HBA-SEP C.S.H.B. 1692 77(R)BILL ANALYSIS


Office of House Bill AnalysisC.S.H.B. 1692
By: Chisum
State Affairs
4/16/2001
Committee Report (Substituted)



BACKGROUND AND PURPOSE 

The Texas Panhandle region, served by Southwestern Public Service Company
(SPS), is transmission constrained, which means that power consumed in the
Panhandle must be generated in the region. Currently, SPS is scheduled to
sell 80% of its generation assets to unregulated companies and to unbundle
its generation company which would weaken the ability of the Public Utility
Commission of Texas (PUC) to regulate generation rates paid by customers.
Transmission and generation shortages do not provide for a competitive
market and attempts to cap consumer prices offer little protection.  The
entities paying high wholesale prices without the ability to pass those
prices on to their customers potentially face bankruptcy. A slower, more
structured transition to competition for regions with transportation and
generation shortages may serve to protect consumers.  C.S.H.B. 1692
prohibits full retail customer choice for competitive development areas
from beginning until the later of January 1, 2007 or the date on which a
non-ERCOT utility is authorized by the PUC to implement customer choice. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution. 

ANALYSIS

C.S.H.B. 1692 amends the Utilities Code to require the rates of an
investor-owned electric utility operating solely outside of ERCOT having
fewer than six synchronous interconnections with voltage levels above 69
kilovolts systemwide on September 1, 1999 (utility) to be regulated under
traditional cost of service regulation until the later of January 1, 2007
or the date on which a utility is authorized by the Public Utility
Commission of Texas (PUC) to implement customer choice.  The utility is
subject to all specified, applicable regulatory authority.  Until customer
choice, provisions governing the restructuring of electric utility industry
other than provisions regarding certain utilities, goals for renewable
energy, and the duty to obtain a permit from the Texas Natural Resource
Conservation Commission for generating and reducing emissions from an
electric generating facility do not apply.  The bill provides that any
portion of a PUC order entered before September 1, 2001 to comply with
provisions for certain utilities is null and void.  Until customer choice,
the utility is required to pay franchise fees to a municipality as required
by the franchise agreement.   

On or after January 1, 2007, a utility is authorized to choose to
participate in customer choice.  Such a utility is required to file a
transition to competition plan (plan) with the PUC that identifies how a
utility intends to mitigate market power.  The utility is required to
include in the plan a provision to establish a price to beat for
residential and commercial customers having a peak load of 1,000 kilowatts
or less.  The PUC may prescribe additional information or provisions that
must be included in the plan.  The bill provides that if a hearing is
requested by any party to the proceeding, the 180-day deadline will be
extended for each day of hearings.  The bill authorizes the plan to be
updated annually, rather than as circumstances change, until the applicable
power region is certified as a qualifying power region.  On implementation
of customer choice, a utility is subject to the provisions applicable to
electric utilities and all utilities to the same extent as other electric
utilities including the provisions concerning certificates of convenience
and necessity (Sec.  39.402).  

If an electric utility chooses on or after January 1, 2007 to participate
in customer choice, the PUC is prohibited from authorizing customer choice
until the applicable power region has been certified as a qualifying power
region.  Not later than May 1, 2002, each utility is required to submit to
the electric utility restructuring legislative oversight committee an
analysis of the needed transmission facilities necessary to make the
utility's service area transmission capability comparable to areas within
the ERCOT power region.  On or after September 1, 2003, each utility is
required to file the utility's plans to develop the utility's transmission
interconnections with the utility's power region or other adjacent power
regions.  The PUC is required to review the plan and not later than the
180th day after the date the plan is filed, determine the additional
transmission facilities necessary to provide access to power and energy
that is comparable to the access provided in areas within the ERCOT power
region; provided, however, that if a hearing is requested by any party to
the proceeding, the 180 day deadline will be extended one day for each day
of hearings.  The PUC is also required, as a part of PUC's approval of the
plan, to approve a rate rider mechanism for the recovery of the incremental
costs of those facilities after the facilities are completed and
in-service.  A finding of need is required to meet the requirements of
provisions regarding the grant or denial of a certificate.  The bill
prohibits a utility from choosing to participate in customer choice unless
the affiliated power generation company makes a commitment to maintain and
does maintain rates that are based on cost of service for any electric
cooperative or municipality owned utility that was a wholesale customer on
the date the utility chooses to participate in customer choice and was
purchasing power at rates that were based on cost of service (Sec. 39.407). 

A utility is entitled to recover all reasonable and necessary expenditures
made or incurred before September 1, 2001, to comply with provisions
governing the restructuring of the electric utility industry. Not later
than December 1, 2001, each utility is authorized to file with the PUC  an
application for recovery detailing the amounts spent or incurred.  After
notice and hearing, the PUC is required to review the amounts and, if found
to be reasonable and necessary, approve a transition to competition retail
rate rider mechanism for the recovery of the approved transition to
competition costs.  A rate rider implemented to recover approved transition
to competition costs shall expire not later than December 31, 2006 (Sec.
39.409).   

The bill repeals provisions requiring utilities to unbundle, freeze rates,
and to undertake customer choice pilot projects (SECTION 3). 

EFFECTIVE DATE

On passage, or if the Act does not receive the necessary vote, the Act
takes effect September 1, 2001. 

COMPARISON OF ORIGINAL TO SUBSTITUTE

C.S.H.B. 1692 modifies the original by requiring the rates of a non-ERCOT
utility (utility) to be regulated under traditional cost of service
regulation until the later of January 1, 2007 or the date on which a
utility is authorized by the Public Utility Commission of Texas (PUC) to
implement customer choice.  The original prohibited full retail customer
choice from beginning until the PUC made a finding that customer choice
would not cause rates to be higher for any customer class than the rates in
effect under regulation.   Under the original, non-ERCOT utilities would
have remained subject to the Public Utility Regulatory Act (PURA).  The
substitute releases the utilities from PURA Chapter 39, except for
provisions regarding certain non-ERCOT utilities, goals for renewable
energy, and the duty to obtain a permit from the Texas Natural Resource
Conservation Commission for generating and reducing emissions from an
electric generating facility. 

The substitute removes provisions from the original bill that capped the
rate at which a utility may divest generation assets at no more than 20
percent within any 24 month period.  The substitute also removes provisions
from the original bill that mandated the proceeds of any sale or transfer
above the book value to be split between ratepayers and shareholders, with
90 percent of the proceeds going to the ratepayers.  Whereas, the
substitute requires the utility to meet the qualifying power region
requirements (Sec. 39.402).  

The substitute also requires a utility to file a report to the appropriate
legislative committee detailing  the transmission facilities necessary to
make the utility's service area transmission capability comparable to areas
within the ERCOT power region.  The substitute also requires the utility to
file a plan with the PUC detailing plans to develop the utility's
transmission interconnection with the utility's power region or with
adjacent power regions (Sec. 39.407).   

The substitute also entitles a utility to recover all reasonable and
necessary expenditures made or incurred before September 1, 2001, to comply
with provisions governing the restructuring of the electric utility
industry (Sec. 39.409).   

The substitute repeals provisions requiring utilities to unbundle, freeze
rates, and to undertake customer choice pilot projects (SECTION 3).