HBA-NMO H.B. 526 76(R)    BILL ANALYSIS


Office of House Bill AnalysisH.B. 526
By: Chisum
State Affairs
2/11/99
Introduced



BACKGROUND AND PURPOSE 

Currently, the legal structure of the electric industry in Texas consists
of regulated transmission and distribution lines with a partially
competitive wholesale generation market.  A national trend points toward a
fully competitive retail market, with transmission and distribution lines
remaining regulated monopolies.  Two issues facing the implementation of
retail electric competition are stranded costs and development of an
infrastructure.  Stranded costs are utility investments  that were approved
by the state regulatory authority with a guarantee of recovery, usually
over a 30-year amortization period, which will not  be recovered before the
implementation of competition, because the amortization period will  not
be complete and the customer base will no longer be guaranteed. Development
of an infrastructure refers to the building of a system to ensure that each
seller of electricity receives its proper  share of the payment from each
customer.  H.B. 526 provides for the setting of a defined time frame for
stranded cost recovery, the development of an infrastructure before the
implementation of retail competition,  the creation of the Joint Committee
on Electric Industry Restructuring, and the creation of the Renewable
Energy Assistance Program.        

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that rulemaking
authority is expressly delegated to the Public Utility Commission in
SECTION 1 (Section 39.001, Utilities Code) and to the Renewable Energy
Assistance Program Board in SECTION 1 (39.203, Utilities Code) of this
bill. 

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Subtitle B, Title 2, Utilities Code, by adding Chapter
39, as follows: 

CHAPTER 39.  IMPLEMENTATION OF RETAIL COMPETITION

SUBCHAPTER A.  GENERAL PROVISIONS

Sec.  39.001.  DEFINITIONS.  (1) Defines "generation assets" as generation
plants and generation-related costs that have been deferred for future
recovery by order of a regulatory authority or as a result of the practice
of a regulatory authority.  According to Section 11.003, Utilities Code,
"regulatory authority" means either the Public Utility Commission
(commission) or the governing body of a municipality, in accordance with
the context. 

(2) Defines "net stranded costs" as the excess of the net book value of all
generation assets over the market value of those assets, any above-market
fuel or fuel transportation contract costs relating to generation assets,
any above-market purchased power contract costs, and any other investment
the commission, by rule, classifies as a net stranded cost. 

(3) Defines "stranded costs" as the excess of the book value of all
generation assets over the market value of those assets, any above-market
fuel or fuel transportation contract costs relating to generation assets,
any above-market purchased power contract costs, and any other investment
the commission, by rule, classifies as a  stranded cost. 



 SUBCHAPTER B.  GENERAL GUIDELINES

Sec.  39.051.  APPLICATION OF SUBCHAPTER.  Establishes that this
subchapter, except as otherwise expressly provided, applies to each
electric utility and municipally owned utility (utility). 

Sec.  39.052.  GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.  Requires that
each computation required by this chapter be made using applicable
generally accepted accounting principles. 

Sec.  39.053.  RETAIL COMPETITION FOR ALL CUSTOMERS.  Requires each
electricity customer, starting December 31, 2003, to have the right to
choose the customer's supplier of electricity. 

Sec.  39.054.  COMMISSION AUTHORITY REGARDING RETAIL COMPETITION. Prohibits
a rule, policy, or action of the commission relating to the implementation
of retail competition from taking effect before December 31, 2003, unless
otherwise expressly required by statute. 

Sec.  39.055.  OPEN ACCESS TO TRANSMISSION AND DISTRIBUTION FACILITIES. (a)
Requires each utility that owns or operates transmission or distribution
facilities to provide transmission and distribution service, or both, at
rates and terms, including terms of access, that are comparable to the
rates and terms of the entity's use of its system.   

(b) Requires the commission to ensure that each utility, starting December
31, 2003, provides nondiscriminatory access to transmission and
distribution service for qualifying facilities, exempt wholesale
generators, power marketers, utilities, and other electricity sellers.   

(c) Requires the commission, notwithstanding Subchapter C (Rate Freeze and
Stranded Cost Recovery) or Section 36.201, Utilities Code (Automatic
Adjustment for Changes in Cost), to use an appropriate method to provide
for the concurrent recovery of, and reasonable return on, an electric
utility's investments in new transmission facilities incurred after
September 1, 1999.  Provides that a reasonable return on investment is the
rate of return approved for the utility in its most recent transmission
cost-of-service case. 
  
Sec.  39.056.  EXEMPTION FOR CERTAIN UTILITIES.  (a) Exempts an
investor-owned electric utility from the requirements of this chapter if it
had in effect on January 1, 1997, and extending beyond December 31, 2003, a
system-wide rate freeze for residential and commercial customers that has
been found to be in the public interest, and only if application of this
chapter to such a utility is not permitted by a federal court or by the
regulatory authority.  
 
(b) Requires an investor-owned electric utility to offer customer choice at
the end of its previously approved rate freeze period and provides that it
does not have a claim for stranded cost recovery under Subchapter C, if
application of this chapter is not permitted by a federal court or by the
regulatory authority.   

(c) Authorizes any ratepayer of an investor-owned electric utility, not yet
exempt, to request that the regulatory authority determine the exemption
status of the utility. Requires the regulatory authority, in making a
determination, to consider the effect of applying this chapter on the total
economic cost to customers  as compared to the systemwide rate freeze
described by Subsection (a), the utility's financial integrity, and the
public interest. 

SUBCHAPTER C.  RATE FREEZE AND STRANDED COST RECOVERY

Sec.  39.101.  APPLICATION OF SUBCHAPTER.  Provides that this subchapter,
except as otherwise expressly provided, applies to an electric utility that
is an investor-owned  electric utility or an electric cooperative
corporation that has not elected partial rate deregulation under
Subchapters F and G, Chapter 36 (Rates), Utilities Code. 

Sec.  39.102.  DEFINITIONS.  (1) Defines "cost of service" as the total
reasonable and necessary operating expenses incurred by an electric utility
in rendering electric service to its customers, plus a reasonable return on
invested capital.   

(2) Defines "rate of return on common stock equity" as the percentage
measure of an investor-owned electric utility's earnings on the utility's
common stock, computed by dividing after-tax income, minus preferred
dividends and interest payments, by the average book value of common equity
over an annual period. 

Sec.  39.103.  RATE FREEZE.  (a) Provides that "force majeure" means a
major event or combination of major events beyond the control of an
electric utility that the regulatory authority finds has increased the
utility's nonfuel costs or decreased the utility's nonfuel revenue related
to the generation and delivery of electricity by five percent or more for
any calendar year during the rate freeze including but not limited to new
or expanded statutes or regulations, natural disasters, war, terrorism, or
civil disturbances. 

(b) Requires each electric utility to freeze its retail base rate tariffs
as those tariffs exist on January 1, 1999.  Prohibits the utility, except
for force majeure, from changing those retail base rate tariffs before
December 30, 2003. 

(c) Provides that this section does not limit or alter the ability of an
electric utility to revise its fuel factor or reconcile fuel expenses, and
to refund fuel overcollections or to surcharge fuel undercollections to
customers as authorized by the utility's tariffs or Section 36.203 (Fuel
Cost Recovery; Adjustment of Fuel Factor). 

Sec.  39.104.  ECONOMIC DEVELOPMENT RATES.  Authorizes a utility,
notwithstanding Section 39.103, to provide electricity at a price that is
less than the utility's retail tariff rate, but not less than its marginal
cost to a new industrial or commercial customer or a new or expanded
facility of an existing industrial or commercial customer. Provides that an
economic development rate must be provided to a single point of delivery
that is within the certified service area and has the potential to create a
significant number of new full time positions.  Provides that approval of
the regulatory authority is not required for this economic development
rate. 

Sec.  39.105.  QUALIFIED EARNINGS.  Provides that "qualified earnings" of
an investorowned electric utility are those that would cause the utility's
rate of return on common stock equity to exceed the rate last established
for that utility by the regulatory authority, and that "qualified earnings"
of an electric cooperative corporation are those that exceed the
corporation's cost of service.  Requires an electric utility to use
qualified earnings to recover net stranded costs or to benefit ratepayers
in accordance with Section 39.108 (Use of Qualified Earnings).  Requires
that, in determining qualified earnings, the utility's actual annual costs
be used, except that the operating and maintenance costs are limited to the
amount of those costs incurred in calendar year 1998, with an allowance for
yearly inflation. 

Sec.  39.106.  DETERMINATION OF MARKET VALUE OF GENERATING CAPACITY. (a)
Requires the commission, no later than August 1 of each year from 1999 to
2003, to determine and publicly announce the commission's preliminary
determination of the market value of fossil-fueled and nuclear-fueled
electric generating capacity, on a dollar-permegawatt basis. 

(b) Requires the commission to base the market value of fossil-fueled
generating capacity on the average sale price for all fossil-fueled
electric generating units sold since January 1, 1997, in market-based
transactions in the United States with transaction prices obtainable by the
commission. 

(c) Requires the commission to base the market value of nuclear-fueled
generating  capacity on the average sale price for all nuclear-fueled
electric generating units sold since January 1, 1997, in market-based
transactions in the United States with transaction prices obtainable by the
commission. 

(d) Requires the commission, after making these preliminary determinations,
to request and consider the comments of any interested person regarding the
commission's collection of sales data and computation of average sale
price. 

(e) Requires the commission to announce its final determination no later
than September 1 of each year. 

(f) Authorizes the commission to make a determination under this section in
an informal proceeding.  Provides that a determination under this section
is not a contested case for the purposes of Chapter 2001, Government Code
(Administrative Procedure), or a rate change for purposes of Chapter 36,
Utilities Code (Rates). 

Sec.  39.107.  DETERMINATION OF GENERATION PLANT NET STRANDED COSTS. (a)
Requires  each electric utility to annually compute its net stranded costs
that relate to generation plants in accordance with this section.   

(b) Provides that the total net value realized from the sale, after January
1, 1999, of  all or some of  the electric utility's generation plants in a
bona fide third-party transaction under a competitive offering is the
market value of the generation plants sold.   
 
(c) Provides that the market value of a non-nuclear generation plant that
is not sold in accordance with Subsection (b) is determined by applying the
most recent commission determination of average market value of
fossil-fueled electric generating capacity under Section 39.106(e) to the
utility's installed fossil-fuel capacity. 

(d) Provides that the market value of a nuclear generation plant that is
not sold in accordance with Subsection (b) is the greater of $450 per
kilowatt of installed capacity or the value determined by applying the most
recent commission determination of average market value of nuclear-fueled
electric generating capacity under Section 39.106(e) to the utility's
installed nuclear capacity. 


Sec.  39.108.  USE OF QUALIFIED EARNINGS.  (a) Requires an electric utility
that has positive net stranded costs to use its qualified earnings to
reduce net stranded costs on a dollar-for-dollar basis by accelerating
depreciation and amortization of generation assets; redirect depreciation
from transmission and distribution assets to generation assets as necessary
to mitigate stranded costs; and employ reasonable methods to mitigate
stranded costs by renegotiating, where appropriate, purchased power and
fuel contracts.  

(b) Requires an electric utility, when it no longer has positive net
stranded costs, to stop applying qualified earnings to net stranded costs
and to begin applying them to benefit ratepayers in accordance with
Subsection (c). 

(c) Requires an electric utility that does not have positive net stranded
costs to refund at least 75 percent of its qualified earnings to its
customers through purchased power cost recovery or other similar mechanism. 

Sec.  39.109. REPORTS AND COMMISSION ACTION.  (a) Requires each electric
utility to which this subchapter applies to file an annual report with the
commission showing the utilities net stranded costs, including generation
plant costs computed in accordance with Section 39.107; the annual and
cumulative amounts recovered under 39.108; and whether it has started using
qualified earnings to benefit ratepayers in accordance with Section
39.108(c), or when it anticipates it will begin using them for that
purpose.    

(b) Authorizes the commission, if it finds that an electric utility did not
timely comply with Section 39.108(c), to bring an enforcement action
against the utility and impose an  administrative penalty against the
utility equal to 25 percent of the amount the utility would have received
had it timely complied. 

Sec.  39.110.  TRUE-UP.  (a) Requires the commission, not earlier than
January 1, 2004, to conduct a "true-up" proceeding for an electric utility
that is still applying qualified earnings to reduce net stranded costs in
accordance with Section 39.108 on December 30, 2003. 

(b) Requires the commission, in determining the utility's remaining
positive net stranded costs, to compare the book value of its generation
assets to the market value of those assets as of December 31, 2003.
Requires the commission to compute the market value of a generation asset
in accordance with the applicable provisions of Section 39.106, but
requires the commission to adjust the average market value of a
fossil-fueled generation asset for locational, environmental, and other
plant-specific circumstances that affect the generating capacity being
valued. 

(c) Requires the commission, if the book value exceeds market value, to
authorize the utility to recover that excess through a non-bypassable wires
charge.  Requires the commission, if the book value is less than the market
value, to order the utility to refund the over-recovery, with interest, to
customers or to reverse the depreciation redirection taken under 39.108(a),
as necessary. 

Sec.  39.111.  DUTY OF MUNICIPALLY OWNED UTILITY.  Requires each
municipally owned utility to take any necessary steps to mitigate any
stranded costs before December 31, 2003, and file with the commission an
annual report showing an estimate of its net stranded costs and the annual
and cumulative amounts of net stranded costs recovered. 

Sec.  39.112.  EFFECT OF SUBCHAPTER; SALE REQUIREMENT PROHIBITED. Provides
that this subchapter does not require the abrogation of lawful contracts.
Prohibits the regulatory authority from requiring the sale of assets by an
electric utility. 

SUBCHAPTER D.  JOINT COMMITTEE ON ELECTRIC INDUSTRY
RESTRUCTURING

Sec.  39.151.  CREATION OF COMMITTEE.  Creates the Joint Committee on
Electric Industry Restructuring to oversee the transition to and
establishment of a competitive retail electric industry on December 31,
2003.  Provides that the committee is composed of six senators appointed by
the lieutenant governor and six members of the house of representatives
appointed by the speaker of the house of representatives.  Provides that
members of the committee serve at the pleasure of the appointing officer.
Requires the appointing officers to designate members of the committee to
serve as the presiding officer and assistant presiding officer, and
requires the alternation of that designation. 

Sec.  39.152.  GENERAL POWERS AND DUTIES OF COMMITTEE.  Requires the
committee to assess the issues relevant to the implementation of retail
competition in the electric industry including consumer protection,
recovery of any net stranded costs, consumer education, effects on state
and local tax revenues, the proper manner for implementing unbundling of
utilities' existing integrated functions, a code of conduct to prohibit the
subsidization of competitive functions and discrimination with respect to
the provision of regulated services, reliability standards relating to the
delivery of electricity to retail customers, and any other issues the
committee considers relevant. 

Sec.  39.153.  MONITORING AND OVERSIGHT DUTIES.  Requires the committee to
monitor the transition to retail competition in the electricity market and
conduct active oversight of the activities of the commission relating to
implementation of retail competition. 

SUBCHAPTER E.  RENEWABLE ENERGY ASSISTANCE PROGRAM

Sec.  39.201.  LEGISLATIVE FINDING.  Provides the legislative finding.

 Sec.  39.202.  RENEWABLE ENERGY ASSISTANCE PROGRAM BOARD.  (a) Provides
that the Renewable Energy Assistance Program Board (board) is composed of: 

(1) eight members appointed by the governor with the advice and consent of
the senate; and  

(2) one member of the commission appointed by the governor or a commission
designee appointed by the commission and approved by the governor. 

(b) Requires the governor to designate a presiding officer and assistant
presiding officer from the members appointed under Subsection (a)(1). 

(c) Provides that four of the members appointed under Subsection (a)(1)
must be engaged in or have experience in the banking or financial services
industry; two must be involved in environmental issues; and the remaining
two must be public members who represent consumers. 

(d) Provides that the members appointed under Subsection (a)(1) serve
staggered two-year terms. 

(e) Requires the board to employ an executive director and not more than
two employees to whom the board is authorized to delegate the
responsibility to implement and administer its powers and duties.   

Sec.  39.203.  RENEWABLE ENERGY ASSISTANCE PROGRAM.  (a) Requires the board
to administer a renewable energy assistance program to assist businesses in
the construction of new generation facilities that use renewable energy by
providing grants to businesses for interest payments on loans for
construction costs.  Prohibits the amount of a grant from exceeding the
prime commercial lending interest rate plus two percent interest.   

(b) Requires the board, by rule, to prescribe the qualifications for
receiving a grant. 

(c) Requires the board, in determining whether to award a grant, to
consider the financial viability of an applicant's proposal, the
applicant's credit history,  whether an applicant has secured resources
from a private lending institution for construction, whether an applicant
has acquired a buyer for the electricity to be generated, and any other
information the board considers important. 


Sec.  39.204.  ANNUAL REPORT.  Requires the board, not later than January 1
of each even-numbered year, to submit a report detailing its operation to
the governor, lieutenant governor, speaker of the house of representatives,
and the Joint Committee on Electric Industry Restructuring. 

Sec.  39.205.  OFFICE SPACE AND MEETINGS.  Requires the commission to
provide reasonable office space to the executive director and employees of
the board and allow the board to meet in the commission facilities. 

Sec.  39.206.  FUNDING.  Provides that the board is funded through an
assessment imposed on each utility that sells electricity to the ultimate
consumer.  Requires the board to annually set the rate of the assessment.
Requires the board, in setting the annual rate, to ensure that the
assessment produces not more than the amount necessary to administer this
subchapter, while prohibiting the amount from exceeding five million each
fiscal year; and to ensure that the rate of the assessment is equal to not
more than 1/35 of one percent of a utility's gross receipts from  rates
charged to the ultimate consumer for electricity.  Provides that Sections
16.002 (Payment Date), 16.003 (Late Payment Penalty), and 16.004
(Collection by Comptroller), Utilities Code, apply to the assessment. 

Sec.  39.207.  LIMITATION ON ADMINISTRATIVE EXPENSES.  Prohibits the board
from using more than five percent of the revenue appropriated to it for
administrative  expenses.   

Sec.  39.208.  ABOLITION OF BOARD AND ASSESSMENT.  Provides that the board
and the assessment are abolished December 30, 2003.  Requires any grant
commitment and revenue to be transferred to the comptroller for
administration on that date. 

Sec.  39.209.  EXPIRATION OF SUBCHAPTER.  Provides that this subchapter
expires on January 1, 2004. 

SECTION 2.  Amends Sections 12.005 and 13.002, Utilities Code, as follows:

Sec.  12.005.  APPLICATION OF SUNSET ACT.  Provides that the commission,
unless continued in existence as provided by Chapter 325, Government Code
(Texas Sunset Act), is abolished and this title expires on September 1,
2005, rather than 2001.  Provides that Subtitle C (Telecommunications
Utilities) and the functions of the commission relating to the regulation
of the telecommunications industry are subject to review under Chapter 325,
Government Code, during the period in which state agencies abolished in
2001 are reviewed. Provides that Subtitle C, if not continued in existence,
expires on September 1, 2001. 

Sec.  13.002.  APPLICATION OF SUNSET ACT.  Makes a conforming change.

SECTION 3.  Repealer:  Section 31.003, Utilities Code (Report on Scope of
Competition). 

SECTION 4.  Effective date: September 1, 1999.

SECTION 5.  Requires an  electric utility to file the first report required
by Section 39.109, Utilities Code, as added by this Act, on December 1,
1999.  Requires a municipally owned utility to file the first report
required by Section 39.111, Utilities Code, as added by this Act, on
December 1, 1999. 

SECTION 6.  Requires the lieutenant governor and speaker of the house of
representatives, as soon as possible after the effective date of this Act,
to appoint the initial members of the Joint Committee on Electric Industry
Restructuring.  Requires the lieutenant governor to designate a member of
the committee as the presiding officer and speaker of the house of
representatives to designate a member of the committee as the assistant
presiding officer.  Requires the committee to make recommendations to the
77th Legislature, Regular Session, regarding a transition to and
establishment of a competitive retail electric industry on December 31,
2003. 

SECTION 7.  Requires the governor, as soon as possible after the effective
date of this Act, to appoint the members of the Renewable Energy Assistance
Program Board.  Requires the governor to appoint the members of the board
so that two banking and financial services industry members, one
environmental member, and one public member serve terms expiring on January
31, 2000; and two banking and financial services industry members, one
environmental member, and one public member serve terms expiring on January
31, 2001. 

SECTION 8.  Emergency clause.