1-1     By:  Sibley, et al.                                      S.B. No. 7
 1-2           (In the Senate - Filed January 20, 1999; January 26, 1999,
 1-3     read first time and referred to Special Committee on Electric
 1-4     Utility Restructuring; March 11, 1999, reported adversely, with
 1-5     favorable Committee Substitute by the following vote:  Yeas 7, Nays
 1-6     0; March 11, 1999, sent to printer.)
 1-7     COMMITTEE SUBSTITUTE FOR S.B. No. 7                       By:  Cain
 1-8                            A BILL TO BE ENTITLED
 1-9                                   AN ACT
1-10     relating to electric utility restructuring and to the powers and
1-11     duties of the Public Utility Commission of Texas; providing civil
1-12     and administrative penalties; making an appropriation.
1-13           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-14           SECTION 1.  Section 11.003, Utilities Code, is amended to
1-15     read as follows:
1-16           Sec. 11.003.  DEFINITIONS.  In this title:
1-17                 (1)  "Affected person" means:
1-18                       (A)  a public utility or electric cooperative
1-19     affected by an action of a regulatory authority;
1-20                       (B)  a person whose utility service or rates are
1-21     affected by a proceeding before a regulatory authority; or
1-22                       (C)  a person who:
1-23                             (i)  is a competitor of a public utility
1-24     with respect to a service performed by the utility; or
1-25                             (ii)  wants to enter into competition with
1-26     a public utility.
1-27                 (2)  "Affiliate" means:
1-28                       (A)  a person who directly or indirectly owns or
1-29     holds at least five percent of the voting securities of a public
1-30     utility;
1-31                       (B)  a person in a chain of successive ownership
1-32     of at least five percent of the voting securities of a public
1-33     utility;
1-34                       (C)  a corporation that has at least five percent
1-35     of its voting securities owned or controlled, directly or
1-36     indirectly, by a public utility;
1-37                       (D)  a corporation that has at least five percent
1-38     of its voting securities owned or controlled, directly or
1-39     indirectly, by:
1-40                             (i)  a person who directly or indirectly
1-41     owns or controls at least five percent of the voting securities of
1-42     a public utility; or
1-43                             (ii)  a person in a chain of successive
1-44     ownership of at least five percent of the voting securities of a
1-45     public utility;
1-46                       (E)  a person who is an officer or director of a
1-47     public utility or of a corporation in a chain of successive
1-48     ownership of at least five percent of the voting securities of a
1-49     public utility; or
1-50                       (F)  a person determined to be an affiliate under
1-51     Section 11.006.
1-52                 (3)  "Allocation" means the division among
1-53     municipalities or among municipalities and unincorporated areas of
1-54     the plant, revenues, expenses, taxes, and reserves of a utility
1-55     used to provide public utility service in a municipality or for a
1-56     municipality and unincorporated areas.
1-57                 (4)  "Commission" means the Public Utility Commission
1-58     of Texas.
1-59                 (5)  "Commissioner" means a member of the Public
1-60     Utility Commission of Texas.
1-61                 (6)  "Cooperative corporation" means:
1-62                       (A)  an electric cooperative [corporation
1-63     organized under Chapter 161 or a predecessor statute to Chapter 161
1-64     and operating under that chapter]; or
 2-1                       (B)  a telephone cooperative corporation
 2-2     organized under Chapter 162 or a predecessor statute to Chapter 162
 2-3     and operating under that chapter.
 2-4                 (7)  "Corporation" means a domestic or foreign
 2-5     corporation, joint-stock company, or association, and each lessee,
 2-6     assignee, trustee, receiver, or other successor in interest of the
 2-7     corporation, company, or association, that has any of the powers or
 2-8     privileges of a corporation not possessed by an individual or
 2-9     partnership.  The term does not include a municipal corporation or
2-10     electric cooperative, except as expressly provided by this title.
2-11                 (8)  "Counsellor" means the public utility counsel.
2-12                 (9)  "Electric cooperative" means:
2-13                       (A)  a corporation organized under Chapter 161 or
2-14     a predecessor statute to Chapter 161 and operating under that
2-15     chapter;
2-16                       (B)  a corporation organized as an electric
2-17     cooperative in a state other than Texas that has obtained a
2-18     certificate of authority to conduct affairs in the State of Texas;
2-19     or
2-20                       (C)  a successor to an electric cooperative
2-21     created in accordance with a conversion plan approved by a vote of
2-22     the members of the electric cooperative before June 1, 1999.
2-23                 (10)  "Facilities" means all of the plant and equipment
2-24     of a public utility, and includes the tangible and intangible
2-25     property, without limitation, owned, operated, leased, licensed,
2-26     used, controlled, or supplied for, by, or in connection with the
2-27     business of the public utility.
2-28                 (11) [(10)]  "Municipally owned utility" means a
2-29     utility owned, operated, and controlled by a municipality or by a
2-30     nonprofit corporation the directors of which are appointed by one
2-31     or more municipalities.
2-32                 (12) [(11)]  "Office" means the Office of Public
2-33     Utility Counsel.
2-34                 (13) [(12)]  "Order" means all or a part of a final
2-35     disposition by a regulatory authority in a matter other than
2-36     rulemaking, without regard to whether the disposition is
2-37     affirmative or negative or injunctive or declaratory.  The term
2-38     includes:
2-39                       (A)  the issuance of a certificate of convenience
2-40     and necessity; and
2-41                       (B)  the setting of a rate.
2-42                 (14) [(13)]  "Person" includes an individual, a
2-43     partnership of two or more persons having a joint or common
2-44     interest, a mutual or cooperative association, and a corporation,
2-45     but does not include an electric cooperative.
2-46                 (15) [(14)]  "Proceeding" means a hearing,
2-47     investigation, inquiry, or other procedure for finding facts or
2-48     making a decision under this title.  The term includes a denial of
2-49     relief or dismissal of a complaint.
2-50                 (16) [(15)]  "Rate" includes:
2-51                       (A)  any compensation, tariff, charge, fare,
2-52     toll, rental, or classification that is directly or indirectly
2-53     demanded, observed, charged, or collected by a public utility for a
2-54     service, product, or commodity described in the definition of
2-55     utility in Section 31.002 or 51.002; and
2-56                       (B)  a rule, practice, or contract affecting the
2-57     compensation, tariff, charge, fare, toll, rental, or
2-58     classification.
2-59                 (17) [(16)]  "Ratemaking proceeding" means[:]
2-60                       [(A)]  a proceeding in which a rate is changed[;
2-61     and]
2-62                       [(B)  a proceeding initiated under Chapter 34].
2-63                 (18) [(17)]  "Regulatory authority" means either the
2-64     commission or the governing body of a municipality, in accordance
2-65     with the context.
2-66                 (19) [(18)]  "Service" has its broadest and most
2-67     inclusive meaning.  The term includes any act performed, anything
2-68     supplied, and any facilities used or supplied by a public utility
2-69     in the performance of the utility's duties under this title to its
 3-1     patrons, employees, other public utilities, an electric
 3-2     cooperative, and the public.  The term also includes the
 3-3     interchange of facilities between two or more public utilities.
 3-4     The term does not include the printing, distribution, or sale of
 3-5     advertising in a telephone directory.
 3-6                 (20) [(19)]  "Test year" means the most recent 12
 3-7     months, beginning on the first day of a calendar or fiscal year
 3-8     quarter, for which operating data for a public utility are
 3-9     available.
3-10                 (21) [(20)]  "Trade association" means a nonprofit,
3-11     cooperative, and voluntarily joined association of business or
3-12     professional persons who are employed by public utilities or
3-13     utility competitors to assist the public utility industry, a
3-14     utility competitor, or the industry's or competitor's employees in
3-15     dealing with mutual business or professional problems and in
3-16     promoting their common interest.
3-17           SECTION 2.  Section 12.005, Utilities Code, is amended to
3-18     read as follows:
3-19           Sec. 12.005.  APPLICATION OF SUNSET ACT.  The Public Utility
3-20     Commission of Texas is subject to Chapter 325, Government Code
3-21     (Texas Sunset Act).  Unless continued in existence as provided by
3-22     that chapter, the commission is abolished and this title expires
3-23     September 1, 2005 [2001].
3-24           SECTION 3.  Section 12.101, Utilities Code, is amended to
3-25     read as follows:
3-26           Sec. 12.101.  COMMISSION EMPLOYEES.  The commission shall
3-27     employ:
3-28                 (1)  an executive director; and
3-29                 (2)  [a general counsel; and]
3-30                 [(3)]  officers and other employees the commission
3-31     considers necessary to administer this title.
3-32           SECTION 4.  Sections 12.151 and 12.152, Utilities Code, are
3-33     amended to read as follows:
3-34           Sec. 12.151.  REGISTERED LOBBYIST.  A person required to
3-35     register as a lobbyist under Chapter 305, Government Code, because
3-36     of the person's activities for compensation on behalf of a
3-37     profession related to the operation of the commission may not serve
3-38     as a commissioner [or act as general counsel to the commission].
3-39           Sec. 12.152.  Conflict of Interest.  (a)  A person is not
3-40     eligible for appointment as a commissioner [or for employment as
3-41     the general counsel] or executive director of the commission if:
3-42                 (1)  the person serves on the board of directors of a
3-43     company that supplies fuel, utility-related services, or
3-44     utility-related products to regulated or unregulated electric or
3-45     telecommunications utilities; or
3-46                 (2)  the person or the person's spouse:
3-47                       (A)  is employed by or participates in the
3-48     management of a business entity or other organization that is
3-49     regulated by or receives funds from the commission;
3-50                       (B)  directly or indirectly owns or controls more
3-51     than a 10 percent interest or a pecuniary interest with a value
3-52     exceeding $10,000 in:
3-53                             (i)  a business entity or other
3-54     organization that is regulated by or receives funds from the
3-55     commission; or
3-56                             (ii)  a utility competitor, utility
3-57     supplier, or other entity affected by a commission decision in a
3-58     manner other than by the setting of rates for that class of
3-59     customer;
3-60                       (C)  uses or receives a substantial amount of
3-61     tangible goods, services, or funds from the commission, other than
3-62     compensation or reimbursement authorized by law for commission
3-63     membership, attendance, or expenses; or
3-64                       (D)  notwithstanding Paragraph (B), has an
3-65     interest in a mutual fund or retirement fund in which more than 10
3-66     percent of the fund's holdings at the time of appointment is in a
3-67     single utility, utility competitor, or utility supplier in this
3-68     state and the person does not disclose this information to the
3-69     governor, senate, commission, or other entity, as appropriate.
 4-1           (b)  A person otherwise ineligible because of Subsection
 4-2     (a)(2)(B) may be appointed to the commission and serve as a
 4-3     commissioner or may be employed as [the general counsel or]
 4-4     executive director if the person:
 4-5                 (1)  notifies the attorney general and commission that
 4-6     the person is ineligible because of Subsection (a)(2)(B); and
 4-7                 (2)  divests the person or the person's spouse of the
 4-8     ownership or control:
 4-9                       (A)  before beginning service or employment; or
4-10                       (B)  if the person is already serving or
4-11     employed, within a reasonable time.
4-12           SECTION 5.  Section 13.002, Utilities Code, is amended to
4-13     read as follows:
4-14           Sec. 13.002.  APPLICATION OF SUNSET ACT.  The Office of
4-15     Public Utility Counsel is subject to Chapter 325, Government Code
4-16     (Texas Sunset Act).  Unless continued in existence as provided by
4-17     that chapter, the office is abolished and this chapter expires
4-18     September 1, 2005 [2001].
4-19           SECTION 6.  Subsection (d), Section 14.101, Utilities Code,
4-20     is amended to read as follows:
4-21           (d)  This section does not apply to:
4-22                 (1)  the purchase of a unit of property for
4-23     replacement; [or]
4-24                 (2)  an addition to the facilities of a public utility
4-25     by construction; or
4-26                 (3)  transactions that facilitate unbundling, asset
4-27     valuation, minimization of ownership or control of generation
4-28     assets, or other purposes consistent with Chapter 39.
4-29           SECTION 7.  Subsections (a) and (b), Section 16.001,
4-30     Utilities Code, are amended to read as follows:
4-31           (a)  To defray the expenses incurred in the administration of
4-32     this title, an assessment is imposed on each public utility, retail
4-33     electric provider, and electric cooperative within the jurisdiction
4-34     of the commission that serves the ultimate consumer, including each
4-35     interexchange telecommunications carrier.
4-36           (b)  An assessment under this section is equal to one-sixth
4-37     of one percent of the public utility's, retail electric provider's,
4-38     or electric cooperative's gross receipts from rates charged to the
4-39     ultimate consumer in this state.
4-40           SECTION 8.  Section 31.002, Utilities Code, is amended to
4-41     read as follows:
4-42           Sec. 31.002.  DEFINITIONS.  In this subtitle:
4-43                 (1)  "Affiliated power generation company" means a
4-44     power generation company that is affiliated with or the successor
4-45     in interest of an electric utility certificated to serve an area.
4-46                 (2)  "Affiliated retail electric provider" means a
4-47     retail electric provider that is affiliated with or the successor
4-48     in interest of an electric utility certificated to serve an area.
4-49                 (3)  "Aggregation" includes the following:
4-50                       (A)  the purchase of electricity from a retail
4-51     electric provider by an electricity customer for its own use in
4-52     multiple locations; or
4-53                       (B)  the purchase of electricity by an
4-54     electricity customer as part of a voluntary association of
4-55     electricity customers.
4-56                 (4)  "Customer choice" means the freedom of a retail
4-57     customer to purchase electric services, either individually or
4-58     through voluntary aggregation with other retail customers, from the
4-59     provider or providers of the customer's choice and to choose among
4-60     various fuel types, energy efficiency programs, and renewable power
4-61     suppliers.
4-62                 (5)  "Electric Reliability Council of Texas" or "ERCOT"
4-63     means the area in Texas served by electric utilities, municipally
4-64     owned utilities, and electric cooperatives that is not
4-65     synchronously interconnected with electric utilities outside the
4-66     state.
4-67                 (6)  "Electric utility" means a person or river
4-68     authority that owns or operates for compensation in this state
4-69     equipment or facilities to produce, generate, transmit, distribute,
 5-1     sell, or furnish electricity in this state.  The term includes a
 5-2     lessee, trustee, or receiver of an electric utility and a
 5-3     recreational vehicle park owner who does not comply with Subchapter
 5-4     C, Chapter 184, with regard to the metered sale of electricity at
 5-5     the recreational vehicle park.  The term does not include:
 5-6                       (A)  a municipal corporation;
 5-7                       (B)  a qualifying facility;
 5-8                       (C)  a power generation company;
 5-9                       (D)  an exempt wholesale generator;
5-10                       (E) [(D)]  a power marketer;
5-11                       (F) [(E)]  a corporation described by Section
5-12     32.053 to the extent the corporation sells electricity exclusively
5-13     at wholesale and not to the ultimate consumer; or
5-14                       (G)  an electric cooperative;
5-15                       (H)  a retail electric provider;
5-16                       (I)  this state or an agency of this state; or
5-17                       (J) [(F)]  a person not otherwise an electric
5-18     utility who:
5-19                             (i)  furnishes an electric service or
5-20     commodity only to itself, its employees, or its tenants as an
5-21     incident of employment or tenancy, if that service or commodity is
5-22     not resold to or used by others;
5-23                             (ii)  owns or operates in this state
5-24     equipment or facilities to produce, generate, transmit, distribute,
5-25     sell, or furnish electric energy to an electric utility, if the
5-26     equipment or facilities are used primarily to produce and generate
5-27     electric energy for consumption by that person; or
5-28                             (iii)  owns or operates in this state a
5-29     recreational vehicle park that provides metered electric service in
5-30     accordance with Subchapter C, Chapter 184.
5-31                 (7) [(2)]  "Exempt wholesale generator" means a person
5-32     who is engaged directly or indirectly through one or more
5-33     affiliates exclusively in the business of owning or operating all
5-34     or part of a facility for generating electric energy and selling
5-35     electric energy at wholesale and who:
5-36                       (A)  does not own a facility for the transmission
5-37     of electricity, other than an essential interconnecting
5-38     transmission facility necessary to effect a sale of electric energy
5-39     at wholesale; and
5-40                       (B)  has:
5-41                             (i)  applied to the Federal Energy
5-42     Regulatory Commission for a determination under 15 U.S.C. Section
5-43     79z-5a; or
5-44                             (ii)  registered as an exempt wholesale
5-45     generator as required by Section 35.032.
5-46                 (8)  "Freeze period" means the period beginning on
5-47     January 1, 1999, and ending on December 31, 2001.
5-48                 (9)  "Independent system operator" means an entity
5-49     supervising the collective transmission facilities of a power
5-50     region that is charged with nondiscriminatory coordination of
5-51     market transactions, systemwide transmission planning, and network
5-52     reliability.
5-53                 (10)  "Power generation company" means a person who:
5-54                       (A)  generates electricity that is intended to be
5-55     sold at wholesale;
5-56                       (B)  does not own a transmission or distribution
5-57     facility in this state other than an essential interconnecting
5-58     facility, a facility not dedicated to public use, or a facility
5-59     otherwise excluded from the definition of "electric utility" under
5-60     Subdivision (6); and
5-61                       (C)  does not have a certificated service area,
5-62     although its affiliated electric utility or transmission and
5-63     distribution utility may have a certificated service area.
5-64                 (11) [(3)]  "Power marketer" means a person who:
5-65                       (A)  becomes an owner of electric energy in this
5-66     state for the purpose of selling the electric energy at wholesale;
5-67                       (B)  does not own generation, transmission, or
5-68     distribution facilities in this state;
5-69                       (C)  does not have a certificated service area;
 6-1     and
 6-2                       (D)  has:
 6-3                             (i)  been granted authority by the Federal
 6-4     Energy Regulatory Commission to sell electric energy at
 6-5     market-based rates; or
 6-6                             (ii)  registered as a power marketer under
 6-7     Section 35.032.
 6-8                 (12)  "Power region" means a contiguous geographical
 6-9     area which is a distinct region of the North American Electric
6-10     Reliability Council.
6-11                 (13) [(4)]  "Qualifying cogenerator" and "qualifying
6-12     small power producer" have the meanings assigned those terms by 16
6-13     U.S.C. Sections 796(18)(C) and 796(17)(D).  A qualifying
6-14     cogenerator that provides electricity to the purchaser of the
6-15     cogenerator's thermal output is not for that reason considered to
6-16     be a retail electric provider or a power generation company.
6-17                 (14) [(5)]  "Qualifying facility" means a qualifying
6-18     cogenerator or qualifying small power producer.
6-19                 (15) [(6)]  "Rate" includes a compensation, tariff,
6-20     charge, fare, toll, rental, or classification that is directly or
6-21     indirectly demanded, observed, charged, or collected by an electric
6-22     utility for a service, product, or commodity described in the
6-23     definition of electric utility in this section and a rule,
6-24     practice, or contract affecting the compensation, tariff, charge,
6-25     fare, toll, rental, or classification that must be approved by a
6-26     regulatory authority.
6-27                 (16)  "Retail customer" means the separately metered
6-28     end-use customer who purchases and ultimately consumes electricity.
6-29                 (17)  "Retail electric provider" means a person that
6-30     sells electric energy to retail customers in this state.  A retail
6-31     electric provider may not own, operate, or control generation
6-32     assets.
6-33                 (18)  "Separately metered" means metered by an
6-34     individual meter that is used to measure electric energy
6-35     consumption by a retail customer and for which the customer is
6-36     directly billed by a utility or retail electric provider.
6-37                 (19)  "Transmission and distribution utility" means a
6-38     person or river authority that owns or operates for compensation in
6-39     this state equipment or facilities to transmit or distribute
6-40     electricity, except for facilities necessary to interconnect a
6-41     generation facility with the transmission or distribution network,
6-42     a facility not dedicated to public use, or a facility otherwise
6-43     excluded from the definition of "electric utility" under
6-44     Subdivision (6), in a qualifying power region certified pursuant to
6-45     Section 39.152 but does not include a municipally owned utility or
6-46     an electric cooperative.
6-47                 (20) [(7)]  "Transmission service" includes
6-48     construction or enlargement of facilities, transmission over
6-49     distribution facilities, control area services, scheduling
6-50     resources, regulation services, reactive power support, voltage
6-51     control, provision of operating reserves, and any other associated
6-52     electrical service the commission determines appropriate.
6-53           SECTION 9.  Subchapter A, Chapter 32, Utilities Code, is
6-54     amended by adding Section 32.0015 to read as follows:
6-55           Sec. 32.0015.  REGULATION OF SUCCESSOR ELECTRIC UTILITY OR
6-56     ELECTRIC COOPERATIVE.  If an electric utility purchases, acquires,
6-57     merges, or consolidates with or acquires 50 percent or more of the
6-58     stock of an electric utility or electric cooperative, the
6-59     commission shall regulate the successor electric utility or
6-60     electric cooperative in the same manner that the commission would
6-61     regulate the entity that was subject to the stricter regulation
6-62     before the purchase, acquisition, merger, or consolidation.
6-63           SECTION 10.  Sections 32.051 and 32.052, Utilities Code, are
6-64     amended to read as follows:
6-65           Sec. 32.051.  Exemption of River Authority From Wholesale
6-66     Rate Regulation.  Notwithstanding any other provision of this
6-67     title, the commission may not directly or indirectly regulate
6-68     revenue requirements, rates, fuel costs, fuel charges, or fuel
6-69     acquisitions that are related to the generation and sale of
 7-1     electricity at wholesale, and not to ultimate consumers, by a river
 7-2     authority operating a steam generating plant on or before
 7-3     January 1, 1999.
 7-4           Sec. 32.052.  Ability of Certain River Authorities to
 7-5     Construct Improvements.  A river authority operating a steam
 7-6     generating plant on or before January 1, 1999, may acquire,
 7-7     finance, construct, rebuild, repower, and use new or existing power
 7-8     plants, equipment, transmission lines, or other assets to sell
 7-9     electricity exclusively at wholesale to:
7-10                 (1)  a purchaser in San Saba, Llano, Burnet, Travis,
7-11     Bastrop, Blanco, Colorado, or Fayette County; or
7-12                 (2)  a purchaser in an area served by the river
7-13     authority on January 1, 1975.
7-14           SECTION 11.  Section 32.053, Utilities Code, is amended by
7-15     amending Subsections (b) and (f) and adding Subsections (g) and (h)
7-16     to read as follows:
7-17           (b)  Notwithstanding a river authority's enabling legislation
7-18     or Chapter 245, Acts of the 67th Legislature, Regular Session, 1981
7-19     (Article 717p, Vernon's Texas Civil Statutes), a corporation may:
7-20                 (1)  acquire, finance, construct, rebuild, repower,
7-21     operate, or sell a facility directly related to the generation of
7-22     electricity; [and]
7-23                 (2)  sell, at wholesale only, the output of the
7-24     facility to a purchaser, other than an ultimate consumer, at any
7-25     location in this state; and
7-26                 (3)  purchase and sell electricity, at wholesale only,
7-27     to a purchaser, other than an ultimate consumer, at any location in
7-28     this state.
7-29           (f)  The proceeds from the sale of bonds or other obligations
7-30     the interest on which is exempt from taxation and that are issued
7-31     by a corporation or river authority subject to this section, other
7-32     than a bond or obligation available to an investor-owned utility or
7-33     exempt wholesale generator, may not be used by the corporation[,
7-34     and may not have been used,] to finance the construction or
7-35     acquisition of or the rebuilding or repowering of a facility for
7-36     the generation of electricity by the corporation.
7-37           (g)  Notwithstanding any other law, the board of directors of
7-38     a river authority may sell, lease, loan, or otherwise transfer
7-39     some, all, or substantially all of the electric generation property
7-40     of the river authority to a nonprofit corporation authorized under
7-41     this section or Chapter 245, Acts of the 67th Legislature, Regular
7-42     Session, 1981 (Article 717p, Vernon's Texas Civil Statutes).  The
7-43     property transfer shall be made pursuant to terms and conditions
7-44     approved by the board of directors of the river authority.
7-45           (h)  Subsections (a)-(f) do not apply to a corporation
7-46     created pursuant to Chapter 245, Acts of the 67th Legislature,
7-47     Regular Session, 1981 (Article 717p, Vernon's Texas Civil
7-48     Statutes), to serve an area described in Section 32.052.
7-49           SECTION 12.  Section 35.001, Utilities Code, is amended to
7-50     read as follows:
7-51           Sec. 35.001.  Definition.  In this subchapter, "electric
7-52     utility" includes a municipally owned utility and an electric
7-53     cooperative.
7-54           SECTION 13.  Section 35.004, Utilities Code, is amended to
7-55     read as follows:
7-56           Sec. 35.004.  PROVISION OF TRANSMISSION SERVICE.  (a)  An
7-57     electric utility or transmission and distribution utility that owns
7-58     or operates transmission facilities shall provide wholesale
7-59     transmission service at rates and terms, including terms of access,
7-60     that are comparable to the rates and terms of the utility's own use
7-61     of its system.
7-62           (b)  The commission shall ensure that an electric utility or
7-63     transmission and distribution utility provides nondiscriminatory
7-64     access to wholesale transmission service for qualifying facilities,
7-65     exempt wholesale generators, power marketers, power generation
7-66     companies, retail electric providers, and other electric utilities
7-67     or transmission and distribution utilities.
7-68           (c)  When an electric utility, electric cooperative, or
7-69     transmission and distribution utility provides wholesale
 8-1     transmission service within ERCOT at the request of a third party,
 8-2     the commission shall ensure that the utility recovers the utility's
 8-3     reasonable costs in providing wholesale transmission services
 8-4     necessary for the transaction from the entity for which the
 8-5     transmission is provided so that the utility's other customers do
 8-6     not bear the costs of the service.
 8-7           (d)  The commission shall price wholesale transmission
 8-8     services within ERCOT based on the postage stamp method of pricing
 8-9     under which a transmission-owning utility's rate is based on the
8-10     ERCOT utilities' combined annual costs of transmission divided by
8-11     the total demand placed on the combined transmission systems of all
8-12     such transmission-owning utilities within a power region.  An
8-13     electric utility subject to the freeze period imposed by Section
8-14     39.052 may treat transmission costs in excess of transmission
8-15     revenues during the freeze period as an expense for purposes of
8-16     determining annual costs in the annual report filed pursuant to
8-17     Section 39.257.  Notwithstanding Section 36.201, the commission may
8-18     approve rates that may be periodically adjusted to ensure timely
8-19     recovery of transmission investment.
8-20           (e)  The commission shall ensure that ancillary services
8-21     necessary to facilitate the transmission of electric energy are
8-22     available at reasonable prices with terms and conditions that are
8-23     not unreasonably preferential, prejudicial, discriminatory,
8-24     predatory, or anticompetitive.  In this subsection, "ancillary
8-25     services" means services necessary to facilitate the transmission
8-26     of electric energy including load following, standby power, backup
8-27     power, reactive power, and such other services as the commission
8-28     may determine by rule.
8-29           SECTION 14.  Subsection (b), Section 35.005, Utilities Code,
8-30     is amended to read as follows:
8-31           (b)  The commission may require transmission service at
8-32     wholesale, including the construction or enlargement of a
8-33     facility[, in a proceeding not related to approval of an integrated
8-34     resource plan].
8-35           SECTION 15.  Section 35.033, Utilities Code, is amended to
8-36     read as follows:
8-37           Sec. 35.033.  Affiliate Wholesale Provider.  An affiliate of
8-38     an electric utility may be an exempt wholesale generator or power
8-39     marketer and may sell electric energy to its affiliated electric
8-40     utility in accordance with [Chapter 34 and other] laws governing
8-41     wholesale sales of electric energy.
8-42           SECTION 16.  Section 35.034, Utilities Code, is amended by
8-43     adding Subsection (c) to read as follows:
8-44           (c)  For purposes of this section, "electric utility" does
8-45     not include a river authority.
8-46           SECTION 17.  Section 35.035, Utilities Code, is amended by
8-47     adding Subsection (d) to read as follows:
8-48           (d)  For purposes of this section, "electric utility" does
8-49     not include a river authority.
8-50           SECTION 18.  Chapter 35, Utilities Code, is amended by adding
8-51     Subchapter D to read as follows:
8-52           SUBCHAPTER D.  STATE AUTHORITY TO SELL OR CONVEY POWER
8-53           Sec. 35.101.  DEFINITIONS.  In this subchapter:
8-54                 (1)  "Commissioner" means the Commissioner of the
8-55     General Land Office.
8-56                 (2)  "Public retail customer" means a retail customer
8-57     that is an agency of this state, an institution of higher
8-58     education, a public school district, or a political subdivision of
8-59     this state.
8-60           Sec. 35.102.  STATE AUTHORITY TO SELL OR CONVEY POWER.  The
8-61     commissioner, acting on behalf of the state, may sell or otherwise
8-62     convey power directly to a public retail customer regardless of
8-63     whether the public retail customer is also classified as a
8-64     wholesale customer under other provisions of this title.
8-65           Sec. 35.103.  ACCESS TO TRANSMISSION AND DISTRIBUTION
8-66     SYSTEMS; RATES.  (a)  The state is entitled to have access to all
8-67     transmission and distribution systems of all electric utilities,
8-68     transmission and distribution utilities, municipally owned
8-69     utilities, and electric cooperatives that serve public retail
 9-1     customers.
 9-2           (b)  An entity described by Subsection (a) shall provide any
 9-3     utility service, including transmission, distribution, and other
 9-4     services, to the state at the lowest applicable rate charged for
 9-5     similar service to other customers.
 9-6           Sec. 35.104.  LIMIT IN CERTAIN AREAS.  In a certificated
 9-7     service area in which customer choice has not been introduced, the
 9-8     state may not engage in retail transactions that exceed 2.5 percent
 9-9     of a retail electric utility's total retail load.
9-10           Sec. 35.105.  COSTS OF SERVING STATE AGENCY.  An electric
9-11     utility, a municipally owned utility, or an electric cooperative
9-12     may not recover from a residential customer or from any other
9-13     customer class the assigned and allocated costs of serving a state
9-14     agency, institution of higher education, public school district, or
9-15     political subdivision of this state.
9-16           Sec. 35.106.  WHOLESALE CUSTOMERS.  This subchapter does not
9-17     prevent the commissioner, acting on behalf of this state, from
9-18     registering as a power marketer.
9-19           SECTION 19.  Section 36.008, Utilities Code, is amended to
9-20     read as follows:
9-21           Sec. 36.008.  STATE TRANSMISSION SYSTEM. In establishing
9-22     rates for an electric utility [not required to file an integrated
9-23     resource plan], the commission may review the state's transmission
9-24     system and make recommendations to the utility on the need to build
9-25     new power lines, upgrade power lines, and make other necessary
9-26     improvements and additions.
9-27           SECTION 20.  Section 36.052, Utilities Code, is amended to
9-28     read as follows:
9-29           Sec. 36.052.  ESTABLISHING REASONABLE RETURN.  In
9-30     establishing a reasonable return on invested capital, the
9-31     regulatory authority shall consider applicable factors, including:
9-32                 (1)  [the efforts of the electric utility to comply
9-33     with its most recently approved integrated resource plan;]
9-34                 [(2)]  the efforts and achievements of the utility in
9-35     conserving resources;
9-36                 (2) [(3)]  the quality of the utility's services;
9-37                 (3) [(4)]  the efficiency of the utility's operations;
9-38     and
9-39                 (4) [(5)]  the quality of the utility's management.
9-40           SECTION 21.  Subsection (d), Section 36.058, Utilities Code,
9-41     is amended to read as follows:
9-42           (d)  In making a finding regarding an affiliate transaction,
9-43     [including an affiliate transaction subject to Chapter 34,] the
9-44     regulatory authority shall:
9-45                 (1)  determine the extent to which the conditions and
9-46     circumstances of that transaction are reasonably comparable
9-47     relative to quantity, terms, date of contract, and place of
9-48     delivery; and
9-49                 (2)  allow for appropriate differences based on that
9-50     determination.
9-51           SECTION 22.  Section 36.201, Utilities Code, is amended to
9-52     read as follows:
9-53           Sec. 36.201.  AUTOMATIC ADJUSTMENT FOR CHANGES IN COSTS.
9-54     Except as permitted by [Chapter 34 or] Section 36.204, the
9-55     commission may not establish a rate or tariff that authorizes an
9-56     electric utility to automatically adjust and pass through to the
9-57     utility's customers a change in the utility's fuel or other costs.
9-58           SECTION 23.  Section 36.204, Utilities Code, is amended to
9-59     read as follows:
9-60           Sec. 36.204.  COST RECOVERY AND INCENTIVES.  In establishing
9-61     rates for an electric utility [not required to file an integrated
9-62     resource plan], the commission may:
9-63                 (1)  allow timely recovery of the reasonable costs of
9-64     conservation, load management, and purchased power, notwithstanding
9-65     Section 36.201; and
9-66                 (2)  authorize additional incentives for conservation,
9-67     load management, purchased power, and renewable resources.
9-68           SECTION 24.  Section 36.207, Utilities Code, is amended to
9-69     read as follows:
 10-1          Sec. 36.207.  USE OF MARK-UPS.  Any mark-ups approved under
 10-2    [Chapter 34 or] Section 36.206 are an exceptional form of rate
 10-3    relief that the electric utility may recover from ratepayers only
 10-4    on a finding by the commission that the relief is necessary to
 10-5    maintain the utility's financial integrity.
 10-6          SECTION 25.  Section 37.001, Utilities Code, is amended to
 10-7    read as follows:
 10-8          Sec. 37.001.  DEFINITIONS.  In this chapter:
 10-9                (1)  "Certificate" means a certificate of convenience
10-10    and necessity.
10-11                (2)  "Electric utility" includes an electric
10-12    cooperative.
10-13                (3)  "Retail electric utility" means a person,
10-14    political subdivision, or agency that operates, maintains, or
10-15    controls in this state a facility to provide retail electric
10-16    utility service.  The term does not include a corporation described
10-17    by Section 32.053 to the extent that the corporation sells
10-18    electricity exclusively at wholesale and not to the ultimate
10-19    consumer.  A qualifying cogenerator that sells electric energy at
10-20    retail to the sole purchaser of the cogenerator's thermal output
10-21    under Sections 35.061 and 36.007 is not for that reason considered
10-22    to be a retail electric utility.
10-23          SECTION 26.  Section 37.051, Utilities Code, is amended by
10-24    adding Subsection (c) to read as follows:
10-25          (c)  Notwithstanding any other provision of this chapter,
10-26    including Subsection (a), an electric cooperative is not required
10-27    to obtain a certificate of public convenience and necessity for the
10-28    construction, installation, operation, or extension of any
10-29    generating facilities or necessary interconnection facilities.
10-30          SECTION 27.  Subchapter B, Chapter 37, Utilities Code, is
10-31    amended by adding Sections 37.060 and 37.061 to read as follows:
10-32          Sec. 37.060.  DIVISION OF MULTIPLY CERTIFICATED SERVICE
10-33    AREAS.  (a)  This subsection and Subsections (b)-(g) shall apply
10-34    only to areas in which each retail electric utility that is
10-35    authorized to provide retail electric utility service to the area
10-36    is providing customer choice.  For purposes of this subsection, an
10-37    electric cooperative or a municipally owned electric utility shall
10-38    be deemed to be providing customer choice if it has approved a
10-39    resolution adopting customer choice that is effective upon
10-40    certification of the applicable power region pursuant to Section
10-41    39.152 or effective within 24 months after the date of the
10-42    resolution adopting customer choice.  All other retail electric
10-43    utilities shall be deemed to be providing customer choice if
10-44    customer choice will be allowed for customers of the retail
10-45    electric utility upon certification of the applicable power region
10-46    pursuant to Section 39.152.  In areas in which each certificated
10-47    retail electric utility is providing customer choice, the
10-48    commission, if requested by a retail electric utility, shall
10-49    examine all areas within the service area of the retail electric
10-50    utility making the request that are also certificated to one or
10-51    more other retail electric utilities and, after notice and hearing,
10-52    shall amend the retail electric utilities' certificates so that
10-53    only one retail electric utility is certificated to provide
10-54    distribution services in any such area.  Only retail electric
10-55    utilities certificated to serve an area on June 1, 1999, may
10-56    continue to serve the area or portion of the area under an amended
10-57    certificate issued pursuant to this subsection.
10-58          (b)  This section shall not apply in any area in which a
10-59    municipally owned utility is certificated to provide retail
10-60    electric utility service if the municipally owned utility serving
10-61    the area files with the commission by February 1, 2000, a request
10-62    that areas within the certificated service area of the municipally
10-63    owned utility remain as presently certificated.
10-64          (c)  The commission shall enter its order dividing multiply
10-65    certificated areas within one year of the date a request is
10-66    received.
10-67          (d)  In amending certificates under this section, the
10-68    commission shall take into consideration the factors set out in
10-69    Section 37.056.
 11-1          (e)  Notwithstanding Section 37.059, the commission shall
 11-2    revoke certificates to the extent necessary to achieve the division
 11-3    of retail electric service areas as provided by this section.
 11-4          (f)  Unless otherwise agreed by the affected retail electric
 11-5    utilities, each retail electric utility shall be allowed to
 11-6    continue to provide service to the location of
 11-7    electricity-consuming facilities it is serving on the date an
 11-8    application for division of the affected multiply certificated
 11-9    service areas is filed.  No customer located within the affected
11-10    multiply certificated service areas shall be permitted to switch
11-11    from one retail electric utility to another while an application
11-12    for division of the affected multiply certificated service areas is
11-13    pending.
11-14          (g)  If on June 1, 1999, retail service is being provided in
11-15    an area by another retail electric utility with the written consent
11-16    of the retail electric utility certificated to serve the area, such
11-17    consent shall be filed with the commission.  Upon notification of
11-18    such consent and a request by an affected retail electric utility
11-19    to amend the relevant certificates, the commission may grant an
11-20    exception or amend a retail electric utility's certificate.
11-21          (h)  The commission shall not grant an additional retail
11-22    electric utility certificate to serve an area if the effect of the
11-23    grant would cause the area to be multiply certificated unless the
11-24    commission finds that the certificate holders are not providing
11-25    service to any part of the area for which a certificate is sought
11-26    and are not capable of providing adequate service to the area in
11-27    accordance with applicable standards.  However, neither this
11-28    subsection nor the deadline of June 1, 1999, provided by Subsection
11-29    (a) shall apply to any application for multiple certification filed
11-30    with the commission on or before February 1, 1999, and such
11-31    applications may be processed in accordance with applicable law in
11-32    effect on the date the application was filed.  Applications for
11-33    multiple certification filed with the commission on or before
11-34    February 1, 1999, may not be amended to expand the area for which a
11-35    certificate is sought except for contiguous areas within
11-36    municipalities that provide consent, as required by Section
11-37    37.053(b), no later than June 1, 1999.
11-38          (i)  Notwithstanding Subsection (h), the commission may
11-39    singly certificate the service territory of a municipally owned
11-40    utility provided that:
11-41                (1)  the application is limited to single certification
11-42    of the area within the municipality's boundaries as of June 1,
11-43    1999;
11-44                (2)  the commission preserves the right of an electric
11-45    utility or an electric cooperative to serve its existing customers;
11-46    and
11-47                (3)  the municipality is a member city of a municipal
11-48    power agency as that term is used in Section 40.059.
11-49          Sec. 37.061.  EXISTING SERVICE AREA AGREEMENTS.
11-50    (a)  Notwithstanding any other provision of this title, the
11-51    commission shall allow a municipally owned utility to amend the
11-52    service area boundaries of its certificate if:
11-53                (1)  the municipally owned utility was the holder of a
11-54    certificate as of January 1, 1999;
11-55                (2)  the municipally owned utility has an agreement
11-56    existing prior to January 1, 1999, with a public utility serving
11-57    the area that the public utility will not contest an application to
11-58    amend the certificate to add municipal territory; and
11-59                (3)  the area for which a certificate is requested is
11-60    not certificated to a retail electric utility that is not a party
11-61    to the agreement and that has not consented in writing to
11-62    certification of the area to the municipality.
11-63          (b)  The commission may not amend the certificate of the
11-64    public utility serving the affected area based upon the granting of
11-65    a certificate to the municipally owned utility.
11-66          SECTION 28.  Subsection (a), Section 37.101, Utilities Code,
11-67    is amended to read as follows:
11-68          (a)  If an area is or will be included within a municipality
11-69    as the result of annexation, incorporation, or another reason, each
 12-1    electric utility and each electric cooperative that holds or is
 12-2    entitled to hold a certificate under this title to provide service
 12-3    or operate a facility in the area before the inclusion has the
 12-4    right to continue to provide the service or operate the facility
 12-5    and extend service within the utility's certificated area in the
 12-6    annexed or incorporated area under the rights granted by the
 12-7    certificate and this title.
 12-8          SECTION 29.  Section 38.001, Utilities Code, is amended to
 12-9    read as follows:
12-10          Sec. 38.001.  GENERAL STANDARD.  An electric utility and an
12-11    electric cooperative shall furnish service, instrumentalities, and
12-12    facilities that are safe, adequate, efficient, and reasonable.
12-13          SECTION 30.  Section 38.004, Utilities Code, is amended to
12-14    read as follows:
12-15          Sec. 38.004.  MINIMUM CLEARANCE STANDARD.  Notwithstanding
12-16    any other law, a transmission or distribution line owned by an
12-17    electric utility or an electric cooperative must be constructed,
12-18    operated, and maintained, as to clearances, in the manner described
12-19    by the National Electrical Safety Code Standard ANSI (c)(2), as
12-20    adopted by the American National Safety Institute and in effect at
12-21    the time of construction.
12-22          SECTION 31.  Subchapter A, Chapter 38,  Utilities Code, is
12-23    amended by adding Section 38.005 to read as follows:
12-24          Sec. 38.005.  ELECTRIC SERVICE RELIABILITY MEASURES.
12-25    (a)  The commission shall implement service quality and reliability
12-26    standards relating to the delivery of electricity to retail
12-27    customers by electric utilities and transmission and distribution
12-28    utilities.  The commission by rule shall develop reliability
12-29    standards including but not limited to the following:
12-30                (1)  the system-average interruption frequency index;
12-31                (2)  the system-average interruption duration index;
12-32                (3)  achievement of average response time for customer
12-33    service requests or inquiries; or
12-34                (4)  other standards that the commission finds
12-35    reasonable and appropriate.
12-36          (b)  The standards implemented under Subsection (a) shall
12-37    require each electric utility and transmission and distribution
12-38    utility subject to this section to maintain adequately trained and
12-39    experienced personnel throughout the utility's service area so that
12-40    the utility is able to fully and adequately comply with the
12-41    appropriate service quality and reliability standards.
12-42          (c)  The standards shall ensure that electric utilities do
12-43    not neglect any geographic area, including rural areas, communities
12-44    of less than 1,000 persons, and low-income areas, with regard to
12-45    system reliability.
12-46          (d)  The commission may require each electric utility and
12-47    transmission and distribution utility to supply data to assist the
12-48    commission in developing the reliability standards.
12-49          (e)  Each electric utility, transmission and distribution
12-50    utility, and generation provider shall be obligated to comply with
12-51    any operational criteria duly established by the independent
12-52    organization as defined by Section 39.151 or adopted by the
12-53    commission.
12-54          SECTION 32.  Section 38.071, Utilities Code, is amended to
12-55    read as follows:
12-56          Sec. 38.071.  Improvements in Service; Interconnecting
12-57    Service.  The commission, after notice and hearing, may:
12-58                (1)  order an electric utility to provide specified
12-59    improvements in its service in a specified area if:
12-60                      (A)  service in the area is inadequate or
12-61    substantially inferior to service in a comparable area; and
12-62                      (B)  requiring the company to provide the
12-63    improved service is reasonable; or
12-64                (2)  order two or more electric utilities or electric
12-65    cooperatives to establish specified facilities for interconnecting
12-66    service.
12-67          SECTION 33.  Subtitle B, Title 2, Utilities Code, is amended
12-68    by adding Chapters 39, 40, and 41 to read as follows:
 13-1          CHAPTER 39.  RESTRUCTURING OF ELECTRIC UTILITY INDUSTRY
 13-2                     SUBCHAPTER A.  GENERAL PROVISIONS
 13-3          Sec. 39.001.  LEGISLATIVE POLICY AND PURPOSE.  (a)  This
 13-4    chapter is enacted to protect the public interest during the
 13-5    transition to and in the establishment of a fully competitive
 13-6    electric power industry.
 13-7          (b)  The legislature finds that it is in the public interest
 13-8    to:
 13-9                (1)  implement on January 1, 2002, a competitive retail
13-10    electric market that allows each retail customer to choose the
13-11    customer's provider of electricity and that encourages full and
13-12    fair competition among all providers of electricity;
13-13                (2)  allow utilities with uneconomic generation-related
13-14    assets and purchased power contracts to recover the reasonable
13-15    excess costs over market of such assets and purchased power
13-16    contracts; and
13-17                (3)  educate utility customers about anticipated
13-18    changes in the provision of retail electric service to ensure that
13-19    the benefits of the competitive market reach all customers.
13-20          Sec. 39.002.  APPLICABILITY.  This chapter, other than
13-21    Sections 39.155, 39.157(e), 39.203, 39.603, and 39.604, does not
13-22    apply to a municipally owned utility or an electric cooperative.
13-23    Sections 39.157(e), 39.203, and 39.604, however, apply only to a
13-24    municipally owned utility or an electric cooperative that is
13-25    offering customer choice.  If there is a conflict between the
13-26    specific provisions of this chapter and any other provisions of
13-27    this title, except for Chapters 40 and 41, the provisions of this
13-28    chapter control.
13-29          Sec. 39.003.  OPERATIONS IN MULTIPLE POWER REGIONS.  In this
13-30    chapter, a retail electric utility whose certificated service area
13-31    includes areas that are located in a qualifying power region and
13-32    areas that are located in a power region that is not a qualifying
13-33    power region shall be considered a retail electric utility in a
13-34    qualifying power region for that part of its certificated service
13-35    area that is located in a qualifying power region and shall be
13-36    considered a retail electric utility not in a qualifying power
13-37    region for that part of its certificated service area that is
13-38    located in a power region that is not a qualifying power region.
13-39              SUBCHAPTER B.  TRANSITION TO COMPETITIVE RETAIL
13-40                              ELECTRIC MARKET
13-41          Sec. 39.051.  UNBUNDLING.  (a)  On or before September 1,
13-42    2000, each electric utility shall unbundle its costs and rates into
13-43    generation, transmission, distribution, and retail energy services
13-44    and a system benefit fund charge and expected competition
13-45    transition charge.
13-46          (b)  Not later than January 1, 2002, each electric utility
13-47    shall separate its business activities from one another into the
13-48    following units:
13-49                (1)  a power generation company;
13-50                (2)  a retail electric provider; and
13-51                (3)  a transmission and distribution utility.
13-52          (c)  An electric utility may accomplish the separation
13-53    required by Subsection (b) either through the creation of separate
13-54    nonaffiliated companies or separate affiliated companies owned by a
13-55    common holding company or through the sale of assets to a third
13-56    party.
13-57          (d)  Each electric utility shall unbundle under this section
13-58    in a manner that provides for a separation of personnel,
13-59    information flow, functions, and operations.
13-60          (e)  Each electric utility shall file with the commission a
13-61    plan to implement this section by January 1, 2000.
13-62          (f)  Within 120 days of the date the plan required under
13-63    Subsection (e) is filed with the commission, the commission shall
13-64    adopt the utility's plan for business separation required by
13-65    Subsection (b), adopt the plan with changes, or reject the plan and
13-66    require the utility to file a new plan.
13-67          (g)  If the commission determines that a power region will
13-68    not qualify for customer choice under Section 39.152 by January 1,
13-69    2002, it may adjust the filing and implementation dates in this
 14-1    section for utilities in that region.
 14-2          (h)  Transactions by electric utilities involving sales,
 14-3    transfers, or other disposition of assets to accomplish the
 14-4    purposes of this section shall not be subject to Section 14.101,
 14-5    35.034, or 35.035.
 14-6          Sec. 39.052.  FREEZE ON EXISTING RETAIL BASE RATE TARIFFS.
 14-7    (a)  Until January 1, 2002, an electric utility shall provide
 14-8    retail electric service within its certificated service area in
 14-9    accordance with the electric utility's retail base rate tariffs in
14-10    effect on September 1, 1999, including its purchased power cost
14-11    recovery factor.
14-12          (b)  During the freeze period an electric utility may not
14-13    increase its retail base rates above the rates provided by this
14-14    section except for losses caused by force majeure as provided by
14-15    Section 39.055.
14-16          (c)  Notwithstanding any other provision of this title,
14-17    during the freeze period the regulatory authority may not reduce
14-18    the retail base rates of an electric utility, except as may be
14-19    ordered as stipulated to by an electric utility in a proceeding
14-20    that was pending before the commission on January 1, 1999.
14-21          (d)  During the freeze period the retail base rates, overall
14-22    revenues, return on invested capital, and net income of an electric
14-23    utility are not subject to complaint, hearing, or determination as
14-24    to reasonableness.
14-25          (e)  An electric utility that has a rate proceeding pending
14-26    before the commission as of January 2, 1999, shall provide service
14-27    in accordance with the tariffs approved in that proceeding from the
14-28    date of approval until the end of the freeze period.
14-29          (f)  Nothing in this section affects the authority of the
14-30    commission to fulfill its obligations under Section 39.262.
14-31          (g)  Nothing in this section shall deny a utility its right
14-32    to have the commission conduct proceedings and issue a final order
14-33    pertaining to any matter that may be remanded to the commission by
14-34    a court having jurisdiction, except that the final order may not
14-35    affect the rates charged to customers during the freeze period but
14-36    shall be taken into account during the utility's true-up proceeding
14-37    under Section 39.262.
14-38          (h)  Nothing in this title shall be construed to prevent an
14-39    electric utility or a transmission and distribution utility from
14-40    filing, and the commission from approving, a change in wholesale
14-41    transmission service rates during the freeze period.
14-42          Sec. 39.053.  COST RECOVERY ADJUSTMENTS.  This subchapter
14-43    does not limit or alter the ability of an electric utility during
14-44    the freeze period to revise its fuel factor or to reconcile fuel
14-45    expenses and to either refund fuel overcollections or surcharge
14-46    fuel undercollections to customers, as authorized by its tariffs
14-47    and Sections 36.203 and 36.205.
14-48          Sec. 39.054.  RETAIL ELECTRIC SERVICE DURING THE FREEZE
14-49    PERIOD.  (a)  An electric utility shall provide retail electric
14-50    service during the freeze period in accordance with any contract
14-51    terms applicable to a particular retail customer approved by the
14-52    regulatory authority and in effect on December 31, 1998.
14-53          (b)  Nothing in Sections 39.052(c) and (d) shall be construed
14-54    to restrict any customer's right to complain during the freeze
14-55    period to the regulatory authority regarding the quality of retail
14-56    electric service provided by the electric utility or the
14-57    applicability of an electric utility's particular tariff to the
14-58    customer.
14-59          (c)  Nothing in this title shall be construed to restrict an
14-60    electric utility, voluntarily and at its sole discretion, from
14-61    offering new services or new tariff options to its customers during
14-62    the freeze period.
14-63          (d)  Any offering of new services or tariff options under
14-64    this section shall be equal to or greater than an electric
14-65    utility's long-run marginal cost and not be unreasonably
14-66    preferential, prejudicial, discriminatory, predatory, or
14-67    anticompetitive.
14-68          (e)  Revenue from any new offering under this section shall
14-69    be accounted for in a manner consistent with Section 36.007.
 15-1          Sec. 39.055.  FORCE MAJEURE.  (a)  An electric utility may
 15-2    recover losses resulting from force majeure through an increase in
 15-3    its retail base rates during the freeze period.
 15-4          (b)  Notwithstanding Subchapter C, Chapter 36, the regulatory
 15-5    authority, after a hearing to determine the electric utility's
 15-6    losses from force majeure, shall permit the utility to fully
 15-7    collect any approved force majeure increase through an appropriate
 15-8    customer surcharge mechanism.
 15-9          (c)  For purposes of this section, "force majeure" means a
15-10    major event or combination of major events, including new or
15-11    expanded state or federal statutory or regulatory requirements;
15-12    hurricanes, tornadoes, ice storms, or other natural disasters; or
15-13    acts of war, terrorism, or civil disturbance, beyond the control of
15-14    an electric utility that the regulatory authority finds increases
15-15    the utility's total reasonable and necessary nonfuel costs or
15-16    decreases the utility's total nonfuel revenues related to the
15-17    generation and delivery of electricity by more than 10 percent for
15-18    any calendar year during the freeze period.  The term does not
15-19    include any changes in general economic conditions such as
15-20    inflation, interest rates, or other factors of general application.
15-21                     SUBCHAPTER C.  RETAIL COMPETITION
15-22          Sec. 39.101.  CUSTOMER SAFEGUARDS. (a)  Before retail
15-23    competition begins on January 1, 2002, the commission shall ensure
15-24    that retail customer protections are established that entitle a
15-25    customer:
15-26                (1)  to safe, reliable, and reasonably priced
15-27    electricity, including protection against service disconnections in
15-28    extreme weather or in cases of medical emergency or nonpayment for
15-29    unrelated services;
15-30                (2)  to privacy of customer consumption and credit
15-31    information;
15-32                (3)  to bills presented in a clear format and in
15-33    language readily understandable by customers;
15-34                (4)  to the option to have all electric services on a
15-35    single bill, except in those instances where multiple bills are
15-36    allowed under Chapters 40 and 41;
15-37                (5)  to protection from discrimination on the basis of
15-38    race, color, sex, nationality, religion, or marital status;
15-39                (6)  to accuracy of metering and billing;
15-40                (7)  to information in English and Spanish and any
15-41    other language as necessary concerning rates, key terms and
15-42    conditions, and the environmental impact of certain production
15-43    facilities;
15-44                (8)  to information in English and Spanish and any
15-45    other language as necessary concerning low-income assistance
15-46    programs and deferred payment plans; and
15-47                (9)  to other information or protections necessary to
15-48    ensure high-quality service to customers.
15-49          (b)  A customer is entitled:
15-50                (1)  to be informed about rights and opportunities in
15-51    the transition to a competitive electric industry;
15-52                (2)  to choose the customer's retail electric provider
15-53    consistent with this chapter, to have that choice honored, and to
15-54    assume that the customer's chosen provider will not be changed
15-55    without the customer's informed consent;
15-56                (3)  to have access to providers of energy efficiency
15-57    services and to providers of energy generated by renewable energy
15-58    resources;
15-59                (4)  to be served by a provider of last resort that
15-60    offers a commission-approved standard service package;
15-61                (5)  to receive sufficient information to make an
15-62    informed choice of service provider;
15-63                (6)  to be protected from unfair, misleading, or
15-64    deceptive practices, including protection from being billed for
15-65    services that were not authorized or provided; and
15-66                (7)  to have an impartial and prompt resolution of
15-67    disputes with its chosen retail electric provider and transmission
15-68    and distribution utility.
15-69          (c)  The commission has the authority to adopt and enforce
 16-1    such rules as may be necessary or appropriate to carry out
 16-2    Subsections (a) and (b), including but not limited to rules for
 16-3    minimum service standards for a retail electric provider relating
 16-4    to customer deposits and the extension of credit, switching fees,
 16-5    levelized billing programs, termination of service, and quality of
 16-6    service.  The commission has jurisdiction over all providers of
 16-7    electric service in enforcing Subsections (a) and (b) and may
 16-8    assess civil and administrative penalties under Section 15.023 and
 16-9    seek civil penalties under Section 15.028.
16-10          (d)  On or before December 31, 2001, the commission shall
16-11    modify its current rules regarding customer protections to ensure
16-12    that at least the same level of customer protection against
16-13    potential abuses and the same quality of service that exists on
16-14    December 31, 1999, is maintained in a restructured electric
16-15    industry.
16-16          Sec. 39.102.  RETAIL CUSTOMER CHOICE.  (a)  Each retail
16-17    customer in the state, except retail customers in power regions
16-18    that are not certified as qualifying for competition by the
16-19    commission and retail customers of electric cooperatives and
16-20    municipally owned utilities that have not opted for customer
16-21    choice, shall have customer choice on and after January 1, 2002.
16-22          (b)  The affiliated retail electric provider of the electric
16-23    utility serving a retail customer on December 31, 2001, may
16-24    continue to serve that customer until the customer chooses service
16-25    from a different retail electric provider, an electric cooperative
16-26    offering customer choice, or a municipally owned utility offering
16-27    customer choice.
16-28          (c)  An electric utility that has in effect a systemwide
16-29    freeze for residential and commercial customers extending beyond
16-30    December 31, 2001, that has been found by a regulatory authority to
16-31    be in the public interest shall not be subject to this chapter.  At
16-32    the expiration of the utility's freeze period, the utility shall be
16-33    subject to the provisions of this chapter and shall, at that time,
16-34    have no claim for stranded cost recovery.
16-35          Sec. 39.103.  COMMISSION AUTHORITY TO DELAY COMPETITION AND
16-36    SET NEW RATES.  If the commission determines under Section 39.104
16-37    that a power region is unable to offer fair competition and
16-38    reliable service to all retail customer classes on January 1, 2002,
16-39    or that the power region fails to meet the requirements of Section
16-40    39.152, the commission shall delay customer choice for the power
16-41    region and may on or after January 1, 2002, establish new rates for
16-42    all electric utilities in the power region as provided by Chapter
16-43    36.
16-44          Sec. 39.104.  CUSTOMER CHOICE PILOT PROJECTS.  (a)  Customer
16-45    choice pilot projects may be used to allow the commission to
16-46    evaluate the ability of each power region and electric utility to
16-47    implement customer choice.
16-48          (b)  The commission shall require each electric utility
16-49    operating in ERCOT to offer customer choice in its service area
16-50    amounting to five percent of the utility's combined load of all
16-51    customer classes beginning on June 1, 2001.
16-52          (c)  The commission may require an electric utility operating
16-53    outside of ERCOT to offer customer choice in its service area
16-54    amounting to five percent of the utility's combined load of all
16-55    customer classes beginning on June 1, 2001.
16-56          (d)  The load designated for customer choice under this
16-57    section shall be distributed among all customer classes of a
16-58    utility consistent with the purpose of this section and subject to
16-59    commission approval.
16-60          (e)  Customers participating in a pilot project under this
16-61    section may buy electric energy from any retail electric provider
16-62    certified by the commission under Section 39.352, including an
16-63    affiliated retail electric provider; provided, however, that a
16-64    retail electric provider may not participate in a pilot project in
16-65    the certificated service area served by the electric utility with
16-66    which it is affiliated.
16-67          (f)  Each utility operating a pilot project under this
16-68    section shall charge residential and small commercial customers in
16-69    accordance with Section 39.052.
 17-1          (g)  The commission may prescribe reporting requirements it
 17-2    considers necessary to evaluate a pilot project consistent with the
 17-3    purpose of this section.
 17-4          (h)  Customers having customer choice under this section
 17-5    shall be billed as provided by Section 39.107.
 17-6          (i)  The commission may prescribe terms and conditions it
 17-7    considers necessary to prohibit anticompetitive practices and to
 17-8    encourage customer choice offered under this section.
 17-9          (j)  Notwithstanding any other provision of this title, a
17-10    retail electric provider participating in a pilot project under
17-11    this section is not an electric utility or a retail electric
17-12    utility.
17-13          Sec. 39.105.  LIMITATION ON SALE OF ELECTRICITY.  (a)  After
17-14    January 1, 2002, in areas in which customer choice has been
17-15    introduced, a transmission and distribution utility may not sell
17-16    electricity or otherwise participate in the market for electricity
17-17    except for the purpose of buying electricity to serve its own
17-18    needs.
17-19          (b)  A person or retail electric utility may not provide,
17-20    furnish, or make available electric service at retail within the
17-21    certificated service area of an electric cooperative that has not
17-22    adopted customer choice or a municipally owned utility that has not
17-23    adopted customer choice.  However, this subsection shall not
17-24    prohibit the provision of electric service in multiply certificated
17-25    service areas to customers of any other retail electric utility.
17-26          Sec. 39.106.  PROVIDER OF LAST RESORT.  (a)  The commission
17-27    shall designate retail electric providers in areas of the state in
17-28    which customer choice is in effect to serve as providers of last
17-29    resort.
17-30          (b)  A provider of last resort shall offer a standard retail
17-31    service package for each class of customers designated by the
17-32    commission at a fixed, nondiscountable rate approved by the
17-33    commission.
17-34          (c)  A provider of last resort shall provide the standard
17-35    retail service package to any requesting customer in the territory
17-36    for which it is the provider of last resort.
17-37          (d)  For all areas of the state for which the commission has
17-38    determined that customer choice is to be introduced on January 1,
17-39    2002, the commission shall designate the provider or providers of
17-40    last resort no later than June 1, 2001.  For areas of the state for
17-41    which customer choice is not to be introduced on January 1, 2002,
17-42    except as provided in Sections 40.053(c) and 41.053(c), the
17-43    commission shall designate the provider or providers of last resort
17-44    at the earliest feasible date after determining that conditions for
17-45    permitting customer choice in that area have been met but no later
17-46    than 180 days before customer choice is to begin.
17-47          (e)  The commission shall determine the procedures and
17-48    criteria, which may include the solicitation of bids, for
17-49    designating a provider or providers of last resort.  The commission
17-50    may redesignate the provider of last resort according to a schedule
17-51    it considers appropriate.
17-52          (f)  In the event that no retail electric provider applies to
17-53    be the provider of last resort for a given area of the state on
17-54    reasonable terms and conditions, the commission may require a
17-55    retail electric provider to become the provider of last resort as a
17-56    condition of receiving or maintaining a certificate pursuant to
17-57    Section 39.352.
17-58          (g)  In the event that a retail electric provider fails to
17-59    serve any or all of its customers, the provider of last resort
17-60    shall offer each such customer the standard retail service package
17-61    for that customer class with no interruption of service to any
17-62    customer.
17-63          Sec. 39.107.  METERING AND BILLING SERVICES.  (a)  On
17-64    introduction of customer choice in a service area, metering
17-65    services for the area shall continue to be provided by the
17-66    transmission and distribution utility affiliate of the electric
17-67    utility that was serving the area prior to the introduction of
17-68    customer choice.  Metering services shall be provided on a
17-69    competitive basis beginning:
 18-1                (1)  January 1, 2004, in areas in which customer choice
 18-2    is introduced January 1, 2002; and
 18-3                (2)  in areas in which customer choice begins at a
 18-4    later date, two years after the date that customer choice is
 18-5    introduced in the area.
 18-6          (b)  On introduction of customer choice in a service area,
 18-7    tenants of leased or rented property that is separately metered
 18-8    shall have the right to choose a retail electric provider, and the
 18-9    owner of the property must grant reasonable and nondiscriminatory
18-10    access to transmission and distribution utilities or retail
18-11    electric providers for metering purposes.
18-12          (c)  Beginning on the date of introduction of customer choice
18-13    in a service area, a transmission and distribution utility shall
18-14    bill a customer's retail electric provider for nonbypassable
18-15    delivery charges as determined pursuant to Section 39.201.  The
18-16    retail electric provider must pay these charges.
18-17          (d)  A transmission and distribution utility may bill retail
18-18    customers at the request of a retail electric provider.  A
18-19    transmission and distribution utility that provides billing service
18-20    at the request of an affiliated retail electric provider shall
18-21    offer billing service on comparable terms and conditions to any
18-22    other requesting retail electric provider of a customer served by
18-23    the transmission and distribution utility.
18-24          (e)  Beginning on the date of introduction of customer choice
18-25    in a service area, any charges for metering and billing services
18-26    shall comply with rules adopted by the commission relating to
18-27    nondiscriminatory rates of service.
18-28          Sec. 39.108.  CONTRACTUAL OBLIGATIONS.  This chapter shall
18-29    not:
18-30                (1)  interfere with or abrogate the rights or
18-31    obligations of any party, including a retail or wholesale customer,
18-32    to a contract with an investor-owned electric utility, river
18-33    authority, municipally owned utility, or electric cooperative;
18-34                (2)  interfere with or abrogate the rights or
18-35    obligations of a party under a contract or agreement concerning
18-36    certificated utility service areas; or
18-37                (3)  result in a change in wholesale power costs to
18-38    wholesale customers in Texas purchasing electricity under wholesale
18-39    power contracts the pricing provisions of which are based on
18-40    formulary rates, fuel adjustments, or average system costs.
18-41                      SUBCHAPTER D.  MARKET STRUCTURE
18-42          Sec. 39.151.  ESSENTIAL ORGANIZATIONS.  (a)  Before obtaining
18-43    commission certification as a qualifying power region, a power
18-44    region must establish one or more independent organizations to
18-45    perform the following functions:
18-46                (1)  ensure access to the transmission and distribution
18-47    systems for all buyers and sellers of electricity on
18-48    nondiscriminatory terms;
18-49                (2)  ensure the reliability and adequacy of the
18-50    regional electrical network;
18-51                (3)  ensure that information relating to a customer's
18-52    choice of retail electric provider is conveyed in a timely manner
18-53    to the persons who need such information; and
18-54                (4)  ensure that electricity production and delivery
18-55    are accurately accounted for among the generators and wholesale
18-56    buyers and sellers in the region.
18-57          (b)  "Independent organization" means an independent system
18-58    operator or other person that is sufficiently independent of any
18-59    producer or seller of electricity that its decisions will not be
18-60    unduly influenced by any producer or seller.  An entity will be
18-61    deemed to be independent if it is governed by a board that has
18-62    three representatives from each segment of the electric market,
18-63    with the consumer segment being represented by one residential
18-64    customer, one commercial customer, and one industrial retail
18-65    customer.
18-66          (c)  The commission shall certify an independent organization
18-67    or organizations to perform the functions set out in this section.
18-68          (d)  An independent organization certified by the commission
18-69    for a power region shall establish and enforce procedures,
 19-1    consistent with this title and the commission's rules, relating to
 19-2    the reliability of the regional electrical network and accounting
 19-3    for the production and delivery of electricity among generators and
 19-4    all other market participants.  The procedures shall be subject to
 19-5    commission oversight and review.
 19-6          (e)  The commission may authorize an independent organization
 19-7    that is certified under this section to charge a reasonable and
 19-8    competitively neutral rate to wholesale buyers and sellers to cover
 19-9    the independent organization's costs.
19-10          (f)  In implementing this section, the commission may
19-11    cooperate with the utility regulatory commission of another state
19-12    or the federal government and may hold a joint hearing or make a
19-13    joint investigation with that commission.
19-14          (g)  If it amends its governance rules to allow
19-15    representation reflecting the makeup of the retail market on its
19-16    governing board in accordance with Subsection (b), the existing
19-17    independent system operator in ERCOT will meet the criteria
19-18    provided by Subsection (a) with respect to ensuring access to the
19-19    transmission systems for all buyers and sellers of electricity in
19-20    the ERCOT region and ensuring the reliability of the regional
19-21    electrical network.  The ERCOT independent system operator may meet
19-22    the criteria relating to the other functions of an independent
19-23    organization provided by Subsection (a) by adopting procedures and
19-24    acquiring resources needed to carry out those functions.
19-25          (h)  The commission may delegate authority to the existing
19-26    independent system operator in ERCOT to enforce operating standards
19-27    within the ERCOT regional electrical network and to establish and
19-28    oversee transaction settlement procedures.  The commission may
19-29    establish the terms and conditions for the ERCOT independent system
19-30    operator's authority to oversee utility dispatch functions after
19-31    the introduction of customer choice.
19-32          (i)  A retail electric provider, municipally owned utility,
19-33    electric cooperative, power marketer, transmission and distribution
19-34    utility, or power generation company shall observe all scheduling,
19-35    operating, and settlement policies, rules, guidelines, and
19-36    procedures established by the independent system operator in ERCOT.
19-37    Failure to comply with this subsection may result in the
19-38    revocation, suspension, or amendment of a certificate as provided
19-39    by Section 39.356 or in the imposition of an administrative penalty
19-40    as provided by Section 39.357.
19-41          (j)  To the extent the commission has authority over an
19-42    independent organization outside of ERCOT, the commission may
19-43    delegate authority to the independent organization consistent with
19-44    Subsection (h).
19-45          (k)  No operational criteria, protocols, or other requirement
19-46    established by an independent organization, including the ERCOT
19-47    independent system operator, may adversely affect or impede any
19-48    manufacturing or other internal process operation associated with
19-49    an industrial generation facility, except to the minimum extent
19-50    necessary to assure reliability of the transmission network.
19-51          Sec. 39.152.  QUALIFYING POWER REGIONS.  (a)  The commission
19-52    shall certify a power region as qualifying for customer choice if:
19-53                (1)  a sufficient number of interconnected utilities in
19-54    the power region fall under the operational control of an
19-55    independent organization as described by Section 39.151;
19-56                (2)  the power region has a generally applicable tariff
19-57    that guarantees open and nondiscriminatory access for all users to
19-58    transmission and distribution facilities in the power region as
19-59    provided by Section 39.203; and
19-60                (3)  no person owns and controls more than 20 percent
19-61    of the installed generation capacity located in or capable of
19-62    delivering electricity to a power region.
19-63          (b)  In determining whether a power region not entirely
19-64    within the state meets the requirements of this section, the
19-65    commission shall consider the extent to which the available
19-66    transmission facilities limit the delivery of electricity from
19-67    generators located outside the state to areas of the power region
19-68    within the state.
19-69          Sec. 39.153.  CAPACITY AUCTION.  (a) Each electric utility
 20-1    subject to this section shall sell at auction, at least 60 days
 20-2    before the date set for customer choice to begin in the power
 20-3    region in which the electric utility serves, entitlements to at
 20-4    least 15 percent of the electric utility's installed generation
 20-5    capacity.  For the purposes of this section, the term "electric
 20-6    utility" includes any affiliated power generation company that is
 20-7    unbundled from the electric utility in accordance with Section
 20-8    39.051, but does not include any entity owning less than 400
 20-9    megawatts of installed generation capacity.
20-10          (b)  The obligation to auction the entitlements shall
20-11    continue until the earlier of 60 months after the date customer
20-12    choice is introduced in the power region or the date the commission
20-13    determines that 40 percent or more of the electric power consumed
20-14    by residential and small commercial customers within the affiliated
20-15    transmission and distribution utility's certificated service area
20-16    before the onset of customer choice is provided by nonaffiliated
20-17    retail electric providers.
20-18          (c)  An affiliate of the electric utility selling
20-19    entitlements in the auction required by this section shall not be
20-20    allowed to purchase entitlements from the affiliated electric
20-21    utility at the auction.  Entitlements may only be purchased by
20-22    entities lawfully able to sell electricity in Texas.
20-23          (d)  An electric utility may choose to auction additional
20-24    entitlements beyond those required by Subsection (a) or continue to
20-25    auction entitlements after the period required by Subsection (b) in
20-26    order to comply with Section 39.154.
20-27          (e)  The commission shall adopt rules by December 31, 2000,
20-28    that define the scope of the capacity entitlements to be auctioned.
20-29    Entitlements may be auctioned in blocks of less than 15 percent.
20-30    The rules shall state the minimum amount of capacity that can be
20-31    sold at auction as an entitlement.  At a minimum, the rules shall
20-32    provide that the entitlements:
20-33                (1)  may be sold and purchased in periods of no less
20-34    than one month nor more than four years;
20-35                (2)  may be resold to any lawful purchaser, except for
20-36    a retail electric provider affiliated with the electric utility
20-37    that originally auctioned the entitlement;
20-38                (3)  include no possessory interest in the unit from
20-39    which the power is produced;
20-40                (4)  include no obligations of a possessory owner of an
20-41    interest in the unit from which the power is produced; and
20-42                (5)  give the purchaser the right to designate the
20-43    dispatch of the entitlement, subject to planned outages, outages
20-44    beyond the control of the utility operating the unit, and other
20-45    considerations subject to the oversight of the applicable
20-46    independent organization.
20-47          (f)  The commission shall adopt rules by December 31, 2000,
20-48    that prescribe the procedure for the auction of the entitlements.
20-49    Such rules shall include:
20-50                (1)  a process for conducting the auction or auctions,
20-51    including who shall conduct it, how often it shall be conducted,
20-52    and how winning bidders shall be determined;
20-53                (2)  a process for the electric utility to designate
20-54    which generation units or combination of units are offered for
20-55    auction;
20-56                (3)  a provision for the utility to establish an
20-57    opening bid price based upon the electric utility's expected cost,
20-58    with the commission prescribing the means for determining the
20-59    opening bid price, which shall not include return on equity; and
20-60                (4)  a provision that allows a bidder to specify the
20-61    magnitude and term of the entitlement, subject to the conditions
20-62    established in Subsection (e).
20-63          (g)  In adopting the process under Subsection (f)(2), the
20-64    commission shall consider the furtherance of the development of the
20-65    competitive market, the cost of transmission, physical constraints
20-66    of the transmission system, the proximity of the generation to
20-67    load, economic efficiency, and such other factors as the commission
20-68    finds relevant.  The process may provide for commission approval of
20-69    the designation prior to auction.  The commission may consult with
 21-1    the applicable independent organization to develop the process.
 21-2          Sec. 39.154.  LIMITATION OF OWNERSHIP OF INSTALLED CAPACITY.
 21-3    (a)  Beginning on the date of introduction of customer choice, no
 21-4    power generation company may own and control more than 20 percent
 21-5    of the installed generation capacity located in, or capable of
 21-6    delivering electricity to, a qualifying power region, which
 21-7    capacity is available for sale to others.
 21-8          (b)  In a power region not entirely within the state, the
 21-9    commission may waive or modify the requirement in Subsection (a)
21-10    upon a finding of good cause.
21-11          (c)  In determining the percentage shares of installed
21-12    generation capacity under this section, the commission shall
21-13    combine capacity owned and controlled by a power generation company
21-14    and any entity that is affiliated with that power generation
21-15    company within the power region, reduced by the installed
21-16    generation capacity of those facilities that are made subject to
21-17    capacity entitlements auctions under Sections 39.153(a) and (d).
21-18          Sec. 39.155.  COMMISSION ASSESSMENT OF MARKET POWER.
21-19    (a)  Each person, municipally owned utility, electric cooperative,
21-20    and river authority that owns generation facilities and offers
21-21    electricity for sale in this state shall report to the commission
21-22    its installed generation capacity, the total amount of capacity
21-23    available for sale to others, the total amount of capacity under
21-24    contract to others, the total amount of capacity dedicated to its
21-25    own use, its annual wholesale power sales in the state, its annual
21-26    retail power sales in the state, and any other information
21-27    necessary for the commission to assess market power or the
21-28    development of a competitive retail market in the state.  The
21-29    commission shall by rule prescribe the nature and detail of such
21-30    reporting requirements and shall administer those reporting
21-31    requirements in a manner that ensures the confidentiality of
21-32    competitively sensitive information.
21-33          (b)  The ERCOT independent system operator shall submit an
21-34    annual report to the commission identifying existing and potential
21-35    transmission and distribution constraints and system needs within
21-36    ERCOT, alternatives for meeting system needs, and recommendations
21-37    for meeting system needs.  The first report shall be submitted on
21-38    or before October 1, 1999.  Subsequent reports shall be submitted
21-39    by January 15 of each year or as determined necessary by the
21-40    commission.
21-41          (c)  Before the date of introduction of customer choice in a
21-42    power region other than ERCOT, each electric utility owning
21-43    transmission and distribution facilities in that region shall
21-44    submit an annual report to the commission identifying existing and
21-45    potential transmission and distribution constraints and system
21-46    needs in the power region, alternatives for meeting system needs,
21-47    and recommendations for meeting system needs as directed by the
21-48    commission.
21-49          (d)  After the introduction of customer choice in a
21-50    qualifying power region, the reports required by Subsections (b)
21-51    and (c) shall be submitted by the independent organization or
21-52    organizations having authority over the power region or discrete
21-53    areas thereof.
21-54          Sec. 39.156.  MARKET POWER MITIGATION PLAN.  (a)  In this
21-55    section, "market power mitigation plan" or "plan" means a written
21-56    proposal by an electric utility or a power generation company for
21-57    reducing its ownership and control of installed generation capacity
21-58    as required by Section 39.154.
21-59          (b)  An electric utility or power generation company owning
21-60    and controlling more than 20 percent of the generation capacity
21-61    located in, or capable of delivering electricity to, a power region
21-62    shall file a market power mitigation plan with the commission no
21-63    later than December 31, 2000.
21-64          (c)  The plan may provide for:
21-65                (1)  the sale or exchange of generation assets to or
21-66    with an unaffiliated person;
21-67                (2)  the auctioning of generation capacity entitlements
21-68    subject to commission approval under Section 39.153; or
21-69                (3)  any reasonable method of mitigation.
 22-1          (d)  For the purposes of this section, generation capacity
 22-2    shall be net of the generation capacity subject to an auction under
 22-3    Section 39.153.
 22-4          (e)  The plan shall be in a form prescribed by the commission
 22-5    and shall provide information the commission finds reasonably
 22-6    necessary to evaluate the plan.
 22-7          (f)  The commission shall approve, modify, or reject a plan
 22-8    within 180 days after the date of a filing under Subsection (b).
 22-9    The commission shall not modify a plan to require divestiture by
22-10    the electric utility or the power generation company.
22-11          (g)  In reaching its determination under Subsection (f), the
22-12    commission shall consider:
22-13                (1)  the degree to which the electric utility's or
22-14    power generation company's stranded costs, if any, are minimized;
22-15                (2)  whether on disposition of the generation assets
22-16    the reasonable value is likely to be received;
22-17                (3)  the effect of the plan on the electric utility's
22-18    or power generation company's federal income taxes;
22-19                (4)  the effect of the plan on current and potential
22-20    competitors in the generation market; and
22-21                (5)  whether the plan is consistent with the public
22-22    interest.
22-23          (h)  An electric utility or power generation company with an
22-24    approved mitigation plan may request to amend or repeal its plan.
22-25    Upon a showing of good cause, the commission shall modify or repeal
22-26    an electric utility's or power generation company's mitigation
22-27    plan.
22-28          (i)  If an electric utility's or a power generation company's
22-29    market power mitigation plan is not approved before January 1 of
22-30    the year it is to take effect, the commission may order the
22-31    electric utility or power generation company to auction generation
22-32    capacity entitlements according to Section 39.153, subject to
22-33    commission approval, of any capacity exceeding the maximum
22-34    allowable capacity prescribed by Section 39.154 until such time a
22-35    mitigation plan is approved.
22-36          (j)  An auction under Subsection (i) shall be held no later
22-37    than 60 days after the order is entered.
22-38          Sec. 39.157.  COMMISSION AUTHORITY TO ADDRESS MARKET POWER.
22-39    (a)  The commission shall monitor market power associated with the
22-40    generation, transmission, distribution, and sale of electricity in
22-41    this state.  On a finding, after notice and opportunity for
22-42    hearing, that market power abuses are occurring, the commission
22-43    shall require reasonable mitigation of the market power by ordering
22-44    the construction of additional transmission or distribution
22-45    facilities, by requiring a reduction of generation capacity through
22-46    the auction of generation capacity entitlements, by instituting
22-47    price cap regulation, by setting appropriate restrictions on sales
22-48    of electricity, by establishing limitations on the use of
22-49    generation, transmission, or distribution facilities, or by any
22-50    other reasonable remedy.
22-51          (b)  Beginning on the date of introduction of customer
22-52    choice, no person that owns generation facilities may own
22-53    transmission or distribution facilities in this state except for
22-54    those facilities necessary to interconnect a generation facility
22-55    with the transmission or distribution network, a facility not
22-56    dedicated to public use, or a facility otherwise excluded from the
22-57    definition of electric utility under Section 31.002(6).  However,
22-58    nothing in this chapter shall prohibit a power generation company
22-59    affiliated with a transmission and distribution utility from owning
22-60    generation facilities.
22-61          (c)  The commission shall monitor market shares of installed
22-62    capacity to ensure that the limitations in Section 39.154 are not
22-63    exceeded.  If the commission finds, after notice and opportunity
22-64    for hearing, that a person has violated a limitation in Section
22-65    39.154, the commission shall order the person to file, within 60
22-66    days of the date of the order, a market power mitigation plan
22-67    consistent with the requirements in Section 39.156.
22-68          (d)  In order to avoid potential market power abuses and
22-69    cross-subsidizations between regulated and unregulated activities,
 23-1    the commission shall adopt rules to govern transactions or
 23-2    activities between a transmission and distribution utility and its
 23-3    affiliates.
 23-4          (e)  The commission shall by rule establish a code of conduct
 23-5    that must be observed by all market participants and their
 23-6    affiliates to protect against anticompetitive practices.
 23-7          (f)  To avoid anticompetitive activity in the sale of
 23-8    electric generation, the commission shall establish predatory
 23-9    pricing safeguards not later than September 1, 2000.
23-10          (g)  Beginning on the date of introduction of customer
23-11    choice, and following review of the annual report submitted to it
23-12    under Sections 39.155(b) and (c), the commission shall determine
23-13    whether specific transmission or distribution constraints or
23-14    bottlenecks within this state give rise to market power in specific
23-15    geographic markets in the state.  The commission, on a finding that
23-16    specific transmission or distribution constraints or bottlenecks
23-17    within this state give rise to market power, may order reasonable
23-18    mitigation of that potential market power by ordering, pursuant to
23-19    Section 39.203(e), one or more electric utilities or transmission
23-20    and distribution utilities to construct additional transmission or
23-21    distribution capacity, or both, subject to the certification
23-22    provisions of this title.
23-23          Sec. 39.158.  MERGERS AND CONSOLIDATIONS.  (a)  An owner of
23-24    electric generation facilities that offers electricity for sale in
23-25    the state and proposes to merge, consolidate, or otherwise become
23-26    affiliated with another owner of electric generation facilities
23-27    that offers electricity for sale in this state shall obtain the
23-28    approval of the commission prior to closing.  Such approval shall
23-29    be requested at least 120 days prior to the proposed closing.  The
23-30    commission shall approve the transaction unless the commission
23-31    finds that the transaction results in a violation of Section
23-32    39.154.  If the commission finds that the transaction as proposed
23-33    would violate Section 39.154, the commission may condition approval
23-34    of the transaction on adoption of reasonable modifications to the
23-35    transaction as prescribed by the commission to mitigate potential
23-36    market power abuses.
23-37          (b)  Nothing in this chapter shall be construed to confer
23-38    immunity from state or federal antitrust laws.  This chapter is
23-39    intended to complement other state and federal antitrust
23-40    provisions.  Therefore, antitrust remedies may also be sought in
23-41    state or federal court to remedy anticompetitive activities.
23-42          (c)  This section shall not be deemed to authorize commission
23-43    review or approval of transactions entered into between or among
23-44    municipally owned utilities, river authorities, special districts
23-45    created by law, or other political subdivisions, whether or not
23-46    such transactions may be characterized as mergers, consolidations,
23-47    or other affiliations, when the transaction is authorized or
23-48    structured pursuant to state law.
23-49             SUBCHAPTER E.  PRICE REGULATION AFTER COMPETITION
23-50          Sec. 39.201.  COST OF SERVICE TARIFFS AND CHARGES.  (a)  Each
23-51    electric utility shall, on or before April 1, 2000, file proposed
23-52    tariffs for its proposed transmission and distribution utility.
23-53          (b)  The filing under this section shall include supporting
23-54    cost data for determination of nonbypassable delivery charges,
23-55    which shall be the sum of:
23-56                (1)  transmission and distribution utility charges by
23-57    customer class based on a forecasted 2002 test year;
23-58                (2)  a system benefit fund charge; and
23-59                (3)  an expected competition transition charge, if any.
23-60          (c)  Each electric utility shall also identify the unbundled
23-61    generation and retail energy service costs by customer class.
23-62          (d)  On or before October 1, 2000, and in accordance with a
23-63    schedule and procedures it establishes, the commission shall hold a
23-64    hearing and approve or modify and make effective as of January 1,
23-65    2002, the transmission and distribution utility's proposed tariffs
23-66    for transmission and distribution services, the system benefit fund
23-67    charge, and the expected competition transition charge, if any.
23-68          (e)  The system benefit fund charge shall be that established
23-69    by the commission pursuant to Section 39.603.
 24-1          (f)  The expected competition transition charge shall be that
 24-2    as determined under Subsections (g) and (h) and as implemented
 24-3    under Subsections (i)-(l).
 24-4          (g)  The expected competition transition charge approved by
 24-5    the commission shall be calculated from the amount of stranded
 24-6    costs as defined in Subchapter F which are reasonably projected to
 24-7    exist on the last day of the freeze period modified to reflect any
 24-8    adjustments determined appropriate by the commission pursuant to
 24-9    Section 39.261(c).
24-10          (h)  The electric utility shall use the ECOM administrative
24-11    model referenced in Section 39.262(h) to determine estimated
24-12    stranded costs.  The model must include updated company-specific
24-13    inputs and updated natural gas price forecasts as determined by the
24-14    commission.
24-15          (i)  An electric utility may:
24-16                (1)  at any time after the start of the freeze period,
24-17    securitize 100 percent of its regulatory assets as defined by
24-18    Section 39.251(6) and up to 75 percent of its remaining estimated
24-19    stranded costs as defined by this section and recover such charges
24-20    through a qualified intangible charge, pursuant to a qualified rate
24-21    order issued by the commission under Section 39.303;
24-22                (2)  implement, under bond, a nonbypassable charge of
24-23    up to 100 percent of its estimated stranded costs; or
24-24                (3)  use a combination of the two methods under
24-25    Subdivisions (1) and (2).
24-26          (j)  Any competition transition charge shall be allocated
24-27    among retail customer classes based on the relevant customer class
24-28    characteristics as of May 1, 1999, in accordance with the
24-29    methodology used to allocate the costs of the underlying assets in
24-30    the electric utility's most recent commission order addressing rate
24-31    design, unless the utility has agreed to an alternative allocation
24-32    of stranded costs in a settlement agreed to as part of a transition
24-33    plan approved by the commission on or after January 1, 1998, in
24-34    which case the alternative allocation shall apply.
24-35          (k)  In determining the length of time over which costs under
24-36    Subsection (h) may be recovered, the commission shall consider:
24-37                (1)  the electric utility's rates as of the end of the
24-38    freeze period;
24-39                (2)  the sum of the transmission, distribution, and
24-40    system benefit fund charges;
24-41                (3)  the proportion of estimated stranded costs to the
24-42    invested capital of the electric utility; and
24-43                (4)  any other factor consistent with the public
24-44    interest as expressed in this chapter.
24-45          (l)  Two years after customer choice is introduced in the
24-46    electric utility's power region, the stranded cost estimate under
24-47    this section shall be reviewed and, if necessary, adjusted to
24-48    reflect a final, actual valuation in the true-up proceeding under
24-49    Section 39.262.  If, based on that proceeding, the competition
24-50    transition charge is not sufficient, the commission may extend the
24-51    collection period for the charge or, if necessary, increase the
24-52    charge.  Alternatively, if it is found in the true-up proceeding
24-53    that the competition transition charge is larger than is needed to
24-54    recover any remaining stranded costs, the commission may:
24-55                (1)  reduce the competition transition charge, to the
24-56    extent it has not been securitized;
24-57                (2)  reverse, in whole or in part, the depreciation
24-58    expense which has been redirected pursuant to Section 39.256;
24-59                (3)  reduce the transmission and distribution utility's
24-60    rates; or
24-61                (4)  implement a combination of the elements in
24-62    Subdivisions (1)-(3).
24-63          (m)  If the commission determines that a power region will
24-64    not qualify for customer choice under Section 39.152 by January 1,
24-65    2002, it may adjust the filing and implementation dates in this
24-66    section for utilities in that region.
24-67          Sec. 39.202.  PRICE TO BEAT.  (a)  On and after January 1,
24-68    2002, in areas in which customer choice has been introduced, an
24-69    affiliated retail electric provider shall charge residential and
 25-1    small commercial customers of its affiliated transmission and
 25-2    distribution utility rates which, on a bundled basis, are five
 25-3    percent less than the affiliated electric utility's corresponding
 25-4    average residential and small commercial rates, on a bundled basis,
 25-5    that were in effect on January 1, 1999, adjusted to reflect the
 25-6    fuel factor determined as provided by Subsection (b) and adjusted
 25-7    for any base rate reduction as stipulated to by an electric utility
 25-8    in a proceeding that was pending before the commission on
 25-9    January 1, 1999.  These rates on a bundled basis shall be known as
25-10    the "price to beat" for residential and small commercial customers.
25-11          (b)  For an area where customer choice is to be introduced on
25-12    January 1, 2002, the commission shall determine the fuel factor for
25-13    each electric utility in the area as of December 31, 2001.  For an
25-14    area where customer choice is to be introduced subsequent to
25-15    January 1, 2002, the commission shall determine the fuel factor for
25-16    each electric utility in the area on the day prior to the day
25-17    customer choice is introduced.
25-18          (c)  Subsequent to the introduction of customer choice, each
25-19    affiliated power generation company shall file a final fuel
25-20    reconciliation for the period ending the day prior to the day
25-21    customer choice is introduced.  The final fuel balance from that
25-22    reconciliation shall be included in the true-up proceeding pursuant
25-23    to Section 39.262.
25-24          (d)  An affiliated retail electric provider shall make public
25-25    its price to beat in a manner that provides adequate disclosure as
25-26    determined by the commission.
25-27          (e)  The affiliated retail electric provider may not charge
25-28    rates that are different from the price to beat until the earlier
25-29    of 60 months after the date customer choice is introduced in the
25-30    power region or the date the commission determines that 40 percent
25-31    or more of the electric power consumed by residential and small
25-32    commercial customers within the affiliated transmission and
25-33    distribution utility's certificated service area before the onset
25-34    of customer choice is provided by nonaffiliated retail electric
25-35    providers.
25-36          (f)  The commission shall establish procedures and reporting
25-37    requirements as necessary to monitor residential and small
25-38    commercial consumption in the transmission and distribution
25-39    utility's certificated service area for the purpose of determining
25-40    the duration of the continuation of the price to beat.
25-41          (g)  The commission shall notify an affiliated retail
25-42    electric provider at such time as the commission determines that
25-43    the price to beat no longer applies to the retail electric
25-44    provider.
25-45          (h)  Following the true-up proceedings conducted pursuant to
25-46    Section 39.262, the commission may adjust the price to beat
25-47    consistent with the results of that proceeding.
25-48          (i)  An affiliated retail electric provider may request that
25-49    the commission adjust the fuel factor established under Subsection
25-50    (b) up to twice a year if the affiliated retail electric provider
25-51    demonstrates that the existing fuel factor does not adequately
25-52    reflect significant changes in the market price of natural gas and
25-53    purchased energy used to serve retail customers.
25-54          (j)  In this section, "small commercial customer" means a
25-55    commercial customer having a peak demand of 1,000 kilowatts or
25-56    less.
25-57          (k)  Upon finding that a retail electric provider will be
25-58    unable to maintain its financial integrity if it complies with
25-59    Subsection (a), the commission shall set the retail electric
25-60    provider's price to beat at the minimum level that will allow the
25-61    retail electric provider to maintain its financial integrity.
25-62    However, in no event shall the price to beat exceed the level of
25-63    rates, on a bundled basis, charged by the affiliated electric
25-64    utility on September 1, 1999, adjusted for fuel as provided in
25-65    Subsection (b).
25-66          Sec. 39.203.  TRANSMISSION AND DISTRIBUTION SERVICE.
25-67    (a)  All transmission and distribution utilities shall provide
25-68    transmission service at wholesale under Subchapter A, Chapter 35.
25-69    In addition, on and after January 1, 2002, a transmission and
 26-1    distribution utility shall provide transmission or distribution
 26-2    service, or both, at retail to an electric utility, a retail
 26-3    electric provider, a municipally owned utility, an electric
 26-4    cooperative, or an end-use customer at rates, terms of access, and
 26-5    conditions that are comparable to those that apply to the
 26-6    transmission and distribution utility and its affiliates.  A
 26-7    municipally owned utility offering customer choice or an electric
 26-8    cooperative offering customer choice shall likewise provide
 26-9    transmission or distribution service, or both, at retail to all
26-10    such entities pursuant to the commission's rules applicable to
26-11    terms and conditions of access and at rates adopted in accordance
26-12    with Sections 40.055(a)(1) and 41.055(1), respectively.
26-13          (b)  When necessary to serve a wholesale customer an electric
26-14    utility, an electric cooperative that has not opted for customer
26-15    choice, or a municipally owned utility that has not opted for
26-16    customer choice shall provide wholesale transmission service at
26-17    distribution voltage.
26-18          (c)  On or before January 1, 2002, the commission shall
26-19    establish for all retail electric utilities offering customer
26-20    choice reasonable and comparable terms and conditions, pursuant to
26-21    Section 39.201, that comply with Subsection (a) for open access on
26-22    distribution facilities and shall establish, for all retail
26-23    electric utilities offering customer choice other than municipally
26-24    owned utilities and electric cooperatives, reasonable and
26-25    comparable rates for open access on distribution facilities.
26-26          (d)  The terms of access, conditions, and rates established
26-27    under Subsection (c) shall be comparable to the terms of access,
26-28    conditions, and rates that the electric utility applies to itself
26-29    or its affiliates.  The rules shall also provide that all ancillary
26-30    services provided by the utility to itself or its affiliates are
26-31    also available to third parties on request on a nondiscriminatory
26-32    basis.
26-33          (e)  The commission may require an electric utility or a
26-34    transmission and distribution utility to construct or enlarge
26-35    facilities to ensure safe and reliable service for the state's
26-36    electric markets.  In any proceeding brought pursuant to Chapter
26-37    37, an electric utility or transmission and distribution utility
26-38    ordered to construct or enlarge facilities pursuant to this
26-39    subchapter need not prove that the construction ordered is
26-40    necessary for the service, accommodation, convenience, or safety of
26-41    the public and need not address the factors listed in Section
26-42    37.056(c)(1)-(3) and (4)(E).
26-43          (f)  The commission's rules must be consistent with the
26-44    standards of this title and may not be contrary to an applicable
26-45    decision, rule, or policy statement of a federal regulatory agency
26-46    having jurisdiction.
26-47          (g)  Each qualifying power region shall have generally
26-48    applicable tariffs approved by the commission or a federal
26-49    regulatory agency having jurisdiction that guarantees open and
26-50    nondiscriminatory access as required by Section 39.152.  This
26-51    subsection shall not be deemed to vest in the commission power to
26-52    set or approve distribution access rates of a municipally owned
26-53    utility or an electric cooperative that has adopted customer
26-54    choice.
26-55          Sec. 39.204.  TARIFFS FOR OPEN ACCESS.  Each transmission and
26-56    distribution utility shall file a tariff implementing the open
26-57    access rules with the commission or the federal regulatory
26-58    authority having jurisdiction over the transmission and
26-59    distribution service of the utility not later than the 90th day
26-60    before the date customer choice is offered by that utility.
26-61          Sec. 39.205.  REGULATION OF COSTS FOLLOWING THE FREEZE
26-62    PERIOD.  At the conclusion of the freeze period, any remaining
26-63    costs associated with nuclear decommissioning obligations continue
26-64    to be subject to cost of service rate regulation and shall be
26-65    included as a nonbypassable charge to retail customers.
26-66                 SUBCHAPTER F.  RECOVERY OF STRANDED COSTS
26-67          Sec. 39.251.  DEFINITIONS.  In this subchapter:
26-68                (1)  "Above market purchased power costs" means
26-69    wholesale demand and energy costs that a utility is obligated to
 27-1    pay under an existing purchased power contract to the extent the
 27-2    costs are greater than the purchased power market value.
 27-3                (2)  "Existing purchased power contract" means a
 27-4    purchased power contract in effect on January 1, 1999, including
 27-5    any amendments and revisions to such contracts resulting from
 27-6    litigation initiated prior to January 1, 1999.
 27-7                (3)  "Generation assets" means all assets associated
 27-8    with the production of electricity, including generation plants,
 27-9    electrical interconnections of the generation plant to the
27-10    transmission system, fuel contracts, fuel transportation contracts,
27-11    water contracts, lands, surface or subsurface water rights,
27-12    emissions-related allowances, gas pipeline interconnections, and
27-13    generation-related regulatory assets.
27-14                (4)  "Market value" means, for nonnuclear assets and
27-15    certain nuclear assets, the value the assets would have if bought
27-16    and sold in a bona fide third-party transaction or transactions on
27-17    the open market under Section 39.262(g) or, for certain nuclear
27-18    assets, as described by Section 39.262(h), the value determined
27-19    under the method provided by that subsection.
27-20                (5)  "Purchased power market value" means the value of
27-21    demand and energy bought and sold in a bona fide third-party
27-22    transaction or transactions on the open market and determined by
27-23    using the weighted average costs of the highest three offers from
27-24    the market for purchase of the demand and energy available under
27-25    the existing purchased power contracts.
27-26                (6)  "Regulatory assets" means costs that have been
27-27    deferred for future recovery as a result of an order by a
27-28    regulatory authority as of September 1, 1999, offset by the
27-29    applicable portion of investment tax credits permitted under the
27-30    Internal Revenue Code of 1986, including:
27-31                      (A)  unrecovered deferred income taxes recorded
27-32    under Statement of Financial Accounting Standards No. 109
27-33    ("Accounting for Income Taxes");
27-34                      (B)  plant accounting deferrals, including mirror
27-35    construction work in progress; and
27-36                      (C)  costs associated with reacquisition of
27-37    securities, canceled plants, litigation and settlement costs, and
27-38    voluntary retirement and severance programs.
27-39                (7)  "Retail stranded costs" means that part of net
27-40    stranded cost associated with the provision of retail service.
27-41                (8)  "Stranded cost" means the positive excess of the
27-42    net book value of generation assets over the market value of the
27-43    assets, taking into account all of the electric utility's
27-44    generation assets, and any above market purchased power costs.
27-45          Sec. 39.252.  RIGHT TO RECOVER STRANDED COSTS.  (a)  An
27-46    electric utility is allowed to recover all of its net, verifiable,
27-47    nonmitigable stranded costs incurred in purchasing power and
27-48    providing electric generation service.
27-49          (b)  Recovery of retail stranded costs by an electric utility
27-50    shall be from all existing or future retail customers, including
27-51    the facilities, premises, and loads of such retail customers,
27-52    within the utility's geographical certificated service area as it
27-53    existed on May 1, 1999.
27-54          (c)  In multiply certificated areas, a retail customer may
27-55    not avoid stranded cost recovery charges by switching to another
27-56    electric utility, electric cooperative, or municipally owned
27-57    utility after May 1, 1999.  A customer in a multiply certificated
27-58    service area that requested to switch providers on or before May 1,
27-59    1999, or was not taking service from an electric utility on May 1,
27-60    1999, and does not do so after that date is not responsible for
27-61    paying retail stranded costs of that utility.
27-62          Sec. 39.253.  ALLOCATION OF STRANDED COSTS.  Retail stranded
27-63    costs shall be allocated among retail customer classes, based on
27-64    the relevant customer class characteristics as of May 1, 1999, in
27-65    accordance with the methodology used to allocate the costs of the
27-66    underlying assets in the electric utility's most recent commission
27-67    order addressing rate design, unless the utility has agreed to an
27-68    alternative allocation of stranded costs in a settlement agreed to
27-69    as part of a transition plan approved by the commission on or after
 28-1    January 1, 1998, in which case the alternative allocation shall
 28-2    apply.
 28-3          Sec. 39.254.  USE OF REVENUES FOR UTILITIES WITH STRANDED
 28-4    COSTS.  This subchapter provides a number of tools to an electric
 28-5    utility to mitigate stranded costs.  Each electric utility that was
 28-6    reported by the commission to have positive "excess costs over
 28-7    market" (ECOM), denoted as the "base case" for the amount of
 28-8    stranded costs before full retail competition in 2001 with respect
 28-9    to its Texas jurisdiction, in the April 1998 Report to the Texas
28-10    Senate Interim Committee on Electric Utility Restructuring entitled
28-11    "Potentially Strandable Investment (ECOM) Report:  1998 Update,"
28-12    must use these tools to reduce the net book value of, otherwise
28-13    referred to as "accelerate" the cost recovery of, its stranded
28-14    costs each year.  Any positive difference under the report required
28-15    by Section 39.257(b) shall be applied to the net book value of
28-16    generation assets.
28-17          Sec. 39.255.  USE OF REVENUES FOR UTILITIES WITH NO STRANDED
28-18    COSTS.  (a)  An electric utility that does not have stranded costs
28-19    described by Section 39.254 shall be permitted to use any positive
28-20    difference under the report required by Section 39.257(b) on
28-21    capital expenditures to improve or expand transmission or
28-22    distribution facilities, or on capital expenditures to improve air
28-23    quality, as approved by the commission.  Any such capital
28-24    expenditures shall be made in the calendar year immediately
28-25    following the year for which the report required by Section 39.257
28-26    is calculated.  Such capital expenditures shall be reflected in any
28-27    future proceeding under this chapter to set transmission or
28-28    distribution rates as a reduction to the utility's transmission and
28-29    distribution invested capital, as approved by the commission.
28-30          (b)  To the extent that positive differences under the report
28-31    required by Section 39.257(b) are not used for such capital
28-32    expenditures, such amounts shall be flowed back to the electric
28-33    utility's Texas jurisdictional customers through the power cost
28-34    recovery factor.
28-35          (c)  This section applies only to the use of positive
28-36    differences under the report required by Section 39.257(b) for each
28-37    year during the freeze period.
28-38          Sec. 39.256.  OPTION TO REDIRECT DEPRECIATION.  (a)  During
28-39    the freeze period, an electric utility described in Section 39.254
28-40    may redirect all or a part of the depreciation expense relating to
28-41    transmission and distribution assets to its net generation plant
28-42    assets.
28-43          (b)  The electric utility shall report a decision under
28-44    Subsection (a) to the commission and any other applicable
28-45    regulatory authority.
28-46          (c)  Any adjustments made to the book value of transmission
28-47    and distribution assets or the creation of any related regulatory
28-48    assets resulting from the redirection under this section shall be
28-49    accepted and applied by the commission for establishing net
28-50    invested capital and transmission and distribution rates for retail
28-51    customers in all future proceedings.
28-52          (d)  Notwithstanding the provisions of Subsection (c), the
28-53    design of post-freeze-period retail rates may not:
28-54                (1)  shift the allocation of responsibility for
28-55    stranded costs;
28-56                (2)  include the adjusted costs in wholesale
28-57    transmission and distribution rates; or
28-58                (3)  apply the adjustments for the purpose of
28-59    establishing net invested capital and transmission and distribution
28-60    rates for wholesale customers.
28-61          Sec. 39.257.  ANNUAL REPORT.  (a)  Beginning with the 1999
28-62    calendar year, each electric utility shall file a report with the
28-63    commission no later than 90 days after the end of each year during
28-64    the freeze period under a schedule and a format determined by the
28-65    commission.
28-66          (b)  The report shall identify any positive difference
28-67    between annual revenues, reduced by the amount of annual revenues
28-68    under Sections 36.203 and 36.205 and the revenues received under
28-69    the interutility billing process as adopted by the commission to
 29-1    implement Sections 35.004, 35.006, and 35.007, and annual costs.
 29-2          Sec. 39.258.  ANNUAL REPORT:  DETERMINATION OF ANNUAL COSTS.
 29-3    For the purposes of determining the annual costs in each annual
 29-4    report, the following amounts shall be used:
 29-5                (1)  the Texas jurisdictional operation and maintenance
 29-6    expense reflected in each utility's 1996 Federal Energy Regulatory
 29-7    Commission Form 1, plus factoring expenses not included in
 29-8    operation and maintenance, adjusted for:
 29-9                      (A)  costs under Sections 36.062, 36.203, and
29-10    36.205, and not indexed for inflation or load growth; and
29-11                      (B)  any difference between the annual revenues
29-12    and the expenses recorded under the interutility billing process
29-13    adopted by the commission to implement Sections 35.004, 35.006, and
29-14    35.007;
29-15                (2)  the amount of nuclear decommissioning expense
29-16    approved in the electric utility's last rate proceeding before the
29-17    commission, as may be required to be adjusted to comply with
29-18    applicable federal regulatory requirements;
29-19                (3)  the depreciation rates approved in the electric
29-20    utility's last rate proceeding before the commission;
29-21                (4)  the amortization expense approved in the electric
29-22    utility's last rate proceeding before the commission, except that
29-23    if the items are fully amortized during the freeze period, the
29-24    expense shall be adjusted accordingly;
29-25                (5)  taxes and fees, including municipal franchise fees
29-26    to the extent not included in Subdivision (1), other than federal
29-27    income taxes, and assessments incurred that year;
29-28                (6)  federal income tax expense, computed according to
29-29    the stand-alone methodology and using the actual capital structure
29-30    and actual cost of debt as of December 31 of the report year;
29-31                (7)  return on invested capital, computed by
29-32    multiplying invested capital as of December 31 of the report year,
29-33    determined as provided by Section 39.259, by the cost of capital
29-34    approved in the electric utility's most recent rate proceeding
29-35    before the commission in which the cost of capital was specifically
29-36    adopted, or, in the case of a range, the midpoint of the range, if
29-37    the final rate order for the proceeding was issued on or after
29-38    January 1, 1992.  If such an order does not exist, a cost of
29-39    capital of 9.6 percent shall be used; and
29-40                (8)  the amount resulting from any operation and
29-41    maintenance expense savings tracker from a merger of two utilities
29-42    and contained in a settlement agreement approved by the commission
29-43    prior to January 1, 1999.
29-44          Sec. 39.259.  ANNUAL REPORT:  DETERMINATION OF INVESTED
29-45    CAPITAL.  (a)  For the purposes of determining invested capital in
29-46    each annual report, the net plant in service, regulatory assets,
29-47    and deferred federal income taxes shall be updated each year, and
29-48    generation-related invested capital shall be reduced by the amount
29-49    of securitization under Section 39.201(i) and 39.262(c) to the
29-50    extent otherwise included in invested capital.
29-51          (b)  Capital additions to a plant in an amount less than
29-52    1-1/2 percent of the electric utility's net plant in service on
29-53    December 31, 1998, less plant items previously excluded by the
29-54    commission, for each of the years 1999 through 2001 are presumed
29-55    prudent.
29-56          (c)  All other items in invested capital shall be as approved
29-57    in the electric utility's last rate proceeding before the
29-58    commission.
29-59          Sec. 39.260.  USE OF GENERALLY ACCEPTED ACCOUNTING
29-60    PRINCIPLES.  (a)  The definition and identification of invested
29-61    capital and other terms used in this subchapter that affect the net
29-62    book value of generation assets and the treatment of transactions
29-63    performed under Section 35.035 and other transactions authorized by
29-64    this title or approved by the regulatory authority that affect the
29-65    net book value of generation assets during the freeze period shall
29-66    be treated in accordance with generally accepted accounting
29-67    principles as modified by regulatory accounting rules generally
29-68    applicable to utilities.
29-69          (b)  The principles and criteria described by Subsection (a),
 30-1    including the criteria for applicability of Statement of Financial
 30-2    Accounting Standards No. 71 ("Accounting for the Effects of Certain
 30-3    Types of Regulation"), shall be applied for purposes of this
 30-4    subchapter as they existed on January 1, 1999.
 30-5          Sec. 39.261.  REVIEW OF ANNUAL REPORT.  (a)  The annual
 30-6    report filed under this subchapter is a public document and shall
 30-7    be reviewed by the staff of the commission and the office of public
 30-8    utility counsel.  Both staffs may review work papers and supporting
 30-9    documents and engage in discussions with the utility about the data
30-10    underlying the reports.
30-11          (b)  The staff of the commission and the office of public
30-12    utility counsel shall communicate in writing to an electric utility
30-13    not later than the 180th day after the date the report is filed if
30-14    they have any disagreements with the data or computations.
30-15          (c)  The commission shall finalize and resolve any
30-16    disagreements related to the annual report as follows:
30-17                (1)  for each calendar year, the commission shall
30-18    finalize the annual report prior to establishing the competition
30-19    transition charge pursuant to Section 39.201; and
30-20                (2)  for each calendar year, the commission shall
30-21    finalize the annual report and reflect the result as part of the
30-22    true-up proceeding pursuant to Section 39.262.
30-23          Sec. 39.262.  TRUE-UP PROCEEDING.  (a)  An electric utility,
30-24    together with its affiliated retail electric provider and its
30-25    affiliated transmission and distribution utility, may not be
30-26    permitted to overrecover stranded costs through the procedures
30-27    established by this section or through the application of the
30-28    measures provided by the other sections of this subchapter.
30-29          (b)  After the freeze period, an electric utility located in
30-30    a power region not subject to competition pursuant to Section
30-31    39.152 shall continue to file annual reports pursuant to Sections
30-32    39.257, 39.258, and 39.259 as if the freeze period remained in
30-33    effect, until such time as the power region qualifies for
30-34    competition under Section 39.152.  In addition, the commission
30-35    staff and the office of public utility counsel shall continue to
30-36    review the annual reports as provided by Section 39.261.
30-37          (c)  After January 1, 2004, or after two years following the
30-38    beginning of competition in a power region, whichever is later, at
30-39    a schedule and under procedures to be determined by the commission,
30-40    each transmission and distribution utility, its affiliated retail
30-41    electric provider, and its affiliated power generation company
30-42    shall jointly file to finalize stranded costs pursuant to
30-43    Subsections (g) and (h) and reconcile those costs with the
30-44    estimated stranded costs used to develop the competition transition
30-45    charge in the proceeding held under Section 39.201.  Any resulting
30-46    difference shall be applied to the nonbypassable delivery rates of
30-47    the transmission and distribution utility, except that at the
30-48    utility's option, any or all of the remaining stranded costs may be
30-49    securitized pursuant to Subchapter G.
30-50          (d)  The affiliated power generation company shall reconcile,
30-51    and either credit or bill to the transmission and distribution
30-52    utility, the net sum of:
30-53                (1)  the former electric utility's final fuel balance
30-54    determined pursuant to Section 39.202(c); and
30-55                (2)  any difference between the price of power obtained
30-56    through the capacity auctions under Sections 39.153 and 39.156 and
30-57    the power cost projections which were employed for the same time
30-58    period in the ECOM model to estimate stranded costs in the
30-59    proceeding under Section 39.201.
30-60          (e)  To the extent that the price to beat exceeded the market
30-61    price of electricity, the affiliated retail electric provider shall
30-62    reconcile and credit to the affiliated transmission and
30-63    distribution utility any positive difference between the price to
30-64    beat established under Section 39.202, reduced by the nonbypassable
30-65    delivery charge established under Section 39.201, and the
30-66    prevailing market price of electricity during the same time period;
30-67    provided, however, that no such reconciliation shall be required
30-68    under this subsection of any affiliated retail electric provider
30-69    that satisfies the requirements of Section 39.202(e) prior to the
 31-1    expiration of two years from the introduction of customer choice in
 31-2    the applicable power region.  In no event shall the amount credited
 31-3    exceed 50 percent of the net income reported by the affiliated
 31-4    retail electric provider in its annual report to the Securities and
 31-5    Exchange Commission on Form 10-K.
 31-6          (f)  Based on the credits or bills received from its
 31-7    affiliates pursuant to Subsections (d) and (e), the transmission
 31-8    and distribution utility shall make necessary adjustments to the
 31-9    nonbypassable delivery rates it charges to retail electric
31-10    providers.  If the commission determines that the nonbypassable
31-11    delivery rates are not sufficient, the commission may extend the
31-12    original collection period for the charge or, if necessary,
31-13    increase the charge.  Alternatively, if the commission determines
31-14    that the nonbypassable delivery rates are larger than are needed to
31-15    recover the transmission and distribution utility's costs, the
31-16    commission shall correspondingly reduce:
31-17                (1)  the competition transition charge, to the extent
31-18    it has not been securitized;
31-19                (2)  the depreciation expense which has been redirected
31-20    pursuant to Section 39.256;
31-21                (3)  the transmission and distribution utility's rates;
31-22    or
31-23                (4)  a combination of the elements in Subdivisions
31-24    (1)-(3).
31-25          (g)  For the purpose of finalizing the stranded cost estimate
31-26    used to establish the competition transition charge under Section
31-27    39.201, and, except as provided in Subsection (h), the affiliated
31-28    power generation company shall quantify its stranded costs using
31-29    one or more of the following methods:
31-30                (1)  Sale of Assets.  If, at any time after December
31-31    31, 1999, an electric utility or its affiliated power generation
31-32    company has sold some or all of its generation assets, which sale
31-33    shall include all generating assets associated with each generating
31-34    plant that is sold, in a bona fide third-party transaction under a
31-35    competitive offering, the total net value realized from the sale
31-36    establishes the market value of the generation assets sold.  If not
31-37    all assets are sold, the market value of the remaining generation
31-38    assets shall be established by one or more of the other methods in
31-39    this section.
31-40                (2)  Stock Valuation Method. If, at any time after
31-41    December 31, 1999, an electric utility or its affiliated power
31-42    generation company has transferred some or all of its generation
31-43    assets, including, at the election of the electric utility or power
31-44    generation company, any fuel and fuel transportation contracts
31-45    related to those assets, to one or more separate affiliated or
31-46    nonaffiliated corporations, not less than 51 percent of the common
31-47    stock of each corporation is spun off and sold to public investors
31-48    through a national stock exchange, and the common stock has been
31-49    traded for not less than one year, the resulting average daily
31-50    closing price of the common stock over 30 consecutive trading days
31-51    chosen by the commission out of the last 120 consecutive trading
31-52    days before the filing required under Subsection (c) establishes
31-53    the market value of the common stock equity in each transferee
31-54    corporation.  The book value of each transferee corporation's debt
31-55    and preferred stock securities shall be added to the market value
31-56    of its assets.  The market value of each transferee corporation's
31-57    assets shall be reduced by the corresponding net book value of the
31-58    assets acquired by each transferee corporation from any entity
31-59    other than the affiliated electric utility or power generation
31-60    company.  The resulting market value of the assets establishes the
31-61    market value of the generation assets transferred by the electric
31-62    utility or power generation company to each separate corporation.
31-63    If not all assets are disposed of in this manner, the market value
31-64    of the remaining assets shall be established by one or more of the
31-65    other methods in this section.
31-66                (3)  Partial Stock Valuation Method.  If, at any time
31-67    after December 31, 1999, an electric utility or its affiliated
31-68    power generation company has transferred some or all of its
31-69    generation assets, including, at the election of the electric
 32-1    utility or power generation company, any fuel and fuel
 32-2    transportation contracts related to those assets, to one or more
 32-3    separate affiliated or nonaffiliated corporations, at least 19
 32-4    percent, but less than 51 percent, of the common stock of each
 32-5    corporation is spun off and sold to public investors through a
 32-6    national stock exchange, and the common stock has been traded for
 32-7    not less than one year, the resulting average daily closing price
 32-8    of the common stock over 30 consecutive trading days chosen by the
 32-9    commission out of the last 120 consecutive trading days before the
32-10    filing required under Subsection (c) shall be presumed to establish
32-11    the market value of the common stock equity in each transferee
32-12    corporation.  The commission may accept the market valuation to
32-13    conclusively establish the value of the common stock equity in each
32-14    transferee corporation or convene a valuation panel of three
32-15    independent financial experts to determine whether the percentage
32-16    of common stock sold is fairly representative of the total common
32-17    stock equity or whether a control premium exists for the retained
32-18    interest.  The valuation panel must consist of financial experts,
32-19    chosen from proposals submitted in response to commission requests,
32-20    from the top 10 nationally recognized investment banks with
32-21    demonstrated experience in the United States electric industry as
32-22    indicated by the dollar amount of public offerings of long-term
32-23    debt and equity of United States investor-owned electric companies
32-24    over the immediately preceding three years as ranked by the
32-25    publications "Securities Data" or "Institutional Investor."  If the
32-26    panel determines that a control premium exists for the retained
32-27    interest, the panel shall determine the amount of the control
32-28    premium, and the commission shall adopt the determination but may
32-29    not increase the market value by a control premium greater than 10
32-30    percent.  The costs and expenses of the panel, as approved by the
32-31    commission, shall be paid by each transferee corporation.  The
32-32    determination of the commission based on the finding of the panel
32-33    conclusively establishes the value of the common stock of each
32-34    transferee corporation.  The book value of each transferee
32-35    corporation's debt and preferred stock securities shall be added to
32-36    the market value of its assets.  The market value of each
32-37    transferee corporation's assets shall be reduced by the
32-38    corresponding net book value of the assets acquired by each
32-39    transferee corporation from any entity other than the affiliated
32-40    electric utility or power generation company.  The resulting market
32-41    value of the assets establishes the market value of the generation
32-42    assets transferred by the electric utility or power generation
32-43    company to each separate corporation.
32-44          (h)  Unless an electric utility or its affiliated power
32-45    generation company combines all of its generation assets into one
32-46    or more transferee corporations as described in Subsections (g)(2)
32-47    and (3), the electric utility shall quantify its stranded costs for
32-48    nuclear assets using the ECOM method.  The ECOM method is the
32-49    estimation model prepared for and described by the commission's
32-50    April 1998 Report to the Texas Senate Interim Committee on Electric
32-51    Restructuring entitled "Potentially Strandable Investment (ECOM)
32-52    Report:  1998 Update."  The methodology used in the model must be
32-53    the same as that used in the 1998 report to determine the "base
32-54    case."  At the time of the proceeding under this section, the ECOM
32-55    model shall be rerun using updated company-specific inputs required
32-56    by the model, updating the market price of electricity, and using
32-57    updated natural gas price forecasts and the capacity cost based on
32-58    the long-run marginal cost of the most economic new generation
32-59    technology then available.  Natural gas price projections used in
32-60    the model must be based on the most credible publicly available
32-61    market-based data.  The commission by rule shall establish, before
32-62    June 1, 2000, the precise methodology to be used by the commission
32-63    in updating natural gas forecasts.
32-64          (i)  The commission shall conduct the hearing in this case as
32-65    a contested case.
32-66          (j)  The commission shall issue a final order not later than
32-67    the 150th day after the date of the filing under this section by
32-68    the transmission and distribution utility, its affiliated retail
32-69    electric provider, and its affiliated power generation company, and
 33-1    the resulting order shall be subject to judicial review under
 33-2    Chapter 2001, Government Code.
 33-3          (k)  Notwithstanding Section 39.252, to the extent that a
 33-4    customer's actual load has been lawfully served by a fully
 33-5    operational qualifying facility before September 1, 2001, or by an
 33-6    on-site power production facility with a rated capacity of 10
 33-7    megawatts or less, any charge for recovery of stranded costs under
 33-8    this section or Subchapter G assessed on that customer after the
 33-9    facility becomes fully operational shall be included only in those
33-10    tariffs or charges associated with the services actually provided
33-11    by the transmission and distribution utility, if any, to the
33-12    customer after the facility became fully operational and may not
33-13    include any costs associated with the service provided to the
33-14    customer by the electric utility or its affiliated transmission and
33-15    distribution utility under their tariffs before the operation of
33-16    that qualifying facility.  To qualify under this subsection, a
33-17    qualifying facility must have made substantially complete filings
33-18    on or before December 31, 1999, for all necessary site-specific
33-19    environmental permits under the rules of the Texas Natural Resource
33-20    Conservation Commission in effect at the time of filing.
33-21          Sec. 39.263.  STRANDED COST RECOVERY OF ENVIRONMENTAL CLEANUP
33-22    COSTS.  (a)  Subject to the provisions of Subsection (c), capital
33-23    costs incurred by an electric utility to improve air quality prior
33-24    to January 1, 2002, are eligible for inclusion as net invested
33-25    capital under Section 39.259, notwithstanding the limitations
33-26    imposed under Sections 39.259(b) and (c).
33-27          (b)  Subject to the provisions of Subsection (c), capital
33-28    costs incurred by an electric utility to improve air quality
33-29    subsequent to January 1, 2002, and prior to May 1, 2003, are
33-30    eligible for inclusion in the determination of invested capital in
33-31    the true-up proceeding under Section 39.262.
33-32          (c)  Costs incurred under Subsections (a) and (b) shall be
33-33    included as invested capital and considered in an electric
33-34    utility's stranded cost determination only to the extent that:
33-35                (1)  the cost is applied to offset or reduce the
33-36    emission of airborne contaminants from an electric generating
33-37    facility, where:
33-38                      (A)  the reduction or offset is determined by the
33-39    Texas Natural Resource Conservation Commission to be an essential
33-40    component in  achieving compliance with a national ambient air
33-41    quality standard; or
33-42                      (B)  the reduction or offset is necessary in
33-43    order for an unpermitted electric generating facility to obtain a
33-44    permit;
33-45                (2)  the retrofit decision is determined to be the most
33-46    cost-effective after consideration of alternative measures,
33-47    including the retirement of the generating facility;
33-48                (3)  the amount and location of resulting emission
33-49    reductions is consistent with the air quality goals and policies of
33-50    the Texas Natural Resource Conservation Commission; and
33-51                (4)  resulting emission reduction credits are conveyed
33-52    to the state for inclusion in the state implementation plan.
33-53          (d)  If the retirement of a generating facility is the most
33-54    cost-effective alternative, the net book value, including
33-55    retirement costs and offsetting salvage value, of the affected
33-56    facility shall be included in the electric utility's stranded cost
33-57    determination if the electric utility complies with Subsection
33-58    (c)(4), notwithstanding the provisions of Section 39.259(c).
33-59          (e)  Not later than November 15, 2000, the commission and the
33-60    Texas Natural Resource Conservation Commission shall submit a joint
33-61    report to the governor, the lieutenant governor, the speaker of the
33-62    house of representatives, and the electric utility restructuring
33-63    legislative oversight committee as created in Section 39.607.  The
33-64    report shall include:
33-65                (1)  an update on the scope of and the actual and
33-66    estimated capital costs authorized by this section;
33-67                (2)  the feasibility of an emission reduction credit
33-68    and trading program and the implementation of emission performance
33-69    standards for fossil fuel generation facilities;
 34-1                (3)  the feasibility of allowing the Texas Natural
 34-2    Resource Conservation Commission to sell or auction the emission
 34-3    reduction credits conveyed to the state under Subsection (c)(4) in
 34-4    order to encourage the investment of new and efficient generation
 34-5    technology in Texas, and the impact of using the proceeds to
 34-6    encourage renewable technology development in Texas; and
 34-7                (4)  the feasibility of implementing additional
 34-8    programs that would encourage the reduction of emissions from
 34-9    electric generating facilities in a way that is competitively
34-10    neutral.
34-11          Sec. 39.264.  RIGHTS NOT AFFECTED.  This chapter is not
34-12    intended to alter any rights of utilities to recover stranded costs
34-13    from wholesale customers.
34-14                       SUBCHAPTER G.  SECURITIZATION
34-15          Sec. 39.301.  PURPOSE.  The purpose of this subchapter is to
34-16    enable utilities to use securitization financing to recover
34-17    stranded costs, because this type of debt will lower the carrying
34-18    costs of the assets relative to the costs that would be incurred
34-19    using conventional utility financing methods.
34-20          Sec. 39.302.  DEFINITIONS.  In this subchapter:
34-21                (1)  "Assignee" means any individual, corporation, or
34-22    other legally recognized entity to which an interest in transition
34-23    property is transferred, other than as security, including any
34-24    assignee of such party.
34-25                (2)  "Financing order" means an order of the commission
34-26    adopted pursuant to Section 39.252 or 39.262 approving the issuance
34-27    of transition bonds and the creation of transition charges for the
34-28    recovery of qualified costs.
34-29                (3)  "Financing party" means a holder of transition
34-30    bonds, including trustees, collateral agents, and other persons
34-31    acting for the benefit of such holder.
34-32                (4)  "Qualified costs" means 100 percent of an electric
34-33    utility's regulatory assets and 75 percent of its remaining
34-34    recoverable costs determined by the commission pursuant to Section
34-35    39.252 and any remaining stranded costs determined pursuant to
34-36    Section 39.262 together with the costs of issuing, supporting, and
34-37    servicing transition bonds and any costs of retiring and refunding
34-38    the electric utility's existing debt and equity securities in
34-39    connection with the issuance of transition bonds.  The term
34-40    includes the costs to the commission of acquiring professional
34-41    services for the purpose of evaluating proposed transactions
34-42    pursuant to Section 39.201 and this subchapter.
34-43                (5)  "Transition bonds" means bonds, debentures, notes,
34-44    certificates of participation or of beneficial interest, or other
34-45    evidences of indebtedness or ownership that are issued by an
34-46    electric utility, its successors, or an assignee under a financing
34-47    order, that have a term no longer than 15 years, and that are
34-48    secured by or payable from transition property.  If certificates of
34-49    participation, beneficial interest, or ownership are issued,
34-50    references in this subchapter to principal, interest, or premium
34-51    shall refer to comparable amounts under those certificates.
34-52                (6)  "Transition charges" means nonbypassable amounts
34-53    to be charged for the use or availability of electric services,
34-54    approved by the commission pursuant to a financing order to recover
34-55    qualified costs, which shall be collected by an electric utility,
34-56    its successors, an assignee, or other collection agents as provided
34-57    for in the financing order.
34-58                (7)  "Transition property" means the property described
34-59    in Section 39.304.
34-60          Sec. 39.303.  FINANCING ORDERS; TERMS.  (a)  The commission
34-61    shall adopt a financing order, on application of a utility to
34-62    recover the utility's eligible stranded costs under Section 39.252
34-63    or 39.262, upon making a finding that the total amount of revenues
34-64    to be collected pursuant to the financing order is less than the
34-65    revenue requirement that would be recovered over the remaining life
34-66    of the stranded costs using conventional financing methods.
34-67          (b)  The financing order shall detail the amount of stranded
34-68    costs to be recovered and the period over which the nonbypassable
34-69    transition charges shall be recovered, which period shall not
 35-1    exceed 15 years.
 35-2          (c)  Transition charges shall be collected and allocated
 35-3    among customers in the same manner as transition charges pursuant
 35-4    to Section 39.201.
 35-5          (d)  A financing order shall become effective in accordance
 35-6    with its terms, and the financing order, together with the
 35-7    transition charges authorized in the order, shall thereafter be
 35-8    irrevocable and not subject to reduction, impairment, or adjustment
 35-9    by further action of the commission, except as permitted by Section
35-10    39.307.
35-11          (e)  The commission shall issue a financing order pursuant to
35-12    Subsections (a) and (g) no later than 90 days after the utility
35-13    files its request for the financing order.
35-14          (f)  A financing order shall not be subject to rehearing by
35-15    the commission.  A financing order may be reviewed by appeal only
35-16    to a Travis County district court by a party to the proceeding
35-17    filed within 15 days after the financing order is signed by the
35-18    commission.  The judgment of the district court may be reviewed
35-19    only by direct appeal to the Supreme Court of Texas filed within 15
35-20    days after entry of judgment.  All appeals shall be heard and
35-21    determined by the district court and the Supreme Court of Texas as
35-22    expeditiously as possible with lawful precedence over other
35-23    matters.  Review on appeal shall be based solely on the record
35-24    before the commission and briefs to the court and shall be limited
35-25    to whether the financing order conforms to the constitution and
35-26    laws of this state and the United States and is within the
35-27    authority of the commission pursuant to this chapter.
35-28          (g)  At the request of an electric utility, the commission
35-29    may adopt a financing order providing for retiring and refunding
35-30    transition bonds upon making a finding that the future transition
35-31    charges required to service the new transition bonds, including
35-32    transaction costs, will be less than the future transition charges
35-33    required to service the transition bonds being refunded.  Upon the
35-34    retirement of the refunded transition bonds, the commission shall
35-35    adjust the related transition charges accordingly.
35-36          Sec. 39.304.  PROPERTY RIGHTS.  (a)  The rights and interests
35-37    of an electric utility or successor under a financing order,
35-38    including the right to impose, collect, and receive transition
35-39    charges authorized in the order, shall be only contract rights
35-40    until they are first transferred to an assignee or pledged in
35-41    connection with the issuance of transition bonds, at which time
35-42    they will  become "transition property."
35-43          (b)  Transition property shall constitute a present property
35-44    right for purposes of contracts concerning the sale or pledge of
35-45    property, even though the imposition and collection of transition
35-46    charges depends on further acts of the utility or others which have
35-47    not yet occurred; the financing order shall remain in effect and
35-48    the property shall continue to exist for the same period as the
35-49    pledge of the state described in Section 39.310.
35-50          (c)  All revenues and collections resulting from transition
35-51    charges shall constitute proceeds only of the transition property
35-52    arising from the financing order.
35-53          Sec. 39.305.  NO SETOFF.  The interest of an assignee or
35-54    pledgee in transition property and in the revenues and collections
35-55    arising from that property shall not be subject to setoff,
35-56    counterclaim, surcharge, or defense by the electric utility or any
35-57    other person or in connection with the bankruptcy of the electric
35-58    utility or any other entity.  A financing order shall remain in
35-59    effect and unabated notwithstanding the bankruptcy of the electric
35-60    utility, its successors, or assignees.
35-61          Sec. 39.306.  NO BYPASS.  A financing order shall include
35-62    terms ensuring that the imposition and collection of transition
35-63    charges authorized in the order shall be nonbypassable.
35-64          Sec. 39.307.  TRUE-UP.  A financing order shall include a
35-65    mechanism requiring that transition charges be reviewed and
35-66    adjusted at least annually, within 45 days of the anniversary date
35-67    of the issuance of the transition bonds, to correct any
35-68    overcollections or undercollections of the preceding 12 months and
35-69    to ensure the expected recovery of amounts sufficient to timely
 36-1    provide all payments of debt service and other required amounts and
 36-2    charges in connection with the transition bonds.
 36-3          Sec. 39.308.  TRUE SALE.  An agreement by an electric utility
 36-4    or assignee to transfer transition property that expressly states
 36-5    that the transfer is a sale or other absolute transfer signifies
 36-6    that the transaction is a true sale and is not a secured
 36-7    transaction and that title, legal and equitable, has passed to the
 36-8    entity to which the transition property is transferred.  This true
 36-9    sale shall apply regardless of whether the purchaser has any
36-10    recourse against the seller, or any other term of the parties'
36-11    agreement, including the seller's retention of an equity interest
36-12    in the transition property, the fact that the electric utility acts
36-13    as the collector of transition charges relating to the transition
36-14    property, or the treatment of the transfer as a financing for tax,
36-15    financial reporting, or other purposes.
36-16          Sec. 39.309.  SECURITY INTERESTS; ASSIGNMENT; COMMINGLING;
36-17    DEFAULT.  (a)  Transition property shall not constitute an account
36-18    or general intangible under Section 9.106, Business & Commerce
36-19    Code.  The creation, granting, perfection, and enforcement of liens
36-20    and security interests in transition property are governed by this
36-21    section and not by the Business & Commerce Code.
36-22          (b)  A valid and enforceable lien and security interest in
36-23    transition property shall be created only by a financing order and
36-24    the execution and delivery of a security agreement with a financing
36-25    party in connection with the issuance of transition bonds.  The
36-26    lien and security interest shall attach automatically from the time
36-27    that value is received for the bonds and, upon perfection through
36-28    the filing of notice with the secretary of state in accordance with
36-29    the rules prescribed under Subsection (d), shall be a continuously
36-30    perfected lien and security interest in the transition property and
36-31    all proceeds thereof, whether accrued or not, shall have priority
36-32    in the order of filing and take precedence over any subsequent
36-33    judicial or other lien creditor.  If notice is filed within 10 days
36-34    after value is received for the transition bonds, the security
36-35    interest shall be perfected retroactive to the date value was
36-36    received; otherwise, the security interest shall be perfected as of
36-37    the date of filing.
36-38          (c)  Transfer of an interest in transition property to an
36-39    assignee shall be perfected against all third parties, including
36-40    subsequent judicial or other lien creditors, when the financing
36-41    order becomes effective, transfer documents have been delivered to
36-42    the assignee, and a notice of that transfer has been filed in
36-43    accordance with the rules prescribed under Subsection (d);
36-44    provided, however, that if notice of the transfer has not been
36-45    filed in accordance with this subsection within 10 days after the
36-46    delivery of transfer documentation, the transfer of the interest
36-47    shall not be perfected against third parties until the notice is
36-48    filed.
36-49          (d)  The secretary of state shall implement this section by
36-50    establishing and maintaining a separate system of records for the
36-51    filing of notices under this section and prescribing the rules for
36-52    such filings based on Chapter 9, Business & Commerce Code, adapted
36-53    to the provisions of this subchapter and using the terms defined in
36-54    this subchapter.
36-55          (e)  The priority of a lien and security interest perfected
36-56    under this section will not be impaired by any later modification
36-57    of the financing order under Section 39.307 or by the commingling
36-58    of funds arising from financing charges with other funds, and any
36-59    other security interest that may apply to those funds shall be
36-60    terminated when they are transferred to a segregated account for
36-61    the assignee or a financing party.  If transition property has been
36-62    transferred to an assignee, any proceeds of that property shall be
36-63    held in trust for the assignee.
36-64          (f)  If a default or termination occurs under the transition
36-65    bonds, the financing parties or their representatives may foreclose
36-66    on or otherwise enforce their lien and security interest in any
36-67    transition property as if they were secured parties under Chapter
36-68    9, Business & Commerce Code, and the commission may order that
36-69    amounts arising from financing charges be transferred to a separate
 37-1    account for the financing parties' benefit, to which their lien and
 37-2    security interest shall apply.  On application by or on behalf of
 37-3    the financing parties, a district court of Travis County shall
 37-4    order the sequestration and payment to them of revenues arising
 37-5    from the financing charges.
 37-6          Sec. 39.310.  PLEDGE OF STATE.  Transition bonds are not a
 37-7    debt or obligation of the state and are not a charge upon its full
 37-8    faith and credit or taxing power.  The state pledges, however, for
 37-9    the benefit and protection of financing parties and the electric
37-10    utility, that it will not take or permit any action that would
37-11    impair the value of transition property, or, except as permitted by
37-12    Section 39.307, reduce, alter, or impair the financing charges to
37-13    be imposed, collected, and remitted to financing parties, until the
37-14    principal, interest and premium, and any other charges incurred and
37-15    contracts to be performed in connection with the related transition
37-16    bonds have been paid and performed in full.  Any party issuing
37-17    transition bonds is authorized to include this pledge in any
37-18    documentation relating to such bonds.
37-19          Sec. 39.311.  TAX EXEMPTION.  Transactions involving the
37-20    transfer and ownership of transition property and the receipt of
37-21    financing charges shall be exempt from state and local income,
37-22    sales, franchise, gross receipts, and other taxes or similar
37-23    charges.
37-24          Sec. 39.312.  NO PUBLIC UTILITY.  No assignee or financing
37-25    party shall be considered to be a public utility or person
37-26    providing electric service solely by virtue of the transactions
37-27    described in this subchapter.
37-28          Sec. 39.313.  SEVERABILITY.  Effective upon the date the
37-29    first utility transition bonds are issued under this subchapter, if
37-30    any provision in this title or portion thereof is held to be
37-31    invalid or is invalidated, superseded, replaced, repealed, or
37-32    expires for any reason, such occurrence shall not affect the
37-33    validity or continuation of this subchapter, Section 39.201,
37-34    39.251, 39.252, or 39.262, or any part thereof, or any other
37-35    provision of this title that is relevant to the issuance,
37-36    administration, payment, retirement, or refunding of transition
37-37    bonds or to any actions of the electric utility, its successors, an
37-38    assignee, a collection agent, or a financing party related thereto,
37-39    which shall remain in full force and effect.
37-40         SUBCHAPTER H.  CERTIFICATION AND REGISTRATION; PENALTIES
37-41          Sec. 39.351.  REGISTRATION OF POWER GENERATION COMPANIES.
37-42    (a)  A person may not generate electricity unless the person is
37-43    registered with the commission as a power generation company in
37-44    accordance with this section.  A person may register as a power
37-45    generation company by filing the following information with the
37-46    commission:
37-47                (1)  a description of the location of any facility used
37-48    to generate electricity;
37-49                (2)  a description of the type of services provided;
37-50                (3)  a copy of any information filed with the Federal
37-51    Energy Regulatory Commission in connection with registration with
37-52    that commission; and
37-53                (4)  any other information required by commission rule,
37-54    provided that in requiring such information the commission shall
37-55    protect the competitive process in a manner that ensures the
37-56    confidentiality of competitively sensitive information.
37-57          (b)  A power generation company shall comply with the
37-58    reliability standards adopted by an independent organization
37-59    certified by the commission to ensure the reliability of the
37-60    regional electrical network for a power region in which the power
37-61    generation company is generating or selling electricity.
37-62          (c)  A power generation company may register anytime after
37-63    September 1, 2000.
37-64          Sec. 39.352.  CERTIFICATION OF RETAIL ELECTRIC PROVIDERS.
37-65    (a)  In areas where customer choice has been introduced, no person,
37-66    including an affiliate of an electric utility, may provide retail
37-67    electric service in this state unless the person is certified by
37-68    the commission as a retail electric provider, in accordance with
37-69    this section.
 38-1          (b)  The commission shall issue a certificate to provide
 38-2    retail electric service to a person applying for certification who
 38-3    demonstrates:
 38-4                (1)  the financial and technical resources to provide
 38-5    continuous and reliable electric service to customers in the area
 38-6    for which the certification is sought;
 38-7                (2)  the managerial and technical ability to supply
 38-8    electricity at retail in accordance with customer contracts;
 38-9                (3)  the resources needed to meet the customer
38-10    protection requirements of this title; and
38-11                (4)  ownership or lease of an office located within
38-12    this state for the purpose of providing customer service, accepting
38-13    service of process, and making available in that office books and
38-14    records sufficient to establish the retail electric provider's
38-15    compliance with the requirements of this subchapter.
38-16          (c)  A person applying for certification under this section
38-17    shall comply with all applicable customer protection provisions,
38-18    disclosure requirements, and marketing guidelines established by
38-19    the commission and by this title.
38-20          (d)  In determining whether the requirements in Subsections
38-21    (b) and (c) have been met, the commission shall consider the nature
38-22    of the retail transactions and the types of customers served.
38-23          (e)  A retail electric provider may apply for certification
38-24    anytime after September 1, 2000.
38-25          (f)  The commission shall use any information required in
38-26    this section in a manner that ensures the confidentiality of
38-27    competitively sensitive information.
38-28          Sec. 39.353.  REGISTRATION OF AGGREGATORS.  (a)  A person may
38-29    not provide aggregation services in the state unless the person is
38-30    registered with the commission as an aggregator.
38-31          (b)  In this subchapter, "aggregator" means a person joining
38-32    two or more customers, other than municipalities, into a single
38-33    purchasing unit to negotiate the purchase of electricity from
38-34    retail electric providers.  Aggregators may not sell or take title
38-35    to electricity.  Retail electric providers are not aggregators.
38-36          (c)  A person registering under this section shall comply
38-37    with all customer protection provisions, all disclosure
38-38    requirements, and all marketing guidelines established by the
38-39    commission and by this title.
38-40          (d)  The commission may establish terms and conditions it
38-41    determines necessary to regulate the reliability and integrity of
38-42    aggregators in the state.
38-43          (e)  An aggregator may register anytime after September 1,
38-44    2000.
38-45          Sec. 39.354.  REGISTRATION OF MUNICIPAL AGGREGATORS.  (a)  A
38-46    municipal aggregator may not provide aggregation services in the
38-47    state unless the municipal aggregator registers with the
38-48    commission.
38-49          (b)  In this section, "municipal aggregator" means a person
38-50    authorized by two or more municipal governing bodies to join the
38-51    bodies into a single purchasing unit to negotiate the purchase of
38-52    electricity from retail electric providers.
38-53          (c)  A municipal aggregator may register anytime after
38-54    September 1, 2000.
38-55          Sec. 39.355.  REGISTRATION OF POWER MARKETERS.  A person may
38-56    not sell electric energy at wholesale as a power marketer unless
38-57    the person registers with the commission.
38-58          Sec. 39.356.  REVOCATION OF CERTIFICATION.  (a)  The
38-59    commission may after notice and opportunity for hearing suspend,
38-60    revoke, or amend a retail electric provider's certificate for
38-61    significant violations of this title or the rules adopted pursuant
38-62    to this title or of any reliability standard adopted by an
38-63    independent organization certified by the commission to ensure the
38-64    reliability of a power region's electrical network, including the
38-65    failure to observe any scheduling, operating, or settlement
38-66    protocols established by the independent organization.  The
38-67    commission may also suspend or revoke a retail electric provider's
38-68    certificate if the provider no longer has the financial or
38-69    technical capability to provide continuous and reliable electric
 39-1    service.
 39-2          (b)  The commission may suspend or revoke a power generation
 39-3    company's registration for significant violations of this title or
 39-4    the rules adopted pursuant to this title or of the reliability
 39-5    standards adopted by an independent organization certified by the
 39-6    commission to ensure the reliability of a power region's electrical
 39-7    network, including the failure to observe any scheduling,
 39-8    operating, or settlement protocols established by the independent
 39-9    organization.
39-10          (c)  The commission may suspend or revoke an aggregator's
39-11    registration for significant violations of this title or of the
39-12    rules adopted pursuant to this title.
39-13          Sec. 39.357.  ADMINISTRATIVE PENALTY.  In addition to the
39-14    suspension, revocation, or amendment of a certification, the
39-15    commission may impose an administrative penalty, as provided by
39-16    Section 15.023, for violations described by Section 39.356.
39-17                  SUBCHAPTER I.  MISCELLANEOUS PROVISIONS
39-18          Sec. 39.601.  SCHOOL FUNDING LOSS MECHANISM.  (a)  Not later
39-19    than March 1 each year, the comptroller shall certify to the Texas
39-20    Education Agency any property wealth reductions, determined by
39-21    taking the difference between current year and prior year appraisal
39-22    values attributable to electric utility restructuring.
39-23          (b)  The Texas Education Agency shall determine the reduction
39-24    of the amount of property taxes recaptured by the state from school
39-25    districts subject to wealth equalization under Chapter 41,
39-26    Education Code, as a result of the property wealth reductions
39-27    certified under Subsection (a) and shall notify the commission of
39-28    the amount necessary to compensate the state for the reduction.
39-29          (c)  The Texas Education Agency shall determine the amount
39-30    necessary to compensate school districts for lost revenue resulting
39-31    from the property wealth reductions under Subsection (a) and shall
39-32    notify the commission of this amount.  The amounts necessary to
39-33    compensate districts shall be the sum of:
39-34                (1)  decreases in the level of funding to which a
39-35    school district is entitled under Chapters 42 and 46, Education
39-36    Code, that are directly attributable to the decline in property
39-37    values caused by utility restructuring; and
39-38                (2)  losses of property tax collections incurred by
39-39    school districts that are directly attributable to property value
39-40    declines caused by utility restructuring and that are not accounted
39-41    for under Subdivision (1), including amounts which a school
39-42    district would be entitled to retain under Chapter 41, Education
39-43    Code.
39-44          (d)  The amounts determined by the comptroller and the Texas
39-45    Education Agency under this section, for the purposes of this
39-46    section, are final and may not be appealed.
39-47          (e)  Not later than May 1 of each year, the commission shall
39-48    transfer from the system benefit fund to the foundation school fund
39-49    the amounts determined by the Texas Education Agency under
39-50    Subsections (b) and (c).  Amounts transferred from the system
39-51    benefit fund pursuant to this section are appropriated for the
39-52    support of the foundation school program and are available, in
39-53    addition to any amounts allocated by the General Appropriations
39-54    Act, to finance actions under Section 41.002(b) or 42.252(e),
39-55    Education Code.
39-56          (f)  The Texas Education Agency shall, upon the transfer of
39-57    funds from the system benefit fund to the foundation school fund,
39-58    compensate school districts for losses incurred under Subsection
39-59    (c).
39-60          (g)  The commissioner of education and the comptroller may
39-61    adopt rules necessary to implement this section.
39-62          (h)  This section is effective through the 2006-2007 school
39-63    year.  This section expires August 31, 2007.
39-64          Sec. 39.602.  CUSTOMER EDUCATION.  (a)  On or before January
39-65    1, 2001, the commission shall develop and implement an educational
39-66    program to inform customers, including low-income and
39-67    non-English-speaking customers, about changes in the provision of
39-68    electric service resulting from the opening of the retail electric
39-69    market and the customer choice pilot program under this chapter.
 40-1    The educational program shall be neutral and nonpromotional and
 40-2    shall provide customers with the information necessary to make
 40-3    informed decisions relating to the source and type of electric
 40-4    service available for purchase and other information the commission
 40-5    considers necessary.  In planning and implementing this program,
 40-6    the commission shall consult with the office, with the Texas
 40-7    Department of Housing and Community Affairs, and with customers of
 40-8    and providers of retail electric service.  The commission may enter
 40-9    contracts for professional services to carry out the customer
40-10    education program.
40-11          (b)  The commission shall report on the status of the
40-12    educational program, developed and implemented as provided by
40-13    Subsection (a), to the electric utility restructuring legislative
40-14    oversight committee on or before December 1, 2001.
40-15          (c)  After the opening of the retail electric market, the
40-16    commission shall conduct ongoing customer education designed to
40-17    help customers make informed choices of electric services and
40-18    retail electric providers.  As part of ongoing education, the
40-19    commission may provide customers information concerning specific
40-20    retail electric providers, including instances of complaints
40-21    against them and records relating to quality of customer service.
40-22          Sec. 39.603.  SYSTEM BENEFIT FUND.  (a)  The commission shall
40-23    establish the system benefit fund.
40-24          (b)  The system benefit fund is financed by a nonbypassable
40-25    charge set by the commission in an amount not to exceed 50 cents
40-26    per MWh.
40-27          (c)  The system benefit fund shall provide funding for:
40-28                (1)  customer education programs;
40-29                (2)  programs to assist low-income electric customers;
40-30                (3)  the school funding loss mechanism provided by
40-31    Section 39.601; and
40-32                (4)  administrative costs incurred by the commission in
40-33    implementing this chapter and Chapters 40 and 41.
40-34          (d)  For the purposes of this section, a "low-income electric
40-35    customer" is an electric customer who is a qualifying low-income
40-36    consumer as defined by the commission.
40-37          Sec. 39.604.  GOAL FOR RENEWABLE CAPACITY.  (a)  It is the
40-38    intent of the legislature that by January 1, 2007, renewable energy
40-39    technologies shall constitute not less than five percent of the
40-40    installed electric generation capacity that is physically located
40-41    in the state and available to sell power at wholesale or retail.
40-42          (b)  The introduction of competition and retail customer
40-43    choice is expected to create opportunities that will stimulate the
40-44    economic development of renewable energy technologies in the state
40-45    to a level that achieves the goal of Subsection (a) through
40-46    reliance on market forces alone.
40-47          (c)  Beginning on January 1, 2004, each retail electric
40-48    provider, municipally owned utility, and electric cooperative
40-49    operating in the state shall include a minimum of one percent of
40-50    capacity from renewable energy technologies in its supply
40-51    portfolio.
40-52          (d)  The commission shall establish a renewable energy
40-53    credits trading program.  Any retail electric provider, municipally
40-54    owned utility, or electric cooperative that does not satisfy the
40-55    requirement of Subsection (c) shall purchase sufficient renewable
40-56    energy credits to satisfy the requirement by holding renewable
40-57    energy credits in lieu of capacity from renewable energy
40-58    technologies.
40-59          (e)  In this section, "renewable energy technology" means any
40-60    technology that exclusively relies on an energy source that is
40-61    naturally regenerated over a short time and derived directly from
40-62    the sun, indirectly from the sun, or from other natural movements
40-63    and mechanisms of the environment.  A renewable energy technology
40-64    does not rely on energy resources derived from fossil fuels, waste
40-65    products from fossil fuels, or waste products from inorganic
40-66    sources.
40-67          Sec. 39.605.  GOAL FOR ENERGY EFFICIENCY.  It is the intent
40-68    of the legislature that:
40-69                (1)  regulated utilities shall administer customer
 41-1    information and energy savings incentive programs;
 41-2                (2)  all customers, in all customer classes, shall have
 41-3    a choice of and access to energy efficiency alternatives and other
 41-4    choices that allow each customer to reduce energy consumption and
 41-5    reduce energy costs;
 41-6                (3)  utilities may offer loans at below-market interest
 41-7    rates for energy efficiency investments, other energy efficiency
 41-8    market transformation programs which result in below-market cost to
 41-9    the customer, and grants and other special programs to address the
41-10    needs of small businesses, tenants, low-income consumers, and other
41-11    customer groups not served by market-based incentive programs; and
41-12                (4)  regulated utilities shall acquire, through
41-13    market-based standard offer programs or targeted market
41-14    transformation programs, additional energy efficiency equivalent to
41-15    at least 25 percent of each year's annual growth in demand.
41-16          Sec. 39.606.  DISPLACED WORKERS.  In order to mitigate
41-17    potential negative impacts on utility personnel directly affected
41-18    by electric industry restructuring, the commission may allow the
41-19    recovery of reasonable employee related transition costs.
41-20          Sec. 39.607.  LEGISLATIVE OVERSIGHT COMMITTEE.  (a)  In this
41-21    section, "committee" means the electric utility restructuring
41-22    legislative oversight committee.
41-23          (b)  The committee is composed of six members as follows:
41-24                (1)  the chair of the Senate Committee on Economic
41-25    Development, who shall serve as the chair of the committee;
41-26                (2)  the chair of the House Committee on State Affairs,
41-27    who shall serve as the vice chair of the committee;
41-28                (3)  two members of the senate appointed by the
41-29    lieutenant governor; and
41-30                (4)  two members of the house of representatives
41-31    appointed by the speaker of the house of representatives.
41-32          (c)  An appointed member of the committee serves at the
41-33    pleasure of the appointing official.
41-34          (d)  The committee is subject to Chapter 325, Government Code
41-35    (Texas Sunset Act).  Unless continued in existence as provided by
41-36    that chapter, the committee is abolished September 1, 2005.
41-37          (e)  The committee shall:
41-38                (1)  meet at least annually with the commission;
41-39                (2)  receive information about rules relating to
41-40    electric utility restructuring proposed or adopted by the
41-41    commission;
41-42                (3)  review recommendations for legislation proposed by
41-43    the commission; and
41-44                (4)  monitor the effectiveness of electric utility
41-45    restructuring, including the fairness of rates, the reliability of
41-46    service, and the effect of stranded costs and market power on
41-47    competition.
41-48          (f)  The committee may request reports and other information
41-49    from the commission as necessary to carry out this section.
41-50          (g)  Not later than November 15 of each even-numbered year,
41-51    the committee shall report to the governor, lieutenant governor,
41-52    and speaker of the house of representatives on the committee's
41-53    activities under Subsection (e).  The report shall include:
41-54                (1)  an analysis of any problems caused by electric
41-55    utility restructuring; and
41-56                (2)  recommendations of any legislative action
41-57    necessary to address such problems and to further retail
41-58    competition within the electric power industry.
41-59          Sec. 39.608.  EFFECT OF SUNSET PROVISION.  (a)  If the
41-60    commission is abolished and the other provisions of this title
41-61    expire as provided by Chapter 325, Government Code (Texas Sunset
41-62    Act), this subchapter, including the provisions of this title
41-63    referred to in this subchapter, continues in full force and effect
41-64    and does not expire.
41-65          (b)  The authorities, duties, and functions of the commission
41-66    under this chapter shall be performed and carried out by a
41-67    successor agency to be designated by the legislature before
41-68    abolishment of the commission or, if the legislature does not
41-69    designate the successor, by the secretary of state.
 42-1         CHAPTER 40.  COMPETITION FOR MUNICIPALLY OWNED UTILITIES
 42-2                           AND RIVER AUTHORITIES
 42-3                     SUBCHAPTER A.  GENERAL PROVISIONS
 42-4          Sec. 40.001.  APPLICABLE LAW.  (a)  Notwithstanding any other
 42-5    provision of law, this chapter governs the transition to and the
 42-6    establishment of a fully competitive electric power industry for
 42-7    municipally owned utilities.  This chapter controls over any other
 42-8    provision of this title, except Sections 39.155, 39.157(e), 39.203,
 42-9    39.603, and 39.604.
42-10          (b)  Except as specifically provided in this subsection, the
42-11    provisions of Chapter 39 shall not apply to a river authority
42-12    operating a steam generating plant on or before January 1, 1999, or
42-13    a corporation authorized by Chapter 245, Acts of the 67th
42-14    Legislature, Regular Session, 1981 (Article 717p, Vernon's Texas
42-15    Civil Statutes), or Section 32.053.  A river authority operating a
42-16    steam generating plant on or before January 1, 1999, shall be
42-17    subject to Sections 39.051(a)-(c), 39.108, 39.155, 39.157(e), and
42-18    39.203.
42-19          (c)  For purposes of Section 39.051, hydroelectric assets
42-20    shall not be deemed to be generating assets, and the transfer of
42-21    generating assets to a corporation authorized by Chapter 245, Acts
42-22    of the 67th Legislature, Regular Session, 1981 (Article 717p,
42-23    Vernon's Texas Civil Statutes), shall satisfy the requirements of
42-24    Section 39.051.
42-25          (d)  Accommodation shall be made in the code of conduct
42-26    established under Section 39.157(e) for the provisions of Chapter
42-27    245, Acts of the 67th Legislature, Regular Session, 1981 (Article
42-28    717p, Vernon's Texas Civil Statutes), and the commission shall not
42-29    prohibit a river authority and any related corporation from sharing
42-30    officers, directors, employees, equipment, and facilities or from
42-31    providing goods or services to each other at cost without the need
42-32    for a competitive bid.
42-33          Sec. 40.002.  DEFINITION.  For purposes of this chapter,
42-34    "body vested with the power to manage and operate a municipally
42-35    owned utility" shall mean a body created in accordance with Article
42-36    1115 or 1115a, Revised Statutes, or by municipal charter.
42-37          Sec. 40.003.  SECURITIZATION.  (a)  Municipally owned
42-38    utilities and river authorities may adopt and use securitization
42-39    provisions having the effect of the provisions set out in
42-40    Subchapter G, Chapter 39, to recover through rates stranded costs,
42-41    at a recovery level deemed appropriate by the municipally owned
42-42    utility or river authority up to 100 percent, under rules and
42-43    procedures that shall be established:
42-44                (1)  in the case of a municipally owned utility, by the
42-45    municipal governing body or a body vested with the power to manage
42-46    and operate the municipally owned utility, including procedures
42-47    providing for rate orders of such body having the effect of
42-48    qualified rate orders, providing for a separate nonbypassable
42-49    charge to be collected from all retail electric customers of the
42-50    municipally owned utility to fund the recovery of the stranded
42-51    investment and all reasonable related expenses, and providing for
42-52    the issuance of bonds necessary to recover the amount deemed
42-53    appropriate by the municipally owned utility through a securitized
42-54    financing transaction; and
42-55                (2)  in the case of a river authority, by the
42-56    commission.
42-57          (b)  The rules and procedures for securitization established
42-58    by the commission under Subsection (a)(2) shall include procedures
42-59    for the recovery of stranded costs pursuant to the terms of a rate
42-60    order adopted by the governing body of the river authority, which
42-61    rate order shall have the effect of a qualified rate order.
42-62          (c)  The rules and procedures for securitization established
42-63    by the commission under Subsection (a)(2) shall include rules and
42-64    procedures for the issuance of bonds issued in a securitized
42-65    financing transaction.  The issuance of any bonds issued in a
42-66    securitized financing transaction by a river authority is hereby
42-67    expressly authorized and shall be governed by the laws governing
42-68    the issuance of bonds or other obligations by the river authority.
42-69    Findings made by the governing body of a river authority in a
 43-1    qualified rate order issued pursuant to the rules and procedures
 43-2    described in this subsection shall be conclusive, and any
 43-3    nonbypassable charge incorporated in such rate order to recover the
 43-4    principal, interest, and all reasonable expenses associated with
 43-5    any securitized financing transaction shall constitute property
 43-6    rights, as described in Subchapter G, Chapter 39, and otherwise
 43-7    conform in all material respects to the nonbypassable charges set
 43-8    forth in Subchapter G, Chapter 39.
 43-9          (d)  The rules and procedures established under this section
43-10    shall be consistent with other law applicable to municipally owned
43-11    utilities and river authorities and with the terms of any
43-12    resolutions, orders, charter provisions, or ordinances authorizing
43-13    outstanding bonds or other indebtedness of the municipalities or
43-14    river authorities.
43-15          Sec. 40.004.  JURISDICTION OF THE COMMISSION.  Except as
43-16    specifically otherwise provided in this chapter, the commission has
43-17    jurisdiction over municipally owned utilities only for the
43-18    following purposes:
43-19                (1)  to regulate wholesale transmission rates and
43-20    service, including terms of access, to the extent provided by
43-21    Subchapter A, Chapter 35;
43-22                (2)  to regulate certification of retail service areas
43-23    to the extent provided by Chapter 37;
43-24                (3)  to regulate rates on appeal pursuant to
43-25    Subchapters D and E, Chapter 33, subject to the provisions of
43-26    Section 40.051(c);
43-27                (4)  to establish a code of conduct as provided by
43-28    Section 39.157(e) applicable to anticompetitive activities and to
43-29    affiliate activities limited to structurally unbundled affiliates
43-30    of municipally owned utilities, subject to Section 40.054;
43-31                (5)  to establish terms and conditions for open access
43-32    to transmission and distribution facilities for municipally owned
43-33    utilities providing customer choice, as provided by Section 39.203;
43-34                (6)  to require collection of the nonbypassable charge
43-35    established under Section 39.603(b) and to administer the renewable
43-36    energy credits program under Section 39.604(d); and
43-37                (7)  to require reports of municipally owned utility
43-38    operations only to the extent necessary to:
43-39                      (A)  enable the commission to determine the
43-40    aggregate load and energy requirements of the state and the
43-41    resources available to serve that load; or
43-42                      (B)  enable the commission to determine
43-43    information relating to market power as provided by Section 39.155.
43-44              SUBCHAPTER B.  MUNICIPALLY OWNED UTILITY CHOICE
43-45          Sec. 40.051.  GOVERNING BODY DECISION.  (a)  The municipal
43-46    governing body or a body vested with the power to manage and
43-47    operate a municipally owned utility has the discretion to decide
43-48    when or if the municipally owned utility will provide customer
43-49    choice.
43-50          (b)  Municipally owned utilities may choose to participate in
43-51    customer choice at any time on or after January 1, 2002, by
43-52    adoption of an appropriate resolution of the municipal governing
43-53    body or a body vested with power to manage and operate the
43-54    municipally owned utility.  The decision to participate in customer
43-55    choice by the adoption of a resolution is irrevocable.
43-56          (c)  After a decision to offer customer choice has been made,
43-57    Subchapters D and E, Chapter 33, do not apply to any action taken
43-58    under this chapter.
43-59          Sec. 40.052.  UTILITY NOT OFFERING CUSTOMER CHOICE.  (a)  A
43-60    municipally owned utility that has not chosen to participate in
43-61    customer choice may not offer electric energy at unregulated prices
43-62    directly to retail customers outside its certificated retail
43-63    service area.
43-64          (b)  A municipally owned utility under Subsection (a) retains
43-65    the right to offer and provide a full range of customer service and
43-66    pricing programs to the customers within its certificated area and
43-67    to purchase and sell electric energy at wholesale without
43-68    geographic restriction.
43-69          Sec. 40.053.  RETAIL CUSTOMER'S RIGHT OF CHOICE.  (a)  If a
 44-1    municipally owned utility chooses to participate in customer
 44-2    choice, after that choice all retail customers served by the
 44-3    municipally owned utility within the certificated retail service
 44-4    area of the municipally owned utility shall have the right of
 44-5    customer choice consistent with the provisions of this chapter, and
 44-6    the municipally owned utility shall provide open access for retail
 44-7    service.
 44-8          (b)  Notwithstanding Section 39.107, the metering function
 44-9    shall not be deemed a competitive service for customers of the
44-10    municipally owned utility within such service area and may, at the
44-11    option of the municipally owned utility, continue to be offered by
44-12    the municipally owned utility as sole provider.
44-13          (c)  Upon its initiation of customer choice, a municipally
44-14    owned utility shall designate itself or another entity as the
44-15    provider of last resort for customers within the municipally owned
44-16    utility's certificated service area as that area existed on the
44-17    date of the utility's initiation of customer choice.  The
44-18    municipally owned utility shall fulfill the role of default
44-19    provider of last resort in the event no other entity is available
44-20    to act in that capacity.
44-21          (d)  If a customer is unable to obtain service from a retail
44-22    electric provider, upon request by the customer, the provider of
44-23    last resort shall offer the customer the standard retail service
44-24    package for the appropriate customer class, with no interruption of
44-25    service, at a fixed, nondiscountable rate that is at least
44-26    sufficient to cover the reasonable costs of providing such service,
44-27    as approved by the governing body of the municipally owned utility
44-28    which has the authority to set rates.
44-29          (e)  The governing body of a municipally owned utility may
44-30    establish the procedures and criteria for designating the provider
44-31    of last resort and may redesignate the provider of last resort
44-32    according to a schedule it considers appropriate.
44-33          Sec. 40.054.  SERVICE OUTSIDE AREA.  (a)  A municipally owned
44-34    utility participating in customer choice shall have the right to
44-35    offer electric energy and related services at unregulated prices
44-36    directly to retail customers within qualifying power regions
44-37    without regard to geographic location.
44-38          (b)  In providing service under Subsection (a) to retail
44-39    customers outside its certificated retail service area as that area
44-40    exists on the date of adoption of customer choice, a municipally
44-41    owned utility is subject to the commission's rules establishing a
44-42    code of conduct regulating anticompetitive practices.
44-43          (c)  For municipally owned utilities participating in
44-44    customer choice, the commission shall have jurisdiction to
44-45    establish terms and conditions, but not rates, for access by other
44-46    retail electric providers to the municipally owned utility's
44-47    distribution facilities.
44-48          (d)  Accommodation shall be made in the commission's terms
44-49    and conditions for access and in the code of conduct for specific
44-50    legal requirements imposed by state or federal law applicable to
44-51    municipally owned utilities.
44-52          (e)  The commission does not have jurisdiction to require
44-53    unbundling of services or functions of, or to regulate the recovery
44-54    of stranded investment of, a municipally owned utility or, except
44-55    as provided by this section, jurisdiction with respect to the
44-56    rates, terms, and conditions of service for retail customers of a
44-57    municipally owned utility within the utility's certificated service
44-58    area.
44-59          (f)  A municipally owned utility shall maintain separate
44-60    books and records of its operations from those of the operations of
44-61    any affiliate.
44-62          Sec. 40.055.  JURISDICTION OF MUNICIPAL GOVERNING BODY.
44-63    (a)  The municipal governing body or a body vested with the power
44-64    to manage and operate a municipally owned utility has exclusive
44-65    jurisdiction to:
44-66                (1)  set all terms of access, conditions, and rates
44-67    applicable to services provided by the municipally owned utility,
44-68    subject to Sections 40.054 and 40.056, including nondiscriminatory
44-69    and comparable terms of access, conditions, and rates for
 45-1    distribution but excluding wholesale transmission rates, terms of
 45-2    access, and conditions for wholesale transmission service set by
 45-3    the commission under this subtitle, provided that the rates for
 45-4    distribution access established by the municipal governing body
 45-5    shall be comparable to the distribution access rates that apply to
 45-6    the municipally owned utility and the municipally owned utility's
 45-7    affiliates;
 45-8                (2)  determine whether to unbundle any energy-related
 45-9    activities and, if the municipally owned utility chooses to
45-10    unbundle, whether to do so structurally or functionally;
45-11                (3)  reasonably determine the amount of the municipally
45-12    owned utility's stranded investment;
45-13                (4)  establish nondiscriminatory transition charges
45-14    reasonably designed to recover the stranded investment over an
45-15    appropriate period of time, provided that recovery of retail
45-16    stranded costs shall be from all existing or future retail
45-17    customers, including the facilities, premises, and loads of such
45-18    retail customers, within the utility's geographical certificated
45-19    service area as it existed on May 1, 1999;
45-20                (5)  determine the extent to which the municipally
45-21    owned utility will provide various customer services at the
45-22    distribution level, including other services that the municipally
45-23    owned utility is legally authorized to provide, or will accept the
45-24    services from other providers;
45-25                (6)  manage and operate the municipality's electric
45-26    utility systems, including exercise of control over resource
45-27    acquisition and any related expansion programs;
45-28                (7)  establish and enforce service quality and
45-29    reliability standards and consumer safeguards designed to protect
45-30    retail electric customers, including safeguards that will
45-31    accomplish the objectives of Sections 39.101(a) and (b), consistent
45-32    with the provisions of this chapter;
45-33                (8)  determine whether a base rate reduction is
45-34    appropriate for the municipally owned utility;
45-35                (9)  determine any other utility matters that the
45-36    municipal governing body or body vested with power to manage and
45-37    operate the municipally owned utility believes should be included;
45-38    and
45-39                (10)  make any other decisions affecting the
45-40    municipally owned utility's participation in customer choice that
45-41    are not inconsistent with the provisions of this chapter.
45-42          (b)  In multiply certificated areas, a retail customer,
45-43    including a retail customer of an electric cooperative or a
45-44    municipally owned utility, may not avoid stranded cost recovery
45-45    charges by switching to another electric utility, electric
45-46    cooperative, or municipally owned utility.
45-47          Sec. 40.056.  ANTICOMPETITIVE ACTIONS.  (a)  If, upon
45-48    complaint by a retail electric provider, the commission finds that
45-49    a municipal rule, action, or order relating to customer choice is
45-50    anticompetitive or does not provide other retail electric providers
45-51    with nondiscriminatory terms and conditions of access to
45-52    distribution facilities or customers within the municipally owned
45-53    utility's certificated retail service area that are comparable to
45-54    the municipally owned utility's and its affiliates' terms and
45-55    conditions of access to distribution facilities or customers, the
45-56    commission shall notify the municipally owned utility.
45-57          (b)  The municipally owned utility shall have three months to
45-58    cure the anticompetitive or noncompliant behavior described in
45-59    Subsection (a), following opportunity for hearing on the complaint.
45-60    If the rule, action, or order is not fully remedied within that
45-61    time, the commission may prohibit the municipally owned utility or
45-62    affiliate from providing retail service outside its certificated
45-63    retail service area until the rule, action, or order is remedied.
45-64          Sec. 40.057.  BILLING.  (a)  A municipally owned utility that
45-65    opts for customer choice may continue to bill directly electric
45-66    customers located in its certificated retail service area, as that
45-67    area exists on the date of adoption of customer choice, for all
45-68    transmission and distribution services.  The municipally owned
45-69    utility may also bill directly for generation services and customer
 46-1    services provided by the municipally owned utility to those
 46-2    customers.
 46-3          (b)  A municipally owned utility that opts for customer
 46-4    choice shall not adopt anticompetitive billing practices that would
 46-5    discourage customers in its service area from choosing a retail
 46-6    electric provider.
 46-7          (c)  A customer that is being provided wires service by a
 46-8    municipally owned utility at distribution or transmission voltage
 46-9    and that is served by a retail electric provider for retail service
46-10    has the option of being billed directly by each service provider or
46-11    to receive a single bill for distribution, transmission, and
46-12    generation services from the municipally owned utility.
46-13          Sec. 40.058.  TARIFFS FOR OPEN ACCESS.  A municipally owned
46-14    utility that owns or operates transmission and distribution
46-15    facilities shall file with the commission tariffs implementing the
46-16    open access rules established by the commission under Section
46-17    39.203 and shall file with the commission the rates for open access
46-18    on distribution facilities as set by the municipal regulatory
46-19    authority, before the 90th day preceding the date the utility
46-20    offers customer choice.  The commission has no authority to
46-21    determine the rates for distribution access service for a
46-22    municipally owned utility.
46-23          Sec. 40.059.  MUNICIPAL POWER AGENCY; RECOVERY OF STRANDED
46-24    COSTS.  (a)  In this section, "member city" means a municipality
46-25    that participated in the creation of a municipal power agency
46-26    formed pursuant to Chapter 163 by the adoption of a concurrent
46-27    resolution by the municipality on or before August 1, 1975.
46-28          (b)  After a member city adopts a resolution choosing to
46-29    participate in customer choice under Section 40.051(b), a member
46-30    city may include stranded costs described in Subsection (c) in its
46-31    distribution costs and may recover such costs through a
46-32    nonbypassable charge.  The nonbypassable charge shall be as
46-33    determined by the member city's governing body and may be spread
46-34    over 16 years.
46-35          (c)  The stranded costs that may be recovered under this
46-36    section are those costs that were determined by the commission and
46-37    set forth in the commission's April 1998 Report to the Texas Senate
46-38    Interim Committee on Electric Utility Restructuring entitled
46-39    "Potentially Strandable Investment (ECOM) Report:  1998 Update" and
46-40    specifically set forth in the report at Appendix A (ECOM Estimates
46-41    Including the Effects of Transition Plans) under the commission
46-42    base case benchmark base market price for the year 2002.
46-43          (d)  The stranded cost amounts described in this section
46-44    shall not be included in the generation costs used in setting rates
46-45    by the member city's governing body.
46-46          (e)  The provisions of this section are cumulative of all
46-47    other provisions of this chapter, and nothing in this section shall
46-48    be construed to limit or restrict the application of any provision
46-49    of this chapter to the member cities.
46-50          (f)  The municipal power agency shall extinguish the agency's
46-51    indebtedness by sale of the electric facility to one or more
46-52    purchasers, by way of a sale through the issuance of taxable or
46-53    tax-exempt debt to the member cities, or by any other method.  The
46-54    agency shall set as an objective the extinguishment of the agency's
46-55    debt by September 1, 2000.  In the event this objective is not met,
46-56    the agency shall provide detailed reasons to the electric utility
46-57    restructuring legislative oversight committee by November 1, 2000,
46-58    why the agency was not able to meet this objective.
46-59          Sec. 40.060.  NO POWER TO AMEND CERTIFICATES.  Nothing in
46-60    this chapter empowers a municipal governing body or a body vested
46-61    with the power to manage and operate a municipally owned utility to
46-62    issue, amend, or rescind a certificate of public convenience and
46-63    necessity granted by the commission.  This subsection does not
46-64    affect the ability of a municipal governing body or a body vested
46-65    with the power to manage and operate the municipally owned utility
46-66    to pass a resolution under Section 40.051(b).
46-67                    SUBCHAPTER C.  RIGHTS NOT AFFECTED
46-68          Sec. 40.101.  INTERFERENCE WITH CONTRACT.  (a)  This subtitle
46-69    shall not interfere with or abrogate the rights or obligations of
 47-1    parties, including a retail or wholesale customer, to a contract
 47-2    with a municipally owned utility or river authority.
 47-3          (b)  This subtitle shall not interfere with or abrogate the
 47-4    rights or obligations of a party under a contract or agreement
 47-5    concerning certificated utility service areas.
 47-6          Sec. 40.102.  ACCESS TO WHOLESALE MARKET.  Nothing in this
 47-7    subtitle shall limit the access of municipally owned utilities to
 47-8    the wholesale electric market.
 47-9          Sec. 40.103.  PROTECTION OF BONDHOLDERS.  Nothing in this
47-10    subtitle or any rule adopted under this subtitle shall impair
47-11    contracts, covenants, or obligations between this state, river
47-12    authorities, municipalities, and the bondholders of revenue bonds
47-13    issued by the river authorities or municipalities.
47-14          Sec. 40.104.  TAX-EXEMPT STATUS.  Nothing in this subtitle
47-15    may impair the tax-exempt status of municipalities, electric
47-16    cooperatives, or river authorities, nor shall anything in this
47-17    subtitle compel any municipality, electric cooperative, or river
47-18    authority to use its facilities in a manner which violates any
47-19    contractual provisions, bond covenants, or other restrictions
47-20    applicable to facilities financed by tax-exempt debt.
47-21    Notwithstanding any other provision of law, the decision to
47-22    participate in customer choice by the adoption of a resolution in
47-23    accordance with Section 40.051(b) is irrevocable.
47-24            CHAPTER 41.  ELECTRIC COOPERATIVES AND COMPETITION
47-25                     SUBCHAPTER A.  GENERAL PROVISIONS
47-26          Sec. 41.001.  APPLICABLE LAW.  Notwithstanding any other
47-27    provision of law, except Sections 39.155, 39.157(e), 39.203,
47-28    39.603, and 39.604, this chapter governs the transition to and the
47-29    establishment of a fully competitive electric power industry for
47-30    electric cooperatives.  Regarding the regulation of electric
47-31    cooperatives, this chapter shall control over any other provision
47-32    of this title, except for sections in which the term "electric
47-33    cooperative" is specifically used.
47-34          Sec. 41.002.  DEFINITIONS.  In this chapter:
47-35                (1)  "Board of directors" means the board of directors
47-36    of an electric cooperative as described in Section 161.071.
47-37                (2)  "Rate" includes any compensation, tariff, charge,
47-38    fare, toll, rental, or classification that is directly or
47-39    indirectly demanded, observed, charged, or collected by an electric
47-40    cooperative for any service, product, or commodity and any rule,
47-41    practice, or contract affecting the compensation, tariff, charge,
47-42    fare, toll, rental, or classification.
47-43                (3)  "Stranded investment" means:
47-44                      (A)  the excess, if any, of the net book value of
47-45    generation assets over the market value of the generation assets;
47-46    and
47-47                      (B)  any above market purchased power costs.
47-48          Sec. 41.003.  SECURITIZATION.  (a)  Electric cooperatives may
47-49    adopt and use securitization provisions having the effect of the
47-50    provisions set out in Subchapter G, Chapter 39, to recover through
47-51    rates stranded costs at a recovery level deemed appropriate by the
47-52    board of directors up to 100 percent, under rules and procedures
47-53    that shall be established by the commission.
47-54          (b)  The rules and procedures for securitization established
47-55    under Subsection (a) shall include rules and procedures for the
47-56    recovery of stranded costs pursuant to the terms of a rate order
47-57    adopted by the board of directors of the electric cooperative,
47-58    which rate order shall have the effect of a financing order.
47-59          (c)  The rules and procedures established by the commission
47-60    under Subsection (b) shall include rules and procedures for the
47-61    issuance of transition bonds issued in a securitized financing
47-62    transaction.  The issuance of any transition bonds issued in a
47-63    securitized financing transaction by an electric cooperative is
47-64    expressly authorized and shall be governed by the laws governing
47-65    the issuance of bonds or other obligations by the electric
47-66    cooperative.  Findings made by the board of directors of an
47-67    electric cooperative in a rate order issued under the rules and
47-68    procedures described by this subsection shall be conclusive, and
47-69    any transition charges incorporated in such rate order to recover
 48-1    the principal, interest, and all reasonable expenses associated
 48-2    with any securitized financing transaction shall constitute
 48-3    property rights, as described in Subchapter G, Chapter 39, and
 48-4    shall otherwise conform in all material respects to the transition
 48-5    charges set forth in Subchapter G, Chapter 39.
 48-6          Sec. 41.004.  JURISDICTION OF THE COMMISSION.  Except as
 48-7    specifically provided otherwise in this chapter, the commission has
 48-8    jurisdiction over electric cooperatives only as follows:
 48-9                (1)  to regulate wholesale transmission rates and
48-10    service including terms of access, to the extent provided in
48-11    Subchapter A, Chapter 35;
48-12                (2)  to regulate certification of retail service areas
48-13    to the extent provided in Chapter 37;
48-14                (3)  to establish a code of conduct as provided in
48-15    Section 39.157(e) subject to Section 41.054;
48-16                (4)  to establish terms and conditions, but not rates,
48-17    for open access to distribution facilities for electric
48-18    cooperatives providing customer choice, as provided in Section
48-19    39.203; and
48-20                (5)  to require reports of electric cooperative
48-21    operations only to the extent necessary to:
48-22                      (A)  ensure the public safety;
48-23                      (B)  enable the commission to satisfy its
48-24    responsibilities relating to electric cooperatives under this
48-25    chapter;
48-26                      (C)  enable the commission to determine the
48-27    aggregate electric load and energy requirements in the state and
48-28    the resources available to serve that load; or
48-29                      (D)  enable the commission to determine
48-30    information relating to market power as provided in Section 39.155.
48-31          Sec. 41.005.  LIMITATION ON MUNICIPAL AUTHORITY.
48-32    Notwithstanding any other provision of this title, a municipality
48-33    may not directly or indirectly regulate the rates, operations, and
48-34    services of an electric cooperative.  This section shall not
48-35    prohibit a municipality from making a lawful charge for the use of
48-36    public rights-of-way within the municipality as provided by Section
48-37    182.025, Tax Code.
48-38            SUBCHAPTER B.  ELECTRIC COOPERATIVE UTILITY CHOICE
48-39          Sec. 41.051.  BOARD DECISION.  (a)  The board of directors
48-40    has the discretion to decide when or if the electric cooperative
48-41    will provide customer choice.
48-42          (b)  Electric cooperatives that choose to participate in
48-43    customer choice may do so at any time on or after January 1, 2002,
48-44    by adoption of an appropriate resolution of the board of directors.
48-45    The decision to participate in customer choice by the adoption of
48-46    such a resolution may be revoked only if no customer has opted for
48-47    choice within four years of the resolution's adoption.  An electric
48-48    cooperative may initiate a customer choice pilot project at any
48-49    time.
48-50          Sec. 41.052.  ELECTRIC COOPERATIVES NOT OFFERING CUSTOMER
48-51    CHOICE.  (a)  An electric cooperative that chooses not to
48-52    participate in customer choice may not offer electric energy at
48-53    unregulated prices directly to retail customers outside its
48-54    certificated retail service area.
48-55          (b)  An electric cooperative under Subsection (a) retains the
48-56    right to offer and provide a full range of customer service and
48-57    pricing programs to the customers within its certificated retail
48-58    service area and to purchase and sell electric energy at wholesale
48-59    without geographic restriction.
48-60          (c)  A generation and transmission electric cooperative may
48-61    offer electric energy at unregulated prices directly to retail
48-62    customers outside of its parent electric cooperatives' certificated
48-63    service areas only if a majority of the parent electric
48-64    cooperatives of the generation and transmission electric
48-65    cooperative have chosen to offer customer choice.
48-66          (d)  A subsidiary of an electric cooperative may not provide
48-67    electric energy at unregulated prices outside of its parent
48-68    electric cooperative's certificated retail service area unless the
48-69    electric cooperative offers customer choice inside its certificated
 49-1    retail service area.
 49-2          Sec. 41.053.  RETAIL CUSTOMER RIGHT OF CHOICE.  (a)  If an
 49-3    electric cooperative chooses to participate in customer choice,
 49-4    after that choice, all retail customers within the certificated
 49-5    service area of the electric cooperative shall have the right of
 49-6    customer choice, and the electric cooperative shall provide
 49-7    nondiscriminatory open access for retail service.
 49-8          (b)  Notwithstanding Section 39.107, the metering function
 49-9    shall not be deemed a competitive service for customers of the
49-10    electric cooperative within such service area and may, at the
49-11    option of the electric cooperative, continue to be offered by the
49-12    electric cooperative as sole provider.
49-13          (c)  Upon its initiation of customer choice, an electric
49-14    cooperative shall designate itself or another entity as the
49-15    provider of last resort for retail customers within the electric
49-16    cooperative's certificated service area and shall fulfill the role
49-17    of default provider of last resort in the event no other entity is
49-18    available to act in that capacity.
49-19          (d)  If a retail electric provider fails to serve a customer
49-20    described in Subsection (c), upon request by the customer, the
49-21    provider of last resort shall offer the customer the standard
49-22    retail service package for the appropriate customer class, with no
49-23    interruption of service, at a fixed, nondiscountable rate that is
49-24    at least sufficient to cover the reasonable costs of providing such
49-25    service, as approved by the board of directors.
49-26          (e)  The board of directors may establish the procedures and
49-27    criteria for designating the provider of last resort and may
49-28    redesignate the provider of last resort according to a schedule it
49-29    considers appropriate.
49-30          Sec. 41.054.  SERVICE OUTSIDE CERTIFICATED AREA.  (a)  An
49-31    electric cooperative participating in customer choice shall have
49-32    the right to offer electric energy and related services at
49-33    unregulated prices directly to retail customers within qualifying
49-34    power regions without regard to geographic location.
49-35          (b)  In providing service under Subsection (a) to retail
49-36    customers outside its certificated service area as that area exists
49-37    on the date of adoption of customer choice, an electric cooperative
49-38    becomes subject to commission jurisdiction as to the commission's
49-39    rules establishing a code of conduct regulating anticompetitive
49-40    practices under Section 39.157(e), except to the extent such rules
49-41    conflict with this chapter.
49-42          (c)  For electric cooperatives participating in customer
49-43    choice, the commission shall have jurisdiction to establish terms
49-44    and conditions, but not rates, for access by other electric
49-45    providers to the electric cooperative's distribution facilities.
49-46          (d)  Notwithstanding Subsections (b) and (c), the commission
49-47    shall make accommodation in the code of conduct for specific legal
49-48    requirements imposed by state or federal law applicable to electric
49-49    cooperatives.  The commission shall accommodate the organizational
49-50    structures of electric cooperatives and shall not prohibit an
49-51    electric cooperative and any related entity from sharing officers,
49-52    directors, or employees.
49-53          (e)  The commission does not have jurisdiction to require the
49-54    unbundling of services or functions of, or to regulate the recovery
49-55    of stranded investment of, an electric cooperative or, except as
49-56    provided by this section, jurisdiction with respect to the rates,
49-57    terms, and conditions of service for retail customers of an
49-58    electric cooperative within the electric cooperative's certificated
49-59    service area.
49-60          (f)  An electric cooperative shall maintain separate books
49-61    and records of its operations and the operations of any subsidiary
49-62    and shall ensure that the rates charged for provision of electric
49-63    service do not include any costs of its subsidiary or any other
49-64    costs not related to the provision of electric service.
49-65          Sec. 41.055.  JURISDICTION OF BOARD OF DIRECTORS.  A board of
49-66    directors has exclusive jurisdiction to:
49-67                (1)  set all terms of access, conditions, and rates
49-68    applicable to services provided by the electric cooperative, except
49-69    as provided by Sections 41.054 and 41.056, including
 50-1    nondiscriminatory and comparable terms of access, conditions, and
 50-2    rates for distribution but excluding wholesale transmission rates,
 50-3    terms of access, and conditions for wholesale transmission service
 50-4    set by the commission under Subchapter A, Chapter 35, provided that
 50-5    the rates for distribution established by the electric cooperative
 50-6    shall be comparable to the distribution rates that apply to the
 50-7    electric cooperative and its subsidiaries;
 50-8                (2)  determine whether to unbundle any energy-related
 50-9    activities, and if the board of directors chooses to unbundle,
50-10    whether to do so structurally or functionally;
50-11                (3)  reasonably determine the amount of the electric
50-12    cooperative's stranded investment;
50-13                (4)  establish nondiscriminatory transition charges
50-14    reasonably designed to recover the stranded investment over an
50-15    appropriate period of time;
50-16                (5)  determine the extent to which the electric
50-17    cooperative will provide various customer services, including
50-18    nonelectric services, or accept the services from other providers;
50-19                (6)  manage and operate the electric cooperative's
50-20    utility systems, including exercise of control over resource
50-21    acquisition and any related expansion programs;
50-22                (7)  establish and enforce service quality standards,
50-23    reliability standards, and consumer safeguards designed to protect
50-24    retail electric customers;
50-25                (8)  determine whether a base rate reduction is
50-26    appropriate for the electric cooperative;
50-27                (9)  determine any other utility matters that the board
50-28    of directors believes should be included;
50-29                (10)  sell electric energy and capacity at wholesale,
50-30    regardless of whether the electric cooperative participates in
50-31    customer choice; and
50-32                (11)  make any other decisions affecting the electric
50-33    cooperative's method of conducting business that are not
50-34    inconsistent with the provisions of this chapter.
50-35          Sec. 41.056.  ANTICOMPETITIVE ACTIONS.  (a)  If, after notice
50-36    and hearing, the commission finds that an electric cooperative
50-37    providing customer choice has engaged in anticompetitive behavior
50-38    by not providing other retail electric providers with
50-39    nondiscriminatory terms and conditions of access to distribution
50-40    facilities or customers within the electric cooperative's
50-41    certificated service area that are comparable to the electric
50-42    cooperative's and its subsidiaries' terms and conditions of access
50-43    to distribution facilities or customers, the commission shall
50-44    notify the electric cooperative.
50-45          (b)  The electric cooperative shall have three months to cure
50-46    the anticompetitive or noncompliant behavior described in
50-47    Subsection (a).  If the behavior is not fully remedied within that
50-48    time, the commission may prohibit the electric cooperative or its
50-49    subsidiary from providing retail service outside its certificated
50-50    retail service area until the behavior is remedied.
50-51          Sec. 41.057.  BILLING.  (a)  An electric cooperative that
50-52    opts for customer choice may continue to bill directly electric
50-53    customers located in its certificated service area for all
50-54    transmission and distribution services.  The electric cooperative
50-55    may also bill directly for generation and customer services
50-56    provided by the electric cooperative or its subsidiaries to those
50-57    customers.
50-58          (b)  A customer served by an electric cooperative for
50-59    transmission and distribution services and by a retail electric
50-60    provider for retail service has the option of being billed directly
50-61    by each service provider or receiving a single bill for
50-62    distribution, transmission, and generation services from the
50-63    electric cooperative.
50-64          Sec. 41.058.  TARIFFS FOR OPEN ACCESS.  An electric
50-65    cooperative that owns or operates transmission and distribution
50-66    facilities shall file tariffs implementing the open access rules
50-67    established by the commission under Section 39.203 with the
50-68    appropriate regulatory authorities having jurisdiction over the
50-69    transmission and distribution service of the electric cooperative
 51-1    before the 90th day preceding the date the electric cooperative
 51-2    offers customer choice.
 51-3          Sec. 41.059.  NO POWER TO AMEND CERTIFICATES.  Nothing in
 51-4    this chapter empowers a board of directors to issue, amend, or
 51-5    rescind a certificate of public convenience and necessity granted
 51-6    by the commission.
 51-7          Sec. 41.060.  CUSTOMER SERVICE INFORMATION.  (a)  The
 51-8    commission shall keep information submitted by customers and retail
 51-9    electric providers pertaining to the provision of electric service
51-10    by electric cooperatives.
51-11          (b)  The commission shall notify the appropriate electric
51-12    cooperative of information submitted by a customer or retail
51-13    electric provider, and the electric cooperative shall respond to
51-14    the customer or retail electric provider.  The electric cooperative
51-15    shall notify the commission of its response.
51-16          (c)  The commission shall prepare a report for the Sunset
51-17    Advisory Commission that includes information submitted and
51-18    responses by electric cooperatives pursuant to the Sunset Advisory
51-19    Commission's schedule for reviewing the commission.
51-20          Sec. 41.061.  RETAIL RATE CHANGES BY ELECTRIC COOPERATIVES.
51-21    (a)  This section shall apply to retail rates of an electric
51-22    cooperative that has not adopted customer choice and to the retail
51-23    delivery rates of an electric cooperative that has adopted customer
51-24    choice.  This section shall not apply to rates for:
51-25                (1)  sales of electric energy by an electric
51-26    cooperative that has adopted customer choice; or
51-27                (2)  wholesale sales of electric energy.
51-28          (b)  An electric cooperative may change its rates by:
51-29                (1)  adopting a resolution approving the proposed
51-30    change;
51-31                (2)  mailing notice of the proposed change to each
51-32    affected customer whose rate would be increased by the proposed
51-33    change at least 30 days before implementation of the proposed
51-34    change, which notice may be included in a monthly billing; and
51-35                (3)  holding a meeting to discuss the proposed rate
51-36    changes with affected customers, if any change is expected to
51-37    increase total system annual revenues by more than $100,000 or one
51-38    percent, whichever is greater.
51-39          (c)  An electric cooperative may implement the proposed rates
51-40    upon completion of the requirements under Subsection (b), and such
51-41    rates shall remain in effect until changed by the electric
51-42    cooperative as provided by this section or, for rates other than
51-43    retail delivery rates, until this section is no longer applicable
51-44    because the electric cooperative adopts customer choice.
51-45          (d)  The electric cooperative may reconsider a rate change at
51-46    any time and adjust the rate by board resolution without additional
51-47    notice or meeting of customers if the rate as adjusted is within
51-48    the general scope of the notice previously provided to affected
51-49    customers or is expected to decrease the revenues of the electric
51-50    cooperative.
51-51          (e)  Retail rates set by an electric cooperative that has not
51-52    adopted customer choice and retail delivery rates set by an
51-53    electric cooperative that has adopted customer choice shall be just
51-54    and reasonable, not unreasonably preferential, prejudicial, or
51-55    discriminatory; provided, however, that an electric cooperative may
51-56    charge market-based rates to customers who have energy supply
51-57    options.
51-58          (f)  A customer of the electric cooperative who is adversely
51-59    affected by a resolution of the electric cooperative setting rates
51-60    is entitled to judicial review.  A person initiates judicial review
51-61    by filing a petition in the district court of Travis County not
51-62    later than the 60th day after the date the resolution is
51-63    implemented.
51-64          (g)  The resolution of the electric cooperative setting
51-65    rates, as it may have been amended as described in Subsection (d),
51-66    shall be presumed valid, and the burden of showing that the
51-67    resolution is invalid rests upon the persons challenging the
51-68    resolution.  A court reviewing a rate change by an electric
51-69    cooperative may consider any relevant factor that may be considered
 52-1    by a court in reviewing a decision of the commission including the
 52-2    cost of providing service.
 52-3          (h)  If the court finds that the electric cooperative's
 52-4    resolution setting rates violates the standards contained in
 52-5    Subsection (e), the court shall enter an order:
 52-6                (1)  stating the specific basis for its determination
 52-7    that the rates set in the electric cooperative's resolution violate
 52-8    Subsection (e); and
 52-9                (2)  directing the electric cooperative to:
52-10                      (A)  set, within 60 days, revised retail rates
52-11    that do not violate the standards of Subsection (e); and
52-12                      (B)  refund or credit against future bills, at
52-13    the electric cooperative's option, revenues collected under the
52-14    rate found to violate the standards of Subsection (e) that exceed
52-15    the revenues that would have been collected under the revised
52-16    rates.  The refund or credit shall be made over a period of not
52-17    more than 12 months, as determined by the electric cooperative.
52-18          (i)  No remedy other than or additional to a remedy under
52-19    Subsection (h) may be ordered by the court.  The court may not set
52-20    revised rates either for the period the challenged resolution was
52-21    in effect or prospectively.
52-22          (j)  Except as provided by this section, and Subchapter A,
52-23    Chapter 35, with regard to wholesale transmission rates, the rates
52-24    of an electric cooperative are not subject to review.
52-25          Sec. 41.062.  ALLOCATION OF STRANDED INVESTMENT.  Any
52-26    competition transition charge shall be allocated among retail
52-27    customer classes based on the relevant customer class
52-28    characteristics as of the end of the electric cooperative's most
52-29    recent fiscal year prior to implementation of customer choice, in
52-30    accordance with the methodology used to allocate the costs of the
52-31    underlying assets or expenses in the electric cooperative's most
52-32    recent cost of service study certified by a professional engineer
52-33    or certified public accountant or approved by the commission.  In
52-34    multiply certificated areas, a retail customer may not avoid
52-35    stranded cost recovery charges by switching to another electric
52-36    cooperative, an electric utility, or a municipally owned utility.
52-37                    SUBCHAPTER C.  RIGHTS NOT AFFECTED
52-38          Sec. 41.101.  INTERFERENCE WITH CONTRACT.  (a)  This subtitle
52-39    shall not interfere with or abrogate the rights or obligations of
52-40    parties, including a retail or wholesale customer, to a contract
52-41    with an electric cooperative or its subsidiary.
52-42          (b)  No provision of this subtitle may interfere with or be
52-43    deemed to abrogate the rights or obligations of a party under a
52-44    contract or an agreement concerning certificated service areas.
52-45          Sec. 41.102.  ACCESS TO WHOLESALE MARKET.  Nothing in this
52-46    subtitle shall limit the access of an electric cooperative or its
52-47    subsidiary, either on its own behalf or on behalf of its customers,
52-48    to the wholesale electric market.
52-49          Sec. 41.103.  PROTECTION OF BONDHOLDERS.  Nothing in this
52-50    subtitle or any rule adopted under this subtitle shall impair
52-51    contracts, covenants, or obligations between an electric
52-52    cooperative and its lenders and holders of bonds issued on behalf
52-53    of or by the electric cooperative.
52-54          Sec. 41.104.  TAX-EXEMPT STATUS.  Nothing in this subtitle
52-55    may impair the tax-exempt status of electric cooperatives, nor
52-56    shall anything in this subtitle compel any electric cooperative to
52-57    use its facilities in a manner which violates any contractual
52-58    provisions, bond covenants, or other restrictions applicable to
52-59    facilities financed by tax-exempt or federally insured or
52-60    guaranteed debt.
52-61          SECTION 34.  Section 252.022, Local Government Code, is
52-62    amended by adding Subsection (c) to read as follows:
52-63          (c)  This chapter does not apply to expenditures by a
52-64    municipally owned electric or gas utility or unbundled divisions of
52-65    a municipally owned electric or gas utility in connection with any
52-66    purchases by the municipally owned utility or divisions of a
52-67    municipally owned utility made in accordance with procurement
52-68    procedures adopted by a resolution of the body vested with
52-69    authority for management and operation of the municipally owned
 53-1    utility or its divisions that sets out the public purpose to be
 53-2    achieved by such procedures.  This subsection shall not be deemed
 53-3    to exempt a municipally owned utility from any other applicable
 53-4    statute, charter provision, or ordinance.
 53-5          SECTION 35.  Section 272.001, Local Government Code, is
 53-6    amended by adding Subsection (j) to read as follows:
 53-7          (j)  This section does not apply to sales or exchanges of
 53-8    land owned by a municipality operating a municipally owned electric
 53-9    or gas utility if the land is held or managed by the municipally
53-10    owned utility, or by a division of the municipally owned electric
53-11    or gas utility that constitutes the unbundled electric or gas
53-12    operations of the utility, provided that the governing body of the
53-13    municipally owned utility shall adopt a resolution stating the
53-14    conditions and circumstances for the sale or exchange and the
53-15    public purpose that will be achieved by the sale or exchange.  For
53-16    purposes of this subsection, "municipally owned utility" includes a
53-17    river authority engaged in the generation, transmission, or
53-18    distribution of electric energy to the public, and "unbundled"
53-19    operations are those operations of the utility that have, in the
53-20    discretion of the utility's governing body, been functionally
53-21    separated.
53-22          SECTION 36.  Subsection (c), Section 402.002, Local
53-23    Government Code, is amended to read as follows:
53-24          (c)  The municipality may manufacture its own electricity,
53-25    gas, or anything else needed or used by the public.  It may
53-26    purchase, and make contracts for the purchase of, gas, electricity,
53-27    oil, or any other commodity or article used by the public and may
53-28    sell it to the public on terms as provided by the municipal
53-29    charter, ordinance, or resolution of the governing body of the
53-30    municipally owned utility.
53-31          SECTION 37.  Subchapter D, Chapter 551, Government Code, is
53-32    amended by adding Section 551.086 to read as follows:
53-33          Sec. 551.086.  CERTAIN PUBLIC POWER UTILITIES:  COMPETITIVE
53-34    MATTERS.  (a)  Notwithstanding anything in this chapter to the
53-35    contrary, the rules provided by this section apply to competitive
53-36    matters of a public power utility.
53-37          (b)  In this section:
53-38                (1)  "Public power utility" means an entity providing
53-39    electric or gas utility services that is subject to the provisions
53-40    of this chapter.
53-41                (2)  "Public power utility governing body" means the
53-42    board of trustees or other applicable governing body, including a
53-43    city council, of a public power utility.
53-44                (3)(A)  "Competitive matter" means a utility-related
53-45    matter that the public power utility governing body in good faith
53-46    determines, by a vote under this section:  (i) is related to the
53-47    public power utility's competitive activity, including commercial
53-48    information and (ii) would, if disclosed, give advantage to
53-49    competitors or prospective competitors.
53-50                      (B)  The following categories of information
53-51    shall not be deemed to be competitive matters:
53-52                            (i)  information relating to the provision
53-53    of distribution access service, including the terms and conditions
53-54    of such service and the rates charged for the service but not
53-55    including information concerning utility-related services or
53-56    products that are competitive;
53-57                            (ii)  information relating to the provision
53-58    of transmission service that is required to be filed with the
53-59    Public Utility Commission of Texas, subject to any confidentiality
53-60    provided for under the rules of the commission;
53-61                            (iii)  information for the distribution
53-62    system pertaining to reliability and continuity of service, to the
53-63    extent not security-sensitive, that relates to emergency
53-64    management, identification of critical loads such as hospitals and
53-65    police, records of interruption, and distribution feeder standards;
53-66                            (iv)  any substantive rule of general
53-67    applicability regarding service offerings, service regulation,
53-68    customer protections, or customer service adopted by the public
53-69    power utility as authorized by law;
 54-1                            (v)  aggregate information reflecting
 54-2    receipts or expenditures of funds of the public power utility, of
 54-3    the type that would be included in audited financial statements;
 54-4                            (vi)  information relating to equal
 54-5    employment opportunities for minority groups, as filed with local,
 54-6    state, or federal agencies;
 54-7                            (vii)  information relating to the public
 54-8    power utility's performance in contracting with minority business
 54-9    entities;
54-10                            (viii)  information relating to nuclear
54-11    decommissioning trust agreements, of the type required to be
54-12    included in audited financial statements;
54-13                            (ix)  information relating to the amount
54-14    and timing of any transfer to an owning city's general fund;
54-15                            (x)  information relating to environmental
54-16    compliance as required to be filed with any local, state, or
54-17    national environmental authority, subject to any confidentiality
54-18    provided under the rules of such authorities;
54-19                            (xi)  names of public officers of the
54-20    public power utility and the voting records of such officers for
54-21    all matters other than those within the scope of a competitive
54-22    resolution provided for by this section;
54-23                            (xii)  a description of the public power
54-24    utility's central and field organization, including the established
54-25    places at which the public may obtain information, submit
54-26    information and requests, or obtain decisions and the
54-27    identification of employees from whom the public may obtain
54-28    information, submit information or requests, or obtain decisions;
54-29    and
54-30                            (xiii)  information identifying the general
54-31    course and method by which the public power utility's functions are
54-32    channeled and determined, including the nature and requirements of
54-33    all formal and informal policies and procedures.
54-34          (c)  This chapter does not require a public power utility
54-35    governing body to conduct an open meeting to deliberate, vote, or
54-36    take final action on any competitive matter, as that term is
54-37    defined in Subsection (b)(3).  Before a public power utility
54-38    governing body may deliberate, vote, or take final action on any
54-39    such competitive matter in a closed meeting, the public power
54-40    utility governing body must first make a good-faith determination,
54-41    by majority vote of its members, that such matter is a competitive
54-42    matter that satisfies the requirements of Subsection (b)(3).  The
54-43    vote shall be taken during the closed meeting and be included in
54-44    the certified agenda or tape recording of the closed meeting.  If a
54-45    public power utility governing body fails to determine by such vote
54-46    that the matter satisfies the requirements of Subsection (b)(3),
54-47    the public power utility governing body may not deliberate or take
54-48    any further action on the matter in the closed meeting.  This
54-49    section does not limit the right of a public power utility
54-50    governing body to hold a closed session pursuant to any other
54-51    exception provided for in this chapter.
54-52          (d)  For purposes of Section 551.041, the notice of the
54-53    subject matter of an item that may be considered as a competitive
54-54    matter under this section is required to contain no more than a
54-55    general representation of the subject matter to be considered, such
54-56    that the competitive activity of the public power utility with
54-57    respect to the issue in question is not compromised or disclosed.
54-58          (e)  With respect to municipally owned utilities subject to
54-59    this section, this section shall apply whether or not the
54-60    municipally owned utility has adopted customer choice or serves in
54-61    a multiply certificated service area under the Utilities Code.
54-62          (f)  Nothing in this section is intended to preclude the
54-63    application of the enforcement and remedies provisions of
54-64    Subchapter G.
54-65          SECTION 38.  Subchapter C, Chapter 552, Government Code, is
54-66    amended by adding Section 552.131 to read as follows:
54-67          Sec. 552.131.  EXCEPTION:  PUBLIC POWER UTILITY COMPETITIVE
54-68    MATTERS.  (a)  In this section:
54-69                (1)  "Public power utility" means an entity providing
 55-1    electric or gas utility services that is subject to the provisions
 55-2    of this chapter.
 55-3                (2)  "Public power utility governing body" means the
 55-4    board of trustees or other applicable governing body, including a
 55-5    city council, of a public power utility.
 55-6                (3)(A)  "Competitive matter" means a utility-related
 55-7    matter which the public power utility governing body in good faith
 55-8    determines by a vote under this section:  (i) is related to the
 55-9    public power utility's competitive activity, including commercial
55-10    information; and (ii) would, if disclosed, give advantage to
55-11    competitors or prospective competitors.
55-12                      (B)  The following categories of information
55-13    shall not be deemed to be competitive matters:
55-14                            (i)  information relating to the provision
55-15    of distribution access service, including the terms and conditions
55-16    of such service and the rates charged for the service but not
55-17    including information concerning utility related services or
55-18    products that are competitive;
55-19                            (ii)  information relating to the provision
55-20    of transmission service that is required to be filed with the
55-21    Public Utility Commission of Texas, subject to any confidentiality
55-22    provided for under the rules of the commission;
55-23                            (iii)  information for the distribution
55-24    system pertaining to reliability and continuity of service, to the
55-25    extent not security-sensitive, that relates to emergency
55-26    management, identification of critical loads such as hospitals and
55-27    police, records of interruption, and distribution feeder standards;
55-28                            (iv)  any substantive rule of general
55-29    applicability regarding service offerings, service regulation,
55-30    customer protections, or customer service adopted by the public
55-31    power utility as authorized by law;
55-32                            (v)  aggregate information reflecting
55-33    receipts or expenditures of funds of the public power utility, of
55-34    the type that would be included in audited financial statements;
55-35                            (vi)  information relating to equal
55-36    employment opportunities for minority groups, as filed with local,
55-37    state, or federal agencies;
55-38                            (vii)  information relating to the public
55-39    power utility's performance in contracting with minority business
55-40    entities;
55-41                            (viii)  information relating to nuclear
55-42    decommissioning trust agreements, of the type required to be
55-43    included in audited financial statements;
55-44                            (ix)  information relating to the amount
55-45    and timing of any transfer to an owning city's general fund;
55-46                            (x)  information relating to environmental
55-47    compliance as required to be filed with any local, state, or
55-48    national environmental authority, subject to any confidentiality
55-49    provided under the rules of such authorities;
55-50                            (xi)  names of public officers of the
55-51    public power utility and the voting records of such officers for
55-52    all matters other than those within the scope of a competitive
55-53    resolution provided for by this section;
55-54                            (xii)  a description of the public power
55-55    utility's central and field organization, including the established
55-56    places at which the public may obtain information, submit
55-57    information and requests, or obtain decisions and the
55-58    identification of employees from whom the public may obtain
55-59    information, submit information or requests, or obtain decisions;
55-60    and
55-61                            (xiii)  information identifying the general
55-62    course and method by which the public power utility's functions are
55-63    channeled and determined, including the nature and requirements of
55-64    all formal and informal policies and procedures.
55-65          (b)  Information or records are excepted from the
55-66    requirements of Section 552.021 if the information or records are
55-67    reasonably related  to a competitive matter, as defined in this
55-68    section.  Such information or records include the text of any
55-69    resolution of the public power utility governing body determining
 56-1    which issues, activities, or matters constitute competitive
 56-2    matters.  Information or records of a municipally owned utility
 56-3    that are reasonably related to a competitive matter are not subject
 56-4    to disclosure under this chapter, whether or not, under the
 56-5    Utilities Code, the municipally owned utility has adopted customer
 56-6    choice or serves in a multiply certificated service area.  This
 56-7    section does not limit the right of a public power utility
 56-8    governing body to withhold from disclosure information deemed to be
 56-9    within the scope of any other exception provided for in this
56-10    chapter, subject to the provisions of this chapter.
56-11          (c)  In connection with any request for an opinion of the
56-12    attorney general under Section 552.301 with respect to information
56-13    alleged to fall under this exception, in rendering a written
56-14    opinion under Section 552.306 the attorney general shall find the
56-15    requested information to be outside the scope of this exception
56-16    only if the attorney general determines, based on the information
56-17    provided in connection with the request:  (i) that the public power
56-18    utility governing body has failed to act in good faith in making
56-19    the determination that the issue, matter, or activity in question
56-20    is a competitive matter; or (ii) that the information or records
56-21    sought to be withheld are not reasonably related to a competitive
56-22    matter.
56-23          SECTION 39.  Subsection (d), Section 791.011, Government
56-24    Code, is amended to read as follows:
56-25          (d)  An interlocal contract must:
56-26                (1)  be authorized by the governing body of each party
56-27    to the contract; however, if a party to the contract is a
56-28    municipally owned electric utility, the governing body may
56-29    establish procedures for entering into interlocal contracts that do
56-30    not exceed $100,000 without requiring the approval of the governing
56-31    body;
56-32                (2)  state the purpose, terms, rights, and duties of
56-33    the contracting parties; and
56-34                (3)  specify that each party paying for the performance
56-35    of governmental functions or services must make those payments from
56-36    current revenues available to the paying party.
56-37          SECTION 40.  Subchapter A, Chapter 2256, Government Code, is
56-38    amended by adding Section 2256.0201 to read as follows:
56-39          Sec. 2256.0201.  AUTHORIZED INVESTMENTS; MUNICIPAL UTILITY.
56-40    (a)  A municipality that owns a municipal electric utility that is
56-41    engaged in the distribution and sale of electric energy or natural
56-42    gas to the public may enter into a hedging contract and related
56-43    security and insurance agreements in relation to fuel oil, natural
56-44    gas, and electric energy to protect against loss due to price
56-45    fluctuations.  A hedging transaction must comply with the
56-46    regulations of the Commodity Futures Trading Commission and the
56-47    Securities and Exchange Commission.  If there is a conflict between
56-48    the municipal charter of the municipality and this chapter, this
56-49    chapter prevails.
56-50          (b)  A payment by a municipally owned electric or gas utility
56-51    under a hedging contract or related agreement in relation to fuel
56-52    supplies or fuel reserves is a fuel expense, and the utility may
56-53    credit any amounts it receives under the contract or agreement
56-54    against fuel expenses.
56-55          (c)  The governing body of a municipally owned electric or
56-56    gas utility or the body vested with power to manage and operate the
56-57    municipally owned electric or gas utility may set policy regarding
56-58    hedging transactions.
56-59          (d)  In this section, "hedging" means the buying and selling
56-60    of fuel oil, natural gas, and electric energy futures or options or
56-61    similar contracts on those commodity futures as a protection
56-62    against loss due to price fluctuation.
56-63          SECTION 41.  Subsections (a), (c), and (d), Section 52.133,
56-64    Natural Resources Code, are amended to read as follows:
56-65          (a)  Each oil or gas lease covering land leased by the board,
56-66    by a board for lease [other than the Board for Lease of University
56-67    Lands], or by the surface owner of land under which the state owns
56-68    the minerals, commonly referred to as Relinquishment Act land,
56-69    which shall be subject to approval by the commissioner before it is
 57-1    effective, shall include a provision granting the board authorized
 57-2    to lease the land or the owner of the soil of Relinquishment Act
 57-3    land and the commissioner authority to take their royalty in kind,
 57-4    and the commissioner and the boards for lease may include any other
 57-5    reasonable provisions that are not inconsistent with this section.
 57-6          (c)  The commissioner, the owner of the soil under Subchapter
 57-7    F [of this chapter], or the commissioner[,] acting on the behalf of
 57-8    and at the direction of an owner of the soil under Subchapter F [of
 57-9    this chapter], the board, or a board for lease, or at the direction
57-10    of the Board for Lease of University Lands, may negotiate and
57-11    execute contracts or any other instruments or agreements necessary
57-12    to dispose of or enhance their portion of the royalty taken in
57-13    kind, including contracts for sale, purchase, transportation, and
57-14    storage and including insurance contracts or other agreements, to
57-15    secure or guarantee payment.
57-16          (d)  The commissioner, the owner of the soil under Subchapter
57-17    F, or the commissioner acting on behalf of and at the direction of
57-18    an owner of the soil under Subchapter F, the board, or a board for
57-19    lease, may negotiate and execute contracts or any other instruments
57-20    or agreements necessary to convert that portion of the royalty
57-21    taken in kind into other forms of energy, including electricity.
57-22    [This section does not apply to or have any effect on the Board for
57-23    Lease of University Lands or any lease executed on university
57-24    land.]
57-25          SECTION 42.  Section 53.026, Natural Resources Code, is
57-26    amended to read as follows:
57-27          Sec. 53.026.  In Kind Royalty.  (a)  The commissioner or the
57-28    commissioner acting on behalf of and at the direction of the board
57-29    or a board for lease may negotiate and execute a contract or any
57-30    other instrument or agreement necessary to dispose of or enhance
57-31    their portion of the royalty taken in kind, including contracts [a
57-32    contract] for sale, purchase, transportation, or storage.
57-33          (b)  The commissioner or the commissioner acting on behalf of
57-34    and at the direction of the board or a board for lease may
57-35    negotiate and execute a contract or any other instrument or
57-36    agreement necessary to convert that portion of the royalty taken in
57-37    kind to other forms of energy, including electricity.
57-38          (c)  This section shall not be construed to surrender or in
57-39    any way affect the right of the state under an existing or future
57-40    lease to receive monetary royalty from its lessee.
57-41          SECTION 43.  Section 53.077, Natural Resources Code, is
57-42    amended to read as follows:
57-43          Sec. 53.077.  In Kind Royalty.  (a)  The commissioner, each
57-44    owner of the soil under this subchapter, or the commissioner acting
57-45    on the behalf of and at the direction of an owner of the soil under
57-46    this subchapter may negotiate and execute a contract or any other
57-47    instrument or agreement necessary to dispose of or enhance their
57-48    portion of the royalty taken in kind, including a contract for
57-49    sale, transportation, or storage.
57-50          (b)  The commissioner, each owner of the soil under this
57-51    subchapter, or the commissioner acting on behalf of and at the
57-52    direction of the owner of the soil under this subchapter may
57-53    negotiate and execute a contract or any other instrument or
57-54    agreement necessary to convert that portion of the royalty taken in
57-55    kind to other forms of energy, including electricity.
57-56          (c)  This section shall not be construed to surrender or in
57-57    any way affect the right of the state or the owner of the soil
57-58    under an existing or future lease to receive monetary royalty from
57-59    its lessee.
57-60          SECTION 44.  Chapter 245, Acts of the 67th Legislature,
57-61    Regular Session, 1981 (Article 717p, Vernon's Texas Civil
57-62    Statutes), is amended by adding Section 4C to read as follows:
57-63          Sec. 4C.  (a)  This section applies only to a river authority
57-64    that is engaged in the distribution and sale of electric energy to
57-65    the public.
57-66          (b)  Notwithstanding any other law, a river authority may:
57-67                (1)  provide transmission services, as defined by the
57-68    Utilities Code or the Public Utility Commission of Texas, on a
57-69    regional basis to any eligible transmission customer at any
 58-1    location within or outside the boundaries of the river authority;
 58-2    and
 58-3                (2)  acquire, including by lease-purchase; lease from
 58-4    or to any person; finance; construct; rebuild; operate; or sell
 58-5    electric transmission facilities at any location within or outside
 58-6    the boundaries of the river authority; provided, however, that
 58-7    nothing in this section shall:
 58-8                      (A)  allow a river authority to construct
 58-9    transmission facilities to an ultimate consumer of electricity to
58-10    enable an ultimate consumer to bypass the transmission or
58-11    distribution facilities of its existing provider; or
58-12                      (B)  relieve a river authority from an obligation
58-13    to comply with the provisions of the Utilities Code concerning a
58-14    certificate of convenience and necessity for a transmission
58-15    facility.
58-16          SECTION 45.  Sections 1 and 2, Article 1115a, Revised
58-17    Statutes, are amended to read as follows:
58-18          Sec. 1.  This article applies only to a home-rule
58-19    municipality that owns an electric utility system, that by
58-20    ordinance or charter elects to have the management and control of
58-21    the system governed by a board of trustees [this article], and
58-22    that:
58-23                (1)  has outstanding obligations payable in whole or
58-24    part [solely] from and secured by a lien on and pledge of net
58-25    revenues of the system; or
58-26                (2)  issues obligations that are payable in whole or
58-27    part [solely] from and secured by a lien on and pledge of the net
58-28    revenues of the system and that are approved by the attorney
58-29    general.
58-30          Sec. 2.  A municipality by ordinance may transfer management
58-31    and control of the electric utility system to a [five-member] board
58-32    of trustees appointed by the municipality's governing body.  The
58-33    municipality by ordinance shall determine [set] the qualifications
58-34    for appointment to the board and the number of members.  The
58-35    municipality may by ordinance vest the power to establish rates and
58-36    related terms and conditions for its municipally owned electric
58-37    utility in the board of trustees appointed under this section,
58-38    notwithstanding any charter provision to the contrary.
58-39          SECTION 46.  Subsection (a), Section 151.0101, Tax Code, is
58-40    amended to read as follows:
58-41          (a)  "Taxable services" means:
58-42                (1)  amusement services;
58-43                (2)  cable television services;
58-44                (3)  personal services;
58-45                (4)  motor vehicle parking and storage services;
58-46                (5)  the repair, remodeling, maintenance, and
58-47    restoration of tangible personal property, except:
58-48                      (A)  aircraft;
58-49                      (B)  a ship, boat, or other vessel, other than:
58-50                            (i)  a taxable boat or motor as defined by
58-51    Section 160.001;
58-52                            (ii)  a sports fishing boat; or
58-53                            (iii)  any other vessel used for pleasure;
58-54                      (C)  the repair, maintenance, and restoration of
58-55    a motor vehicle; and
58-56                      (D)  the repair, maintenance, creation, and
58-57    restoration of a computer program, including its development and
58-58    modification, not sold by the person performing the repair,
58-59    maintenance, creation, or restoration service;
58-60                (6)  telecommunications services;
58-61                (7)  credit reporting services;
58-62                (8)  debt collection services;
58-63                (9)  insurance services;
58-64                (10)  information services;
58-65                (11)  real property services;
58-66                (12)  data processing services;
58-67                (13)  real property repair and remodeling;
58-68                (14)  security services; [and]
58-69                (15)  telephone answering services; and
 59-1                (16)  a sale by a transmission and distribution
 59-2    utility, as defined in Section 31.002, Utilities Code, of
 59-3    transmission or delivery of service directly to an electricity
 59-4    end-use customer whose consumption of electricity is subject to
 59-5    taxation under this chapter.
 59-6          SECTION 47.  Subdivision (1), Section 182.021, Tax Code, is
 59-7    amended to read as follows:
 59-8                (1)  "Utility company" means a person who owns or
 59-9    operates a gas, electric light, electric power, or water works, or
59-10    water and light plant used for local sale or [and] distribution
59-11    located within an incorporated city or town in this state or who is
59-12    a retail electric provider, as that term is defined in Section
59-13    31.002, Utilities Code, that makes local sales within an
59-14    incorporated city or town in this state.  A person who owns an
59-15    electric light or electric power plant used for distribution but
59-16    who does not make retail sales to the ultimate consumer within an
59-17    incorporated city or town in this state is not included in this
59-18    definition.
59-19          SECTION 48.  Subchapter B, Chapter 182, Tax Code, is amended
59-20    by adding Section 182.027 to read as follows:
59-21          Sec. 182.027.  NO EXEMPTION.  Notwithstanding anything to the
59-22    contrary in Chapter 161, Utilities Code, this subchapter applies to
59-23    a retail electric provider that is an organizational unit of an
59-24    electric cooperative organized under Chapter 161, Utilities Code,
59-25    that is subject to retail competition under Chapter 41, Utilities
59-26    Code.
59-27          SECTION 49.  The following provisions are repealed:
59-28          (1)  Section 12.104, Utilities Code;
59-29          (2)  Chapter 34, Utilities Code;
59-30          (3)  Subchapters F and G, Chapter 36, Utilities Code; and
59-31          (4)  Section 37.058, Utilities Code.
59-32          SECTION 50.  (a)  Nothing in this Act shall restrict or limit
59-33    a municipality's historical right to control and receive reasonable
59-34    compensation for use of public streets, alleys, rights-of-way, or
59-35    other public property to convey or provide electricity.
59-36          (b)  Nothing in this Act shall affect a retail electric
59-37    utility's right to provide electric service in accordance with its
59-38    certificate of public convenience and necessity.  A certificate of
59-39    convenience and necessity may, however, be revoked or modified as
59-40    provided by Section 37.059, Utilities Code, and Section 37.060,
59-41    Utilities Code, as added by this Act.
59-42          SECTION 51.  The Public Utility Commission of Texas shall
59-43    study and make recommendations by December 15, 2000, to the 77th
59-44    Legislature for additional legislation that would move to and
59-45    establish a competitive electric market on January 1, 2002, in
59-46    accordance with the changes in law made by this Act.
59-47          SECTION 52.  No later than 180 days after the effective date
59-48    of this Act, the Public Utility Commission of Texas shall establish
59-49    rules and procedures for the securitization of stranded costs for
59-50    river authorities, as provided by Subdivision (2), Subsection (a),
59-51    Section 40.003, Utilities Code, as added by this Act, and for
59-52    electric cooperatives, as provided by Section 41.003, Utilities
59-53    Code.
59-54          SECTION 53.  This Act takes effect September 1, 1999.
59-55          SECTION 54.  The importance of this legislation and the
59-56    crowded condition of the calendars in both houses create an
59-57    emergency and an imperative public necessity that the
59-58    constitutional rule requiring bills to be read on three several
59-59    days in each house be suspended, and this rule is hereby suspended.
59-60                                 * * * * *