By:  Fraser                                                       S.B. No. 743
	(In the Senate - Filed February 24, 2005; March 10, 2005, 
read first time and referred to Committee on Business and Commerce; 
April 6, 2005, reported favorably by the following vote:  Yeas 9, 
Nays 0; April 6, 2005, sent to printer.)

A BILL TO BE ENTITLED
AN ACT
relating to independent organizations in ERCOT and their regulation and certification by the Public Utility Commission of Texas; providing an administrative penalty. BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: SECTION 1. Section 39.151, Utilities Code, is amended by amending Subsections (b), (d), (g), and (h) and adding Subsection (g-1) to read as follows: (b) "Independent organization" means an independent system operator or other person that is sufficiently independent of any producer or seller of electricity that its decisions will not be unduly influenced by any producer or seller. [An entity will be deemed to be independent if it is governed by a board that has three representatives from each segment of the electric market, with the consumer segment being represented by one residential customer, one commercial customer, and one industrial retail customer.] (d) The commission has the general power to regulate and supervise the business of an independent organization in ERCOT and to do anything specifically designated or implied by this title that is necessary and convenient to the exercise of that power and jurisdiction. The commission, by order or rule, may not implement a requirement that is contrary to an applicable federal law or rule. The commission may: (1) require an independent organization to provide reports and information relating to the independent organization's performance of the functions prescribed by this section and relating to its revenues, expenses, and other financial matters; (2) prescribe a system of accounts for an independent organization; (3) conduct audits of an independent organization's performance of the functions prescribed by this section or relating to its revenues, expenses, and other financial matters and may require an independent organization to conduct such audits; (4) inspect an independent organization's facilities, records, and accounts during reasonable hours and after reasonable notice to the independent organization; (5) assess administrative penalties against an independent organization that violates this title or a rule or order adopted by the commission, and the attorney general, at the request of the commission, may apply for a court order to require an independent organization to comply with commission rules and orders, in the manner provided by Chapter 15; (6) resolve disputes between an affected person and an independent organization and may adopt procedures for the efficient resolution of such disputes; and (7) adopt and enforce rules [An independent organization certified by the commission for a power region shall establish and enforce procedures, consistent with this title and the commission's rules,] relating to the reliability of the regional electrical network and accounting for the production and delivery of electricity among generators and all other market participants, or may delegate to an independent organization responsibilities for establishing and enforcing such rules. Any such rules adopted by an independent organization and any enforcement actions taken by it[. The procedures] shall be subject to commission oversight and review. (g) To maintain certification as an independent organization under this section, an organization's [If it amends its governance rules to provide that its governing body is composed as prescribed by this subsection, the existing independent system operator in ERCOT will meet the criteria provided by Subsection (a) with respect to ensuring access to the transmission systems for all buyers and sellers of electricity in the ERCOT region and ensuring the reliability of the regional electrical network. To comply with this subsection, the] governing body must be composed of persons specified by this section and selected in accordance with formal bylaws or protocols of the organization. The bylaws or protocols must be approved by the commission and must reflect the input of the commission. The bylaws or protocols must prescribe professional qualifications for selection as a member, require the use of a professional search firm to identify candidates for membership, and specify the process by which appropriate stakeholders elect members. The process must allow for commission input in identifying candidates. The governing body must be composed of: (1) the chairman of the commission as an ex officio nonvoting member; (2) the counsellor as an ex officio voting member representing residential and small commercial consumer interests; (3) the chief executive officer [director] of the independent system operator as an ex officio voting member; (4) six market participants elected by their respective market segments to serve one-year terms, with: (A) one representing independent generators; (B) one representing investor-owned utilities; (C) one representing power marketers; (D) one representing retail electric providers; (E) one representing municipally owned utilities; and (F) one representing electric cooperatives [four representatives of the power generation sector as voting members]; (5) one member representing industrial consumer interests and elected by the industrial consumer market segment to serve a one-year term [four representatives of the transmission and distribution sector as voting members]; (6) one member representing large commercial consumer interests selected by the outgoing large commercial consumer representative to serve a one-year term [four representatives of the power sales sector as voting members]; and (7) five members unaffiliated with any market segment and selected by the other members of the governing body to serve three-year terms [the following people as voting members, appointed by the commission: [(A) one representative of residential customers; [(B) one representative of commercial customers; and [(C) one representative of industrial customers]. [The four representatives specified in each of Subdivisions (4), (5), and (6) shall be selected in a manner that ensures equitable representation for the various sectors of industry participants.] (g-1) The presiding officer of the governing body must be one of the members described by Subsection (g)(7). (h) The ERCOT independent system operator may meet the criteria relating to the other functions of an independent organization provided by Subsection (a) by adopting procedures and acquiring resources needed to carry out those functions, consistent with any rules or orders of the commission. SECTION 2. Subchapter D, Chapter 39, Utilities Code, is amended by adding Sections 39.1511, 39.1512, and 39.1515 to read as follows: Sec. 39.1511. PUBLIC MEETINGS OF THE GOVERNING BODY OF AN INDEPENDENT ORGANIZATION. (a) Meetings of the governing body of an independent organization certified under Section 39.151 and meetings of a subcommittee of the governing body must be open to the public. The bylaws of the independent organization and the rules of the commission may provide for the governing body or subcommittee to enter into executive session closed to the public to address sensitive matters such as confidential personnel information, contracts, lawsuits, competitively sensitive information, or other information related to the security of the regional electrical network. (b) The bylaws of the independent organization and rules of the commission must ensure that a person interested in the activities of the independent organization has an opportunity to obtain at least seven days' advance notice of meetings and the planned agendas of the meetings and an opportunity to comment on matters under discussion at the meetings. Sec. 39.1512. DISCLOSURE OF INTEREST IN MATTER BEFORE INDEPENDENT ORGANIZATION'S GOVERNING BODY; PARTICIPATION IN DECISION. (a) If a matter comes before the governing body of an independent organization certified under Section 39.151 and a member or a person that member represents has a direct interest in that matter, the member shall publicly disclose the fact of that interest to the governing body at a public meeting of the body. The member shall recuse himself or herself from the governing body's deliberations and actions on the matter and may not vote on the matter or otherwise participate in a governing body decision on the matter. (b) A disclosure made under Subsection (a) shall be entered in the minutes of the meeting at which the disclosure is made. (c) The fact that a member is recused from a vote or decision by application of this section does not affect the existence of a quorum. Sec. 39.1515. WHOLESALE ELECTRIC MARKET MONITOR. (a) An independent organization certified under Section 39.151 shall contract with a private person selected by the commission to act as the state's wholesale electric market monitor and to detect and prevent market manipulation strategies. (b) The independent organization shall provide to the personnel of the market monitor: (1) full access to the organization's main operations center; and (2) other support and cooperation the commission determines is necessary for the market monitor to perform the market monitor's functions. (c) The independent organization shall use money from the rate authorized by Section 39.151(e) to pay for the market monitor's activities. (d) The commission is responsible for ensuring that the market monitor has the resources, expertise, and authority necessary to monitor the wholesale electric market effectively and shall adopt rules and perform oversight of the market monitor as necessary. The commission by rule shall define: (1) the market monitor's monitoring responsibilities; (2) the standards for funding the market monitor, including staffing requirements; (3) qualifications for personnel of the market monitor; and (4) ethical standards for the market monitor and the personnel of the market monitor. (e) In adopting rules governing the standards for funding the market monitor, the commission shall consult with a subcommittee of the independent organization's governing body to receive information on how money is or should be spent for monitoring functions. Rules governing ethical standards must include provisions designed to ensure that the personnel of the market monitor are professionally and financially independent from market participants. The commission shall develop and implement policies that clearly separate the policymaking responsibilities of the commission and the operational responsibilities of the market monitor. (f) The market monitor shall immediately report directly to the commission any potential market manipulations and any discovered or potential violations of commission rules or rules of the independent organization. (g) The personnel of the market monitor may communicate with commission staff on any matter without restriction. (h) The market monitor annually shall submit to the commission and the independent organization a report that identifies market design flaws and recommends methods to correct the flaws. The commission and the independent organization shall review the report and evaluate whether changes to rules of the commission or the independent organization should be made. SECTION 3. An independent organization certified by the Public Utility Commission of Texas before September 1, 2005, shall modify the organization's governing body to comply with Subsection (g), Section 39.151, Utilities Code, as amended by this Act, not later than September 1, 2006. On or after September 1, 2006, the Public Utility Commission of Texas may decertify an independent organization whose governing body does not comply with Subsection (g), Section 39.151, Utilities Code, as amended by this Act. SECTION 4. This Act takes effect September 1, 2005.
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