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).