SRC-JBJ S.B. 7 76(R)BILL ANALYSIS Senate Research CenterS.B. 7 By: Sibley Economic Development 6/18/1999 Enrolled DIGEST Currently, the Public Utility Regulatory Act of 1995 (Act) authorizes the Public Utility Commission (PUC) to regulate the electricity market and ensure that only one electric energy provider serves each area of the state. This bill amends the Act by deregulating the electricity generation market and permitting certain providers to compete for customers who choose their electricity supplier in competitive areas. This bill also authorizes the PUC to develop and promulgate customer protection rules during and after a transition to a competitive market. PURPOSE As enrolled, S.B. 7 restructures certain electric utility service. RULEMAKING AUTHORITY Rulemaking authority is granted to the Public Utility Commission in SECTION 36 (Section 38.005(a), Utilities Code) and SECTION 39 (Sections 39.101(e) and (f), 39.153 (e) and (f), 39.155(a), 39.157(d) and (e), 39.352(g), 39.903(f), (g), (i), (j), 39.904(c), 39.044(c) and (d), 39.905(b), Utilities Code), and SECTION 65; the governing body of a municipally owned utility in SECTION 39 (Section 39.101(g), Utilities Code); Texas Natural Resource Conservation Commission in SECTION 39 (Sections 39.264(f), (g), and (i), Utilities Code); commissioner of education in SECTION 39 (Section 39.901(g), Utilities Code); comptroller of public accounts in SECTION 39 (Section 39.901(g), Utilities Code); and the board of directors of electric cooperatives in SECTION 39 (Section 41.003(a), Utilities Code). SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 11.003, Utilities Code, to redefine"affected person," "cooperative corporation," "corporation," "person," "ratemaking proceeding," and "service." Defines "electric cooperative." Makes conforming changes. SECTION 2. Amends Section 12.005, Utilities Code, to provide a Texas Sunset Act review of the Public Utility Commission (PUC) by September 1, 2005, rather than 2001. SECTION 3. Amends Section 12.101, Utilities Code, to designate whom the commission shall employ. SECTION 4. Amends Sections 12.151 and 12.152, Utilities Code, to prohibit a person from serving as a commissioner, rather than a commissioner or general counsel to the commission, when the person has been involved in certain activities. Makes conforming changes. SECTION 5. Amends Section 13.002, Utilities Code, to provide that the Office of Public Utility Counsel is subject to Chapter 325, Government Code (Texas Sunset Act), and is abolished along with this chapter on September 1, 2005, rather than 2001. SECTION 6. Amends Subsection (a), Section 13.003, Utilities Code, to authorize the office to intervene in certain alternative dispute resolution proceedings. SECTION 7. Amends Section 13.0124, Utilities Code, to delete prohibitions regarding ceratin legal services by a counselor. SECTION 8. Amends Section 13.043, Utilities Code, to prohibit a former counsel from communication with certain officers and employees of the PUC or representing certain individual before the PUC, for two years from a certain date. Makes a violation a Class A misdemeanor. Defines "person." Makes conforming changes. SECTION 9. Amends Subsection (d), Section 14.101, Utilities Code, provide that this section does not apply to transactions that facilitate unbundling, asset valuation, minimization of ownership or control of generation assets, or other purposes consistent with Chapter 39. SECTION 10. Amends Subsections (a) and (b), Section 16.001, Utilities Code, to impose an assessment on each retail electric provider and electric cooperative, to defray administrative expenses. Provides that an assessment is equal to one-sixth of one percent of the public utility's, retail electric provider's, or electric cooperative's gross receipts from certain rates. SECTION 11. Amends Section 31.002, Utilities Code, to define "affiliated power generation company," "affiliated retail electric provider," "aggregation," "customer choice," "Electric Reliability Council of Texas," "ERCOT," "freeze period," "independent system operator," "power generation company," "power region," "retail customer," "retail electric provider," "separately metered," and "transmission and distribution utility." Redefines "electric utility," "qualifying cogenerator," and "qualifying small power producer," and "transmission service." Makes conforming changes. SECTION 12. Amends Chapter 32A, Utilities Code, by adding Section 32.0015, as follows: Sec. 32.0015. REGULATION OF SUCCESSOR ELECTRIC UTILITY OR ELECTRIC COOPERATIVE. Requires the PUC to regulate an electric utility that purchases or gains majority control of another electric utility or electric cooperative cooperation. SECTION 13. Amends Sections 32.051 and 32.052, Utilities Code, as follows: Sec. 35.051. EXEMPTION OF RIVER AUTHORITY FROM WHOLESALE RATE REGULATION. Exempts a river authority from wholesale rate regulation by a river authority operating a steam generating plant on or before January 1, 1999. Sec. 35.052. ABILITY OF CERTAIN RIVER AUTHORITIES TO CONSTRUCT IMPROVEMENTS. Makes a conforming change. SECTION 14. Amends Section 32.053, Utilities Code, by amending Subsections (b) and (f), and adding Subsection (g) and (h), to authorize a corporation to purchase and sell electricity at wholesale prices to an in-state, non-ultimate customer. Prohibits the proceeds from tax-free obligations from being used to finance construction or acquisition of a power generation facility. Authorizes the board of directors of a river authority to transfer any part of their electric generation property to a nonprofit corporation. Requires the property transfer to be made pursuant to approved terms and conditions by the river authority board. Provides that Subsections (a)-(f) do not apply to a corporation created pursuant to Article 717b, V.T.C.S., to serve an area described in Section 32.052. SECTION 15. Amends Chapter 33A, Utilities Code, by adding Section 33.008, as follows: Sec. 33.008. FRANCHISE CHARGES. Authorizes a municipality to impose on certain utilities and cooperatives serving a municipal area a reasonable charge for the use of a public street, alley, or public way. Prohibits the municipality from charging certain utilities, electric providers, and marketers. Entitles the municipality to impose certain charges on the utilities and cooperatives after public choice begins or the freeze period ends, if the municipality collected a charge or fee for a franchise before the end of the freeze period. Sets forth requirements for the charge. Requires the charges to be considered a reasonable and necessary operation expense of each electric utility, transmission and distribution utility, municipally owned utility, or electric cooperative to be included in a nonbypassable delivery charge, but they are in lieu of franchise charges or fees payable under a pre-freeze period franchise agreement. Provides that this section does not affect a provision of a franchise agreement already in effect. Authorizes a municipality to conduct an audit, an inquiry, or pursue a cause of action against a utility in regards to payments less than two years past due, but not before September 1, 1999, and requires the utility to identify the service provider and other services for purposes of the audit, inquiry, or action. Authorizes an electric utility, transmission and distribution utility, municipally owned utility, or electric cooperative to agree to a different level of compensation or to a different method for determining charges within a municipality, on the expiration of a franchise agreement existing on September 1, 1999. Authorizes certain municipalities to adopt and collect compensation at a rate that is collected by any other municipality in the same county served by certain utilities. Defines "distribution service." SECTION 16. Amends Section 35.001, Utilities Code, to redefine "electric utility," to include an electric cooperative. SECTION 17. Amends Section 35.004, Utilities Code, to require a transmission and distribution utility to provide at-cost wholesale transmission service. Requires the PUC to ensure an electric utility or transmission and distribution utility provides wholesale transmission service to power generation companies, retail electric providers, and other transmission and distribution facilities. Requires the PUC to ensure the utility recovers reasonable costs in providing wholesale transmission services, when an electric utility, electric cooperative, or transmission and distribution utility provides wholesale transmission service within the Electric Reliability Council of Texas (ERCOT). Requires the PUC to price wholesale transmission services within ERCOT based on the postage stamp method of pricing. Sets forth the postage stamp method of pricing. Authorizes an electric utility subject to the freeze period imposed by Section 39.052 to treat transmission costs in excess of transmission revenues during the freeze period as an expense for purposes of determining annual costs in the annual report filed pursuant to Section 39.257. Authorizes the PUC to approve rates that may be periodically adjusted to ensure timely recovery of transmission investment, notwithstanding Section 36.201. Requires the PUC to ensure affordable and fair ancillary services necessary to transmit electric energy. Defines "ancillary services." Deems the acquisition of generation-related ancillary services by ERCOT to meet the requirements of this subsection, on the introduction of customer choice in the ERCOT power region. SECTION 18. Amends Section 35.005(b), Utilities Code, to delete text regarding a proceeding not related to approval of an integrated resource plan. SECTION 19. Amends Section 35.033, Utilities Code, to delete reference to Chapter 34 regulating an exempt wholesale generator or power marketer. SECTION 20. Amends Section 35.034, Utilities Code, by adding Subsection (c), to define "electric utility." SECTION 21. Amends Section 35.035, Utilities Code, by adding Subsection (d), to define "electric utility." SECTION 22. Amends Chapter 35, Utilities Code, by adding Subchapter D, as follows: SUBCHAPTER D. STATE AUTHORITY TO SELL OR CONVEY POWER Sec. 35.101. DEFINITIONS. Defines "commissioner" and "public retail customer." Sec. 35.102. STATE AUTHORITY TO SELL OR CONVEY POWER. Authorizes the commissioner of the general land office (land commissioner) to sell or otherwise convey power to a public retail customer regardless of the wholesale status of the customer. Requires the commissioner to use all feasible means to sell power first to state agencies, institutions of higher education, or public school districts, and to sell the remaining power to political subdivisions of the state. Sec. 35.103. ACCESS TO TRANSMISSION AND DISTRIBUTION SYSTEMS; RATES. Establishes that Sections 35.102 and 35.103 do not apply to the rates, retail service area, facilities, or public retail customers of a municipally owned electric utility or electric cooperatives that have not adopted customer choice. Entitles the state to have access to all utilities and electric cooperatives that serve public retail customers, except as provided in Section 35.104. Requires an entity described by Subsection (a) to provide any utility service at the lowest possible rate. Sec. 35.104. LIMIT IN CERTAIN AREAS. Provides that Section 35.102 and 35.103 do not apply to the rates, area, facilities, or customers of certain electric businesses. Prohibits the state from engaging in retail transactions that exceed 2.5 percent of a certain retail load, in certain areas with no customer choice. Sec. 35.105. WHOLESALE CUSTOMERS. Provides that this chapter does not preclude the commissioner from registering as a power marker. Sec. 35.106. ACCESS TO POWER GENERATION. Prohibits a gas utility or a municipally owned utility from refusing to provide gas service to an electric utility generating facility, if capacity is available. SECTION 23. Amends Section 36.008, Utilities Code, to delete text regarding an electric utility not required to file an integrated resource plan. SECTION 24. Amends Section 36.052, Utilities Code, to delete text regarding an integrated resource plan. Makes conforming changes. SECTION 25. Amends Section 36.058(d), Utilities Code, to make a conforming change. SECTION 26. Amends Section 36.201, Utilities Code, to make a conforming change. SECTION 27. Amends Section 36.204, Utilities Code, to make a conforming change. SECTION 28. Amends Section 36.207, Utilities Code, to make a conforming change. SECTION 29. Amends Section 37.001, Utilities Code, to define "electric utility" and to redefine "retail electric utility." Makes a conforming change. SECTION 30. Amends Section 37.051, Utilities Code, by adding Subsection (c), to provide that an electric cooperative is not required to obtain the certificate for construction and installation operations. SECTION 31. Amends Section 37.054(b), Utilities Code, to authorize a person or electric cooperative interested in the application to intervene at the hearing. SECTION 32. Amends Chapter 37B, Utilities Code, by adding Sections 37.060 and 37.061, as follows: Sec. 37.060. DIVISION OF MULTIPLY CERTIFICATED SERVICE AREAS. Requires Subsections (a)-(g) to apply only to areas in which each retail electric utility that is authorized to provide retail electric utility service to the area is providing customer choice. Sets forth conditions when an electric cooperative, municipally owned electric utility, and other retail electric utilities are providing customer choice. Requires the PUC to examine all other areas seeking customer choice and arrange for a single certificated distributor. Authorizes only retail electric utilities certificated on June 1, 1999, to continue to serve the area or portion of the area under an amended certificate issued pursuant Subsection (a). Prohibits application of this section to an area in which a municipally owned utility certificated to provide retail electric utility service files a request by February 1, 2000 for the area to remain as certificated. Requires the PUC to divide a certificated area within one year of the request. Requires the PUC to consider factors in Section 37.056 when amending certificates under this section. Requires the PUC to revoke enough certificates to achieve the division of retail electric service areas, as provided by this section, notwithstanding Section 37.059. Permits a retail electric utility to continue to operate its services on the date an application for division of certificated area is filed, provided that the other affected utilities accede. Prohibits a customer from switching retail electric utilities while an application for division is pending. Requires a retail electric utility to file with the PUC a consent from the certificated retail electric utility for the area, if providing service to the certificated area on June 1, 1999. Authorizes the PUC to grant an exception or amend a retail electric utility's certificate, upon proper notification, but the provision may not be construed to limit the PUC's authority to grant or amend exceptions and certificates for areas to which retail service is being provided pursuant to written consent granted after June 1, 1999. Prohibits the PUC from granting a retail electric utility certificate if the grant would cause the area to be multiply certificated, unless the PUC finds that the certificate holders are not providing service to the area where the certificate is sought and are not capable of providing adequate service. Sets forth terms and conditions when this subsection may not apply and when a multiple certification may be filed with the PUC. Authorizes the PUC to singly certificate the service territory of a municipally owned utility, provided certain terms and conditions are part of the certification, and to examine, hold hearing, and amend certificates to create only one certified electric utility. Sec. 37.061. EXISTING SERVICE AREA AGREEMENTS. Requires the PUC to allow a municipally owned utility to amend the service area boundaries of its certificate if the municipally owned utility and the area meet certain conditions. Prohibits the PUC from amending the certificate of the public utility serving the affected area based upon the granting of a certificate to the municipal utility. SECTION 33. Amends Section 37.101(a), Utilities Code, to provide that each electric cooperative holding a certificate under this title has the right to continue to provide the service or operate the facility and extend service to a certain extent. SECTION 34. Amends Section 38.001, Utilities Code, to include electric cooperatives in the general standards of safety and service. SECTION 35. Amends Section 38.004, Utilities Code, to include electric cooperatives in construction standards set forth by the National Electrical Safety Code Standard ANSI(c)(2). SECTION 36. Amends Chapter 38A, Utilities Code, by adding Section 38.005, as follows: Sec. 38.005. ELECTRIC SERVICE RELIABILITY MEASURES. Requires the PUC to implement quality and reliability standards for delivery of electricity to retail customers by electric utilities and transmission and distribution utilities. Requires the PUC to develop, by rule, certain reliability standards. Requires the PUC to take appropriate enforcement action if a utility appears to be a poorly performing feeder, according to certain evaluation criteria. Requires standards to require each electric utility and transmission and distribution utility to maintain trained personnel. Requires the standards to ensure electric utilities cannot neglect any local neighborhood or geographic area, such as small, rural, or low-income communities, with regard to system reliability. Authorizes the PUC to require data from the electric utilities to assist the regulatory agency in developing reliability standards. Requires each electric utility, transmission and distribution utility, and generation provider to be obligated to comply with any operational criteria duly established by the independent system operator or adopted by the PUC. SECTION 37. Amends Section 38.022, Utilities Code, to make conforming changes. SECTION 38. Amends Section 38.071, Utilities Code, to make conforming changes. SECTION 39. Amends Title 2B, Utilities Code, by adding Chapters 39, 40, and 41, as follows: CHAPTER 39. RESTRUCTURING OF ELECTRIC UTILITY INDUSTRY SUBCHAPTER A. GENERAL PROVISIONS Sec. 39.001. LEGISLATIVE POLICY AND PURPOSE. Sets forth the intents and purpose of the legislature regarding the desire to not have a monopoly of electricity production and sale. Provides that this chapter is enacted to protect the public interest during the transition to a fully competitive electric power industry. Sets forth the findings of the legislature regarding the implementation of a competitive retail electric market, encouragement of competition, recovery of above-market costs to a utility, and education of utility customers. Prohibits those regulating authorities, excluding the governing body of a municipally owned electric utility not participating in customer choice, from issuing any order or rule regarding competition of electricity service, and they shall issue orders promoting electricity competition rather than regulation. Requires judicial review to be conducted under Chapter 2001, Government Code, except as otherwise provided by this chapter, to be commenced in the Court of Appeals for the Third Court of Appeals District, and to be limited to certain rulemaking records of the PUC. Sets forth necessary procedures for a person who challenges the validity of a competition rule and for the PUC to respond and appeal such a challenge. Provides that the Texas Rules of Appellate Procedure apply to an appeal brought under this section. Sec. 39.002. APPLICABILITY. Provides that this chapter, other than Sections 39.155, 39.157(d), 39.203, 39.903, and 39.904, does not apply to a municipally owned utility or an electric cooperative. Provides that this chapter controls when a conflict arises between a provision of this chapter and other provisions of this title, except for Chapters 40 and 41. Sec. 39.003. CONTESTED CASES. Requires each PUC proceeding, report, and notification to be conducted as a contested case and the burden of proof is on the incumbent electric utility. SUBCHAPTER B. TRANSITION TO COMPETITIVE RETAIL ELECTRIC MARKET Sec. 39.051. UNBUNDLING. Requires an electric utility to separate from its regulated utility activities its customer energy services business activities that are otherwise already widely available in the competitive market, by September 1, 2000. Requires an electric utility to separate its interbusiness activity by January 1, 2000, into units called a power generation company, retail electric provider, and transmission and distribution utility. Authorizes an electric utility to conduct the preceding activities by either a separate nonaffiliated company, separate affiliated company owned by a common holding company, or sale of assets to a third party. Requires an electric utility to provide for separation of personnel, information flow, functions, and operations. Requires each electric utility to file a plan for implementation by January 1, 2000, and requires the PUC to take certain action on the utility's plan. Provides that certain transactions by electric utilities to accomplish the purposes of this section are not subject to Sections 14.101, 35.034, or 35.035. Sec. 39.052. FREEZE ON EXISTING RETAIL BASE RATE TARIFFS. Requires an electric utility to provide retail electric service to its certificated service area in accordance with the electric utility's retail base rate tariffs and purchased power cost recovery factor in effect on September 1, 1999. Prohibits an electric utility from increasing or decreasing its retail base rates during the freeze period, except for force majeure, Section 39.055 losses, and other specific provisions within this title. Provides that during the freeze period, overall revenues, return on invested capital, and net income of an electric utility are not subject to complaint, hearing, or reasonable determination. Requires an electric company that had a rate proceeding pending before the PUC as of January 2, 1999, to comply with the tariffs set by the PUC until the freeze period ends. Provides that this section does not hinder the PUC's authority to fulfill its Section 39.262 obligations. Provides that nothing in this section shall deny a utility to a proceeding by the PUC regarding certain matters referred by court, as long as the free period rates for customers are not affected. Prohibits anything in this title from being construed to prevent an electric utility or a transmission and distribution utility from filing a change in wholesale transmission service rates during the freeze period. Sec. 39.053. COST RECOVERY ADJUSTMENTS. Provides that this chapter does not hinder an electric utility's ability to revise its fuel factor, reconcile fuel expenses, and refund to customers for fuel overcollections and undercollections, during the freeze period, as authorized by its tariffs and Sections 36.203 and 36.205. Sec. 39.054. RETAIL ELECTRIC SERVICE DURING THE FREEZE PERIOD. Requires an electric utility to provide service to its retail customers throughout the freeze period in accordance with the terms of its regulatory contract in effect on December 21, 1998. Provides that nothing in Sections 39.052(c) and (d) shall be construed to restrict any customer's right to complain during the freeze period regarding the quality of retail electric service. Provides that nothing in this title shall be construed to restrict an electric utility from offering new services or tariffs options to customers during the freeze period. Requires new service or tariffs under this section to be equal to or greater than the long-run marginal cost of the electric utility, while not being unreasonably preferential, prejudicial, discriminatory, predatory, or anticompetitive. Requires the new offering revenues to be accounted for in a manner consistent with Section 36.007. Sec. 39.055. FORCE MAJEURE. Authorizes an electric utility to claim force majeure and thereby raise its base rates during the freeze period, subject to a required PUC hearing, but notwithstanding Chapter 36C. Defines "force majeure." SUBCHAPTER C. RETAIL COMPETITION Sec. 39.101. CUSTOMER SAFEGUARDS. Requires the PUC to ensure that retail customer protections are established prior to the onset of customer choice, that entitle a customer to certain information or protections. Provides that the PUC has the authority to adopt and enforce rules to carry out Subsections (a) and (b). Provides that PUC has jurisdiction over all providers of electric service in enforcing Subsections (a) and (b) and may assess civil and administrative penalties. Requires the PUC to establish by a certain date customer protections, customer entitlements, and rules regarding customer choice, and that those rules ensure the same level of protection for customers in a restructured electric industry as the level on December 31, 1999. Prohibits providers of retail electric service from discriminating to provide service on the basis of physical, financial, and geographic characteristics. Requires the PUC to require such compliance as a condition for certification. Requires the providers to submit reports detailing compliance, and the PUC to adopt rules to enforce the compliance, including rules for hearings, penalties, and service, except for municipally owned utilities in which case the governing body of those utilities shall make the rules and receive the reports. Provides that the PUC has certain jurisdiction pertaining to the enforcement. Requires the PUC to modify its rules to provide customer protection at the same level that exists on December 31, 1999. Prohibits disconnection of retail electric service during an extreme weather emergency or on a weekend day. Requires an entity to defer collection to the end of the emergency and to establish with customers a pay schedule of those bills. Defines "extreme weather emergency." Sec. 39.102. RETAIL CUSTOMER CHOICE. Requires all customers in the state, with certain exemptions, to have a choice on or after January 1, 2002. Authorizes an affiliated retail electric provider serving a customer on December 31, 2001, to continue serving until that customer chooses a different retail electric provider, cooperative, or municipal utility offering customer choice. Provides that a regulatory authority is not subject to this chapter, if it is a utility is in the public interest and had a systemwide freeze for residential and commercial customers extending beyond December 31, 2001. Requires the utility to be subject to the provisions of this chapter at the expiration of the freeze period. Sec. 39.1025. LIMITATIONS ON TELEPHONE SOLICITATION. Prohibits a person from making or causing to be made a telephone solicitation to an electricity customer who has given notice to the PUC of the customer's objection to receiving telephone solicitations regarding customer choice. Requires the PUC to establish and provide a database to compile a list of those customers, through contract or through the PUC. Requires the customer to pay a fee of not more than $5 that is set by the PUC to be listed on the database. Sec. 39.103. COMMISSION AUTHORITY TO DELAY COMPETITION AND SET NEW RATES. Requires the PUC to delay competition of electric utility competition if the PUC determines under Section 39.104 that either a power region is unable to offer fair competition and reliable service to all its retail customer classes on January 1, 2002, or the power region fails to meet the requirements in Section 39.152. Authorizes the PUC to establish new rates, as provided by Chapter 36, for the electric utilities in the power region. Sec. 39.104. CUSTOMER CHOICE PILOT PROJECTS. Authorizes the use of customer choice pilot projects by the PUC to evaluate the ability of each power region and electric utility to implement customer choice, except that the utility may not include customers that were served by an electric cooperative or municipally owned utility on May1, 1999, in multiple certificated areas. Requires the PUC to require an electric utility to offer customer choice by a certain date to five percent of the combined customer classes. Requires customer classes to receive the load equally, and approved by the PUC. Authorizes customers participating in a pilot under this section to buy electric energy from any certified retail electric provider, except for certain providers in a pilot project. Requires a pilot project utility to charge residential and small commercial customers in accordance with Section 39.052. Authorizes the PUC to prescribe reporting requirements to evaluate the pilot projects. Requires customer choice billing at the rate provided by Section 39.107. Authorizes the PUC to prescribe terms and conditions against anticompetitive practice and for the encouragement of customer choice. Provides that a provider participating in a pilot project is not an electric utility. Requires 20 percent of the load designated for customer choice to be initially set aside for aggregated loads. Sec. 39.105. LIMITATION ON SALE OF ELECTRICITY. Prohibits a transmission and distribution utility from selling electricity or participating in the market for electricity after the onset of customer choice. Provides that this subsection does not prohibit the provision of electric service in multiply certificated service areas to customers of any other retail electric utility. Sec. 39.106. PROVIDER OF LAST RESORT. Requires the PUC to designate for each customer choice area a provider of last resort who must provide each customer class a fixed-rate standard retail service package. Requires a provider of last resort to offer a standard retail package to whomever requests last resort service. Requires the PUC to determine the provider of last resort no later than June 1, 2001. Authorizes the PUC to employ a bid process to determine a provider of last resort, to redesignate a provider of last resort within an appropriate schedule, and to set conditions for a provider of last resort, even when no retail electric provider applies. Authorizes the provider of last resort to serve without interruption in the event the retail electric provider fails to serve any or all of its customers. Sec. 39.107. METERING AND BILLING SERVICES. Requires the transmission and distribution utility to provide metering services to industrial customers for customer choice areas on a competitive basis beginning January 1, 2004. Requires competitive metering services for residential customers to be provided beginning September 1, 2005 or the date on which at least 40 percent of residents take service from unaffiliated retail electric providers. Requires customer safeguards under Section 39.101. Sets forth requirements for metering services that require tenants of a leased or rented property to have the right to choose their retail electric provider, an electric cooperative offering customer choice, or a municipally owned utility offering customer choice and the owner to grant access to transmission and distribution utilities or retail electric providers for metering purposes. Requires the utilities to bill a customer's retail electric provider for certain nonbypassable delivery charges. Requires the retail electric providers to pay these charges. Authorizes a transmission and distribution utility to bill retail customers at the request of a retail utilities and requires the distribution utility to offer comparable terms and conditions to any retail electric provider requesting such billing service. Requires the metering and billing service charges to comply with the nondiscriminatory rates of service rules adopted by the PUC. Prohibits a metered electric service sold to residential customers on a prepaid basis from being sold at a price that is higher than the price charged by the provider of last resort. Sec. 39.108. CONTRACTUAL OBLIGATIONS. Prohibits this chapter from interfering with the rights of contracted parties concerning utility service or from resulting in a change in wholesale power costs to certain wholesale customers. Sec. 39.109. NEW OWNER OR SUCCESSOR. Requires the PUC to require a generating facility that changed ownership between June 1, 1999, and January 1, 2002, to provide certain levels of operation as its predecessor owners, for not less than two years. Sets forth conditions that do not allow this section to be applied. SUBCHAPTER D. MARKET STRUCTURE Sec. 39.151. ESSENTIAL ORGANIZATIONS. Requires each power region to establish one or more independent organizations to ensure nondiscriminatory access to the market, network reliability, timely conveyance of a customer's choice, and accountable electricity processing. Defines "independent organization." Requires the PUC to certify independent organizations, and the independent organizations to establish and enforce reliability and accountability procedures. Authorizes an independent organization, with PUC approval, to charge a reasonable rate to wholesale buyers and sellers in order to cover its own costs. Authorizes the PUC, in implementing this section, to hold a joint hearing or make a joint investigation with another state or the federal government. Provides that an existing independent operator in ERCOT that amends its rules to permit a certain representation on its board will meet the same access standards required of other buyers and sellers of electricity. Sets forth the composition of the governing body. Authorizes the ERCOT operator to meet the criteria by adopting procedures and adopting resources. Authorizes the PUC to delegate authority to the existing independent system operator in ERCOT to enforce operating standards within ERCOT and to establish and oversee transaction settlement procedures. Authorizes the PUC to establish the terms and conditions for the ERCOT operator's authority to oversee utility dispatch functions after the introduction of customer choice. Requires the retail electric provider, transmission and distribution utility, municipally owned utility, electric cooperative, power marketer, and power generation companies to observe all authorized protocols and rules established by the independent system operator in ERCOT, at the risk of certificate or administrative penalty for noncompliance. Authorizes the PUC to delegate authority to the independent organization outside of ERCOT. Prohibits any requirement established by an independent organization, including ERCOT, from adversely affecting or impeding any manufacturing or other operation associated with an industrial generation facility, except for minor exceptions. Requires the power region to be considered to have met the criteria if the Federal Energy Regulatory Commission has approved a regional transmission organization for the region and found that the organization meets the requirements of Subsection (e). Sec. 39.152. QUALIFYING POWER REGIONS. Requires the PUC to certify a power region under certain circumstances. Requires the PUC to consider the limited extent of electricity delivery from out of state in considering whether a partially out-of-state power region meets the requirements of this section. Sets forth circumstances that a power region outside of ERCOT and a power generation company in that region shall be deemed to have met the requirements, and prohibits a retail provider in the region from competing in customer choice if the provider does not maintain rates based on certain costs of service. Provides that this subsection requires a power generation company to sell power at rates that are based on cost of service, notwithstanding the expiration of a contract for that service, until the requirements are met. Sec. 39.153. CAPACITY AUCTION. Requires each electric utility to auction within a certain timeframe 15 percent of the electric utility's generation capacity. Defines "electric utility." Requires the auction obligation to continue until either a certain amount of time has elapsed or a certain amount of customers have acquired power from another electric utility. Prohibits an affiliate of the electric utility from purchasing entitlements from the auction. Authorizes an electric utility to choose auctioning additional entitlements in order to comply with Section 39.154. Requires the PUC to define, by rule, by December 31, 2000, the scope of entitlements auctioned. Authorizes less than 15 percent entitlement to be auctioned. Sets forth requirements for the rules set by the PUC. Requires the PUC to adopt, by rule, procedures meeting certain criteria for the auction. Requires the PUC to consider certain factors in adopting the process under Subsection (f)(2), and to consult with the applicable organization to develop the process. Sec. 39.154. LIMITATION OF OWNERSHIP OF INSTALLED CAPACITY. Prohibits a power generation company from owning more than 20 percent of the installed generation capacity used to deliver electricity in its area. Authorizes the PUC to waive installed generation capacity requirements for a power region that does not entirely reside within the state. Requires the PUC to combine the capacity owned and controlled by a power generation company and its owned entities to determine the percentage shares of installed generation capacity. Defines "installed generation capacity." Requires the PUC to use a certain formula to determine the calculation of a "grandfather facility." Provides that this subsection applies only to a power generation company that is affiliated with an electric utility that owned and controlled more than 27 percent of the installed generation capacity in the power region on January 1, 1999. Sec. 39.155. COMMISSION ASSESSMENT OF MARKET POWER. Requires each entity that owns generation facilities to report to the PUC for the purpose of determinating market power in Texas. Requires the PUC to prescribe, by rule, the nature and detail of such reporting requirements. Requires the ERCOT independent system operator to make identifications and recommendations on the constraints and needs of a competitive system within ERCOT, in an annual report beginning on October 1, 1999, and subsequently by the 15th of January. Requires an electric utility owning transmission and distribution facilities to make identifications and recommendations on the constraints and needs of a competitive transmission and distribution system in the power region, in a report submitted by the independent organization having authority over the power region prior to and after the introduction of customer choice. Sec. 39.156. MARKET POWER MITIGATION PLAN. Defines "market power mitigation plan" or "plan." Requires a power generation company with more than 20 percent of the generation capacity for a delivery area to submit a plan to the PUC by December 31, 2000, providing only certain factors regarding sale, auction, and mitigation factors. Requires the PUC to evaluate a plan using certain criteria, not to include divestiture, within 180 days of its filing. Provides that an electric utility or power generation company may amend or repeal its approved plan, and the PUC must take action on the change. Authorizes the PUC to order the auction of generation capacity entitlement held by a certain date of an electric utility or a power generation company whose market power plan was not approved. Sec. 39.157. COMMISSION AUTHORITY TO ADDRESS MARKET POWER. Requires the PUC to monitor the market power in the state. Requires the PUC to order after a hearing and other procedures any one of various remedies to reduce market power. Defines "market power abuses." Provides that high market share in itself is not an abuse of market power. Prohibits the ownership of certain transmission or distribution facilities in this state by a person who owns a generation facility, at the onset of customer choice. Requires the PUC to monitor market share of installed capacity to ensure limitations are not exceeded. Requires the PUC to order a person to file a mitigation plan if the person was found at the conclusion of a hearing of having violated certain limitations. Requires the PUC to establish predatory pricing safeguards to avoid anticompetitive activity. Provides that there is a specific exception to the prohibition and that nothing in this chapter prohibits a power generation company affiliated with a transmission and distribution facility from owning generation facilities. Requires the PUC to govern certain transactions, by rule, in order to avoid potential market power abuses and crosssubsidization practices. Sets forth substantive protection the rules should address. Requires the PUC to adopt, by rule, a code of conduct for market participants, which is to be consistent with Chapter 40 and 41 and may not be more restrictive than the rules adopted under Subsection (g). Requires the PUC to determine whether specific transmission or distribution constraints or bottlenecks within this state give rise to market power in specific geographic markets in the state. Authorizes the PUC to order reasonable mitigation of market power constraints or bottlenecks. Prohibits the sharing of corporate support service from allowing the transfer of confidential information from a utility to an affiliate, create the opportunity for preferential treatment or an unfair competitive advantage, lead to customer confusion, or create significant opportunities for cross-subsidization of affiliates. Prohibits the utility or affiliate from circumventing the provisions or the intent of Subsection (d) by using any utility affiliate to provide information, services, or subsidies between the utility and a competitive affiliate. Defines "competitive affiliate" and "corporate support services." Sec. 39.158. MERGERS AND CONSOLIDATIONS. Requires PUC approval of all consolidations, mergers, affiliations, and acquisitions between utility market participants, including electric generation facilities and retail electric providers, before the closing if the sale in the power region will exceed one percent of the total electricity for sale in the region. Provides that this section does not provide immunity from state or federal antitrust laws, but does complement and sanction such laws in the spirit of this section. Provides that this section does not authorize the PUC to review or approve transactions entered into between municipally owned utilities, river authorities, special districts, or other political subdivisions, when the transaction is authorized pursuant to law. Requires an electric utility to continue to be bound by the terms of a stipulation or agreement of a merger in effect before the January 1, 1996. Requires the PUC to ensure that the pass-through of all merger savings required under any such stipulation or agreement to be fully implemented during the freeze period and to be reflected in setting the price to beat for that utility. SUBCHAPTER E. PRICE REGULATION AFTER COMPETITION Sec. 39.201. COST OF SERVICE TARIFFS AND CHARGES. Requires each electric utility to file by April 1, 2000, a proposal of tariffs supported by data for nonbypassable delivery charges, and identify the unbundled generation and retail energy service costs by customer class. Requires the PUC to hold a hearing and approve a transmission and distribution utility's proposed tariffs, fees, and transition charges, to be made effective as of January 1, 2002. Requires the system benefit fund to the one established by the PUC under Section 39.903. Requires the transition charges to be calculated from the amount of stranded costs that are reasonably projected to exist on the last day of the freeze period modified to reflect any adjustments. Requires the utility to use the ECOM administrative model in Section 39.262 to determined stranded costs. Sets forth variables the model must include and consideration the utility may undertake in determining stranded costs. Requires any transition charge to be allocated among retail classes according to Section 39.253. Authorizes the PUC to determine in accordance with certain criteria the length of time over which costs may be recovered. Requires the review of stranded costs by the PUC two years into the customer choice era, and permits certain charge and time adjustments, up or down, of those costs. Authorizes the PUC to adjust the filing and implementation dates for customer choice, given certain considerations. Sec. 39.202. PRICE TO BEAT. Requires an affiliated retail electric provider to make available to residential and small commercial customers of its affiliated transmission and distribution utility rates, on a bundled basis, six percent less than its affiliated electric utility's corresponding average residential and small commercial rates that were in effect on January 1, 1999, and adjusted according to certain factors, from January 1, 2002, until January 1, 2007. Provides that this rate process is called the "price to beat," except that the "price to beat" for a utility is the rate in effect as a result of a settlement approved by the PUC after January 1, 1999, if the PUC determines that base rates for that utility have been reduced by more than 12 percent as a result of a final order issued by the PUC after October 1, 1998. Requires the PUC to determine the fuel factor for an area's electric utilities as of December 31, 2001. Requires all power generation companies affected by customer choice to file a final fuel reconciliation for the period just before customer choice, filed after customer choice is introduced. Provides that this final fuel balance will be included in the Section 39.262 true-up proceedings. Prohibits an affiliated retail electric provider from charging a rate other than the price to beat, until a certain time period has passed or certain percentage of an area's consumption is provided by more than one electric utility. Authorizes the affiliated retail electric provider to charge rates different from the price to beat for service to aggregated loads of certain nonresidential customers. Prohibits the provider from encouraging or providing an incentive to a customer to switch to a nonaffiliated retail electric provider, promote any nonaffiliated retail provider, or exchange customers with any provider to comply with these requirements. Sets forth standards that shall be used for measuring power consumption during the onset of customer choice, and consumption consideration for providing power within 12 months of customer choice. Requires the utility to file with the PUC testament to meeting the requirements. Requires the PUC to adopt procedures to accept or reject the filing within 30 days. Authorizes the PUC to adjust the price to beat, following the true-up proceedings conducted under Section 39.262. Authorizes a provider to request the PUC to adjust the fuel factor not more than twice per year, under certain conditions. Requires a provider outside of ERCOT to charge rates to nonresidential and non-small commercial customer rates which are no higher than the rates in effect on January 1, 1999, with certain fuel factors and base rate adjustments, if customer choice is introduced, but the provides must continue to offer the price to beat until 60 months after the date of introducing customer choice. Defines "small commercial customer." Requires the PUC to set the retail electric provider's price to beat that will allow the provider to maintain its financial integrity, however the price may not exceed the level of rates charged by the utility on September 1, 1999, with certain adjustments. Sec. 39.203. TRANSMISSION AND DISTRIBUTION SERVICE. Requires all transmission and distribution facilities to provide transmission service at wholesale under Chapter 35A. Requires a transmission and distribution utility, municipal utility offering customer choice, and an electric cooperative offering customer choice to provide transmission or distribution service at retail to an electric utility, a retail electric provider, a municipally owned utility, an electric cooperative, or an end-user customer at rates, terms of access, and conditions that are comparable to those that apply to the transmission and distribution utility and its facilities. Requires a municipal utility or cooperative that does not opt for customer to provide utility service at wholesale. Prohibits a customer of a municipally owned utility that has not opted for customer choice or of an electric cooperate that has not opted for customer choice from claiming the wholesale customer status or from being designated as a wholesale customer if the customer is being or has been served under a retail rate schedule of the municipally owned utility or electric cooperative. Requires the PUC to establish for all retail electric utilities offering customer choice, except municipal utilities and cooperative, reasonable and comparable terms and conditions and comparable rates for open access. Establishes the rules of comparable terms and service to include the utility's ancillary services. Authorizes the creation of more electric utility facilities to provide adequate service to the state's electric markets. Provides that in a proceeding brought under Chapter 37 regarding an order to enlarge facilities, an electric utility or transmission and distribution utility need not prove certain construction was necessary for the service, accommodation, convenience, or safety of the public and address certain other factors. Requires the PUC rules to be consistent. Guarantees open and nondiscriminatory access throughout the qualifying power regions through a PUC-approved tariff. Requires Subsection(g) to not be deemed to vest in the PUC power to set or approve distribution access rates of a municipal utility or an electric cooperative that has adopted customer choice. Authorizes a customer in a multiply certificated area to switch is retail distribution service provider among certificated retail utilities only disconnecting from the facilities of one retail electric utility and connecting to the facilities of another retail electric utility. Sec. 39.204. TARIFFS FOR OPEN ACCESS. Requires each transmission and distribution utility to file within a certain time frame a rule-compliant open access tariff with federal regulatory authorities. Sec. 39.205. REGULATION OF COSTS FOLLOWING FREEZE PERIOD. Provides that costs remaining from nuclear decommissioning after the freeze period are subject to cost of service regulation and are required to be included within the nonbypassable charge to retail customers. SUBCHAPTER F. RECOVERY OF STRANDED COSTS THROUGH COMPETITION TRANSITION CHARGE Sec. 39.251. DEFINITIONS. Defines "above market purchased power costs," " existing purchased power contract," "generation assets," "market value," "purchased power market value," "retail stranded costs," and " stranded cost." Sec. 39.252. RIGHT TO RECOVER STRANDED COSTS. Allows an electric utility to recover stranded costs within a certain time frame. Sets forth from whom and how stranded costs may be recovered. Prohibits a retail customer from avoiding stranded cost recovery charges but sets forth procedures for avoiding costs under certain circumstances. by switching to another electric utility after May 1, 1999. Provides that certain customers are not responsible for stranded costs. Requires a utility to pursue commercially reasonable means to reduce its potential stranded costs. Requires the PUC to consider the utility's efforts in determining stranded costs, but the commission may not substitute its judgment for a market valuation of generation assets determined under Sections 39.262(h) and (i). Sec. 39.253. ALLOCATION OF STRANDED COSTS. Sets forth the allocation of stranded costs according to customer classes, including retail customer classes, residential class, and other remaining customer classes. Requires the energy consumption of the customer classes used in Subsections (a) (2) and (c) to be based on the relevant class characteristics as of May 1, 1999, adjusted for normal weather conditions. Provides that stranded costs include regulatory assets. Prohibits a customer or customer class from avoiding the obligation to pay the amount of stranded costs allocated to that customer class, except as provided by Section 39.262(k). Sec. 39.254. USE OF REVENUES FOR UTILITIES WITH STRANDED COSTS. Provides that this chapter contains a number of tools for use by an electric utility to mitigate stranded costs. Requires an electric utility cited with ECOM in the Senate Interim Committee on Electric Utility Restructuring report, to use these prescribed methods to reduce the net book value of its generation assets. Sec. 39.255. USE OF REVENUES FOR UTILITIES WITH NO STRANDED COSTS. Requires an electric utility that does not have stranded costs to be permitted to use within a certain period of time any positive difference under a certain report on certain capital expenditures, and the costs must be reflected in future proceedings to set rates. Requires stranded costs not used for capital expenditures to flow back to the utility customers via the power cost recovery factor. Provides that this section applies only to the use of positive differences under a certain report. Sec. 39.256. OPTION TO REDIRECT DEPRECIATION. Authorizes an electric utility to redirect any part of its depreciation expenses relating to transmission and distribution assets to its net generation plant assets, for the calendar years of 1998, 1999, 2000, and 2001, and to report the action to the PUC or other applicable authority. Requires the PUC to accept and apply these book value adjustments for the purpose of establishing net invested capital and transmission and distribution rates for retail customers after the freeze period. Prohibits the design of post-freeze-period retail rates from certain cost adjustments, provided that certain exceptions do not apply. Sec. 39.257. ANNUAL REPORT. Requires each electric utility to file a report with the PUC at the end of each year that identifies a positive difference between the annual revenues, Section 36.205 and 36.205 reductions, and annual costs. Sec. 39.258. ANNUAL REPORT: DETERMINATION OF ANNUAL COSTS. Sets forth certain amounts required for determining annual costs in each annual report. Sec. 39.259. ANNUAL REPORT: DETERMINATION OF INVESTED CAPITAL. Requires each annual report for the net plant in service, regulatory assets, and deferred federal income taxes to be updated yearly of certain services, assets, income taxes, and generationrelated invested capital. Requires related invested capital to be reduced by the amount of provided securitization. Sets forth provisions for capital additions to a plant and a requirement regarding invested capital. Sec. 39.260. USE OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Provides that the definitions and identification of invested capital in this subchapter and Subchapter G conform to generally accepted accounting principles (GAAP), including application of Statement of Financial Accounting Standards No. 71 on January 1, 1999. Sec. 39.261. REVIEW OF ANNUAL REPORT. Provides that the annual report filed under this subchapter is a public document and shall be reviewed by PUC staff (staff) and the office of public utility counsel (office). Authorizes the staff and office to review work papers and supporting documents and discuss the report's underlying data with the utility. Requires the staff and office to send within a certain date written notification regarding data disagreements to an electric utility. Requires the PUC to resolve any data disagreements within a certain date, consistent with the requirements of Section 39.258. Sec. 39.262. TRUE-UP PROCEEDING. Prohibits an electric utility from overrecovering stranded costs in conjunction with both the utility's affiliated retail electric provider and affiliated transmission and distribution utility. Requires an electric utility providing service to an area not subject to competition after the freeze period to continue to file its annual reports pursuant to Sections 39.257-39.259 as if the freeze period were still in effect, until the area qualifies for Section 39.152 competition. Requires the PUC and the office to continue to review the annual reports. Requires a transmission and distribution utility along with its retail electric provider and affiliated power generation company to file a joint finalization and reconciliation of stranded costs. Requires the application of resulting costs to the nonbypassable delivery rates of the transmission and distribution facility, except the utility may choose to securitize the remaining stranded costs. Requires an affiliated power company to reconcile certain net sums. Requires the affiliated retail electric provider to reconcile and credit to the affiliated transmission and distribution utility any positive difference between a certain price to beat and a certain prevailing market price. Prohibits the amount credited from exceeding 50 percent of the net income of the affiliated retail electric provider. Requires the transmission and distribution facility to adjust within certain constraints the nonbypassable delivery rates it charges to retail electric providers. Prohibits an amount credited from exceeding an amount equal to the number of residential or small commercial customers served by the utility that are buying electricity from the retail provider, within certain constraints. Requires the PUC to conduct a review of certain assets to determine whether such amount were appropriately calculated, and to take certain action if the amounts were not. Authorizes the PUC to extend or recede the original collection period based on the sufficiency of the nonbypassable delivery rates. Requires the affiliated power generation company to quantify its stranded costs using the methods of sale of assets, stock valuation, and partial stock valuation. Requires an electric utility or power generation company to quantify its stranded costs for nuclear assets using the ECOM if the utility or company did not employ a Subsection (h)(2) or (g)(3) method. Provides for the description and proper utilization of the ECOM method. Sets forth final orders for certain utility facilities by the PUC, subject to Chapter 2001, Government Code judicial review. Authorizes charging stranded costs to a customer if the utility provided service to a legal customer, incurred the cost within a certain time frame, actually provided the customer service through its transmission and distribution facility, and updated all relevant Texas Natural Resource Conservation Commission (TNRCC) environmental permits. Sec. 39.263. STRANDED COST RECOVERY OF ENVIRONMENTAL CLEANUP COSTS. Provides invested capital eligibility for capital costs incurred by an electric utility that improves air quality before January 1, 2002, subject to certain provisions. Provides that capital costs incurred by an electric utility that improves air quality within a certain time frame are eligible for Section 39.262 determination of invested capital in the true-up proceeding eligibility, subject to certain provisions. Requires reasonable costs incurred under Subsections (a) and (b) to be included as invested capital and considered in an electric utility's stranded cost determination, only to a certain extent. Requires the net book value to be included in the electric utility's stranded cost, if the retirement of a generating facility is the most cost-effective alternative, notwithstanding Section 39.259(c). Sec. 39.264. EMISSIONS REDUCTIONS OF "GRANDFATHERED FACILITIES." Defines "conservation commission" and "electric generating facility." Provides that this section applies only to an electric generating facility existing on January 1, 1999, that is not subject to the requirement to obtain a permit under Section 382.0518(g), Health and Safety Code. Sets forth the intent and purpose of the legislature for this section. Authorizes a municipal corporation, electric cooperative, or river authority to exclude certain electric generating facilities from the requirements prescribed by this section, but they must inform the PUC. Requires the owner or operator of an electric generating facility to apply to the TNRCC for a permit for the emission of air contaminants on or before September 1, 2000, which requires the facility to achieve certain emission reductions. Provides that this section applies to coal using facilities and all facilities must not operate without such a permit. Requires TNRCC to develop rules for permitting the facilities regarding emissions and emissions per certain regions of the state. Sets forth the standards of emissions allowances the PUC must provide for each the regions. Authorizes a facility to elect to receive allowances as per rules of the TNRCC and requires the facilities to follow the rules dependant on their region. Sets forth rules the TNRCC must adopt in regards to the emissions and regulations of the allowances. Sets forth prohibitions by the facilities from using the allowances in certain manner. Sets forth penalization requirements by the PUC against a facility that abuses the allowances rules and guidelines. Requires the facilities to publish an intent to seek a permit for allowances and requires TNRCC to hold hearing regarding the allowances. Provides that this section does not limit the TNRCC's authority to require further reductions of nitrogen oxides, sulphur dioxides, or any other pollutants. Sec. 39.265. RIGHTS NOT AFFECTED. Provides that this chapter is not intended to alter any rights of a utility to recover stranded costs from wholesale customers and set forth other purposes of the legislature. SUBCHAPTER G. SECURITIZATION Sec. 39.301. PURPOSE. Provides that the primary purpose of this chapter is to enable an electric utility to engage in cost-effective financing for the recovery of stranded costs over conventional utility financing methods. Sec. 39.302. DEFINITIONS. Defines "assignee," "financing order," "financing party," "qualified costs," "regulatory assets," "transition bonds," "transition charges," and "transition property." Sec. 39.303. FINANCING ORDERS; TERMS. Requires the PUC to adopt a financing order upon finding that the total amount of revenues to be collected pursuant to the financing order is less than the revenue requirement that would be recovered over the remaining life of the stranded costs. Requires the financing order to detail the amount of stranded costs over a certain period. Requires transition charges to be collected and allocated among customers in a certain manner. Requires a financing order to become effective in accordance with its terms and to become irrevocable thereafter. Requires the PUC to issue the financing order within a certain time period. Prohibits a financing order from being subject to rehearing by the PUC. Authorizes a financing order to be reviewed upon appeal, in which case venue will be in Travis County. Sets forth conditions and terms of a review and appeal of a court decision regarding a financing order. Authorizes the PUC to adopt a financing order under certain conditions, at the request of an electric utility. Requires the PUC to adjust the related transition charges of a retired and refunded transition bond. Sec. 39.304. PROPERTY RIGHTS. Requires the rights and interests of an electric utility to be only contract rights, except for transfer into transition bonds. Requires transition property to constitute a present property right for contract purposes, even though the imposition and collection of transition charges depends on not-yet-occurred acts, in any case the financing order remains in effect. Requires all revenues and collections resulting from transition charges to constitute proceeds only of the transition property arising from the financing order. Sec. 39.305. NO SETOFF. Prohibits certain interests in transition property from being subject to setoff or other bankruptcy procedures. Sec. 39.306. NO BYPASS. Requires a financing order to include terms ensuring that the imposition and collection of transition charges authorized in the order shall be nonbypassable. Sec. 39.307. TRUE-UP. Sets forth required inclusions in a financing order regarding true-up provisions. Sec. 39.308. TRUE SALE. Establishes that certain agreements by an electric utility are true sales and are not secure transactions. Requires this true sale to apply regardless of possible buyer-seller recourse. Sec. 39.309. SECURITY INTERESTS; ASSIGNMENT; COMMINGLING; DEFAULT. Prohibits transition property from constituting an account or general intangible under Section 9.106, Business & Commerce Code. Provides that administrative duties regarding liens are governed by this chapter and not the Business & Commerce Code. Requires a valid and enforceable lien and security interest in transition property to be created only by a financing order and the execution and delivery of a certain security agreement. Sets forth conditions for the valuation of a lien and security interest. Sets forth terms and conditions for the transfer and perfection of an interest in transition property. Requires the secretary of state to implement this section by establishing and maintaining a system of records. Provides that the priority of a perfected lien and security interest may not be impaired, and any other security interest that may apply to those funds shall be terminated upon certain transfers. Requires proceeds to be held in trust in a transfer of transition property to an assignee. Authorizes foreclosure of transition bonds under certain conditions. Requires a Travis County district court to order the sequestration and payment of the bonds, upon application. Sec. 39.310. PLEDGE OF STATE. Provides that transition bonds are not a debt or obligation of the state. Provides that the state does pledge to protect the financing parties and the electric utilities, and that a financing party may include this pledge in future documentation. Sec. 39.311. TAX EXEMPTION. Exempts transactions and ownership involving transition property from local and state taxation. Sec. 39.312. NO PUBLIC UTILITY. Prohibits an assignee or financing authority from being considered as a public utility or person providing electric service solely by virtue of the transactions described in this subchapter. Sec. 39.313. SEVERABILITY. Establishes that certain legal and financial occurrences regarding transition bonds issued under this chapter do not affect the validity or continuation of this subchapter and certain sections that are relevant to the transition bonds. SUBCHAPTER H. CERTIFICATION AND REGISTRATION; PENALTIES Sec. 39.351. CERTIFICATION OF POWER GENERATION COMPANIES. Prohibits a person from generating electricity for sale, unless the person is registered. Authorizes a person to register as a power generation company by filing certain information for certification. Requires a power generation company to comply with the independent organization's reliability standards, and may register anytime after September 1, 2000. Sec. 39.352. CERTIFICATION OF RETAIL ELECTRIC PROVIDERS. Prohibits a person without PUC certification from providing retail electric service in customer choice areas, after the date of customer choice. Requires the PUC to issue a person who demonstrates certain abilities a provider's certificate. Requires a person applying for certification to comply with certain protections, requirements, and guidelines. Sets forth conditions under which a retail electric provider shall be certified to provide customers in a certified area their only service. Authorizes a retail electric provider to apply for certification anytime after September 1, 2000. Requires the PUC to use any information required in this section in a manner that ensures the confidentiality of competitively sensitive information. Requires a retail electric provider that provides more than 300 megawatts of power in this state to provide not less than five percent of the load to residential customers. Sets forth conditions under which this requirement applies to an affiliated retail provider. Requires the load served by retail providers to be combined, for this section. Sets forth conditions under which the provider meets the requirements of this subsection or else pay a certain amount into the system benefit fund. Prohibits the residential load from including customers served by an affiliate in its own area. Requires each provider to file reports with the PUC. Provides that this section applies for 36 months after retail competition begins. Requires the PUC to adopt rules to implement this subsection. Sec. 39.353. REGISTRATION OF AGGREGATORS. Prohibits a non-certificated person from providing aggregation services. Defines "aggregator." Prohibits an aggregator from selling or taking title to electricity. Provides that retail electric providers are not aggregators. Requires a person registering under this section to comply with all customer protection provisions, disclosure requirements, and established marketing guidelines. Authorizes the PUC to establish any terms and conditions necessary for the regulation of proper aggregation service by June 1, 2000. Authorizes an aggregator to register anytime after September 1, 2000. Requires the PUC to have up to 60 days to process applications for registration filed by aggregators, but registration is not required of a customer that is aggregating loads from its own location or facilities. Requires the PUC to work with the Texas Department of Economic Development to communicate information about opportunities for operation as aggregators to potential new aggregators. Sec. 39.354. REGISTRATION OF MUNICIPAL AGGREGATORS. Prohibits a nonregistered municipal aggregator from providing aggregation services. Defines "municipal aggregator." Authorizes a municipal aggregator to register anytime after September 1, 2000. Sec. 39.3545. REGISTRATION OF POLITICAL SUBDIVISION AGGREGATORS. Prohibits a political subdivision aggregator from providing aggregation services in the state unless the political subdivision aggregator registers with the commission. Defines "political subdivision aggregator." Authorizes the aggregator to register any time after September 1, 2000. Sec. 39.355. REGISTRATION OF POWER MARKETERS. Prohibits a non-registered person from selling electric energy at wholesale as a power marketer, pursuant to Section 35.032. Sec. 39.356. REVOCATION OF CERTIFICATION. Authorizes the PUC to suspend, revoke, or amend a retail electric provider's certificate when the offender does not comply with this title's rules or a certified independent organization's protocols. Authorizes the PUC to revoke a retail electric provider's certificate in the event the provider can no longer provide continuous and reliable service. Authorizes the PUC to suspend or revoke an aggregator's registration for significant violations of this title's rules or reliability protocols. Sec. 39.357. ADMINISTRATIVE PENALTY. Authorizes the PUC to levy an additional administrative penalty against a Section 39.356 violator. Sec. 39.358. LOCAL REGISTRATION OF RETAIL ELECTRIC PROVIDER. Authorizes a municipality to require a retail electric provider to register with the municipality as a condition of serving residents of the municipality, who may assess a reasonable administrative fee. Authorizes the municipality to suspend or revoke a provider's registration and operation in that municipality for significant violations of this chapter or the rules adopted under this chapter. SUBCHAPTER I. PROVISIONS FOR CERTAIN NON-ERCOT UTILITIES Sec. 39.401. APPLICABILITY. Requires this subchapter to apply to certain investor-owned electric utilities operating solely outside of ERCOT. Establishes that this subchapter is established in recognition that some areas require a structured introduction to customer choice, and that this subchapter controls if there are any conflicts with any other provision of this title. Sec. 39.402. TRANSITION TO COMPETITION PLAN. Requires a utility to file a transition to competition plan with the PUC by December 1, 2000. Sets forth requirements for the plan. Sec. 39.403. UNBUNDLING. Requires the utilities to unbundle as required by Section 39.051. Sec. 39.404. RATE FREEZE. Requires the utilities to freeze their rates until January 1, 2002, upon when the price to beat shall become effective. Prohibits the utility from charging rates that are higher than the rates in effect January 1, 1999, until the region qualifies for competition or until rates are reset pursuant to Section 39.405(c). Sec. 39.404. PILOT PROJECT. Requires the utilities to undertake a pilot project as set forth in Section 39.104. Requires the PUC to extend the project beyond January 1, 2002, and to expand the percentage of participation beyond the five percent level. Requires the PUC to review the project as circumstances change and authorizes the PUC to adjust the level of participation. Requires the utility to design a pilot project and to file a report with the PUC detailing that project. Provides that nothing in this section requires the project to serve in multiply certificated areas. Authorizes certain proceedings to be filed if a utility fails to meet the requirements of Section 39.152(a). Sec. 39.406. PRICE TO BEAT. Requires the utilities to include a certain price to beat in their plan similar to Section 39.202. Authorizes the PUC to reduce the six percent price to develop the necessary infrastructure. Sec. 39.407. RELEVANT MARKET AND RELATED MATTERS. Sets forth conditions under which the PUC must certify that the requirements of Section 39.152(a)(3) are being met by the electric utilities. Prohibits an affiliate from competing in customer choice unless the affiliate makes a commitment to maintain and does maintain rates that are based on cost of service for any electric cooperative or municipally owned utility that was a wholesale customer and was purchasing power at rates that were based on cost of service. Requires a power generation company to sell power at rates that are based on cost of service, until a certain period of time. Requires a power generation company to maintain adequate supply of power if the rates are not met. Provides that the obligation provided by this subsection remains in effect until the PUc determines that the requirements of Section 39.152(a) have beeN met. Sec. 39.408. USE OF REVENUES FOR UTILITIES WITH NO STRANDED COSTS. Authorizes an electric utility to request to use positive differences to accelerate the amortization of their assets, under certain conditions. SUBCHAPTER Z. MISCELLANEOUS PROVISIONS Sec. 39.901. SCHOOL FUNDING LOSS MECHANISM. Requires the comptroller to certify to the Texas Education Agency (TEA) any property wealth reductions attributable to electric utility restructuring. Requires TEA to determine the reduction of the amount of property taxes and to notify the PUC of the amount necessary to compensate the state for the reduction. Requires the TEA to determine and to notify the PUC of the amounts necessary to compensate school districts for lost revenue resulting from the property wealth reductions. Requires the amounts necessary to compensate districts to be the sum of certain funding and revenue. Requires a shortfall to be included in the projected revenue requirements and to be transferred to the Foundation School Program the following year. Provides that the amounts determined by the comptroller and the TEA are final and may not be appealed. Requires the PUC to transfer the appropriate amount from the system benefit fund to the foundation school fund. Provides that amounts transferred from the system benefit fund for this section are appropriated for the support of the foundation school program and are available, in addition to any other General Appropriations Act funds, to finance actions under Section 41.002(b) or 42.252(e). Requires the TEA to compensate school districts for losses incurred under Subsection (c), with the transferred money. Authorizes the comptroller and the commissioner of education to adopt rules necessary to implement this section. Provides that this section is effective through the 2006-2007 school year, but expires August 31, 2007. Sec. 39.9015. INTERIM STUDY ON AFFECTED TAXING UNITS. Requires an interim committee to study and make recommendations on the impact of utility deregulation on the tax revenue on taxing units in a county on the coast of the Gulf of Mexico. Sets forth requirements for the report, and provides that this section expires January 2, 2001. Sec. 39.9016. NUCLEAR SAFETY FEE. Requires an electric utility that operates a nuclear asset located in a county on the coast of THE Gulf of Mexico to pay certain nuclear safety fees for the year 2000 and 2001 to certain taxing units. Requires the fee to be considered a tax or fee under Section 39.258(5). Sec. 39.902. CUSTOMER EDUCATION. Requires the PUC to develop and implement an educational program, prior to January 1, 2000, to inform customers of changes resulting from opening the retail electric market. Requires the education program to be neutral, nonpromotional, providing the information necessary to make an informed choice. Requires the program to inform consumers of certain rights but prohibits the program from targeting areas served by certain municipally owned utilities or cooperatives. Requires the PUC to consult the Texas Department of Housing and Community Affairs (TDHCA) and customers of providers of retail electric services, in order to plan and implement this program. Authorizes the PUC to enter into contracts to carry out the customer education program. Requires the PUC to report on the status of the program to the legislature by December 1, 2001. Requires the PUC to conduct ongoing customer education after the onset of customer choice, including providing information concerning specific retail electric providers and instances and complaints against the providers. Sec. 39.903. SYSTEM BENEFIT FUND. Creates a system benefit fund as a trust fund with the comptroller. Requires the fund to be financed by a nonbypassable charge set by the PUC, not to exceed 50 cents per megawatt hour, except for certain date when the fee may be changed to other rates. Sets forth to whom the charge may not be assessed against. Requires the PUC to review and approve the fund accounts, and to report to the electric utility restructuring legislative oversight committee if the fee is insufficient to fund the purposes set forth in Subsection (e). Requires the system benefit fund to provide funding for certain programS and costs. Sets forth rules the PUC must adopt regarding programs to assist low-income electric customers and reduced rates by retail providers, and requirements for the content of those rules. Prohibits a utility from reducing programs already offered to assist low-income electric customers. Provides that the reduced rate for municipally owned utilities and electric cooperatives under this section is in addition to any rate reduction that may result from local programs for low-income customers of the municipally owned utility or cooperatives. Prohibits a cooperative, municipal utility, or retail provider from charging an eligible low-income customer certain rates, if the provider seeks reimbursement from the fund. Sets forth how a provider and a cooperative shall be reimbursed from the fund. Requires the PUC to adopt rules providing for the reimbursement and for methods of enrolling customers into a reduced rates program. Defines a "low-income electric customer." Prohibits a provider from charging a fee for participation in the reduced rate program. Sec. 39.904. GOAL FOR RENEWAL ENERGY. Sets forth the intent of the legislature regarding renewable energy technologies, which shall constitute not less than 2,000 megawatts of generating capacity from renewable energy technologies by January 1, 2009. Sets forth the amounts of megawatts to be installed from renewable energy by certain dates. Requires the PUC to establish a credits trading program for renewable energy available to a retail electric provider, municipally owned utility, or electric cooperative which does not satisfy the renewable energy requirements. Requires the PUC to adopt rules, by January 1, 2000, to administer and enforce this section, and sets forth the minimal composition of those rules. Defines "renewable energy technology." Authorizes a municipal utility operating a gas distribution system to credit their production towards the requirements of this section based on certain conversions. Sec. 39.9044. GOAL FOR NATURAL GAS. Sets forth the intent of the legislature regarding natural gas production of megawatts of generation capacity. Requires the PUC to establish a program to encourage utilities to comply with this section by using the gas produced in this state as the preferential fuel. Provides that this section does not apply to generating capacity for renewal energy technologies. Requires the PUC to establish a credit program for gas. Requires any power generation company, municipal utility, or cooperative to purchase credits to satisfy the requirements of this section. Requires the PUC to adopt rules to administer this section and to adopt rules with the assistance of the Railroad Commission of Texas allowing and encouraging retail providers, municipal utilities, and cooperative to market electricity generated by gas from this state as environmentally beneficial. Sets forth the substance of the rules. Defines "natural gas technology." Sec. 39.9048. NATURAL GAS FUEL. Sets forth the intent of the legislature regarding the cost of natural gas fuel. Sec. 39.905. GOAL FOR ENERGY EFFICIENCY. Sets forth the intent of the legislature regarding energy efficiency. Requires the PUC to adopt rules and procedures to ensure that the goal of this section is achieved by January 1, 2004. Sec. 39.906. DISPLACED WORKERS. Requires the PUC to allow the recovery of reasonable employee related transition costs incurred and projected for severance, retraining, early retirement, outplacement, and related expenses for the employees. Sec. 39.907. LEGISLATIVE OVERSIGHT COMMITTEE. Defines "committee." Sets forth the composition, terms, duties, and responsibilities for the legislative oversight committee, including a report to certain executive officials. Sec. 39.908. EFFECT OF SUNSET PROVISION. Provides that the provisions of this title continue in full force in the event the PUC is abolished. Requires the duties and functions of the PUC to be performed by a successor agency designated by the legislature before the PUC's abolishment, or by the secretary of state in the event of no successor appointment. Sec. 39.909. PLAN AND REPORT OF WORKFORCE DIVERSITY AND OTHER BUSINESS PRACTICES. Defines "small business" and "historically underutilized business." Requires each electric utility to develop a plan to enhance the diversity of its workforce and to increase contracting opportunities with certain minority businesses and to submit the report TO the PUC and to the legislature by a certain date. Sets forth the composition of the report. CHAPTER 40. COMPETITION FOR MUNICIPALITY OWNED UTILITIES AND RIVER AUTHORITIES SUBCHAPTER A. GENERAL PROVISIONS Sec. 40.001. APPLICABLE LAW. Provides that this chapter governs the transition to and establishment of a fully competitive electric power industry for municipally owned utilities. Prohibits the provisions of Chapter 39 from applying to a river authority operating a steam plant before a certain date, or a corporation authorized by Article 717p, V.T.C.S. Subjects the river authority to certain sections of law. Prohibits hydroelectric assets from being deemed certain assets for purposes of Section 39.051, and that generating assets to a certain corporation shall satisfy the requirements of Section 39.051. Provides that an accommodation shall be made in the code of conduct established under Section 39.157(e) for the provisions of Article 717p, V.T.C.S., and that the PUC shall not prohibit a river authority and other related corporation from sharing or providing to each certain officers, facilities, and duties, without the need for a competitive bid. Sec. 40.002. DEFINITION. Defines "body vested with the power to manage and operate a municipally owned utility." Sec. 40.003. SECURITIZATION. Authorizes a municipally owned utility or river authority to recover up to 100 percent stranded costs through securitization provisions. Sets forth rules and procedures for using securitization and other bonds. Requires these rules and procedures to be consistent with established law. Sec. 40.004. JURISDICTION OF COMMISSION. Establishes that the PUC has jurisdiction over municipally owned utilities only for certain purposes. Sec. 40.005. LIMITATION ON MUNICIPAL AUTHORITY. Prohibits a municipality from regulating the rates, operations, and services of an electric cooperative, except in certain instances to protect the public. Provides that this section does not prohibit a municipality from making certain lawful charges regarding rights-of-way. Requires the cooperative to be an electricity utility for purposes of Section 182.025, Tax Code, and Section 33.008. SUBCHAPTER B. MUNICIPALLY OWNED UTILITY CHOICE Sec. 40.051. GOVERNING BODY DECISION. Provides discretion to a municipally owned utility to decide when or if the utility will employ customer choice on or after January 1, 2002, via an appropriate resolution. Provides that a decision by resolution to provide customer choice is irrevocable. Establishes that Subchapters 33D and 33E no longer apply if the municipally owned utility resolves to offer customer choice. Sec. 40.052. UTILITY NOT OFFERING CUSTOMER CHOICE. Prohibits a municipal utility from offering unregulated prices if the utility decides not to offer customer choice, but may still provide a full range of customer service, pricing programs within its certificated area, and buy and sell wholesale electricity without geographic restriction. Sec. 40.053. RETAIL CUSTOMER'S RIGHT OF CHOICE. Establishes that after customer choice is approved by a municipal utility, customer choice shall be provided with open access for retail service. Prohibits the municipally owned utility from offering competitive metering, notwithstanding Section 39.107 provisions. Authorizes the municipally owned utility to be the sole provider of the metering function. Sets forth requirements for the provider of last resort and the default provider of last resort to offer standard regulation retail service for requesting customers. Authorizes the municipally owned authority to establish procedures and criteria for designating and redesignating the provider of last resort. Sec. 40.054. SERVICE OUTSIDE AREA. Authorizes a municipally owned utility opting for customer choice to offer electricity and related services at unregulated prices without regard to geography, yet abiding by the PUC's code of conduct regulating anticompetitive practice. Authorizes the PUC to establish terms and conditions, but not rates, for access by other retail electric providers against municipally owned utilities participating in customer choice. Requires the codes of conduct to accommodate relevant state and federal laws. Provides that the PUC does not have jurisdiction that would require municipally owned utilities to unbundle its services. Requires the municipally owned utility to maintain separate books and records for its operations from those of affiliated operations. Sec. 40.055. JURISDICTION OF MUNICIPAL GOVERNING BODY. Sets forth exclusive jurisdictions to the municipal governing body or the body's replacement. Prohibits a retail customer, including a customer of an electric cooperative or municipal utility, from avoiding stranded cost recovery charges by switching to another electric utility. Sec. 40.056. ANTICOMPETITIVE ACTIONS. Requires the PUC to notify the municipally owned utility of any known anticompetitive practices, to provide three months for the utility to cure the anticompetitive practice, following a hearing, and to deny access to service outside an offender's certificated retail service area if the offense is not remedied within a certain time. Sec. 40.057. BILLING. Authorizes the municipally owned utility that opts for customer choice to bill directly customers, generation services, and customer services. Specifies that a municipally owned utility cannot adopt anticompetitive practices that would discourage customers from choosing a retail electric provider. Establishes that certain customers may choose between a direct billing from each service provider or a single bill from the municipally owned utility. Sec. 40.058. TARIFFS FOR OPEN ACCESS. Requires a municipally owned or operated transmission and distribution facility to file by a certain date with the PUC tariffs implementing open access rules and certain rates. Provides that the PUC has no authority to determine rates for distribution access service for a municipally owned utility. Sec. 40.059. MUNICIPAL POWER AGENCY; RECOVERY OF STRANDED COSTS. Defines "member city." Authorizes a member city that opts for customer choice to recover stranded costs through a nonbypassable charge. Establishes that the nonbypassable charge shall be as determined by the member city's governing board, and may be spread out over 16 years. Authorizes which stranded costs may be recovered through this section using the Texas Senate Interim Committee on Electric Utility Restructuring report. Prohibits double counting of this section's stranded costs and the generation costs used in setting rates. Provides that provisions of this section are cumulative of all other provisions of this chapter, and nothing in this section shall be construed to limit or restrict the application of any provision of this chapter. Requires the municipal power agency to extinguish the agency's indebtedness by sale of the electric facility to one or more purchasers, and to set the objective of selling the debt by September 1, 2000. Requires the agency to provide to the electric utility restructuring legislative oversight committee detailed reasons why the objective was not met by a certain date. Authorizes the agency to use the rate of return method for calculating its transmission cost of service. Sets forth procedures for using the rate of return method. Requires any additional revenue to be applied to reduce the agency's outstanding indebtedness. Sec. 40.060. NO POWER TO AMEND CERTIFICATES. Provides that nothing in this chapter empowers a municipal governing body or a body vested with the power to manage a municipally owned utility to issue, amend, or rescind a certificate of public convenience and necessity granted by the PUC. Establishes that this section does not deny the ability for a municipally owned utility to pass a Section 40.051(b) resolution. SUBCHAPTER C. RIGHTS NOT AFFECTED Sec. 40.101. INTERFERENCE WITH CONTRACT. Prohibits this subtitle from interfering with or abrogating the rights or obligations of a party to contract with a municipally owned utility or river authority, including a retail or wholesale customer, under a contract or agreement concerning certificated utility service areas. Sec. 40.102. ACCESS TO WHOLESALE MARKET. Establishes that nothing in this subtitle limits the access of municipally owned utilities to the wholesale electric markets. Sec. 40.103. PROTECTION OF BONDHOLDERS. Establishes that nothing in this subtitle or any rule adopted under this subtitle impairs the various agreements between this state, river authorities, municipalities, and the bondholders of revenue bonds issued by the river authorities or municipalities. Sec. 40.104. TAX-EXEMPT STATUS. Establishes that nothing in this subtitle impairs the tax-exempt status of municipalities, electric cooperatives, or river authorities, or compels any of those organizations to use its facilities in a manner which violates any contractual obligation to finance tax-exempt debt. Establishes that a Section 40.051(b) decision to participate in customer choice is irrevocable, notwithstanding any other provision of law. CHAPTER 41. ELECTRIC COOPERATIVES AND COMPETITION SUBCHAPTER A. GENERAL PROVISIONS Sec. 41.001. APPLICABLE LAW. Establishes that this chapter provides for a fully competitive electric power industry for electric cooperatives, notwithstanding other provisions of law, except Sections 39.155, 39.157(e), 39.203, 39.903, and 39.904.