By: Fraser, Harris, West S.B. No. 483

A BILL TO BE ENTITLED

AN ACT

relating to regulation of electric generation capacity ownership in the electric power market.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subsections (a) and (d), Section 39.152, Utilities Code, are amended to read as follows:

(a) The commission shall certify a power region if:

(1) a sufficient number of interconnected utilities in the power region fall under the operational control of an independent organization as described by Section 39.151;

(2) the power region has a generally applicable tariff that guarantees open and nondiscriminatory access for all users to transmission and distribution facilities in the power region as provided by Section 39.203; and

(3) no person owns or [and] controls, or any combination thereof, more than 20 percent of the installed generation capacity located in or capable of delivering electricity to a power region, as determined according to Section 39.154.

(d) For a power region outside of ERCOT, a power generation company that is affiliated with an electric utility may elect to demonstrate that it meets the requirements of Subsection (a)(3) by showing that it does not own or [and] control, or any combination thereof, more than 20 percent of the installed capacity in a geographic market that includes the power region, using the guidelines, standards, and methods adopted by the Federal Energy Regulatory Commission.

SECTION 2. Section 39.153, Utilities Code, is amended by adding Subsection (a-1) and amending Subsections (e) and (f) to read as follows:

(a-1) Not later than September 30, 2008, each electric utility subject to this section shall sell at auction or otherwise divest additional entitlements to the utility's Texas jurisdictional installed generation capacity so that a utility does not control more than:

(1) 20 percent of installed generation capacity in ERCOT; or

(2) 25 percent of the installed generation capacity inside an ERCOT zonal boundary or a functional market recognized by the commission.

(e) The commission shall adopt rules by December 31, 2000, that define the scope of the initial capacity entitlements to be auctioned and shall adopt additional rules not later than December 31, 2007, that define the scope of the auctions necessary to comply with Subsection (a-1). Entitlements may be auctioned in blocks of less than 15 percent. The rules shall state the minimum amount of capacity that can be sold at auction as an entitlement. At a minimum, the rules shall provide that the entitlements:

(1) may be sold and purchased in periods of not less than one month nor more than four years;

(2) may be resold to any lawful purchaser, except for a retail electric provider affiliated with the electric utility that originally auctioned the entitlement;

(3) include no possessory interest in the unit from which the power is produced;

(4) include no obligations of a possessory owner of an interest in the unit from which the power is produced; and

(5) give the purchaser the right to designate the dispatch of the entitlement, subject to planned outages, outages beyond the control of the utility operating the unit, and other considerations subject to the oversight of the applicable independent organization.

(f) The commission shall adopt rules by December 31, 2000, that prescribe the procedure for the auction of the entitlements as required by Subsection (a). If necessary, the commission may adopt additional rules that prescribe the procedure for the auction of the entitlements as required by Subsection (a-1). The rules shall include:

(1) a process for conducting the auction or auctions, including who shall conduct it, how often it shall be conducted, and how winning bidders shall be determined;

(2) a process for the electric utility to designate which generation units or combination of units are offered for auction;

(3) a provision for the utility to establish an opening bid price based on the electric utility's expected cost, with the commission prescribing the means for determining the opening bid price, which may not include return on equity; and

(4) a provision that allows a bidder to specify the magnitude and term of the entitlement, subject to the conditions established in Subsection (e).

SECTION 3. Section 39.154, Utilities Code, is amended by amending Subsections (a) and (c) and adding Subsection (f) to read as follows:

(a) Beginning on the date of introduction of customer choice, a power generation company may not own or [and] control, or any combination thereof, more than 20 percent of the installed generation capacity located in, or capable of delivering electricity to ERCOT, or 25 percent of the installed generation capacity in a power region, zone, or functional market recognized by the commission in the power region.

(c) In determining the percentage shares of installed generation capacity under this section, the commission shall combine capacity owned or [and] controlled by a power generation company and any entity that is affiliated with that power generation company within the power region, zone, or functional market recognized by the commission in the power region [reduced by the installed generation capacity of those facilities that are made subject to capacity auctions under Sections 39.153(a) and (d)].

(f) In determining the percentage market shares of installed generation capacity owned or controlled by a power generation company under this section and Section 39.156, the commission shall not include any capacity generated from integrated gasification combined cycle or other similar clean coal technologies.

SECTION 4. Subsection (a), Section 39.155, Utilities Code, is amended to read as follows:

(a) Each person, municipally owned utility, electric cooperative, and river authority that owns or controls generation facilities and offers electricity for sale in this state shall report to the commission its installed generation capacity, the total amount of capacity available for sale to others, the total amount of capacity under contract to others, the total amount of capacity dedicated to its own use, its annual wholesale power sales in the state, its annual retail power sales in the state, and any other information necessary for the commission to assess market power or the development of a competitive retail market in the state. The commission shall by rule prescribe the nature and detail of the reporting requirements and shall administer those reporting requirements in a manner that ensures the confidentiality of competitively sensitive information.

SECTION 5. Subsections (a), (b), (f), and (g), Section 39.156, Utilities Code, are amended to read as follows:

(a) In this section, "market power mitigation plan" or "plan" means a written proposal by an electric utility or a power generation company for reducing its ownership or [and] control of installed generation capacity as required by Section 39.154.

(b) An electric utility or power generation company owning or [and] controlling, or any combination thereof, more than 20 percent of the generation capacity located in, or capable of delivering electricity to ERCOT, or 25 percent of the installed generation capacity in a power region, zone, or functional market recognized by the commission in the power region shall file a market power mitigation plan with the commission not later than the 90th day after the date the electric utility's or power generation company's generation capacity exceeds the 20 percent limitation prescribed by this subsection [December 1, 2000].

(f) The commission shall approve, modify, or reject a plan within 180 days after the date of a filing under Subsection (b). [The commission may not modify a plan to require divestiture by the electric utility or the power generation company.]

(g) In reaching its determination under Subsection (f), the commission shall consider:

(1) the degree to which the electric utility's or power generation company's stranded costs, if any, are minimized;

(2) whether on disposition of the generation assets the reasonable value is likely to be received;

(3) the effect of the plan on the electric utility's or power generation company's federal income taxes;

(4) the effect of the plan on current and potential competitors in the generation market; [and]

(5) whether the plan is consistent with the public interest;

(6) the ownership of generation resources in a zone;

(7) the control of generation through the use of contracts between affiliated retail electric providers and independent power producers; and

(8) the emissions credits owned or controlled in a nonattainment area for national ambient air quality standards.

SECTION 6. Section 39.157, Utilities Code, is amended by amending Subsections (a), (b), and (d) and adding Subsection (j) to read as follows:

(a) The commission shall monitor market power associated with the generation, transmission, distribution, and sale of electricity in this state. On a finding that market power abuses or other violations of this section have occurred or are presently occurring, the commission shall require, to the extent feasible, refunds to retail customers and disgorgement of revenues received as a result of market power abuses and reasonable mitigation of the market power by ordering the construction of additional transmission or distribution facilities, by seeking an injunction or civil penalties as necessary to eliminate or to remedy the market power abuse or violation as authorized by Chapter 15, by requiring refunds or disgorgement of revenues received as a result of market power abuses, by imposing an administrative penalty as authorized by Chapter 15, or by suspending, revoking, or amending a certificate or registration as authorized by Section 39.356. Section 15.024(c) does not apply to an administrative penalty imposed under this section. In lieu of seeking a civil penalty, as authorized by Chapter 15, the commission may require that a person who has been found by the commission to have engaged in market power abuse pay equivalent funds directly to an existing emergency bill payment assistance program operated by local assistance agencies that are supported by the Texas Department of Housing and Community Affairs. If the market monitor issues a report under Section 39.1515 indicating that market power abuses or other violations of this title have occurred or are occurring, the executive director shall promptly approve or reject the findings of the market monitor and pursue all appropriate administrative remedies. Upon finding that market power abuses have occurred and after ordering the appropriate administrative remedies, the commission shall refer the matter to the attorney general for further action, including the imposition of civil penalties, criminal prosecution under Section 15.030, or coordinating and assisting in local criminal prosecution. For purposes of this subchapter, market power abuses are practices by persons possessing market power that are unreasonably discriminatory or tend to unreasonably restrict, impair, or reduce the level of competition, including practices that tie unregulated products or services to regulated products or services or unreasonably discriminate in the provision of regulated services. For purposes of this section, "market power abuses" include predatory pricing, withholding of production, precluding entry, and collusion. A violation of the code of conduct provided by Subsection (d) that materially impairs the ability of a person to compete in a competitive market shall be deemed to be an abuse of market power. The possession of a high market share in a market open to competition may not, of itself, be deemed to be an abuse of market power; however, this sentence shall not affect the application of state and federal antitrust laws.

(b) Beginning on the date of introduction of customer choice, a person that owns or controls generation facilities may not own transmission or distribution facilities in this state except for those facilities necessary to interconnect a generation facility with the transmission or distribution network, a facility not dedicated to public use, or a facility otherwise excluded from the definition of "electric utility" under Section 31.002. However, nothing in this chapter shall prohibit a power generation company affiliated with a transmission and distribution utility from owning or controlling generation facilities.

(d) Not later than January 10, 2000, the commission shall adopt rules and enforcement procedures to govern transactions or activities between a transmission and distribution utility and its competitive affiliates to avoid potential market power abuses and cross-subsidizations between regulated and competitive activities both during the transition to and after the introduction of competition. Nothing in this subsection is intended to affect or modify the obligations or duties relating to any rules or standards of conduct that may apply to a utility or the utility's affiliates under orders or regulations of the Federal Energy Regulatory Commission or the Securities and Exchange Commission. A utility that is subject to statutes or regulations in other states that conflict with a provision of this section may petition the commission for a waiver of the conflicting provision on a showing of good cause. The rules adopted under this section shall ensure that:

(1) a utility makes any products and services, other than corporate support services, that it provides to a competitive affiliate available, contemporaneously and in the same manner, to the competitive affiliate's competitors and applies its tariffs, prices, terms, conditions, and discounts for those products and services in the same manner to all similarly situated entities;

(2) a utility does not:

(A) give a competitive affiliate or a competitive affiliate's customers any preferential advantage, access, or treatment regarding services other than corporate support services; or

(B) act in a manner that is discriminatory or anticompetitive with respect to a nonaffiliated competitor of a competitive affiliate;

(3) a utility providing electric transmission or distribution services:

(A) provides those services on nondiscriminatory terms and conditions;

(B) does not establish as a condition for the provision of those services the purchase of other goods or services from the utility or the competitive affiliate; [and]

(C) does not provide competitive affiliates preferential access to the utility's transmission and distribution systems or to information about those systems; and

(D) does not act in a manner that in any way suggests or implies that reliability of electric service, or restoration of service to a customer following an outage, is dependent upon a customer receiving service from a competitive affiliate of a utility;

(4) a utility does not release any proprietary customer information to a competitive affiliate or any other entity, other than an independent organization as defined by Section 39.151 or a provider of corporate support services for the purposes of providing the services, without obtaining prior verifiable authorization, as determined from the commission, from the customer;

(5) a utility does not:

(A) communicate with a current or potential customer about products or services offered by a competitive affiliate in a manner that favors a competitive affiliate; or

(B) allow a competitive affiliate, before September 1, 2005, to use the utility's corporate name, trademark, brand, or logo unless the competitive affiliate includes on employee business cards and in its advertisements of specific services to existing or potential residential or small commercial customers locating within the utility's certificated service area a disclaimer that states, "(Name of competitive affiliate) is not the same company as (name of utility) and is not regulated by the Public Utility Commission of Texas, and you do not have to buy (name of competitive affiliate)'s products to continue to receive quality regulated services from (name of utility).";

(6) a utility does not conduct joint advertising or promotional activities with a competitive affiliate [in a manner that favors the competitive affiliate];

(7) a utility is a separate, independent entity from any competitive affiliates and, except as provided by Subdivisions (8) and (9), does not share employees, facilities, information, or other resources, other than permissible corporate support services, with those competitive affiliates unless the utility can prove to the commission that the sharing will not compromise the public interest;

(8) a utility's office space is physically separated from the office space of the utility's competitive affiliates by being located in separate buildings or, if within the same building, by a method such as having the offices on separate floors or with separate access, unless otherwise approved by the commission;

(9) a utility and a competitive affiliate:

(A) may, to the extent the utility implements adequate safeguards precluding employees of a competitive affiliate from gaining access to information in a manner inconsistent with Subsection (g) or (i), share common officers and directors, property, equipment, offices to the extent consistent with Subdivision (8), credit, investment, or financing arrangements to the extent consistent with Subdivision (17), computer systems, information systems, and corporate support services; and

(B) are not required to enter into prior written contracts or competitive solicitations for non-tariffed transactions between the utility and the competitive affiliate, except that the commission by rule may require the utility and the competitive affiliate to enter into prior written contracts or competitive solicitations for certain classes of transactions, other than corporate support services, that have a per unit value of more than $75,000 or that total more than $1 million;

(10) a utility does not temporarily assign, for less than three years [one year], employees engaged in transmission or distribution system operations to a competitive affiliate [unless the employee does not have knowledge of information that is intended to be protected under this section];

(11) a utility does not subsidize the business activities of an affiliate with revenues from a regulated service;

(12) a utility and its affiliates fully allocate costs for any shared services, corporate support services, and other items described by Subdivisions (8) and (9);

(13) a utility and its affiliates keep separate books of accounts and records and the commission may review records relating to a transaction between a utility and an affiliate;

(14) assets transferred or services provided between a utility and an affiliate, other than transfers that facilitate unbundling under Section 39.051 or asset valuation under Section 39.262, are priced at a level that is fair and reasonable to the customers of the utility and reflects the market value of the assets or services or the utility's fully allocated cost to provide those assets or services;

(15) regulated services that a utility provides on a routine or recurring basis are included in a tariff that is subject to commission approval;

(16) each transaction between a utility and a competitive affiliate is conducted at arm's length; and

(17) a utility does not allow an affiliate to obtain credit under an arrangement that would include a specific pledge of assets in the rate base of the utility or a pledge of cash reasonably necessary for utility operations.

(j) After January 1, 2008, a competitive affiliate may not use the utility's corporate name, trademark, brand, or logo or any portion of the utility's corporate name, trademark, brand, or logo if the commission determines that such use may be misleading to customers.

SECTION 7. Subsection (a), Section 39.158, Utilities Code, is amended to read as follows:

(a) A person who owns or controls [An owner of] electric generation facilities that offers electricity for sale in the state and proposes to merge, consolidate, or otherwise become affiliated with another person who owns or controls [owner of] electric generation facilities that offers electricity for sale in this state shall obtain the approval of the commission before closing if the electricity offered for sale in the power region by the merged, consolidated, or affiliated entity will exceed one percent of the total electricity for sale in the power region. The approval shall be requested at least 120 days before the date of the proposed closing. The commission shall approve the transaction unless the commission finds that the transaction results in a violation of Section 39.154. If the commission finds that the transaction as proposed would violate Section 39.154, the commission may condition approval of the transaction on adoption of reasonable modifications to the transaction as prescribed by the commission to mitigate potential market power abuses.

SECTION 8. Subsection (a), Section 39.407, Utilities Code, is amended to read as follows:

(a) If an electric utility chooses on or after January 1, 2007, to participate in customer choice, the commission may not authorize customer choice until the applicable power region has been certified as a qualifying power region under Section 39.152(a). Except as otherwise provided by this subsection, the commission shall certify that the requirements of Section 39.152(a)(3) are met for electric utilities subject to this subchapter only upon a finding that the total capacity owned or [and] controlled, or any combination thereof, by each such electric utility and its affiliates does not exceed 20 percent of the total installed generation capacity within the constrained geographic region served by each such electric utility plus the total available transmission capacity capable of delivering firm power and energy to that constrained geographic region. Not later than May 1, 2002, each electric utility subject to this subchapter shall submit to the electric utility restructuring legislative oversight committee an analysis of the needed transmission facilities necessary to make the electric utility's service area transmission capability comparable to areas within the ERCOT power region. On or after September 1, 2003, each electric utility subject to this subchapter shall file the utility's plans to develop the utility's transmission interconnections with the utility's power region or other adjacent power regions. The commission shall 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 commission shall, as a part of the commission's approval of the plan, 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 under this subsection shall meet the requirements of Sections 37.056(c)(1), (2), and (4)(E). The commission may certify that the requirements of Section 39.152(a)(3) are met for electric utilities subject to this subchapter if the commission finds that:

(1) each such utility has sufficient transmission facilities to provide customers access to power and energy from capacity controlled by suppliers not affiliated with the incumbent utility that is comparable to the access to power and energy from capacity controlled by suppliers not affiliated with the incumbent utilities in areas of the ERCOT power region; and

(2) the total capacity owned or [and] controlled, or any combination thereof, by each such electric utility and its affiliates does not exceed 20 percent of the total installed generation capacity within the power region.

SECTION 9. Subsection (b), Section 39.453, Utilities Code, is amended to read as follows:

(b) The commission shall certify that the requirement of Section 39.152(a)(3) is met for an electric utility subject to this subchapter only if the commission finds that the total capacity owned or [and] controlled, or any combination thereof, by the electric utility and the utility's affiliates does not exceed 20 percent of the total installed generation capacity within the power region of that utility.

SECTION 10. Subsection (b), Section 39.153, Subsection (e), Section 39.154, and Subsection (d), Section 39.156, Utilities Code, are repealed.

SECTION 11. This Act takes effect immediately if it receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for immediate effect, this Act takes effect September 1, 2007.