall provide open access for retail
160-15   service.
160-16         (b)  Notwithstanding Section 39.107, the metering function
160-17   may not be deemed a competitive service for customers of the
160-18   municipally owned utility within that service area and may, at the
160-19   option of the municipally owned utility, continue to be offered by
160-20   the municipally owned utility as sole provider.
160-21         (c)  On its initiation of customer choice, a municipally
160-22   owned utility shall designate itself or another entity as the
160-23   provider of last resort for customers within the municipally owned
160-24   utility's certificated service area as that area existed on the
160-25   date of the utility's initiation of customer choice.  The
160-26   municipally owned utility shall fulfill the role of default
160-27   provider of last resort in the event no other entity is available
 161-1   to act in that capacity.
 161-2         (d)  If a customer is unable to obtain service from a retail
 161-3   electric provider, on request by the customer, the provider of last
 161-4   resort shall offer the customer the standard retail service package
 161-5   for the appropriate customer class, with no interruption of
 161-6   service, at a fixed, nondiscountable rate that is at least
 161-7   sufficient to cover the reasonable costs of providing that service,
 161-8   as approved by the governing body of the municipally owned utility
 161-9   that has the authority to set rates.
161-10         (e)  The governing body of a municipally owned utility may
161-11   establish the procedures and criteria for designating the provider
161-12   of last resort and may redesignate the provider of last resort
161-13   according to a schedule it considers appropriate.
161-14         Sec. 40.054.  SERVICE OUTSIDE AREA.  (a)  A municipally owned
161-15   utility participating in customer choice shall have the right to
161-16   offer electric energy and related services at unregulated prices
161-17   directly to retail customers who have customer choice without
161-18   regard to geographic location.
161-19         (b)  In providing service under Subsection (a) to retail
161-20   customers outside its certificated retail service area as that area
161-21   exists on the date of adoption of customer choice, a municipally
161-22   owned utility is subject to the commission's rules establishing a
161-23   code of conduct regulating anticompetitive practices.
161-24         (c)  For municipally owned utilities participating in
161-25   customer choice, the commission shall have jurisdiction to
161-26   establish terms and conditions, but not rates, for access by other
161-27   retail electric providers to the municipally owned utility's
 162-1   distribution facilities.
 162-2         (d)  Accommodation shall be made in the commission's terms
 162-3   and conditions for access and in the code of conduct for specific
 162-4   legal requirements imposed by state or federal law applicable to
 162-5   municipally owned utilities.
 162-6         (e)  The commission does not have jurisdiction to require
 162-7   unbundling of services or functions of, or to regulate the recovery
 162-8   of stranded investment of, a municipally owned utility or, except
 162-9   as provided by this section, jurisdiction with respect to the
162-10   rates, terms, and conditions of service for retail customers of a
162-11   municipally owned utility within the utility's certificated service
162-12   area.
162-13         (f)  A municipally owned utility shall maintain separate
162-14   books and records of its operations from those of the operations of
162-15   any affiliate.
162-16         Sec. 40.055.  JURISDICTION OF MUNICIPAL GOVERNING BODY.  (a)
162-17   The municipal governing body or a body vested with the power to
162-18   manage and operate a municipally owned utility has exclusive
162-19   jurisdiction to:
162-20               (1)  set all terms of access, conditions, and rates
162-21   applicable to services provided by the municipally owned utility,
162-22   subject to Sections 40.054 and 40.056, including nondiscriminatory
162-23   and comparable rates for distribution but excluding wholesale
162-24   transmission rates, terms of access, and conditions for wholesale
162-25   transmission service set by the commission under this subtitle,
162-26   provided that the rates for distribution access established by the
162-27   municipal governing body shall be comparable to the distribution
 163-1   access rates that apply to the municipally owned utility and the
 163-2   municipally owned utility's affiliates;
 163-3               (2)  determine whether to unbundle any energy-related
 163-4   activities and, if the municipally owned utility chooses to
 163-5   unbundle, whether to do so structurally or functionally;
 163-6               (3)  reasonably determine the amount of the municipally
 163-7   owned utility's stranded investment;
 163-8               (4)  establish nondiscriminatory transition charges
 163-9   reasonably designed to recover the stranded investment over an
163-10   appropriate period of time, provided that recovery of retail
163-11   stranded costs shall be from all existing or future retail
163-12   customers, including the facilities, premises, and loads of those
163-13   retail customers, within the utility's geographical certificated
163-14   service area as it existed on May 1, 1999;
163-15               (5)  determine the extent to which the municipally
163-16   owned utility will provide various customer services at the
163-17   distribution level, including other services that the municipally
163-18   owned utility is legally authorized to provide, or will accept the
163-19   services from other providers;
163-20               (6)  manage and operate the municipality's electric
163-21   utility systems, including exercise of control over resource
163-22   acquisition and any related expansion programs;
163-23               (7)  establish and enforce service quality and
163-24   reliability standards and consumer safeguards designed to protect
163-25   retail electric customers, including safeguards that will
163-26   accomplish the objectives of Sections 39.101(a) and (b), consistent
163-27   with this chapter;
 164-1               (8)  determine whether a base rate reduction is
 164-2   appropriate for the municipally owned utility;
 164-3               (9)  determine any other utility matters that the
 164-4   municipal governing body or body vested with power to manage and
 164-5   operate the municipally owned utility believes should be included;
 164-6   and
 164-7               (10)  make any other decisions affecting the
 164-8   municipally owned utility's participation in customer choice that
 164-9   are not inconsistent with this chapter.
164-10         (b)  In multiply certificated areas, a retail customer,
164-11   including a retail customer of an electric cooperative or a
164-12   municipally owned utility, may not avoid stranded cost recovery
164-13   charges by switching to another electric utility, electric
164-14   cooperative, or municipally owned utility.
164-15         Sec. 40.056.  ANTICOMPETITIVE ACTIONS.  (a)  If, on complaint
164-16   by a retail electric provider, the commission finds that a
164-17   municipal rule, action, or order relating to customer choice is
164-18   anticompetitive or does not provide other retail electric providers
164-19   with nondiscriminatory terms and conditions of access to
164-20   distribution facilities or customers within the municipally owned
164-21   utility's certificated retail service area that are comparable to
164-22   the municipally owned utility's and its affiliates' terms and
164-23   conditions of access to distribution facilities or customers, the
164-24   commission shall notify the municipally owned utility.
164-25         (b)  The municipally owned utility shall have three months to
164-26   cure the anticompetitive or noncompliant behavior described in
164-27   Subsection (a), following opportunity for hearing on the complaint.
 165-1   If the rule, action, or order is not fully remedied within that
 165-2   time, the commission may prohibit the municipally owned utility or
 165-3   affiliate from providing retail service outside its certificated
 165-4   retail service area until the rule, action, or order is remedied.
 165-5         Sec. 40.057.  BILLING.  (a)  A municipally owned utility that
 165-6   opts for customer choice may continue to bill directly electric
 165-7   customers located in its certificated retail service area, as that
 165-8   area exists on the date of adoption of customer choice, for all
 165-9   transmission and distribution services.  The municipally owned
165-10   utility may also bill directly for generation services and customer
165-11   services provided by the municipally owned utility to those
165-12   customers.
165-13         (b)  A municipally owned utility that opts for customer
165-14   choice may not adopt anticompetitive billing practices that would
165-15   discourage customers in its service area from choosing a retail
165-16   electric provider.
165-17         (c)  A customer that is being provided wires service by a
165-18   municipally owned utility at distribution or transmission voltage
165-19   and that is served by a retail electric provider for retail service
165-20   has the option of being billed directly by each service provider or
165-21   to receive a single bill for distribution, transmission, and
165-22   generation services from the municipally owned utility.
165-23         Sec. 40.058.  TARIFFS FOR OPEN ACCESS.  A municipally owned
165-24   utility that owns or operates transmission and distribution
165-25   facilities shall file with the commission tariffs implementing the
165-26   open access rules established by the commission under Section
165-27   39.203 and shall file with the commission the rates for open access
 166-1   on distribution facilities as set by the municipal regulatory
 166-2   authority, before the 90th day preceding the date the utility
 166-3   offers customer choice.  The commission does not have authority to
 166-4   determine the rates for distribution access service for a
 166-5   municipally owned utility.
 166-6         Sec. 40.059.  MUNICIPAL POWER AGENCY; RECOVERY OF STRANDED
 166-7   COSTS.  (a)  In this section, "member city" means a municipality
 166-8   that participated in the creation of a municipal power agency
 166-9   formed under Chapter 163 by the adoption of a concurrent resolution
166-10   by the municipality on or before August 1, 1975.
166-11         (b)  After a member city adopts a resolution choosing to
166-12   participate in customer choice under Section 40.051(b), a member
166-13   city may include stranded costs described in Subsection (c) in its
166-14   distribution costs and may recover those costs through a
166-15   nonbypassable charge.  The nonbypassable charge shall be as
166-16   determined by the member city's governing body and may be spread
166-17   over 16 years.
166-18         (c)  The stranded costs that may be recovered under this
166-19   section are those costs that were determined by the commission and
166-20   stated in the commission's April 1998 Report to the Texas Senate
166-21   Interim Committee on Electric Utility Restructuring entitled
166-22   "Potentially Strandable Investment (ECOM) Report:  1998 Update" and
166-23   specifically stated in the report at Appendix A (ECOM Estimates
166-24   Including the Effects of Transition Plans) under the commission
166-25   base case benchmark base market price for the year 2002.
166-26         (d)  The stranded cost amounts described in this section may
166-27   not be included in the generation costs used in setting rates by
 167-1   the member city's governing body.
 167-2         (e)  The provisions of this section are cumulative of all
 167-3   other provisions of this chapter, and nothing in this section shall
 167-4   be construed to limit or restrict the application of any provision
 167-5   of this chapter to the member cities.
 167-6         (f)  The municipal power agency shall extinguish the agency's
 167-7   indebtedness by sale of the electric facility to one or more
 167-8   purchasers, by way of a sale through the issuance of taxable or
 167-9   tax-exempt debt to the member cities, or by any other method.  The
167-10   agency shall set as an objective the extinguishment of the agency's
167-11   debt by September 1, 2000.  In the event this objective is not met,
167-12   the agency shall provide detailed reasons to the electric utility
167-13   restructuring legislative oversight committee by November 1, 2000,
167-14   why the agency was not able to meet this objective.
167-15         (g)  The municipal power agency or its successor in interest
167-16   may, at its option, use the rate of return method for calculating
167-17   its transmission cost of service.  If the rate of return method is
167-18   used, the return component for the transmission cost of service
167-19   revenue requirement shall be sufficient to meet the transmission
167-20   function's pro rata share of levelized debt service and debt
167-21   service coverage ratio (1.50) and other annual debt obligations,
167-22   provided, however, that the total levelized debt service may not
167-23   exceed the total debt service under the current payment schedule.
167-24   Any additional revenue generated by the methodology described in
167-25   this subsection shall be applied to reduce the agency's outstanding
167-26   indebtedness.
167-27         Sec. 40.060.  NO POWER TO AMEND CERTIFICATES.  Nothing in
 168-1   this chapter empowers a municipal governing body or a body vested
 168-2   with the power to manage and operate a municipally owned utility to
 168-3   issue, amend, or rescind a certificate of public convenience and
 168-4   necessity granted by the commission.  This subsection does not
 168-5   affect the ability of a municipal governing body or a body vested
 168-6   with the power to manage and operate the municipally owned utility
 168-7   to pass a resolution under Section 40.051(b).
 168-8         Sec. 40.061.  UNAUTHORIZED RETAIL ACCESS TO DISTRIBUTION
 168-9   FACILITIES.  A municipally owned utility that has not adopted
168-10   customer choice may not be required to provide access over its
168-11   facilities for service to its retail customer in its certificated
168-12   service area.
168-13             (Sections 40.062-40.100 reserved for expansion
168-14                   SUBCHAPTER C.  RIGHTS NOT AFFECTED
168-15         Sec. 40.101.  INTERFERENCE WITH CONTRACT.  (a)  This subtitle
168-16   may not interfere with or abrogate the rights or obligations of
168-17   parties, including a retail or wholesale customer, to a contract
168-18   with a municipally owned utility or river authority.
168-19         (b)  This subtitle may not interfere with or abrogate the
168-20   rights or obligations of a party under a contract or agreement
168-21   concerning certificated utility service areas.
168-22         Sec. 40.102.  ACCESS TO WHOLESALE MARKET.  Nothing in this
168-23   subtitle shall limit the access of municipally owned utilities to
168-24   the wholesale electric market.
168-25         Sec. 40.103.  PROTECTION OF BONDHOLDERS.  Nothing in this
168-26   subtitle or any rule adopted under this subtitle shall impair
168-27   contracts, covenants, or obligations between this state, river
 169-1   authorities, municipalities, and the bondholders of revenue bonds
 169-2   issued by the river authorities or municipalities.
 169-3         Sec. 40.104.  TAX-EXEMPT STATUS.  Nothing in this subtitle
 169-4   may impair the tax-exempt status of municipalities, electric
 169-5   cooperatives, or river authorities, nor shall anything in this
 169-6   subtitle compel any municipality, electric cooperative, or river
 169-7   authority to use its facilities in a manner that violates any
 169-8   contractual provisions, bond covenants, or other restrictions
 169-9   applicable to facilities financed by tax-exempt debt.
169-10   Notwithstanding any other provision of law, the decision to
169-11   participate in customer choice by the adoption of a resolution in
169-12   accordance with Section 40.051(b) is irrevocable.
169-13           CHAPTER 41.  ELECTRIC COOPERATIVES AND COMPETITION
169-14                    SUBCHAPTER A.  GENERAL PROVISIONS
169-15         Sec. 41.001.  APPLICABLE LAW.  Notwithstanding any other
169-16   provision of law, except Sections 39.155, 39.157(e), 39.203,
169-17   39.903, and 39.904, this chapter governs the transition to and the
169-18   establishment of a fully competitive electric power industry for
169-19   electric cooperatives.  Regarding the regulation of electric
169-20   cooperatives, this chapter shall control over any other provision
169-21   of this title, except for sections in which the term "electric
169-22   cooperative" is specifically used.
169-23         Sec. 41.002.  DEFINITIONS.  In this chapter:
169-24               (1)  "Board of directors" means the board of directors
169-25   of an electric cooperative as described in Section 161.071.
169-26               (2)  "Rate" includes any compensation, tariff, charge,
169-27   fare, toll, rental, or classification that is directly or
 170-1   indirectly demanded, observed, charged, or collected by an electric
 170-2   cooperative for any service, product, or commodity and any rule,
 170-3   practice, or contract affecting the compensation, tariff, charge,
 170-4   fare, toll, rental, or classification.
 170-5               (3)  "Stranded investment" means:
 170-6                     (A)  the excess, if any, of the net book value of
 170-7   generation assets over the market value of the generation assets;
 170-8   and
 170-9                     (B)  any above market purchased power costs.
170-10         Sec. 41.003.  SECURITIZATION.  (a)  Electric cooperatives may
170-11   adopt and use securitization provisions having the effect of the
170-12   provisions provided by Subchapter G, Chapter 39, to recover through
170-13   rates stranded costs at a recovery level deemed appropriate by the
170-14   board of directors up to 100 percent, under rules and procedures
170-15   that shall be established by the commission.
170-16         (b)  The rules and procedures for securitization established
170-17   under Subsection (a) shall include rules and procedures for the
170-18   recovery of stranded costs under the terms of a rate order adopted
170-19   by the board of directors of the electric cooperative, which rate
170-20   order shall have the effect of a financing order.
170-21         (c)  The rules and procedures established by the commission
170-22   under Subsection (b) shall include rules and procedures for the
170-23   issuance of transition bonds issued in a securitized financing
170-24   transaction.  The issuance of any transition bonds issued in a
170-25   securitized financing transaction by an electric cooperative is
170-26   expressly authorized and shall be governed by the laws governing
170-27   the issuance of bonds or other obligations by the electric
 171-1   cooperative.  Findings made by the board of directors of an
 171-2   electric cooperative in a rate order issued under the rules and
 171-3   procedures described by this subsection shall be conclusive, and
 171-4   any transition charges incorporated in the rate order to recover
 171-5   the principal, interest, and all reasonable expenses associated
 171-6   with any securitized financing transaction shall constitute
 171-7   property rights, as described in Subchapter G, Chapter 39, and
 171-8   shall otherwise conform in all material respects to the transition
 171-9   charges provided by Subchapter G, Chapter 39.
171-10         Sec. 41.004.  JURISDICTION OF COMMISSION.  Except as
171-11   specifically provided otherwise in this chapter, the commission has
171-12   jurisdiction over electric cooperatives only as follows:
171-13               (1)  to regulate wholesale transmission rates and
171-14   service including terms of access, to the extent provided in
171-15   Subchapter A, Chapter 35;
171-16               (2)  to regulate certification to the extent provided
171-17   in Chapter 37;
171-18               (3)  to establish a code of conduct as provided in
171-19   Section 39.157(e) subject to Section 41.054;
171-20               (4)  to establish terms and conditions, but not rates,
171-21   for open access to distribution facilities for electric
171-22   cooperatives providing customer choice, as provided in Section
171-23   39.203; and
171-24               (5)  to require reports of electric cooperative
171-25   operations only to the extent necessary to:
171-26                     (A)  ensure the public safety;
171-27                     (B)  enable the commission to satisfy its
 172-1   responsibilities relating to electric cooperatives under this
 172-2   chapter;
 172-3                     (C)  enable the commission to determine the
 172-4   aggregate electric load and energy requirements in the state and
 172-5   the resources available to serve that load; or
 172-6                     (D)  enable the commission to determine
 172-7   information relating to market power as provided in Section 39.155.
 172-8         Sec. 41.005.  LIMITATION ON MUNICIPAL AUTHORITY.
 172-9   Notwithstanding any other provision of this title, a municipality
172-10   may not directly or indirectly regulate the rates, operations, and
172-11   services of an electric cooperative, except, with respect to
172-12   operations, to the extent necessary to protect the public health,
172-13   safety, or welfare.  This section does not prohibit a municipality
172-14   from making a lawful charge for the use of public rights-of-way
172-15   within the municipality as provided by Section 182.025, Tax Code,
172-16   and Section 33.008.  An electric cooperative shall be an electric
172-17   utility for purposes of Section 182.025, Tax Code, and Section
172-18   33.008.
172-19             (Sections 41.006-41.050 reserved for expansion
172-20           SUBCHAPTER B.  ELECTRIC COOPERATIVE UTILITY CHOICE
172-21         Sec. 41.051.  BOARD DECISION.  (a)  The board of directors
172-22   has the discretion to decide when or if the electric cooperative
172-23   will provide customer choice.
172-24         (b)  Electric cooperatives that choose to participate in
172-25   customer choice may do so at any time on or after January 1, 2002,
172-26   by adoption of an appropriate resolution of the board of directors.
172-27   The decision to participate in customer choice by the adoption of a
 173-1   resolution may be revoked only if no customer has opted for choice
 173-2   within four years of the resolution's adoption.  An electric
 173-3   cooperative may initiate a customer choice pilot project at any
 173-4   time.
 173-5         Sec. 41.052.  ELECTRIC COOPERATIVES NOT OFFERING CUSTOMER
 173-6   CHOICE.  (a)  An electric cooperative that chooses not to
 173-7   participate in customer choice may not offer electric energy at
 173-8   unregulated prices directly to retail customers outside its
 173-9   certificated retail service area.
173-10         (b)  An electric cooperative under Subsection (a) retains the
173-11   right to offer and provide a full range of customer service and
173-12   pricing programs to the customers within its certificated retail
173-13   service area and to purchase and sell electric energy at wholesale
173-14   without geographic restriction.
173-15         (c)  A generation and transmission electric cooperative may
173-16   offer electric energy at unregulated prices directly to retail
173-17   customers outside of its parent electric cooperatives' certificated
173-18   service areas only if a majority of the parent electric
173-19   cooperatives of the generation and transmission electric
173-20   cooperative have chosen to offer customer choice.
173-21         (d)  A subsidiary of an electric cooperative may not provide
173-22   electric energy at unregulated prices outside of its parent
173-23   electric cooperative's certificated retail service area unless the
173-24   electric cooperative offers customer choice inside its certificated
173-25   retail service area.
173-26         Sec. 41.053.  RETAIL CUSTOMER RIGHT OF CHOICE.  (a)  If an
173-27   electric cooperative chooses to participate in customer choice,
 174-1   after that choice, all retail customers within the certificated
 174-2   service area of the electric cooperative shall have the right of
 174-3   customer choice, and the electric cooperative shall provide
 174-4   nondiscriminatory open access for retail service.
 174-5         (b)  Notwithstanding Section 39.107, the metering function
 174-6   may not be deemed a competitive service for customers of the
 174-7   electric cooperative within that service area and may, at the
 174-8   option of the electric cooperative, continue to be offered by the
 174-9   electric cooperative as sole provider.
174-10         (c)  On its initiation of customer choice, an electric
174-11   cooperative shall designate itself or another entity as the
174-12   provider of last resort for retail customers within the electric
174-13   cooperative's certificated service area and shall fulfill the role
174-14   of default provider of last resort in the event no other entity is
174-15   available to act in that capacity.
174-16         (d)  If a retail electric provider fails to serve a customer
174-17   described in Subsection (c), on request by the customer, the
174-18   provider of last resort shall offer the customer the standard
174-19   retail service package for the appropriate customer class, with no
174-20   interruption of service, at a fixed, nondiscountable rate that is
174-21   at least sufficient to cover the reasonable costs of providing that
174-22   service, as approved by the board of directors.
174-23         (e)  The board of directors may establish the procedures and
174-24   criteria for designating the provider of last resort and may
174-25   redesignate the provider of last resort according to a schedule it
174-26   considers appropriate.
174-27         Sec. 41.054.  SERVICE OUTSIDE CERTIFICATED AREA.  (a)
 175-1   Notwithstanding any provisions of Chapter 161:
 175-2               (1)  an electric cooperative participating in customer
 175-3   choice shall have the right to offer electric energy and related
 175-4   services at unregulated prices directly to retail customers who
 175-5   have customer choice without regard to geographic location; and
 175-6               (2)  any person, without restriction, except as may be
 175-7   provided in the electric cooperative's articles of incorporation
 175-8   and bylaws, may be a member of an electric cooperative.
 175-9         (b)  In providing service under Subsection (a) to retail
175-10   customers outside its certificated service area as that area exists
175-11   on the date of adoption of customer choice, an electric cooperative
175-12   becomes subject to commission jurisdiction as to the commission's
175-13   rules establishing a code of conduct regulating anticompetitive
175-14   practices under Section 39.157(e), except to the extent those rules
175-15   conflict with this chapter.
175-16         (c)  For electric cooperatives participating in customer
175-17   choice, the commission shall have jurisdiction to establish terms
175-18   and conditions, but not rates, for access by other electric
175-19   providers to the electric cooperative's distribution facilities.
175-20         (d)  Notwithstanding Subsections (b) and (c), the commission
175-21   shall make accommodation in the code of conduct for specific legal
175-22   requirements imposed by state or federal law applicable to electric
175-23   cooperatives.  The commission shall accommodate the organizational
175-24   structures of electric cooperatives and may not prohibit an
175-25   electric cooperative and any related entity from sharing officers,
175-26   directors, or employees.
175-27         (e)  The commission does not have jurisdiction to require the
 176-1   unbundling of services or functions of, or to regulate the recovery
 176-2   of stranded investment of, an electric cooperative or, except as
 176-3   provided by this section, jurisdiction with respect to the rates,
 176-4   terms, and conditions of service for retail customers of an
 176-5   electric cooperative within the electric cooperative's certificated
 176-6   service area.
 176-7         (f)  An electric cooperative shall maintain separate books
 176-8   and records of its operations and the operations of any subsidiary
 176-9   and shall ensure that the rates charged for provision of electric
176-10   service do not include any costs of its subsidiary or any other
176-11   costs not related to the provision of electric service.
176-12         Sec. 41.055.  JURISDICTION OF BOARD OF DIRECTORS.  A board of
176-13   directors has exclusive jurisdiction to:
176-14               (1)  set all terms of access, conditions, and rates
176-15   applicable to services provided by the electric cooperative, except
176-16   as provided by Sections 41.054 and 41.056, including
176-17   nondiscriminatory and comparable rates for distribution but
176-18   excluding wholesale transmission rates, terms of access, and
176-19   conditions for wholesale transmission service set by the commission
176-20   under Subchapter A, Chapter 35, provided that the rates for
176-21   distribution established by the electric cooperative shall be
176-22   comparable to the distribution rates that apply to the electric
176-23   cooperative and its subsidiaries;
176-24               (2)  determine whether to unbundle any energy-related
176-25   activities and, if the board of directors chooses to unbundle,
176-26   whether to do so structurally or functionally;
176-27               (3)  reasonably determine the amount of the electric
 177-1   cooperative's stranded investment;
 177-2               (4)  establish nondiscriminatory transition charges
 177-3   reasonably designed to recover the stranded investment over an
 177-4   appropriate period of time;
 177-5               (5)  determine the extent to which the electric
 177-6   cooperative will provide various customer services, including
 177-7   nonelectric services, or accept the services from other providers;
 177-8               (6)  manage and operate the electric cooperative's
 177-9   utility systems, including exercise of control over resource
177-10   acquisition and any related expansion programs;
177-11               (7)  establish and enforce service quality standards,
177-12   reliability standards, and consumer safeguards designed to protect
177-13   retail electric customers;
177-14               (8)  determine whether a base rate reduction is
177-15   appropriate for the electric cooperative;
177-16               (9)  determine any other utility matters that the board
177-17   of directors believes should be included;
177-18               (10)  sell electric energy and capacity at wholesale,
177-19   regardless of whether the electric cooperative participates in
177-20   customer choice; and
177-21               (11)  make any other decisions affecting the electric
177-22   cooperative's method of conducting business that are not
177-23   inconsistent with the provisions of this chapter.
177-24         Sec. 41.056.  ANTICOMPETITIVE ACTIONS.  (a)  If, after notice
177-25   and hearing, the commission finds that an electric cooperative
177-26   providing customer choice has engaged in anticompetitive behavior
177-27   by not providing other retail electric providers with
 178-1   nondiscriminatory terms and conditions of access to distribution
 178-2   facilities or customers within the electric cooperative's
 178-3   certificated service area that are comparable to the electric
 178-4   cooperative's and its subsidiaries' terms and conditions of access
 178-5   to distribution facilities or customers, the commission shall
 178-6   notify the electric cooperative.
 178-7         (b)  The electric cooperative shall have three months to cure
 178-8   the anticompetitive or noncompliant behavior described in
 178-9   Subsection (a).  If the behavior is not fully remedied within that
178-10   time, the commission may prohibit the electric cooperative or its
178-11   subsidiary from providing retail service outside its certificated
178-12   retail service area until the behavior is remedied.
178-13         Sec. 41.057.  BILLING.  (a)  An electric cooperative that
178-14   opts for customer choice may continue to bill directly electric
178-15   customers located in its certificated service area for all
178-16   transmission and distribution services.  The electric cooperative
178-17   may also bill directly for generation and customer services
178-18   provided by the electric cooperative or its subsidiaries to those
178-19   customers.
178-20         (b)  A customer served by an electric cooperative for
178-21   transmission and distribution services and by a retail electric
178-22   provider for retail service has the option of being billed directly
178-23   by each service provider or receiving a single bill for
178-24   distribution, transmission, and generation services from the
178-25   electric cooperative.
178-26         Sec. 41.058.  TARIFFS FOR OPEN ACCESS.  An electric
178-27   cooperative that owns or operates transmission and distribution
 179-1   facilities shall file tariffs implementing the open access rules
 179-2   established by the commission under Section 39.203 with the
 179-3   appropriate regulatory authorities having jurisdiction over the
 179-4   transmission and distribution service of the electric cooperative
 179-5   before the 90th day preceding the date the electric cooperative
 179-6   offers customer choice.
 179-7         Sec. 41.059.  NO POWER TO AMEND CERTIFICATES.  Nothing in
 179-8   this chapter empowers a board of directors to issue, amend, or
 179-9   rescind a certificate of public convenience and necessity granted
179-10   by the commission.
179-11         Sec. 41.060.  CUSTOMER SERVICE INFORMATION.  (a)  The
179-12   commission shall keep information submitted by customers and retail
179-13   electric providers pertaining to the provision of electric service
179-14   by electric cooperatives.
179-15         (b)  The commission shall notify the appropriate electric
179-16   cooperative of information submitted by a customer or retail
179-17   electric provider, and the electric cooperative shall respond to
179-18   the customer or retail electric provider.  The electric cooperative
179-19   shall notify the commission of its response.
179-20         (c)  The commission shall prepare a report for the Sunset
179-21   Advisory Commission that includes information submitted and
179-22   responses by electric cooperatives in accordance with the Sunset
179-23   Advisory Commission's schedule for reviewing the commission.
179-24         Sec. 41.061.  RETAIL RATE CHANGES BY ELECTRIC COOPERATIVES.
179-25   (a)  This section shall apply to retail rates of an electric
179-26   cooperative that has not adopted customer choice and to the retail
179-27   delivery rates of an electric cooperative that has adopted customer
 180-1   choice.  This section may not apply to rates for:
 180-2               (1)  sales of electric energy by an electric
 180-3   cooperative that has adopted customer choice; or
 180-4               (2)  wholesale sales of electric energy.
 180-5         (b)  An electric cooperative may change its rates by:
 180-6               (1)  adopting a resolution approving the proposed
 180-7   change;
 180-8               (2)  mailing notice of the proposed change to each
 180-9   affected customer whose rate would be increased by the proposed
180-10   change at least 30 days before implementation of the proposed
180-11   change, which notice may be included in a monthly billing; and
180-12               (3)  holding a meeting to discuss the proposed rate
180-13   changes with affected customers, if any change is expected to
180-14   increase total system annual revenues by more than $100,000 or one
180-15   percent, whichever is greater.
180-16         (c)  An electric cooperative may implement the proposed rates
180-17   on completion of the requirements under Subsection (b), and those
180-18   rates shall remain in effect until changed by the electric
180-19   cooperative as provided by this section or, for rates other than
180-20   retail delivery rates, until this section is no longer applicable
180-21   because the electric cooperative adopts customer choice.
180-22         (d)  The electric cooperative may reconsider a rate change at
180-23   any time and adjust the rate by board resolution without additional
180-24   notice or meeting of customers if the rate as adjusted is not
180-25   expected to increase the revenues from a customer class.  However,
180-26   if notice is given to a customer class that would receive an
180-27   increase as a result of the adjustment, then the rates for the
 181-1   customer class may be increased without additional meeting of the
 181-2   customers.  A customer may petition to appeal within the time
 181-3   provided in Subsection (f).
 181-4         (e)  Retail rates set by an electric cooperative that has not
 181-5   adopted customer choice and retail delivery rates set by an
 181-6   electric cooperative that has adopted customer choice shall be just
 181-7   and reasonable, not unreasonably preferential, prejudicial, or
 181-8   discriminatory; provided, however, if the customer agrees, an
 181-9   electric cooperative may charge a market-based rate to customers
181-10   who have energy supply options if rates are not increased for other
181-11   customers as a result.
181-12         (f)  A customer of the electric cooperative who is adversely
181-13   affected by a rate setting resolution of the electric cooperative
181-14   is entitled to judicial review.  A person initiates judicial review
181-15   by filing a petition in the district court of Travis County not
181-16   later than the 90th day after the resolution is implemented.
181-17         (g)  The resolution of the electric cooperative setting
181-18   rates, as it may have been amended as described in Subsection (d),
181-19   shall be presumed valid, and the burden of showing that the
181-20   resolution is invalid rests on the persons challenging the
181-21   resolution.  A court reviewing a change of a rate or rates by an
181-22   electric cooperative may consider any relevant factor including the
181-23   cost of providing service.
181-24         (h)  If the court finds that the electric cooperative's
181-25   resolution setting rates violates the standards contained in
181-26   Subsection (e), or that the electric cooperative's rate violates
181-27   Subsection (e) the court shall enter an order:
 182-1               (1)  stating the specific basis for its determination
 182-2   that the rates set in the electric cooperative's resolution violate
 182-3   Subsection (e); and
 182-4               (2)  directing the electric cooperative to:
 182-5                     (A)  set, within 60 days, revised retail rates
 182-6   that do not violate the standards of Subsection (e); and
 182-7                     (B)  refund or credit against future bills, at
 182-8   the electric cooperative's option, revenues collected under the
 182-9   rate found to violate the standards of Subsection (e) that exceed
182-10   the revenues that would have been collected under the revised
182-11   rates.  The refund or credit shall be made over a period of not
182-12   more than 12 months, as determined by the court.
182-13         (i)  The court may not enter an order delaying or prohibiting
182-14   implementation of a rate change or set revised rates either for the
182-15   period the challenged resolution was in effect or prospectively.
182-16         (j)  A person having obtained an order of the court requiring
182-17   an electric cooperative to set revised retail rates pursuant to
182-18   Subsection (h)(2)(A) may, once the order is no longer subject to
182-19   appeal, initiate an original proceeding in the district court of
182-20   Travis County either to:
182-21               (1)  seek enforcement of the court's order by writ of
182-22   mandamus if the electric cooperative has failed to adopt a
182-23   resolution approving revised rates within the time prescribed; or
182-24               (2)  seek judicial review of the electric cooperative's
182-25   most current resolution setting rates as provided in this section,
182-26   if the electric cooperative has set revised rates pursuant to the
182-27   order of the court within the time prescribed.  In the event of
 183-1   such enforcement proceeding or judicial review the court may, in
 183-2   addition to the other remedies provided for in this section, award
 183-3   reasonable costs, including reasonable attorney's fees, to the
 183-4   party prevailing on the case as a whole.  Additionally, if the
 183-5   court finds that either party has acted in bad faith solely for the
 183-6   purpose of perpetuating the rate dispute between the parties, the
 183-7   court may impose sanctions on the offending party in accordance
 183-8   with the provisions of Subsections (b), (c), and (e), Section
 183-9   10.004, Civil Practice and Remedies Code.
183-10         (k)  An electric cooperative that has not adopted customer
183-11   choice and that has not changed each of its nonresidential rates
183-12   since January 1, 1999, shall, on or before May 1, 2002, adopt a
183-13   resolution setting rates.  The resolution shall be subject to
183-14   judicial review as provided in this section whether or not any rate
183-15   is changed.  In the event the electric cooperative fails to adopt a
183-16   resolution setting rates pursuant to this subsection, a customer
183-17   may petition for judicial review of the electric cooperative's
183-18   rates.  A person initiates judicial review by filing a petition in
183-19   the district court of Travis County not later than November 1,
183-20   2002.
183-21         Sec. 41.062.  ALLOCATION OF STRANDED INVESTMENT.  Any
183-22   competition transition charge shall be allocated among retail
183-23   customer classes based on the relevant customer class
183-24   characteristics as of the end of the electric cooperative's most
183-25   recent fiscal year before implementation of customer choice, in
183-26   accordance with the methodology used to allocate the costs of the
183-27   underlying assets or expenses in the electric cooperative's most
 184-1   recent cost of service study certified by a professional engineer
 184-2   or certified public accountant or approved by the commission.  In
 184-3   multiply certificated areas, a retail customer may not avoid
 184-4   stranded cost recovery charges by switching to another electric
 184-5   cooperative, an electric utility, or a municipally owned utility.
 184-6         Sec. 41.063.  RETAIL RATES OF SUCCESSOR ELECTRIC UTILITY TO
 184-7   ELECTRIC COOPERATIVE.  (a)  For purposes of this section, an
 184-8   electric cooperative as described by Section 11.003(9)(C) is a
 184-9   "successor cooperative" and the rates of a successor cooperative
184-10   are subject to this section.  Effective January 1, 2000, a customer
184-11   of a successor cooperative who has reason to believe the customer
184-12   is being charged a rate in violation of Subsection (b) is entitled
184-13   to judicial review by filing a petition in a district court of
184-14   Travis County.  The customer has the burden of proving the rate
184-15   violates Subsection (b).
184-16         (b)  Retail rates of a successor cooperative shall be just
184-17   and reasonable and not unreasonably preferential, prejudicial, or
184-18   discriminatory.  However, a successor cooperative may charge a
184-19   lower, market-based rate to customers who have energy supply
184-20   options, and in that event the standards that would otherwise
184-21   govern the rates charged to other customers are modified only to
184-22   the minimum extent necessary to enable those customers having
184-23   energy supply options to receive lower, market-based rates.
184-24         (c)  A court reviewing a rate by a successor cooperative may
184-25   consider any relevant factor that may be considered by a court in
184-26   reviewing a decision of the commission, including the cost of
184-27   providing service.
 185-1         (d)  If the court finds that the successor cooperative's rate
 185-2   violates the standards contained in Subsection (b), the court shall
 185-3   enter an order:
 185-4               (1)  stating the specific basis for its determination
 185-5   that the rate violates Subsection (b); and
 185-6               (2)  directing the successor cooperative to:
 185-7                     (A)  set, within 60 days, a revised retail rate
 185-8   that does not violate the standards of Subsection (b); and
 185-9                     (B)  refund or credit against future bills, at
185-10   the successor cooperative's option, revenues collected under the
185-11   rate found to violate the standards of Subsection (b) that exceed
185-12   the revenues that would have been collected under the revised
185-13   rates.
185-14         (e)  The refund or credit shall be made over a period of not
185-15   more than 12 months, as determined by the electric cooperative.  If
185-16   the court has ordered relief under Subsection (d), and after 60
185-17   days the court finds that the successor cooperative's resolution
185-18   setting rates still violates the standards contained in Subsection
185-19   (b), the court shall enter an order imposing any sanction
185-20   authorized by Section 10.004(c), Civil Practice and Remedies Code.
185-21         (f)  No remedy other than or additional to a remedy under
185-22   Subsections (d) and (e) may be ordered by the court.  The court may
185-23   not set revised rates either for the period the challenged
185-24   resolution was in effect or prospectively.
185-25         Sec. 41.064.  UNAUTHORIZED RETAIL ACCESS TO DISTRIBUTION
185-26   FACILITIES.  An electric cooperative that has not adopted customer
185-27   choice may not be required to provide access over its facilities
 186-1   for service to its retail customers in its certificated service
 186-2   area.
 186-3             (Sections 41.065-41.100 reserved for expansion
 186-4                   SUBCHAPTER C.  RIGHTS NOT AFFECTED
 186-5         Sec. 41.101.  INTERFERENCE WITH CONTRACT.  (a)  This subtitle
 186-6   may not interfere with or abrogate the rights or obligations of
 186-7   parties, including a retail or wholesale customer, to a contract
 186-8   with an electric cooperative or its subsidiary.
 186-9         (b)  No provision of this subtitle may interfere with or be
186-10   deemed to abrogate the rights or obligations of a party under a
186-11   contract or an agreement concerning certificated service areas.
186-12         Sec. 41.102.  ACCESS TO WHOLESALE MARKET.  Nothing in this
186-13   subtitle shall limit the access of an electric cooperative or its
186-14   subsidiary, either on its own behalf or on behalf of its customers,
186-15   to the wholesale electric market.
186-16         Sec. 41.103.  PROTECTION OF BONDHOLDERS.  Nothing in this
186-17   subtitle or any rule adopted under this subtitle shall impair
186-18   contracts, covenants, or obligations between an electric
186-19   cooperative and its lenders and holders of bonds issued on behalf
186-20   of or by the electric cooperative.
186-21         Sec. 41.104.  TAX-EXEMPT STATUS.  Nothing in this subtitle
186-22   may impair the tax-exempt status of electric cooperatives, nor
186-23   shall anything in this subtitle compel any electric cooperative to
186-24   use its facilities in a manner that violates any contractual
186-25   provisions, bond covenants, or other restrictions applicable to
186-26   facilities financed by tax-exempt or federally insured or
186-27   guaranteed debt.
 187-1         SECTION 41.  Section 252.022, Local Government Code, is
 187-2   amended by amending Subsection (a) and by adding Subsection (c) to
 187-3   read as follows:
 187-4         (a)  This chapter does not apply to an expenditure for:
 187-5               (1)  a procurement made because of a public calamity
 187-6   that requires the immediate appropriation of money to relieve the
 187-7   necessity of the municipality's residents or to preserve the
 187-8   property of the municipality;
 187-9               (2)  a procurement necessary to preserve or protect the
187-10   public health or safety of the municipality's residents;
187-11               (3)  a procurement necessary because of unforeseen
187-12   damage to public machinery, equipment, or other property;
187-13               (4)  a procurement for personal, professional, or
187-14   planning services;
187-15               (5)  a procurement for work that is performed and paid
187-16   for by the day as the work progresses;
187-17               (6)  a purchase of land or a right-of-way;
187-18               (7)  a procurement of items that are available from
187-19   only one source, including:
187-20                     (A)  items that are available from only one
187-21   source because of patents, copyrights, secret processes, or natural
187-22   monopolies;
187-23                     (B)  films, manuscripts, or books;
187-24                     (C)  [electricity,] gas, water, and other utility
187-25   services;
187-26                     (D)  captive replacement parts or components for
187-27   equipment;
 188-1                     (E)  books, papers, and other library materials
 188-2   for a public library that are available only from the persons
 188-3   holding exclusive distribution rights to the materials; and
 188-4                     (F)  management services provided by a nonprofit
 188-5   organization to a municipal museum, park, zoo, or other facility to
 188-6   which the organization has provided significant financial or other
 188-7   benefits;
 188-8               (8)  a purchase of rare books, papers, and other
 188-9   library materials for a public library;
188-10               (9)  paving drainage, street widening, and other public
188-11   improvements, or related matters, if at least one-third of the cost
188-12   is to be paid by or through special assessments levied on property
188-13   that will benefit from the improvements;
188-14               (10)  a public improvement project, already in
188-15   progress, authorized by the voters of the municipality, for which
188-16   there is a deficiency of funds for completing the project in
188-17   accordance with the plans and purposes authorized by the voters;
188-18               (11)  a payment under a contract by which a developer
188-19   participates in the construction of a public improvement as
188-20   provided by Subchapter C, Chapter 212;
188-21               (12)  personal property sold:
188-22                     (A)  at an auction by a state licensed
188-23   auctioneer;
188-24                     (B)  at a going out of business sale held in
188-25   compliance with Subchapter F, Chapter 17, Business & Commerce Code;
188-26                     (C)  by a political subdivision of this state, a
188-27   state agency of this state, or an entity of the federal government;
 189-1   or
 189-2                     (D)  under an interlocal contract for cooperative
 189-3   purchasing administered by a regional planning commission
 189-4   established under Chapter 391;
 189-5               (13)  services performed by blind or severely disabled
 189-6   persons; [or]
 189-7               (14)  goods purchased by a municipality for subsequent
 189-8   retail sale by the municipality; or
 189-9               (15)  electricity.
189-10         (c)  This chapter does not apply to expenditures by a
189-11   municipally owned electric or gas utility or unbundled divisions of
189-12   a municipally owned electric or gas utility in connection with any
189-13   purchases by the municipally owned utility or divisions of a
189-14   municipally owned utility made in accordance with procurement
189-15   procedures adopted by a resolution of the body vested with
189-16   authority for management and operation of the municipally owned
189-17   utility or its divisions that sets out the public purpose to be
189-18   achieved by those procedures.  This subsection may not be deemed to
189-19   exempt a municipally owned utility from any other applicable
189-20   statute, charter provision, or ordinance.
189-21         SECTION 42.  Subtitle C, Title 9, Local Government Code, is
189-22   amended by adding Chapter 303 to read as follows:
189-23     CHAPTER 303.  ENERGY AGGREGATION MEASURES FOR LOCAL GOVERNMENTS
189-24         Sec. 303.001.  AGGREGATION BY POLITICAL SUBDIVISIONS.  (a)
189-25   In this chapter, "political subdivision" means a county,
189-26   municipality, hospital district, or any other political
189-27   subdivision.
 190-1         (b)  A political subdivision may join with another political
 190-2   subdivision or subdivisions to form a political subdivision
 190-3   corporation or corporations to act as an agent to negotiate the
 190-4   purchase of electricity, or to likewise aid or act on behalf of the
 190-5   political subdivisions for which the corporation is created, with
 190-6   respect to their own electricity use for their respective public
 190-7   facilities.
 190-8         (c)  The articles of incorporation and the bylaws of a
 190-9   political subdivision corporation must be approved by ordinance,
190-10   resolution, or order adopted by the governing body of each
190-11   political subdivision for which the corporation is created.
190-12         (d)  A political subdivision corporation may negotiate on
190-13   behalf of its incorporating political subdivisions for the purchase
190-14   of electricity, make contracts for the purchase of electricity,
190-15   purchase electricity, and take any other action necessary to
190-16   purchase electricity for use in the public facilities of the
190-17   political subdivision or subdivisions represented by the political
190-18   subdivision corporation.  In this subsection, "electricity" means
190-19   electric energy, capacity, energy services, ancillary services, or
190-20   other electric services for retail or wholesale consumption by the
190-21   political subdivisions.
190-22         (e)  A political subdivision corporation may recover the
190-23   expenses of the political subdivision corporation through the
190-24   assessment of dues to the incorporating political subdivisions or
190-25   through an aggregation fee charged per kilowatt hour, or a
190-26   combination of both.
190-27         (f)  A political subdivision corporation may appear on behalf
 191-1   of its incorporating political subdivisions before the Public
 191-2   Utility Commission of Texas, the Railroad Commission of Texas, the
 191-3   Texas Natural Resource Conservation Commission, any other
 191-4   governmental agency or regulatory authority, the Texas Legislature,
 191-5   and the courts.
 191-6         (g)  A political subdivision corporation has the powers of a
 191-7   corporation created and incorporated pursuant to the provisions of
 191-8   the Texas Non-Profit Corporation Act (Article 1396-1.01 et seq.,
 191-9   Vernon's Texas Civil Statutes) and such other powers as specified
191-10   in Section 39.3545, Utilities Code.
191-11         (h)  The provisions of the Texas Non-Profit Corporation Act
191-12   (Article 1396-1.01 et seq., Vernon's Texas Civil Statutes) relating
191-13   to powers, standards of conduct, and interests in contracts apply
191-14   to the directors and officers of a political subdivision
191-15   corporation.
191-16         (i)  A member of the board of directors of a political
191-17   subdivision corporation:
191-18               (1)  is not a public official by virtue of that
191-19   position; and
191-20               (2)  unless otherwise ineligible, may be elected to
191-21   serve as an official of a political subdivision or be employed by a
191-22   political subdivision.
191-23         Sec. 303.002.  AGGREGATION BY POLITICAL SUBDIVISION FOR
191-24   CITIZENS.  (a)  A political subdivision aggregator may negotiate
191-25   for the purchase of electricity and energy services on behalf of
191-26   the citizens of the political subdivision.  The citizens must
191-27   affirmatively request to be included in the aggregation services by
 192-1   the political subdivision aggregator.
 192-2         (b)  A political subdivision may contract with a third party
 192-3   or another aggregator to administer the aggregation of electricity
 192-4   and energy services purchased under Subsection (a).
 192-5         (c)  The political subdivision aggregator may use any mailing
 192-6   from the subdivision to invite participation by its citizens.
 192-7         SECTION 43.  Section 272.001, Local Government Code, is
 192-8   amended by adding Subsection (j) to read as follows:
 192-9         (j)  This section does not apply to sales or exchanges of
192-10   land owned by a municipality operating a municipally owned electric
192-11   or gas utility if the land is held or managed by the municipally
192-12   owned utility, or by a division of the municipally owned electric
192-13   or gas utility that constitutes the unbundled electric or gas
192-14   operations of the utility, provided that the governing body of the
192-15   municipally owned utility shall adopt a resolution stating the
192-16   conditions and circumstances for the sale or exchange and the
192-17   public purpose that will be achieved by the sale or exchange.  For
192-18   purposes of this subsection, "municipally owned utility" includes a
192-19   river authority engaged in the generation, transmission, or
192-20   distribution of electric energy to the public, and "unbundled"
192-21   operations are those operations of the utility that have, in the
192-22   discretion of the utility's governing body, been functionally
192-23   separated.
192-24         SECTION 44.  Subsection (c), Section 402.002, Local
192-25   Government Code, is amended to read as follows:
192-26         (c)  The municipality may manufacture its own electricity,
192-27   gas, or anything else needed or used by the public.  It may
 193-1   purchase, and make contracts for the purchase of, gas, electricity,
 193-2   oil, or any other commodity or article used by the public and may
 193-3   sell it to the public on terms as provided by the municipal
 193-4   charter, ordinance, or resolution of the governing body of the
 193-5   municipally owned utility.
 193-6         SECTION 45.  Subchapter D, Chapter 551, Government Code, is
 193-7   amended by adding Section 551.086 to read as follows:
 193-8         Sec. 551.086.  CERTAIN PUBLIC POWER UTILITIES:  COMPETITIVE
 193-9   MATTERS.  (a)  Notwithstanding anything in this chapter to the
193-10   contrary, the rules provided by this section apply to competitive
193-11   matters of a public power utility.
193-12         (b)  In this section:
193-13               (1)  "Public power utility" means an entity providing
193-14   electric or gas utility services that is subject to the provisions
193-15   of this chapter.
193-16               (2)  "Public power utility governing body" means the
193-17   board of trustees or other applicable governing body, including a
193-18   city council, of a public power utility.
193-19               (3)  "Competitive matter" means a utility-related
193-20   matter that the public power utility governing body in good faith
193-21   determines by a vote under this section is related to the public
193-22   power utility's competitive activity, including commercial
193-23   information, and would, if disclosed, give advantage to competitors
193-24   or prospective competitors, but may not be deemed to include the
193-25   following categories of information:
193-26                     (A)  information relating to the provision of
193-27   distribution access service, including the terms and conditions of
 194-1   the service and the rates charged for the service but not including
 194-2   information concerning utility-related services or products that
 194-3   are competitive;
 194-4                     (B)  information relating to the provision of
 194-5   transmission service that is required to be filed with the Public
 194-6   Utility Commission of Texas, subject to any confidentiality
 194-7   provided for under the rules of the commission;
 194-8                     (C)  information for the distribution system
 194-9   pertaining to reliability and continuity of service, to the extent
194-10   not security-sensitive, that relates to emergency management,
194-11   identification of critical loads such as hospitals and police,
194-12   records of interruption, and distribution feeder standards;
194-13                     (D)  any substantive rule of general
194-14   applicability regarding service offerings, service regulation,
194-15   customer protections, or customer service adopted by the public
194-16   power utility as authorized by law;
194-17                     (E)  aggregate information reflecting receipts or
194-18   expenditures of funds of the public power utility, of the type that
194-19   would be included in audited financial statements;
194-20                     (F)  information relating to equal employment
194-21   opportunities for minority groups, as filed with local, state, or
194-22   federal agencies;
194-23                     (G)  information relating to the public power
194-24   utility's performance in contracting with minority business
194-25   entities;
194-26                     (H)  information relating to nuclear
194-27   decommissioning trust agreements, of the type required to be
 195-1   included in audited financial statements;
 195-2                     (I)  information relating to the amount and
 195-3   timing of any transfer to an owning city's general fund;
 195-4                     (J)  information relating to environmental
 195-5   compliance as required to be filed with any local, state, or
 195-6   national environmental authority, subject to any confidentiality
 195-7   provided under the rules of those authorities;
 195-8                     (K)  names of public officers of the public power
 195-9   utility and the voting records of those officers for all matters
195-10   other than those within the scope of a competitive resolution
195-11   provided for by this section;
195-12                     (L)  a description of the public power utility's
195-13   central and field organization, including the established places at
195-14   which the public may obtain information, submit information and
195-15   requests, or obtain decisions and the identification of employees
195-16   from whom the public may obtain information, submit information or
195-17   requests, or obtain decisions; or
195-18                     (M)  information identifying the general course
195-19   and method by which the public power utility's functions are
195-20   channeled and determined, including the nature and requirements of
195-21   all formal and informal policies and procedures.
195-22         (c)  This chapter does not require a public power utility
195-23   governing body to conduct an open meeting to deliberate, vote, or
195-24   take final action on any competitive matter, as that term is
195-25   defined in Subsection (b)(3).  Before a public power utility
195-26   governing body may deliberate, vote, or take final action on any
195-27   competitive matter in a closed meeting, the public power utility
 196-1   governing body must first make a good faith determination, by
 196-2   majority vote of its members, that the matter is a competitive
 196-3   matter that satisfies the requirements of Subsection (b)(3).  The
 196-4   vote shall be taken during the closed meeting and be included in
 196-5   the certified agenda or tape recording of the closed meeting.  If a
 196-6   public power utility governing body fails to determine by that vote
 196-7   that the matter satisfies the requirements of Subsection (b)(3),
 196-8   the public power utility governing body may not deliberate or take
 196-9   any further action on the matter in the closed meeting.  This
196-10   section does not limit the right of a public power utility
196-11   governing body to hold a closed session under any other exception
196-12   provided for in this chapter.
196-13         (d)  For purposes of Section 551.041, the notice of the
196-14   subject matter of an item that may be considered as a competitive
196-15   matter under this section is required to contain no more than a
196-16   general representation of the subject matter to be considered, such
196-17   that the competitive activity of the public power utility with
196-18   respect to the issue in question is not compromised or disclosed.
196-19         (e)  With respect to municipally owned utilities subject to
196-20   this section, this section shall apply whether or not the
196-21   municipally owned utility has adopted customer choice or serves in
196-22   a multiply certificated service area under the Utilities Code.
196-23         (f)  Nothing in this section is intended to preclude the
196-24   application of the enforcement and remedies provisions of
196-25   Subchapter G.
196-26         SECTION 46.  Subchapter C, Chapter 552, Government Code, is
196-27   amended by adding Section 552.131 to read as follows:
 197-1         Sec. 552.131.  EXCEPTION:  PUBLIC POWER UTILITY COMPETITIVE
 197-2   MATTERS.  (a)  In this section:
 197-3               (1)  "Public power utility" means an entity providing
 197-4   electric or gas utility services that is subject to the provisions
 197-5   of this chapter.
 197-6               (2)  "Public power utility governing body" means the
 197-7   board of trustees or other applicable governing body, including a
 197-8   city council, of a public power utility.
 197-9               (3)  "Competitive matter" means a utility-related
197-10   matter that the public power utility governing body in good faith
197-11   determines by a vote under this section is related to the public
197-12   power utility's competitive activity, including commercial
197-13   information, and would, if disclosed, give advantage to competitors
197-14   or prospective competitors, but may not be deemed to include the
197-15   following categories of information:
197-16                     (A)  information relating to the provision of
197-17   distribution access service, including the terms and conditions of
197-18   the service and the rates charged for the service but not including
197-19   information concerning utility-related services or products that
197-20   are competitive;
197-21                     (B)  information relating to the provision of
197-22   transmission service that is required to be filed with the Public
197-23   Utility Commission of Texas, subject to any confidentiality
197-24   provided for under the rules of the commission;
197-25                     (C)  information for the distribution system
197-26   pertaining to reliability and continuity of service, to the extent
197-27   not security-sensitive, that relates to emergency management,
 198-1   identification of critical loads such as hospitals and police,
 198-2   records of interruption, and distribution feeder standards;
 198-3                     (D)  any substantive rule of general
 198-4   applicability regarding service offerings, service regulation,
 198-5   customer protections, or customer service adopted by the public
 198-6   power utility as authorized by law;
 198-7                     (E)  aggregate information reflecting receipts or
 198-8   expenditures of funds of the public power utility, of the type that
 198-9   would be included in audited financial statements;
198-10                     (F)  information relating to equal employment
198-11   opportunities for minority groups, as filed with local, state, or
198-12   federal agencies;
198-13                     (G)  information relating to the public power
198-14   utility's performance in contracting with minority business
198-15   entities;
198-16                     (H)  information relating to nuclear
198-17   decommissioning trust agreements, of the type required to be
198-18   included in audited financial statements;
198-19                     (I)  information relating to the amount and
198-20   timing of any transfer to an owning city's general fund;
198-21                     (J)  information relating to environmental
198-22   compliance as required to be filed with any local, state, or
198-23   national environmental authority, subject to any confidentiality
198-24   provided under the rules of those authorities;
198-25                     (K)  names of public officers of the public power
198-26   utility and the voting records of those officers for all matters
198-27   other than those within the scope of a competitive resolution
 199-1   provided for by this section;
 199-2                     (L)  a description of the public power utility's
 199-3   central and field organization, including the established places at
 199-4   which the public may obtain information, submit information and
 199-5   requests, or obtain decisions and the identification of employees
 199-6   from whom the public may obtain information, submit information or
 199-7   requests, or obtain decisions; or
 199-8                     (M)  information identifying the general course
 199-9   and method by which the public power utility's functions are
199-10   channeled and determined, including the nature and requirements of
199-11   all formal and informal policies and procedures.
199-12         (b)  Information or records are excepted from the
199-13   requirements of Section 552.021 if the information or records are
199-14   reasonably related  to a competitive matter, as defined in this
199-15   section.  Excepted information or records include the text of any
199-16   resolution of the public power utility governing body determining
199-17   which issues, activities, or matters constitute competitive
199-18   matters.  Information or records of a municipally owned utility
199-19   that are reasonably related to a competitive matter are not subject
199-20   to disclosure under this chapter, whether or not, under the
199-21   Utilities Code, the municipally owned utility has adopted customer
199-22   choice or serves in a multiply certificated service area.  This
199-23   section does not limit the right of a public power utility
199-24   governing body to withhold from disclosure information deemed to be
199-25   within the scope of any other exception provided for in this
199-26   chapter, subject to the provisions of this chapter.
199-27         (c)  In connection with any request for an opinion of the
 200-1   attorney general under Section 552.301 with respect to information
 200-2   alleged to fall under this exception, in rendering a written
 200-3   opinion under Section 552.306 the attorney general shall find the
 200-4   requested information to be outside the scope of this exception
 200-5   only if the attorney general determines, based on the information
 200-6   provided in connection with the request:
 200-7               (1)  that the public power utility governing body has
 200-8   failed to act in good faith in making the determination that the
 200-9   issue, matter, or activity in question is a competitive matter; or
200-10               (2)  that the information or records sought to be
200-11   withheld are not reasonably related to a competitive matter.
200-12         SECTION 47.  Subsection (d), Section 791.011, Government
200-13   Code, is amended to read as follows:
200-14         (d)  An interlocal contract must:
200-15               (1)  be authorized by the governing body of each party
200-16   to the contract unless a party to the contract is a municipally
200-17   owned electric utility, in which event the governing body may
200-18   establish procedures for entering into interlocal contracts that do
200-19   not exceed $100,000 without requiring the approval of the governing
200-20   body;
200-21               (2)  state the purpose, terms, rights, and duties of
200-22   the contracting parties; and
200-23               (3)  specify that each party paying for the performance
200-24   of governmental functions or services must make those payments from
200-25   current revenues available to the paying party.
200-26         SECTION 48.  Subchapter A, Chapter 2256, Government Code, is
200-27   amended by adding Section 2256.0201 to read as follows:
 201-1         Sec. 2256.0201.  AUTHORIZED INVESTMENTS; MUNICIPAL UTILITY.
 201-2   (a)  A municipality that owns a municipal electric utility that is
 201-3   engaged in the distribution and sale of electric energy or natural
 201-4   gas to the public may enter into a hedging contract and related
 201-5   security and insurance agreements in relation to fuel oil, natural
 201-6   gas, and electric energy to protect against loss due to price
 201-7   fluctuations.  A hedging transaction must comply with the
 201-8   regulations of the Commodity Futures Trading Commission and the
 201-9   Securities and Exchange Commission.  If there is a conflict between
201-10   the municipal charter of the municipality and this chapter, this
201-11   chapter prevails.
201-12         (b)  A payment by a municipally owned electric or gas utility
201-13   under a hedging contract or related agreement in relation to fuel
201-14   supplies or fuel reserves is a fuel expense, and the utility may
201-15   credit any amounts it receives under the contract or agreement
201-16   against fuel expenses.
201-17         (c)  The governing body of a municipally owned electric or
201-18   gas utility or the body vested with power to manage and operate the
201-19   municipally owned electric or gas utility may set policy regarding
201-20   hedging transactions.
201-21         (d)  In this section, "hedging" means the buying and selling
201-22   of fuel oil, natural gas, and electric energy futures or options or
201-23   similar contracts on those commodity futures as a protection
201-24   against loss due to price fluctuation.
201-25         SECTION 49.  Subsections (a), (c), and (d), Section 52.133,
201-26   Natural Resources Code, are amended to read as follows:
201-27         (a)  Each oil or gas lease covering land leased by the board,
 202-1   by a board for lease [other than the Board for Lease of University
 202-2   Lands], or by the surface owner of land under which the state owns
 202-3   the minerals, commonly referred to as Relinquishment Act land,
 202-4   which shall be subject to approval by the commissioner before it is
 202-5   effective, shall include a provision granting the board authorized
 202-6   to lease the land or the owner of the soil of Relinquishment Act
 202-7   land and the commissioner authority to take their royalty in kind,
 202-8   and the commissioner and the boards for lease may include any other
 202-9   reasonable provisions that are not inconsistent with this section.
202-10         (c)  The commissioner, the owner of the soil under Subchapter
202-11   F [of this chapter], or the commissioner[,] acting on the behalf of
202-12   and at the direction of an owner of the soil under Subchapter F [of
202-13   this chapter], the board, or a board for lease, or at the direction
202-14   of the Board for Lease of University Lands, may negotiate and
202-15   execute contracts or any other instruments or agreements necessary
202-16   to dispose of or enhance their portion of the royalty taken in
202-17   kind, including contracts for sale, purchase, transportation, and
202-18   storage and including insurance contracts or other agreements, to
202-19   secure or guarantee payment.
202-20         (d)  The commissioner, the owner of the soil under Subchapter
202-21   F, or the commissioner acting on behalf of and at the direction of
202-22   an owner of the soil under Subchapter F, the board, or a board for
202-23   lease, may negotiate and execute contracts or any other instruments
202-24   or agreements necessary to convert that portion of the royalty
202-25   taken in kind into other forms of energy, including electricity.
202-26   [This section does not apply to or have any effect on the Board for
202-27   Lease of University Lands or any lease executed on university
 203-1   land.]
 203-2         SECTION 50.  Section 53.026, Natural Resources Code, is
 203-3   amended to read as follows:
 203-4         Sec. 53.026.  In Kind Royalty.  (a)  The commissioner or the
 203-5   commissioner acting on behalf of and at the direction of the board
 203-6   or a board for lease may negotiate and execute a contract or any
 203-7   other instrument or agreement necessary to dispose of or enhance
 203-8   their portion of the royalty taken in kind, including contracts [a
 203-9   contract] for sale, purchase, transportation, or storage.
203-10         (b)  The commissioner or the commissioner acting on behalf of
203-11   and at the direction of the board or a board for lease may
203-12   negotiate and execute a contract or any other instrument or
203-13   agreement necessary to convert that portion of the royalty taken in
203-14   kind to other forms of energy, including electricity.
203-15         (c)  This section shall not be construed to surrender or in
203-16   any way affect the right of the state under an existing or future
203-17   lease to receive monetary royalty from its lessee.
203-18         SECTION 51.  Section 53.077, Natural Resources Code, is
203-19   amended to read as follows:
203-20         Sec. 53.077.  In Kind Royalty.  (a)  The commissioner, each
203-21   owner of the soil under this subchapter, or the commissioner acting
203-22   on the behalf of and at the direction of an owner of the soil under
203-23   this subchapter may negotiate and execute a contract or any other
203-24   instrument or agreement necessary to dispose of or enhance their
203-25   portion of the royalty taken in kind, including a contract for
203-26   sale, transportation, or storage.
203-27         (b)  The commissioner, each owner of the soil under this
 204-1   subchapter, or the commissioner acting on behalf of and at the
 204-2   direction of the owner of the soil under this subchapter may
 204-3   negotiate and execute a contract or any other instrument or
 204-4   agreement necessary to convert that portion of the royalty taken in
 204-5   kind to other forms of energy, including electricity.
 204-6         (c)  This section shall not be construed to surrender or in
 204-7   any way affect the right of the state or the owner of the soil
 204-8   under an existing or future lease to receive monetary royalty from
 204-9   its lessee.
204-10         SECTION 52.  Chapter 245, Acts of the 67th Legislature,
204-11   Regular Session, 1981 (Article 717p, Vernon's Texas Civil
204-12   Statutes), is amended by adding Section 4C to read as follows:
204-13         Sec. 4C.  (a)  This section applies only to a river authority
204-14   that is engaged in the distribution and sale of electric energy to
204-15   the public.
204-16         (b)  Notwithstanding any other law, a river authority may:
204-17               (1)  provide transmission services, as defined by the
204-18   Utilities Code or the Public Utility Commission of Texas, on a
204-19   regional basis to any eligible transmission customer at any
204-20   location within or outside the boundaries of the river authority;
204-21   and
204-22               (2)  acquire, including by lease-purchase, lease from
204-23   or to any person, finance, construct, rebuild, operate, or sell
204-24   electric transmission facilities at any location within or outside
204-25   the boundaries of the river authority; provided, however, that
204-26   nothing in this section shall:
204-27                     (A)  allow a river authority to construct
 205-1   transmission facilities to an ultimate consumer of electricity to
 205-2   enable an ultimate consumer to bypass the transmission or
 205-3   distribution facilities of its existing provider; or
 205-4                     (B)  relieve a river authority from an obligation
 205-5   to comply with the provisions of the Utilities Code concerning a
 205-6   certificate of convenience and necessity for a transmission
 205-7   facility.
 205-8         SECTION 53.  Sections 1 and 2, Article 1115a, Revised
 205-9   Statutes, are amended to read as follows:
205-10         Sec. 1.  This article applies only to a home-rule
205-11   municipality that owns an electric utility system, that by
205-12   ordinance or charter elects to have the management and control of
205-13   the system governed by a board of trustees [this article], and
205-14   that:
205-15               (1)  has outstanding obligations payable in whole or
205-16   part [solely] from and secured by a lien on and pledge of net
205-17   revenues of the system; or
205-18               (2)  issues obligations that are payable in whole or
205-19   part [solely] from and secured by a lien on and pledge of the net
205-20   revenues of the system and that are approved by the attorney
205-21   general.
205-22         Sec. 2.  A municipality by ordinance may transfer management
205-23   and control of the electric utility system to a [five-member] board
205-24   of trustees appointed by the municipality's governing body.  The
205-25   municipality by ordinance shall determine [set] the qualifications
205-26   for appointment to the board and the number of members.  The
205-27   municipality may by ordinance vest the power to establish rates and
 206-1   related terms and conditions for its municipally owned electric
 206-2   utility in the board of trustees appointed under this section.
 206-3         SECTION 54.  Subsection (a), Section 151.0101, Tax Code, is
 206-4   amended to read as follows:
 206-5         (a)  "Taxable services" means:
 206-6               (1)  amusement services;
 206-7               (2)  cable television services;
 206-8               (3)  personal services;
 206-9               (4)  motor vehicle parking and storage services;
206-10               (5)  the repair, remodeling, maintenance, and
206-11   restoration of tangible personal property, except:
206-12                     (A)  aircraft;
206-13                     (B)  a ship, boat, or other vessel, other than:
206-14                           (i)  a taxable boat or motor as defined by
206-15   Section 160.001;
206-16                           (ii)  a sports fishing boat; or
206-17                           (iii)  any other vessel used for pleasure;
206-18                     (C)  the repair, maintenance, and restoration of
206-19   a motor vehicle; and
206-20                     (D)  the repair, maintenance, creation, and
206-21   restoration of a computer program, including its development and
206-22   modification, not sold by the person performing the repair,
206-23   maintenance, creation, or restoration service;
206-24               (6)  telecommunications services;
206-25               (7)  credit reporting services;
206-26               (8)  debt collection services;
206-27               (9)  insurance services;
 207-1               (10)  information services;
 207-2               (11)  real property services;
 207-3               (12)  data processing services;
 207-4               (13)  real property repair and remodeling;
 207-5               (14)  security services; [and]
 207-6               (15)  telephone answering services; and
 207-7               (16)  a sale by a transmission and distribution
 207-8   utility, as defined in Section 31.002, Utilities Code, of
 207-9   transmission or delivery of service directly to an electricity
207-10   end-use customer whose consumption of electricity is subject to
207-11   taxation under this chapter.
207-12         SECTION 55.  Subdivision (1), Section 182.021, Tax Code, is
207-13   amended to read as follows:
207-14               (1)  "Utility company" means a person:
207-15                     (A)  who owns or operates a gas[, electric light,
207-16   electric power,] or water works, or water [and light] plant used
207-17   for local sale and distribution located within an incorporated city
207-18   or town in this state; or
207-19                     (B)  who owns or operates an electric light or
207-20   electric power works, or light plant used for local sale and
207-21   distribution located within an incorporated city or town in this
207-22   state, or who is a retail electric provider, as that term is
207-23   defined in Section 31.002, Utilities Code, that makes local sales
207-24   within an incorporated city or town in this state; provided,
207-25   however, that a person who owns an electric light or electric power
207-26   or gas plant used for distribution but who does not make retail
207-27   sales to the ultimate consumer within an incorporated city or town
 208-1   in this state is not included in this definition.
 208-2         SECTION 56.  Effective January 1, 2002, Section 182.025, Tax
 208-3   Code, is amended to read as follows:
 208-4         Sec. 182.025.  CHARGES BY A CITY.  (a)  An incorporated city
 208-5   or town may make a reasonable lawful charge for the use of a city
 208-6   street, alley, or public way by a public utility in the course of
 208-7   its business.
 208-8         (b)  The total charges, however designated or measured, may
 208-9   not exceed two percent of the gross receipts of the public utility
208-10   for the sale of gas[, electric energy,] or water within the city.
208-11         (c)  The total charges, however designated or measured,
208-12   relating to distribution service of an electric utility or
208-13   transmission and distribution utility within the city may not
208-14   exceed the amount or amounts prescribed by Section 33.008,
208-15   Utilities Code. The charges paid by an electric utility or
208-16   transmission and distribution utility under this subsection may be
208-17   only for distribution service.
208-18         (d)  If a public utility taxed under this subchapter pays a
208-19   special tax, rental, contribution, or charge under a contract or
208-20   franchise executed before May 1, 1941, the city shall credit the
208-21   payment against the amount owed by the public utility on any charge
208-22   allowable under Subsection (a) of this section.
208-23         (e)  In this section:
208-24               (1)  "Distribution service" has the meaning assigned by
208-25   Section 33.008, Utilities Code.
208-26               (2)  "Electric utility" has the meaning assigned by
208-27   Section 31.002, Utilities Code.
 209-1               (3)  "Public utility" means:
 209-2                     (A)  a person who owns or operates a gas or water
 209-3   works or water plant used for local sale and distribution located
 209-4   within an incorporated city or town in this state; or
 209-5                     (B)  an electric utility or transmission and
 209-6   distribution utility providing distribution service within an
 209-7   incorporated city or town in this state.
 209-8               (4)  "Transmission and distribution utility" has the
 209-9   meaning assigned by Section 31.002, Utilities Code.
209-10         SECTION 57.  Subchapter B, Chapter 182, Tax Code, is amended
209-11   by adding Section 182.027 to read as follows:
209-12         Sec. 182.027.  NO EXEMPTION.  Notwithstanding anything to the
209-13   contrary in Chapter 161, Utilities Code, this subchapter applies to
209-14   a retail electric provider as defined in Section 31.002(17),
209-15   Utilities Code, that is owned, operated, or controlled by an
209-16   electric cooperative.
209-17         SECTION 58.  Subchapter E, Chapter 191, Tax Code, is amended
209-18   by adding Section 191.0825 to read as follows:
209-19         Sec. 191.0825.  REFUND OR CREDIT.  (a)  A person subject to
209-20   the tax imposed by this subchapter is entitled to a refund of the
209-21   tax imposed by this subchapter if:
209-22               (1)  the person performs taxable services on a gas well
209-23   that was drilled after January 1, 2000; and
209-24               (2)  the well produced gas that was primarily used as a
209-25   fuel to generate electricity.
209-26         (b)  The comptroller may provide for a person subject to the
209-27   tax imposed by this subchapter to claim a credit against the tax
 210-1   imposed by this subchapter instead of claiming a refund.
 210-2         SECTION 59.  Subchapter B, Chapter 201, Tax Code, is amended
 210-3   by adding Section 201.059, Tax Code, to read as follows:
 210-4         Sec. 201.059.  REFUND OR CREDIT OF TAX.  (a)  Natural gas
 210-5   produced from a gas well drilled after January 1, 2000, is exempt
 210-6   from the taxes imposed by this chapter if the gas produced from the
 210-7   well is primarily used as a fuel to generate electricity.
 210-8         (b)  The tax must be paid when due at the rate provided by
 210-9   Section 201.052 for all gas exempt under this section.  The person
210-10   responsible for paying the tax may apply to the comptroller for a
210-11   refund of the gas that is eligible for the tax exemption and is
210-12   entitled to receive a refund.
210-13         (c)  The comptroller may provide for a person responsible for
210-14   paying the tax imposed by this chapter to claim a credit against
210-15   the taxes imposed by this chapter instead of claiming a refund.
210-16         SECTION 60.  The Texas Public Finance Authority Act (Article
210-17   601d, Vernon's Texas Civil Statutes) is amended by adding Section
210-18   9E to read as follows:
210-19         Sec. 9E.  FINANCING OF STRANDED COSTS.  (a)  The authority
210-20   shall, either directly or by means of a trust or trusts established
210-21   by it, have the power to issue bonds, notes, certificates of
210-22   participation, or other obligations or evidences of indebtedness
210-23   ("indebtedness") for the purpose of financing stranded costs of a
210-24   municipal power agency created by concurrent resolution by its
210-25   member cities on or before August 1, 1975, pursuant to Chapter 163,
210-26   Utilities Code, or a predecessor statute to that chapter.  The
210-27   stranded costs of the municipal power agency are set forth as
 211-1   allocated to the member cities in the "Potentially Strandable
 211-2   Investment (ECOM) Report:  1998 Update" issued by the Public
 211-3   Utility Commission of Texas.
 211-4         (b)  At the request of any member city of a municipal power
 211-5   agency, which shall include a statement of the payment terms for
 211-6   recovering stranded costs, the authority shall issue indebtedness
 211-7   in the amount of the requesting member city's stranded costs, plus
 211-8   the costs described in Subdivision (1) along with issuance costs
 211-9   and shall make a grant of the proceeds of such indebtedness to the
211-10   municipal power agency, subject to conditions that:
211-11               (1)  the municipal power agency shall use such grant to
211-12   reduce the outstanding principal of the agency's debts allocable to
211-13   stranded costs of the requesting member city for federal income tax
211-14   purposes, whether by redemption, defeasance, or tender offer,
211-15   together with any interest expenses, call premium, tender premium,
211-16   or administrative expenses associated with such principal payment;
211-17   and
211-18               (2)  the municipal power agency shall reduce the amount
211-19   payable by the requesting member city under its power sales
211-20   contract with the agency to reflect the reduced debt service on the
211-21   agency's debt as a result of the foregoing payments.
211-22         (c)  Indebtedness issued by the authority pursuant to this
211-23   section shall be secured by nonbypassable charges imposed by the
211-24   authority upon retail customers receiving transmission and
211-25   distribution services provided by the requesting member city, which
211-26   shall be consistent with the stranded cost recovery terms set forth
211-27   in the requesting member city's application unless otherwise
 212-1   approved by the requesting member city.  Indebtedness issued by the
 212-2   authority pursuant to this section shall not be the debt of the
 212-3   State of Texas, the municipal power agency, or any member of the
 212-4   municipal power agency.
 212-5         (d)  The Public Utility Commission of Texas shall provide
 212-6   such assistance to the authority as is necessary to ensure the
 212-7   collection and enforcement of the nonbypassable charges, whether
 212-8   directly or by using the assistance and powers of the requesting
 212-9   member city.
212-10         (e)  The authority and the Public Utility Commission of Texas
212-11   are granted all such powers necessary to effectuate the foregoing
212-12   duties and responsibilities.  This section shall be interpreted
212-13   broadly in a manner consistent with the most cost-effective
212-14   financing of stranded costs.  To the extent possible, the
212-15   indebtedness issued by the authority shall be structured so that
212-16   the interest thereon is excluded from gross income for federal
212-17   income tax purposes.  In all events, the interest thereon shall not
212-18   be subject to tax or included as part of the measurement of tax by
212-19   the state or any of its political subdivisions.
212-20         SECTION 61.  Section 11(a), Texas Public Finance Authority
212-21   Act (Article 601d, Vernon's Texas Civil Statutes), is amended to
212-22   read as follows:
212-23         (a)  The board's authority under this Act is limited to the
212-24   financing of the acquisition or construction of a building, [or]
212-25   the purchase or lease of equipment, or the financing of stranded
212-26   costs of a municipal power agency.  That authority does not affect
212-27   the authority of the commission or any other state agency.
 213-1         SECTION 62.  The following provisions are repealed:
 213-2               (1)  Section 12.104, Utilities Code;
 213-3               (2)  Chapter 34, Utilities Code;
 213-4               (3)  Subchapters F and G, Chapter 36, Utilities Code;
 213-5   and
 213-6               (4)  Section 37.058, Utilities Code.
 213-7         SECTION 63.  (a)  Nothing in this Act shall restrict or limit
 213-8   a municipality's historical right to control and receive reasonable
 213-9   compensation for use of public streets, alleys, rights-of-way, or
213-10   other public property to convey or provide electricity.
213-11         (b)  Nothing in this Act shall affect a retail electric
213-12   utility's right to provide electric service in accordance with its
213-13   certificate of public convenience and necessity.  A certificate of
213-14   convenience and necessity may, however, be revoked or modified as
213-15   provided by Section 37.059, Utilities Code, and Section 37.060,
213-16   Utilities Code, as added by this Act.
213-17         SECTION 64.  Notwithstanding any other provision of this Act,
213-18   any person or entity that provides electric service to the
213-19   institution of higher education on December 31, 2001, shall
213-20   continue to offer electric service to an institution of higher
213-21   education until September 1, 2007, at a total rate that is no
213-22   higher than the rate paid by the institution on December 31, 2001.
213-23   The rate paid by an institution of higher education on December 31,
213-24   2001, shall be based on the rates provided for or described in
213-25   Section 36.351, Utilities Code.  As used in this section, "person
213-26   or entity" includes, but is not limited to, an electric utility,
213-27   retail electric provider, municipal corporation, cooperative
 214-1   corporation, or river authority.
 214-2         SECTION 65.  The Public Utility Commission of Texas shall
 214-3   study and make recommendations by December 15, 2000, to the
 214-4   legislature for additional legislation that would move to and
 214-5   establish a competitive electric market in accordance with the
 214-6   changes in law made by this Act.
 214-7         SECTION 66.  Not later than the 180th day after the effective
 214-8   date of this Act, the Public Utility Commission of Texas shall
 214-9   establish rules and procedures for the securitization of stranded
214-10   costs for river authorities, as provided by Subdivision (2),
214-11   Subsection (a), Section 40.003, Utilities Code, as added by this
214-12   Act, and for electric cooperatives, as provided by Section 41.003,
214-13   Utilities Code.
214-14         SECTION 67.  This Act takes effect September 1, 1999.
214-15         SECTION 68.  The importance of this legislation and the
214-16   crowded condition of the calendars in both houses create an
214-17   emergency and an imperative public necessity that the
214-18   constitutional rule requiring bills to be read on three several
214-19   days in each house be suspended, and this rule is hereby suspended.