HBA-SEP H.B. 1692 77(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 1692 By: Chisum State Affairs 2/28/2001 Introduced BACKGROUND AND PURPOSE The Texas Panhandle region, served by Southwestern Public Service Company (SPS), is transmission constrained, which means that power consumed in the Panhandle must be generated in the region. Currently, SPS is scheduled to sell 80% of its generation assets to unregulated companies and to unbundle its generation company which would weaken the ability of the Public Utility Commission of Texas (PUC) to regulate generation rates paid by customers. Transmission and generation shortages do not provide for a competitive market and attempts to cap consumer prices offer little protection. The entities paying high wholesale prices without the ability to pass those prices on to their customers potentially face bankruptcy. A slower, more structured transition to competition for regions with transportation and generation shortages will serve to protect consumers. House Bill 1692 prohibits full retail customer choice for competitive development areas from beginning until the PUC makes a finding that customer choice will not cause rates to be higher, for any customer class, than the rates in effect under regulation. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. ANALYSIS House Bill 1692 amends the Utilities Code to prohibit full retail customer choice for competitive development areas from beginning until the Public Utility Commission of Texas (PUC) makes a finding that customer choice will not cause rates to be higher, for any customer class, than the rates in effect under regulation. The bill requires an electric utility in a competitive development area, in its transition to competition plan, to identify how the utility proposes to mitigate market power rather than how the utility shall achieve full customer choice. The bill requires the transition to competition plan to provide guarantees that rates will not rise for wholesale or retail customers due to the implementation of retail customer choice. The bill authorizes the transition to competition plan to be updated annually, rather than as circumstances change, until the applicable power region is certified as a qualifying power region. The bill prohibits a utility from unbundling until full retail electric competition begins. Full retail competition is prohibited from beginning until after the applicable power region is certified. The bill authorizes a utility to sell or transfer its generation assets to meet the requirement that the total capacity owned and controlled by each utility and its affiliates not exceed 20 percent of the total installed generation capacity within the constrained geographic region served by each utility plus the total available transmission capacity capable of delivering firm power and energy to that constrained geographic region. The utility may not sell or transfer more than 20 percent of its generation assets, as measured by installed capacity at the time of the transaction, within any 24 month period. A utility that desires to sell or transfer generation assets must submit each proposed transaction to the PUC. The bill prohibits the PUC from approving a transaction unless it finds that the transaction is in the public interest and will not result in higher rates. In approving the transaction of any generation asset by a utility, the PUC is required to ensure that sufficient contractual protections exist so that the utility will be able to meet its rate obligations. If a utility sells or transfers any assets prior to the implementation of full retail electric competition, including generation assets, any resulting proceeds from the transaction above the book value of the assets are required to be shared in the amount of 10% to the utility's shareholders and 90% to the utility's retail customers. The bill requires proceeds to be returned through the utility's power cost recovery factor. An electric utility in a competitive development area includes the affiliated power generation company and retail electric provider, and is subject to all applicable PUC authority. The bill requires the PUC to ensure that all aspects of the provision of electric service are provided under traditional cost of service regulation principles until the region is opened to full retail competition. EFFECTIVE DATE On passage.