HBA-LJP, KDB H.B. 2107 77(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 2107 By: Turner, Sylvester State Affairs 3/14/2001 Introduced BACKGROUND AND PURPOSE As part of the electric deregulation legislation passed by the 76th Legislature, electric utilities are allowed to factor in stranded costs and allocate them to all customers before competition begins January 1, 2002. Stranded costs are investments or assets owned by a regulated utility, such as a nuclear power plant, that are likely to become inefficient in a competitive market. However, the unprecedented increase in the price of natural gas has caused an unintended windfall for electric utilities. Moreover, nuclear power plants are producing energy at rates comparable to natural gas, which may eliminate the utility's need to recoup stranded costs and may actually cause the utility to recover excess or negative stranded costs. The Public Utility Commission (PUC) is not scheduled to review each utility's stranded cost estimates and make adjustments to the charge assessed to customers until true-up in January 2004. House Bill 2107 would authorize the PUC to require utilities to stop mitigation and return negative stranded costs to customers by reducing the affiliated retail electric provider's price to beat. 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 2107 amends the Utilities Code to require the Public Utility Commission (PUC) to order an electric utility to discontinue the mitigation tools and to reverse any prior mitigation to the extent required to eliminate any estimated excess of the market value over the net book value of generation assets (negative stranded costs), if at any time before January 1, 2002, the PUC determines that a utility does not have positive stranded costs. The bill requires the PUC to reflect the reversal of previous mitigation in the transmission and distribution rates. The bill also requires the PUC to reduce the affiliated retail electric provider's price to beat as necessary to flow through any reductions to the transmission and distribution rates associated with the reversal of the previous mitigation. The bill authorizes the PUC, during the freeze period, to require an electric utility that has negative stranded costs, together with the utility's affiliated retail electric provider and affiliated transmission and distribution utility, to credit the negative stranded costs to customers. The bill requires the PUC to prescribe the manner in which the credit of negative stranded costs is made. The bill requires the electric utility, together with its affiliated electric retail provider, affiliated power generation company, and affiliated transmission and distribution utility, to file to finalize stranded costs and reconcile those costs. The bill requires an electric utility, together with its affiliated retail electric provider and its affiliated transmission and distribution utility, to credit negative stranded costs to customers. If the PUC determines that the transmission utility, its affiliated retail electric provider, and its affiliated power generation company have negative stranded costs, the bill authorizes negative stranded costs to be used to improve or expand transmission or distribution facilities or on capital expenditures to improve air quality, as included in a plan submitted to and approved by the PUC. The bill prohibits an expenditure included in a plan approved by the PUC for those purposes from being recovered at any time from the ratepayers. The bill requires any amounts that are not included in a plan approved by the PUC for those purposes to be applied to reduce the transmission and distribution utility's nonbypassable delivery rates. The bill requires the PUC to adjust the affiliated retail electric provider's price to beat as necessary to flow through any reductions to the transmission and distribution rates associated with the reversal of negative stranded costs. EFFECTIVE DATE On passage, or if the Act does not receive the necessary vote, the Act takes effect September 1, 2001.