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2005 Texas Utilities Code CHAPTER 39. RESTRUCTURING OF ELECTRIC UTILITY INDUSTRY
UTILITIES CODE CHAPTER 39. RESTRUCTURING OF ELECTRIC UTILITY INDUSTRY SUBCHAPTER A. GENERAL PROVISIONS § 39.001. LEGISLATIVE POLICY AND PURPOSE. (a) The legislature finds that the production and sale of electricity is not a monopoly warranting regulation of rates, operations, and services and that the public interest in competitive electric markets requires that, except for transmission and distribution services and for the recovery of stranded costs, electric services and their prices should be determined by customer choices and the normal forces of competition. As a result, this chapter is enacted to protect the public interest during the transition to and in the establishment of a fully competitive electric power industry. (b) The legislature finds that it is in the public interest to: (1) implement on January 1, 2002, a competitive retail electric market that allows each retail customer to choose the customer's provider of electricity and that encourages full and fair competition among all providers of electricity; (2) allow utilities with uneconomic generation-related assets and purchased power contracts to recover the reasonable excess costs over market of those assets and purchased power contracts; (3) educate utility customers about anticipated changes in the provision of retail electric service to ensure that the benefits of the competitive market reach all customers; and (4) protect the competitive process in a manner that ensures the confidentiality of competitively sensitive information during the transition to a competitive market and after the commencement of customer choice. (c) Regulatory authorities, excluding the governing body of a municipally owned electric utility that has not opted for customer choice or the body vested with power to manage and operate a municipally owned electric utility that has not opted for customer choice, may not make rules or issue orders regulating competitive electric services, prices, or competitors or restricting or conditioning competition except as authorized in this title and may not discriminate against any participant or type of participant during the transition to a competitive market and in the competitive market. (d) Regulatory authorities, excluding the governing body of a municipally owned electric utility that has not opted for customer choice or the body vested with power to manage and operate a municipally owned electric utility that has not opted for customer choice, shall authorize or order competitive rather than regulatory methods to achieve the goals of this chapter to the greatest extent feasible and shall adopt rules and issue orders that are both practical and limited so as to impose the least impact on competition. (e) Judicial review of competition rules adopted by the commission shall be conducted under Chapter 2001, Government Code, except as otherwise provided by this chapter. Judicial review of the validity of competition rules shall be commenced in the Court of Appeals for the Third Court of Appeals District and shall be limited to the commission's rulemaking record. The rulemaking record consists of: (1) the notice of the proposed rule; (2) the comments of all interested persons; (3) all studies, reports, memoranda, or other materials on which the commission relied in adopting the rule; and (4) the order adopting the rule. (f) A person who challenges the validity of a competition rule must file a notice of appeal with the court of appeals and serve the notice on the commission not later than the 15th day after the date on which the rule as adopted is published in the Texas Register. The notice of appeal shall designate the person challenging the rule as the appellant and the commission as the appellee. The commission shall prepare the rulemaking record and file it with the court of appeals not later than the 30th day after the date the notice of appeal is served on the commission. The court of appeals shall hear and determine each appeal as expeditiously as possible with lawful precedence over other matters. The appellant, and any person who is permitted by the court to intervene in support of the appellant's claims, shall file and serve briefs not later than the 30th day after the date the commission files the rulemaking record. The commission, and any person who is permitted by the court to intervene in support of the rule, shall file and serve briefs not later than the 60th day after the date the appellant files the appellant's brief. The court of appeals may, on its own motion or on motion of any person for good cause, modify the filing deadlines prescribed by this subsection. The court of appeals shall render judgment affirming the rule or reversing and, if appropriate on reversal, remanding the rule to the commission for further proceedings, consistent with the court's opinion and judgment. The Texas Rules of Appellate Procedure apply to an appeal brought under this section to the extent not inconsistent with this section. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.SUBCHAPTER C. RETAIL COMPETITION § 39.1025. LIMITATIONS ON TELEPHONE SOLICITATION. (a) A person may not make or cause to be made a telephone solicitation to a nonresidential electric customer who has given notice to the commission of the customer's objection to receiving telephone solicitations relating to the customer's choice of retail electric providers. (b) The commission shall establish and provide for the operation of a database to compile a list of nonresidential electric customers who object to receiving telephone solicitations. The commission may operate the database or contract with another entity to operate the database. (c) A customer shall pay a fee of not more than $5 for inclusion in the database. The commission shall prescribe the amount of the fee. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. Amended by Acts 2005, 79th Leg., ch. 171, § 3, eff. May 27, 2005.SUBCHAPTER A. GENERAL PROVISIONS § 39.002. APPLICABILITY. This chapter, other than Sections 39.155, 39.157(e), 39.203, 39.903, and 39.904, does not apply to a municipally owned utility or an electric cooperative. Sections 39.157(e), 39.203, and 39.904, however, apply only to a municipally owned utility or an electric cooperative that is offering customer choice. If there is a conflict between the specific provisions of this chapter and any other provisions of this title, except for Chapters 40 and 41, the provisions of this chapter control. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.003. CONTESTED CASES. Unless specifically provided otherwise, each commission proceeding under this chapter, other than a rulemaking proceeding, report, notification, or registration, shall be conducted as a contested case and the burden of proof is on the incumbent electric utility. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.SUBCHAPTER B. TRANSITION TO COMPETITIVE RETAIL ELECTRIC MARKET § 39.052. FREEZE ON EXISTING RETAIL BASE RATE TARIFFS. (a) Until January 1, 2002, an electric utility shall provide retail electric service within its certificated service area in accordance with the electric utility's retail base rate tariffs in effect on September 1, 1999, including its purchased power cost recovery factor. (b) During the freeze period, an electric utility may not increase its retail base rates above the rates provided by this section except for losses caused by force majeure as provided by Section 39.055. (c) Notwithstanding any other provision of this title, during the freeze period the regulatory authority may not reduce the retail base rates of an electric utility, except as may be ordered as stipulated to by an electric utility in a proceeding for which a final order had not been issued by January 1, 1999. (d) During the freeze period, the retail base rates, overall revenues, return on invested capital, and net income of an electric utility are not subject to complaint, hearing, or determination as to reasonableness. (e) An electric utility that has a rate proceeding pending before the commission as of January 2, 1999, shall provide service in accordance with the tariffs approved in that proceeding from the date of approval until the end of the freeze period. (f) Nothing in this section affects the authority of the commission to fulfill its obligations under Section 39.262. (g) Nothing in this section shall deny a utility its right to have the commission conduct proceedings and issue a final order pertaining to any matter that may be remanded to the commission by a court having jurisdiction, except that the final order may not affect the rates charged to customers during the freeze period but shall be taken into account during the utility's true-up proceeding under Section 39.262. (h) Nothing in this title shall be construed to prevent an electric utility or a transmission and distribution utility from filing, and the commission from approving, a change in wholesale transmission service rates during the freeze period. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.053. COST RECOVERY ADJUSTMENTS. This subchapter does not limit or alter the ability of an electric utility during the freeze period to revise its fuel factor or to reconcile fuel expenses and to either refund fuel overcollections or surcharge fuel undercollections to customers, as authorized by its tariffs and Sections 36.203 and 36.205. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.054. RETAIL ELECTRIC SERVICE DURING FREEZE PERIOD. (a) An electric utility shall provide retail electric service during the freeze period in accordance with any contract terms applicable to a particular retail customer approved by the regulatory authority and in effect on December 31, 1998. (b) Nothing in Sections 39.052(c) and (d) shall be construed to restrict any customer's right to complain during the freeze period to the regulatory authority regarding the quality of retail electric service provided by the electric utility or the applicability of an electric utility's particular tariff to the customer. (c) Nothing in this title shall be construed to restrict an electric utility, voluntarily and at its sole discretion, from offering new services or new tariff options to its customers during the freeze period, consistent with Section 39.051(a). (d) Any offering of new services or tariff options under this section shall be equal to or greater than an electric utility's long-run marginal cost and may not be unreasonably preferential, prejudicial, discriminatory, predatory, or anticompetitive. (e) Revenue from any new offering under this section shall be accounted for in a manner consistent with Section 36.007. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.SUBCHAPTER C. RETAIL COMPETITION § 39.107. METERING AND BILLING SERVICES. (a) On introduction of customer choice in a service area, metering services for the area shall continue to be provided by the transmission and distribution utility affiliate of the electric utility that was serving the area before the introduction of customer choice. Metering services provided to commercial and industrial customers that are required by the independent system operator to have an interval data recorder meter may be provided on a competitive basis. (b) Metering services provided to residential customers and to nonresidential customers other than those required by the independent system operator to have an interval data recorder meter shall continue to be provided by the transmission and distribution utility affiliate of the electric utility that was serving the area before the introduction of customer choice. Retail electric providers serving residential and nonresidential customers other than those required by the independent system operator to have an interval data recorder meter may request that the transmission and distribution utility provide specialized meters, meter features, or add-on accessories so long as they are technically feasible and generally available in the market and provided that the retail electric provider pays the differential cost of such a meter or accessory. Metering and billing services provided to residential customers shall be governed by the customer safeguards adopted by the commission under Section 39.101. All meter data, including all data generated, provided, or otherwise made available, by advanced meters and meter information networks, shall belong to a customer, including data used to calculate charges for service, historical load data, and any other proprietary customer information. A customer may authorize its data to be provided to one or more retail electric providers under rules and charges established by the commission. (c) Beginning on the date of introduction of customer choice in a service area, tenants of leased or rented property that is separately metered shall have the right to choose a retail electric provider, an electric cooperative offering customer choice, or a municipally owned utility offering customer choice, and the owner of the property must grant reasonable and nondiscriminatory access to transmission and distribution utilities, retail electric providers, electric cooperatives, and municipally owned utilities for metering purposes. (d) Beginning on the date of introduction of customer choice in a service area, a transmission and distribution utility, or an electric cooperative or municipally owned utility providing the customer's energy requirements shall bill a customer's retail electric provider for nonbypassable delivery charges as determined under Section 39.201. The retail electric provider or the electric cooperative or municipally owned utility, as appropriate, must pay these charges. (e) A transmission and distribution utility may bill retail customers at the request of a retail electric provider or, if an electric cooperative or municipally owned utility is providing the customer's energy requirements, at the request of the electric cooperative or municipally owned utility. A transmission and distribution utility that provides billing service on such request shall offer billing service on comparable terms and conditions to those of any such requesting retail electric provider or, as applicable, the electric cooperative or municipally owned utility providing energy requirements to a customer served by the transmission and distribution utility. (f) Beginning on the date of introduction of customer choice in a service area, any charges for metering and billing services shall comply with rules adopted by the commission relating to nondiscriminatory rates of service. (g) Metered electric service sold to residential customers on a prepaid basis may not be sold at a price that is higher than the price charged by the provider of last resort. (h) The commission shall establish a nonbypassable surcharge for an electric utility or transmission and distribution utility to use to recover reasonable and necessary costs incurred in deploying advanced metering and meter information networks to residential customers and nonresidential customers other than those required by the independent system operator to have an interval data recorder meter. The commission shall ensure that the nonbypassable surcharge reflects a deployment of advanced meters that is no more than one-third of the utility's total meters over each calendar year and shall ensure that the nonbypassable surcharge does not result in the utility recovering more than its actual, fully allocated meter and meter information network costs. The expenses must be allocated to the customer classes receiving the services, based on the electric utility's most recently approved tariffs. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. Amended by Acts 2005, 79th Leg., ch. 1095, § 7, eff. Sept. 1, 2005.SUBCHAPTER B. TRANSITION TO COMPETITIVE RETAIL ELECTRIC MARKET § 39.055. FORCE MAJEURE. (a) An electric utility may recover losses resulting from force majeure through an increase in its retail base rates during the freeze period. (b) Notwithstanding Subchapter C, Chapter 36, the regulatory authority, after a hearing to determine the electric utility's losses from force majeure, shall permit the utility to fully collect any approved force majeure increase through an appropriate customer surcharge mechanism. (c) For purposes of this section, "force majeure" means a major event or combination of major events, including new or expanded state or federal statutory or regulatory requirements; hurricanes, tornadoes, ice storms, or other natural disasters; or acts of war, terrorism, or civil disturbance, beyond the control of an electric utility that the regulatory authority finds increases the utility's total reasonable and necessary nonfuel costs or decreases the utility's total nonfuel revenues related to the generation and delivery of electricity by more than 10 percent for any calendar year during the freeze period. The term does not include any changes in general economic conditions such as inflation, interest rates, or other factors of general application. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.SUBCHAPTER C. RETAIL COMPETITION § 39.101. CUSTOMER SAFEGUARDS. (a) Before customer choice begins on January 1, 2002, the commission shall ensure that retail customer protections are established that entitle a customer: (1) to safe, reliable, and reasonably priced electricity, including protection against service disconnections in an extreme weather emergency as provided by Subsection (h) or in cases of medical emergency or nonpayment for unrelated services; (2) to privacy of customer consumption and credit information; (3) to bills presented in a clear format and in language readily understandable by customers; (4) to the option to have all electric services on a single bill, except in those instances where multiple bills are allowed under Chapters 40 and 41; (5) to protection from discrimination on the basis of race, color, sex, nationality, religion, or marital status; (6) to accuracy of metering and billing; (7) to information in English and Spanish and any other language as necessary concerning rates, key terms and conditions, in a standard format that will permit comparisons between price and service offerings, and the environmental impact of certain production facilities; (8) to information in English and Spanish and any other language as necessary concerning low-income assistance programs and deferred payment plans; and (9) to other information or protections necessary to ensure high-quality service to customers. (b) A customer is entitled: (1) to be informed about rights and opportunities in the transition to a competitive electric industry; (2) to choose the customer's retail electric provider consistent with this chapter, to have that choice honored, and to assume that the customer's chosen provider will not be changed without the customer's informed consent; (3) to have access to providers of energy efficiency services, to on-site distributed generation, and to providers of energy generated by renewable energy resources; (4) to be served by a provider of last resort that offers a commission-approved standard service package; (5) to receive sufficient information to make an informed choice of service provider; (6) to be protected from unfair, misleading, or deceptive practices, including protection from being billed for services that were not authorized or provided; and (7) to have an impartial and prompt resolution of disputes with its chosen retail electric provider and transmission and distribution utility. (c) A retail electric provider, power generation company, aggregator, or other entity that provides retail electric service may not refuse to provide retail electric or electric generation service or otherwise discriminate in the provision of electric service to any customer because of race, creed, color, national origin, ancestry, sex, marital status, lawful source of income, disability, or familial status. A retail electric provider, power generation company, aggregator, or other entity that provides retail electric service may not refuse to provide retail electric or electric generation service to a customer because the customer is located in an economically distressed geographic area or qualifies for low-income affordability or energy efficiency services. The commission shall require a provider to comply with this subsection as a condition of certification or registration. (d) A retail electric provider, power generation company, aggregator, or other entity that provides retail electric service shall submit reports to the commission and the office annually and on request relating to the person's compliance with this section. The commission by rule shall specify the form in which a report must be submitted. A report must include: (1) information regarding the extent of the person's coverage; (2) information regarding the service provided, compiled by zip code and census tract; and (3) any other information the commission or the office considers relevant to determine compliance. (e) The commission has the authority to adopt and enforce such rules as may be necessary or appropriate to carry out Subsections (a)-(d), including rules for minimum service standards for a retail electric provider relating to customer deposits and the extension of credit, switching fees, levelized billing programs, interconnection and use of on-site generation, termination of service, and quality of service. The commission has jurisdiction over all providers of electric service in enforcing Subsections (a)-(d) and may assess civil and administrative penalties under Section 15.023 and seek civil penalties under Section 15.028. (f) On or before June 30, 2001, the commission shall modify its current rules regarding customer protections to ensure that at least the same level of customer protection against potential abuses and the same quality of service that exists on December 31, 1999, is maintained in a restructured electric industry. (g) Compliance with Subsections (a)-(e) by a provider of electric service which is a municipally owned utility shall be administered solely by the governing body of the municipally owned utility, which shall adopt, implement, and enforce, as to the municipally owned utility, rules having the effect of accomplishing the objectives of Subsections (a)-(e). Reports containing the information required by Subsection (d) shall be filed by the municipally owned utility with the governing body. (h) A retail electric provider, power generation company, aggregator, or other entity that provides retail electric service may not disconnect service to a residential customer during an extreme weather emergency or on a weekend day. The entity providing service shall defer collection of the full payment of bills that are due during an extreme weather emergency until after the emergency is over and shall work with customers to establish a pay schedule for deferred bills. For purposes of this subsection, "extreme weather emergency" means a period when: (1) the previous day's highest temperature did not exceed 32 degrees Fahrenheit and the temperature is predicted to remain at or below that level for the next 24 hours according to the nearest National Weather Service reports; or (2) the National Weather Service issues a heat advisory for any county in the relevant service territory, or when such an advisory has been issued on any one of the previous two calendar days. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.102. RETAIL CUSTOMER CHOICE. (a) Each retail customer in this state, except retail customers of electric cooperatives and municipally owned utilities that have not opted for customer choice, shall have customer choice on and after January 1, 2002. (b) The affiliated retail electric provider of the electric utility serving a retail customer on December 31, 2001, may continue to serve that customer until the customer chooses service from a different retail electric provider, an electric cooperative offering customer choice, or a municipally owned utility offering customer choice. (c) An electric utility that has in effect a systemwide freeze for residential and commercial customers in effect September 1, 1997, extending beyond December 31, 2001, that has been found by a regulatory authority to be in the public interest is not subject to this chapter. At the expiration of the utility's freeze period, the utility shall be subject to this chapter and, at that time, has no claim for stranded cost recovery. (d) The commission shall oversee the compliance with this chapter by electric utilities that were not subject to this chapter before September 1, 2003, and in so doing shall establish schedules and procedures and require commission approvals as it deems necessary to achieve the objectives of this chapter. This subsection does not apply to an electric utility to which Subsection (c) applies. (e) In establishing a schedule under Subsection (d), the commission shall consider: (1) the effect of customer choice on the reliability of service provided by the electric utility; (2) whether the electric utility's service area is located in more than one power region; (3) whether any applicable power region has been certified as a qualifying power region under Section 39.152(a); (4) whether other electric utilities in the power region offer retail customer choice; and (5) any other relevant factor. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. Amended by Acts 2003, 78th Leg., ch. 1327, § 2, eff. Sept. 1, 2003. § 39.103. COMMISSION AUTHORITY TO DELAY COMPETITION AND SET NEW RATES. If the commission determines under Section 39.104 that a power region is unable to offer fair competition and reliable service to all retail customer classes on January 1, 2002, the commission shall delay customer choice for the power region and may on or after January 1, 2002, establish new rates for all electric utilities in the power region as provided by Chapter 36. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.SUBCHAPTER D. MARKET STRUCTURE § 39.1511. PUBLIC MEETINGS OF THE GOVERNING BODY OF AN INDEPENDENT ORGANIZATION. (a) Meetings of the governing body of an independent organization certified under Section 39.151 and meetings of a subcommittee that includes a member of the governing body must be open to the public. The bylaws of the independent organization and the rules of the commission may provide for the governing body or subcommittee to enter into executive session closed to the public to address sensitive matters such as confidential personnel information, contracts, lawsuits, competitively sensitive information, or other information related to the security of the regional electrical network. (b) The bylaws of the independent organization and rules of the commission must ensure that a person interested in the activities of the independent organization has an opportunity to obtain at least seven days' advance notice of meetings and the planned agendas of the meetings and an opportunity to comment on matters under discussion at the meetings. The bylaws and commission rules governing meetings of the governing body may provide for a shorter period of advance notice and for meetings by teleconference technology for governing body meetings to take action on urgent matters. The bylaws and rules must require actions taken on short notice or at teleconference meetings to be ratified at the governing body's next regular meeting. The notice requirements may be met by a timely electronic posting on the Internet. Added by Acts 2005, 79th Leg., ch. 797, § 10, eff. Sept. 1, 2005.SUBCHAPTER C. RETAIL COMPETITION § 39.104. CUSTOMER CHOICE PILOT PROJECTS. (a) Customer choice pilot projects may be used to allow the commission to evaluate the ability of each power region and electric utility to implement customer choice. However, in a multiply certificated area, an electric utility may not include customers that were served by an electric cooperative or a municipally owned utility on May 1, 1999. (b) The commission shall require each electric utility to offer customer choice in its service area within this state amounting to five percent of the utility's combined load of all customer classes within this state beginning on June 1, 2001. (c) The load designated for customer choice under this section shall be distributed among all customer classes of a utility consistent with the purpose of this section and subject to commission approval. (d) Customers participating in a pilot project under this section may buy electric energy from any retail electric provider certified by the commission under Section 39.352, including an affiliated retail electric provider; provided, however, that a retail electric provider may not participate in a pilot project in the certificated service area served by the electric utility with which it is affiliated. (e) Each utility operating a pilot project under this section shall charge residential and small commercial customers in accordance with Section 39.052. (f) The commission may prescribe reporting requirements it considers necessary to evaluate a pilot project consistent with the purpose of this section. (g) Customers having customer choice under this section shall be billed as provided by Section 39.107. (h) The commission may prescribe terms and conditions it considers necessary to prohibit anticompetitive practices and to encourage customer choice offered under this section. (i) Notwithstanding any other provision of this title, a retail electric provider participating in a pilot project under this section is not an electric utility or a retail electric utility. (j) Twenty percent of the load designated for customer choice under this section shall be initially set aside for aggregated loads. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.105. LIMITATION ON SALE OF ELECTRICITY. (a) After January 1, 2002, a transmission and distribution utility may not sell electricity or otherwise participate in the market for electricity except for the purpose of buying electricity to serve its own needs. (b) A person or retail electric utility may not provide, furnish, or make available electric service at retail within the certificated service area of an electric cooperative that has not adopted customer choice or a municipally owned utility that has not adopted customer choice. However, this subsection does not prohibit the provision of electric service in multiply certificated service areas to customers of any other retail electric utility. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.106. PROVIDER OF LAST RESORT. (a) The commission shall designate retail electric providers in areas of the state in which customer choice is in effect to serve as providers of last resort. (b) A provider of last resort shall offer a standard retail service package for each class of customers designated by the commission at a fixed, nondiscountable rate approved by the commission. (c) A provider of last resort shall provide the standard retail service package to any requesting customer in the territory for which it is the provider of last resort. (d) The commission shall designate the provider or providers of last resort not later than June 1, 2001. (e) The commission shall determine the procedures and criteria, which may include the solicitation of bids, for designating a provider or providers of last resort. The commission may redesignate the provider of last resort according to a schedule it considers appropriate. (f) In the event that no retail electric provider applies to be the provider of last resort for a given area of the state on reasonable terms and conditions, the commission may require a retail electric provider to become the provider of last resort as a condition of receiving or maintaining a certificate under Section 39.352. (g) In the event that a retail electric provider fails to serve any or all of its customers, the provider of last resort shall offer that customer the standard retail service package for that customer class with no interruption of service to any customer. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.108. CONTRACTUAL OBLIGATIONS. This chapter may not: (1) interfere with or abrogate the rights or obligations of any party, including a retail or wholesale customer, to a contract with an investor-owned electric utility, river authority, municipally owned utility, or electric cooperative; (2) interfere with or abrogate the rights or obligations of a party under a contract or agreement concerning certificated utility service areas; or (3) result in a change in wholesale power costs to wholesale customers in Texas purchasing electricity under wholesale power contracts the pricing provisions of which are based on formulary rates, fuel adjustments, or average system costs. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.109. NEW OWNER OR SUCCESSOR. (a) To ensure the continued safe and reliable operation of electric generating facilities, the commission shall require a generating facility that is transferred to a new owner or successor in interest between June 1, 1999, and January 1, 2002, to continue to be operated and maintained by the same operating personnel for not less than two years, except that the personnel may be dismissed for cause. (b) This section shall apply only if the facility is actually operated during the two-year period after the sale. (c) This section shall not require that the purchaser cause the facility to be operated in whole or in part, nor shall it preclude a temporary closure of the facility during the two-year period. (d) This section shall not create any obligation extending after the two-year period following the sale. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.SUBCHAPTER D. MARKET STRUCTURE § 39.151. ESSENTIAL ORGANIZATIONS. (a) A power region must establish one or more independent organizations to perform the following functions: (1) ensure access to the transmission and distribution systems for all buyers and sellers of electricity on nondiscriminatory terms; (2) ensure the reliability and adequacy of the regional electrical network; (3) ensure that information relating to a customer's choice of retail electric provider is conveyed in a timely manner to the persons who need that information; and (4) ensure that electricity production and delivery are accurately accounted for among the generators and wholesale buyers and sellers in the region. (b) "Independent organization" means an independent system operator or other person that is sufficiently independent of any producer or seller of electricity that its decisions will not be unduly influenced by any producer or seller. (c) The commission shall certify an independent organization or organizations to perform the functions prescribed by this section. The commission shall apply the provisions of this section and Sections 39.1511, 39.1512, and 39.1515 so as to avoid conflict with a ruling of a federal regulatory body. (d) The commission shall adopt and enforce rules relating to the reliability of the regional electrical network and accounting for the production and delivery of electricity among generators and all other market participants, or may delegate to an independent organization responsibilities for establishing or enforcing such rules. Any such rules adopted by an independent organization and any enforcement actions taken by the organization are subject to commission oversight and review. An independent organization certified by the commission is directly responsible and accountable to the commission. The commission has complete authority to oversee and investigate the organization's finances, budget, and operations as necessary to ensure the organization's accountability and to ensure that the organization adequately performs the organization's functions and duties. The organization shall fully cooperate with the commission in the commission's oversight and investigatory functions. The commission may take appropriate action against an organization that does not adequately perform the organization's functions or duties or does not comply with this section, including decertifying the organization or assessing an administrative penalty against the organization. The commission by rule shall adopt procedures governing decertification of an independent organization, selecting and certifying a successor organization, and transferring assets to the successor organization to ensure continuity of operations in the region. The commission may not implement, by order or by rule, a requirement that is contrary to an applicable federal law or rule. (d-1) The commission may: (1) require an independent organization to provide reports and information relating to the independent organization's performance of the functions prescribed by this section and relating to the organization's revenues, expenses, and other financial matters; (2) prescribe a system of accounts for an independent organization; (3) conduct audits of an independent organization's performance of the functions prescribed by this section or relating to its revenues, expenses, and other financial matters and may require an independent organization to conduct such an audit; (4) inspect an independent organization's facilities, records, and accounts during reasonable hours and after reasonable notice to the independent organization; (5) assess administrative penalties against an independent organization that violates this title or a rule or order adopted by the commission and, at the request of the commission, the attorney general may apply for a court order to require an independent organization to comply with commission rules and orders in the manner provided by Chapter 15; and (6) resolve disputes between an affected person and an independent organization and adopt procedures for the efficient resolution of such disputes. (e) The commission may authorize an independent organization that is certified under this section to charge a reasonable and competitively neutral rate to wholesale buyers and sellers to cover the independent organization's costs. The commission shall investigate the organization's cost efficiencies, salaries and benefits, and use of debt financing and may require the organization to provide any information needed to effectively evaluate the organization's budget and the reasonableness and neutrality of a rate or proposed rate or to evaluate the effectiveness or efficiency of the organization. The commission shall work with the organization to establish the detail of information, both current and historical, and the time frames the commission needs to effectively evaluate a rate or a rate request. (f) In implementing this section, the commission may cooperate with the utility regulatory commission of another state or the federal government and may hold a joint hearing or make a joint investigation with that commission. (g) To maintain certification as an independent organization under this section, an organization's governing body must be composed of persons specified by this section and selected in accordance with formal bylaws or protocols of the organization. The bylaws or protocols must be approved by the commission and must reflect the input of the commission. The bylaws must specify the process by which appropriate stakeholders elect members and, for unaffiliated members, prescribe professional qualifications for selection as a member. The bylaws must require the use of a professional search firm to identify candidates for membership of unaffiliated members. The process must allow for commission input in identifying candidates. The governing body must be composed of: (1) the chairman of the commission as an ex officio nonvoting member; (2) the counsellor as an ex officio voting member representing residential and small commercial consumer interests; (3) the chief executive officer of the independent organization as an ex officio voting member; (4) six market participants elected by their respective market segments to serve one-year terms, with: (A) one representing independent generators; (B) one representing investor-owned utilities; (C) one representing power marketers; (D) one representing retail electric providers; (E) one representing municipally owned utilities; and (F) one representing electric cooperatives; (5) one member representing industrial consumer interests and elected by the industrial consumer market segment to serve a one-year term; (6) one member representing large commercial consumer interests selected in accordance with the bylaws to serve a one-year term; and (7) five members unaffiliated with any market segment and selected by the other members of the governing body to serve three-year terms. (g-1) The presiding officer of the governing body must be one of the members described by Subsection (g)(7). (h) The ERCOT independent system operator may meet the criteria relating to the other functions of an independent organization provided by Subsection (a) by adopting procedures and acquiring resources needed to carry out those functions, consistent with any rules or orders of the commission. (i) The commission may delegate authority to the existing independent system operator in ERCOT to enforce operating standards within the ERCOT regional electrical network and to establish and oversee transaction settlement procedures. The commission may establish the terms and conditions for the ERCOT independent system operator's authority to oversee utility dispatch functions after the introduction of customer choice. (j) A retail electric provider, municipally owned utility, electric cooperative, power marketer, transmission and distribution utility, or power generation company shall observe all scheduling, operating, planning, reliability, and settlement policies, rules, guidelines, and procedures established by the independent system operator in ERCOT. Failure to comply with this subsection may result in the revocation, suspension, or amendment of a certificate as provided by Section 39.356 or in the imposition of an administrative penalty as provided by Section 39.357. (k) To the extent the commission has authority over an independent organization outside of ERCOT, the commission may delegate authority to the independent organization consistent with Subsection (i). (l) No operational criteria, protocols, or other requirement established by an independent organization, including the ERCOT independent system operator, may adversely affect or impede any manufacturing or other internal process operation associated with an industrial generation facility, except to the minimum extent necessary to assure reliability of the transmission network. (m) A power region outside of ERCOT shall be deemed to have met the requirement to establish an independent organization to perform the transmission functions specified in Subsection (a) if the Federal Energy Regulatory Commission has approved a regional transmission organization for the region and found that the regional transmission organization meets the requirements of Subsection (a). Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. Amended by Acts 2005, 79th Leg., ch. 797, § 9, eff. Sept. 1, 2005. § 39.1512. DISCLOSURE OF INTEREST IN MATTER BEFORE INDEPENDENT ORGANIZATION'S GOVERNING BODY; PARTICIPATION IN DECISION. (a) If a matter comes before the governing body of an independent organization certified under Section 39.151 and a member has a direct interest in that matter or is employed by or has a substantial financial interest in a person who has a direct interest in that matter, that member shall publicly disclose the fact of that interest to the governing body at a public meeting of the body. The member shall recuse himself or herself from the governing body's deliberations and actions on the matter and may not vote on the matter or otherwise participate in a governing body decision on the matter. (b) A disclosure made under Subsection (a) shall be entered in the minutes of the meeting at which the disclosure is made. (c) The fact that a member is recused from a vote or decision by application of this section does not affect the existence of a quorum. Added by Acts 2005, 79th Leg., ch. 797, § 10, eff. Sept. 1, 2005. § 39.152. QUALIFYING POWER REGIONS. (a) The commission shall certify a power region if: (1) a sufficient number of interconnected utilities in the power region fall under the operational control of an independent organization as described by Section 39.151; (2) the power region has a generally applicable tariff that guarantees open and nondiscriminatory access for all users to transmission and distribution facilities in the power region as provided by Section 39.203; and (3) no person owns and controls more than 20 percent of the installed generation capacity located in or capable of delivering electricity to a power region, as determined according to Section 39.154. (b) In determining whether a power region not entirely within the state meets the requirements of this section, the commission shall consider the extent to which the available transmission facilities limit the delivery of electricity from generators located outside the state to areas of the power region within the state. (c) For a power region outside of ERCOT, the requirements of Subsection (a)(2) shall be deemed to have been met if power aggregating to approximately 50,000 megawatts can be delivered to the portion of the power region that is in this state through the payment of not more than one transmission tariff. (d) For a power region outside of ERCOT, a power generation company that is affiliated with an electric utility may elect to demonstrate that it meets the requirements of Subsection (a)(3) by showing that it does not own and control more than 20 percent of the installed capacity in a geographic market that includes the power region, using the guidelines, standards, and methods adopted by the Federal Energy Regulatory Commission. (e) In a power region outside of ERCOT, if customer choice is introduced before the requirements of Subsection (a) are met, an affiliated retail electric provider may not compete for retail customers in any area of the power region that is within this state and outside of the affiliated transmission and distribution utility's certificated service area unless the affiliated power generation company 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 on January 1, 1999, and was purchasing power at rates that were based on cost of service. 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 of Subsection (a) are met. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.1515. WHOLESALE ELECTRIC MARKET MONITOR. (a) An independent organization certified under Section 39.151 shall contract with an entity selected by the commission to act as the commission's wholesale electric market monitor to detect and prevent market manipulation strategies and recommend measures to enhance the efficiency of the wholesale market. (b) The independent organization shall provide to the personnel of the market monitor: (1) full access to the organization's main operations center and the organization's records that concern operations, settlement, and reliability; and (2) other support and cooperation the commission determines is necessary for the market monitor to perform the market monitor's functions. (c) The independent organization shall use money from the rate authorized by Section 39.151(e) to pay for the market monitor's activities. (d) The commission is responsible for ensuring that the market monitor has the resources, expertise, and authority necessary to monitor the wholesale electric market effectively and shall adopt rules and perform oversight of the market monitor as necessary. The market monitor shall operate under the supervision and oversight of the commission. The commission shall retain all enforcement authority conferred under this title, and this section may not be construed to confer enforcement authority on the market monitor or to authorize the commission to delegate the commission's enforcement authority to the market monitor. The commission by rule shall define: (1) the market monitor's monitoring responsibilities, including reporting obligations and limitations; (2) the standards for funding the market monitor, including staffing requirements; (3) qualifications for personnel of the market monitor; and (4) ethical standards for the market monitor and the personnel of the market monitor. (e) In adopting rules governing the standards for funding the market monitor, the commission shall consult with a subcommittee of the independent organization's governing body to receive information on how money is or should be spent for monitoring functions. Rules governing ethical standards must include provisions designed to ensure that the personnel of the market monitor are professionally and financially independent from market participants. The commission shall develop and implement policies that clearly separate the policymaking responsibilities of the commission and the monitoring, analysis, and reporting responsibilities of the market monitor. (f) The market monitor immediately shall report directly to the commission any potential market manipulations and any discovered or potential violations of commission rules or rules of the independent organization. (g) The personnel of the market monitor may communicate with commission staff on any matter without restriction. (h) The market monitor annually shall submit to the commission and the independent organization a report that identifies market design flaws and recommends methods to correct the flaws. The commission and the independent organization shall review the report and evaluate whether changes to rules of the commission or the independent organization should be made. Added by Acts 2005, 79th Leg., ch. 797, § 10, eff. Sept. 1, 2005. § 39.153. CAPACITY AUCTION. (a) Each electric utility subject to this section shall sell at auction, at least 60 days before the date set for customer choice to begin, entitlements to at least 15 percent of the electric utility's Texas jurisdictional installed generation capacity. For the purposes of this section, the term "electric utility" includes any affiliated power generation company that is unbundled from the electric utility in accordance with Section 39.051, but does not include any entity owning less than 400 megawatts of installed generation capacity. (b) The obligation to auction the entitlements shall continue until the earlier of 60 months after the date customer choice is introduced or the date the commission determines that 40 percent or more of the electric power consumed by residential and small commercial customers within the affiliated transmission and distribution utility's certificated service area before the onset of customer choice is provided by nonaffiliated retail electric providers. (c) An affiliate of the electric utility selling entitlements in the auction required by this section may not purchase entitlements from the affiliated electric utility at the auction. Entitlements may only be purchased by entities lawfully able to sell electricity in Texas. (d) An electric utility may choose to auction additional entitlements beyond those required by Subsection (a) or continue to auction entitlements after the period required by Subsection (b) in order to comply with Section 39.154. (e) The commission shall adopt rules by December 31, 2000, that define the scope of the capacity entitlements to be auctioned. Entitlements may be auctioned in blocks of less than 15 percent. The rules shall state the minimum amount of capacity that can be sold at auction as an entitlement. At a minimum, the rules shall provide that the entitlements: (1) may be sold and purchased in periods of not less than one month nor more than four years; (2) may be resold to any lawful purchaser, except for a retail electric provider affiliated with the electric utility that originally auctioned the entitlement; (3) include no possessory interest in the unit from which the power is produced; (4) include no obligations of a possessory owner of an interest in the unit from which the power is produced; and (5) give the purchaser the right to designate the dispatch of the entitlement, subject to planned outages, outages beyond the control of the utility operating the unit, and other considerations subject to the oversight of the applicable independent organization. (f) The commission shall adopt rules by December 31, 2000, that prescribe the procedure for the auction of the entitlements. The rules shall include: (1) a process for conducting the auction or auctions, including who shall conduct it, how often it shall be conducted, and how winning bidders shall be determined; (2) a process for the electric utility to designate which generation units or combination of units are offered for auction; (3) a provision for the utility to establish an opening bid price based on the electric utility's expected cost, with the commission prescribing the means for determining the opening bid price, which may not include return on equity; and (4) a provision that allows a bidder to specify the magnitude and term of the entitlement, subject to the conditions established in Subsection (e). (g) In adopting the process under Subsection (f)(2), the commission shall consider the furtherance of the development of the competitive market, the cost of transmission, physical constraints of the transmission system, the proximity of the generation to load, economic efficiency, and any other factors the commission finds relevant. The process may provide for commission approval of the designation before auction. The commission may consult with the applicable independent organization to develop the process. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.154. LIMITATION OF OWNERSHIP OF INSTALLED CAPACITY. (a) Beginning on the date of introduction of customer choice, a power generation company may not own and control more than 20 percent of the installed generation capacity located in, or capable of delivering electricity to, a power region. (b) In a power region not entirely within the state, the commission may waive or modify the requirement in Subsection (a) on a finding of good cause. (c) In determining the percentage shares of installed generation capacity under this section, the commission shall combine capacity owned and controlled by a power generation company and any entity that is affiliated with that power generation company within the power region, reduced by the installed generation capacity of those facilities that are made subject to capacity auctions under Sections 39.153(a) and (d). (d) In this chapter, "installed generation capacity" means all potentially marketable electric generation capacity, including the capacity of: (1) generating facilities that are connected with a transmission or distribution system; (2) generating facilities used to generate electricity for consumption by the person owning or controlling the facility; and (3) generating facilities that will be connected with a transmission or distribution system and operating within 12 months. (e) In determining the percentage shares of installed generation capacity owned and controlled by a power generation company under this section and Section 39.156, the commission shall, for purposes of calculating the numerator, reduce the installed generation capacity owned and controlled by that power generation company by the installed generation capacity of any "grandfathered facility" within an ozone nonattainment area as of September 1, 1999, for which that power generation company has commenced complying or made a binding commitment to comply with Section 39.264. 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. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.155. COMMISSION ASSESSMENT OF MARKET POWER. (a) Each person, municipally owned utility, electric cooperative, and river authority that owns generation facilities and offers electricity for sale in this state shall report to the commission its installed generation capacity, the total amount of capacity available for sale to others, the total amount of capacity under contract to others, the total amount of capacity dedicated to its own use, its annual wholesale power sales in the state, its annual retail power sales in the state, and any other information necessary for the commission to assess market power or the development of a competitive retail market in the state. The commission shall by rule prescribe the nature and detail of the reporting requirements and shall administer those reporting requirements in a manner that ensures the confidentiality of competitively sensitive information. (b) The ERCOT independent system operator shall submit an annual report to the commission identifying existing and potential transmission and distribution constraints and system needs within ERCOT, alternatives for meeting system needs, and recommendations for meeting system needs. The first report shall be submitted on or before October 1, 1999. Subsequent reports shall be submitted by January 15 of each year or as determined necessary by the commission. (c) Before the date of introduction of customer choice in a power region other than ERCOT, each electric utility owning transmission and distribution facilities in that region shall submit an annual report to the commission identifying existing and potential transmission and distribution constraints and system needs in the power region, alternatives for meeting system needs, and recommendations for meeting system needs as directed by the commission. (d) In a qualifying power region, the reports required by Subsections (b) and (c) shall be submitted by the independent organization or organizations having authority over the power region or discrete areas thereof. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.156. MARKET POWER MITIGATION PLAN. (a) In this section, "market power mitigation plan" or "plan" means a written proposal by an electric utility or a power generation company for reducing its ownership and control of installed generation capacity as required by Section 39.154. (b) An electric utility or power generation company owning and controlling more than 20 percent of the generation capacity located in, or capable of delivering electricity to, a power region shall file a market power mitigation plan with the commission not later than December 1, 2000. (c) The plan may provide for: (1) the sale of generation assets to a nonaffiliated person; (2) the exchange of generation assets with a nonaffiliated person located in a different power region; (3) the auctioning of generation capacity entitlements as part of a capacity auction required by Section 39.153; (4) the sale of the right to capacity to a nonaffiliated person for at least four years; or (5) any reasonable method of mitigation. (d) For the purposes of this section, generation capacity shall be net of the generation capacity subject to an auction under Section 39.153. (e) The plan shall be in a form prescribed by the commission and shall provide information the commission finds reasonably necessary to evaluate the plan. (f) The commission shall approve, modify, or reject a plan within 180 days after the date of a filing under Subsection (b). The commission may not modify a plan to require divestiture by the electric utility or the power generation company. (g) In reaching its determination under Subsection (f), the commission shall consider: (1) the degree to which the electric utility's or power generation company's stranded costs, if any, are minimized; (2) whether on disposition of the generation assets the reasonable value is likely to be received; (3) the effect of the plan on the electric utility's or power generation company's federal income taxes; (4) the effect of the plan on current and potential competitors in the generation market; and (5) whether the plan is consistent with the public interest. (h) An electric utility or power generation company with an approved mitigation plan may request to amend or repeal its plan. On a showing of good cause, the commission shall modify or repeal an electric utility's or power generation company's mitigation plan. (i) If an electric utility's or a power generation company's market power mitigation plan is not approved before January 1 of the year it is to take effect, the commission may order the electric utility or power generation company to auction generation capacity entitlements according to Section 39.153, subject to commission approval, of any capacity exceeding the maximum allowable capacity prescribed by Section 39.154 until the time a mitigation plan is approved. (j) An auction under Subsection (i) shall be held not later than 60 days after the date the order is entered. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.157. COMMISSION AUTHORITY TO ADDRESS MARKET POWER. (a) The commission shall monitor market power associated with the generation, transmission, distribution, and sale of electricity in this state. On a finding that market power abuses or other violations of this section are occurring, the commission shall require reasonable mitigation of the market power by ordering the construction of additional transmission or distribution facilities, by seeking an injunction or civil penalties as necessary to eliminate or to remedy the market power abuse or violation as authorized by Chapter 15, by imposing an administrative penalty as authorized by Chapter 15, or by suspending, revoking, or amending a certificate or registration as authorized by Section 39.356. Section 15.024(c) does not apply to an administrative penalty imposed under this section. For purposes of this subchapter, market power abuses are practices by persons possessing market power that are unreasonably discriminatory or tend to unreasonably restrict, impair, or reduce the level of competition, including practices that tie unregulated products or services to regulated products or services or unreasonably discriminate in the provision of regulated services. For purposes of this section, "market power abuses" include predatory pricing, withholding of production, precluding entry, and collusion. A violation of the code of conduct provided by Subsection (d) that materially impairs the ability of a person to compete in a competitive market shall be deemed to be an abuse of market power. The possession of a high market share in a market open to competition may not, of itself, be deemed to be an abuse of market power; however, this sentence shall not affect the application of state and federal antitrust laws. (b) Beginning on the date of introduction of customer choice, a person that owns generation facilities may not own transmission or distribution facilities in this state except for those facilities necessary to interconnect a generation facility with the transmission or distribution network, a facility not dedicated to public use, or a facility otherwise excluded from the definition of "electric utility" under Section 31.002. However, nothing in this chapter shall prohibit a power generation company affiliated with a transmission and distribution utility from owning generation facilities. (c) The commission shall monitor market shares of installed capacity to ensure that the limitations in Section 39.154 are not exceeded. If the commission finds that a person has violated a limitation in Section 39.154, the commission shall order the person to file, within 60 days of the date of the order, a market power mitigation plan consistent with the requirements in Section 39.156. (d) Not later than January 10, 2000, the commission shall adopt rules and enforcement procedures to govern transactions or activities between a transmission and distribution utility and its competitive affiliates to avoid potential market power abuses and cross-subsidizations between regulated and competitive activities both during the transition to and after the introduction of competition. Nothing in this subsection is intended to affect or modify the obligations or duties relating to any rules or standards of conduct that may apply to a utility or the utility's affiliates under orders or regulations of the Federal Energy Regulatory Commission or the Securities and Exchange Commission. A utility that is subject to statutes or regulations in other states that conflict with a provision of this section may petition the commission for a waiver of the conflicting provision on a showing of good cause. The rules adopted under this section shall ensure that: (1) a utility makes any products and services, other than corporate support services, that it provides to a competitive affiliate available, contemporaneously and in the same manner, to the competitive affiliate's competitors and applies its tariffs, prices, terms, conditions, and discounts for those products and services in the same manner to all similarly situated entities; (2) a utility does not: (A) give a competitive affiliate or a competitive affiliate's customers any preferential advantage, access, or treatment regarding services other than corporate support services; or (B) act in a manner that is discriminatory or anticompetitive with respect to a nonaffiliated competitor of a competitive affiliate; (3) a utility providing electric transmission or distribution services: (A) provides those services on nondiscriminatory terms and conditions; (B) does not establish as a condition for the provision of those services the purchase of other goods or services from the utility or the competitive affiliate; and (C) does not provide competitive affiliates preferential access to the utility's transmission and distribution systems or to information about those systems; (4) a utility does not release any proprietary customer information to a competitive affiliate or any other entity, other than an independent organization as defined by Section 39.151 or a provider of corporate support services for the purposes of providing the services, without obtaining prior verifiable authorization, as determined from the commission, from the customer; (5) a utility does not: (A) communicate with a current or potential customer about products or services offered by a competitive affiliate in a manner that favors a competitive affiliate; or (B) allow a competitive affiliate, before September 1, 2005, to use the utility's corporate name, trademark, brand, or logo unless the competitive affiliate includes on employee business cards and in its advertisements of specific services to existing or potential residential or small commercial customers locating within the utility's certificated service area a disclaimer that states, "(Name of competitive affiliate) is not the same company as (name of utility) and is not regulated by the Public Utility Commission of Texas, and you do not have to buy (name of competitive affiliate)'s products to continue to receive quality regulated services from (name of utility)."; (6) a utility does not conduct joint advertising or promotional activities with a competitive affiliate in a manner that favors the competitive affiliate; (7) a utility is a separate, independent entity from any competitive affiliates and, except as provided by Subdivisions (8) and (9), does not share employees, facilities, information, or other resources, other than permissible corporate support services, with those competitive affiliates unless the utility can prove to the commission that the sharing will not compromise the public interest; (8) a utility's office space is physically separated from the office space of the utility's competitive affiliates by being located in separate buildings or, if within the same building, by a method such as having the offices on separate floors or with separate access, unless otherwise approved by the commission; (9) a utility and a competitive affiliate: (A) may, to the extent the utility implements adequate safeguards precluding employees of a competitive affiliate from gaining access to information in a manner inconsistent with Subsection (g) or (i), share common officers and directors, property, equipment, offices to the extent consistent with Subdivision (8), credit, investment, or financing arrangements to the extent consistent with Subdivision (17), computer systems, information systems, and corporate support services; and (B) are not required to enter into prior written contracts or competitive solicitations for non-tariffed transactions between the utility and the competitive affiliate, except that the commission by rule may require the utility and the competitive affiliate to enter into prior written contracts or competitive solicitations for certain classes of transactions, other than corporate support services, that have a per unit value of more than $75,000 or that total more than $1 million; (10) a utility does not temporarily assign, for less than one year, employees engaged in transmission or distribution system operations to a competitive affiliate unless the employee does not have knowledge of information that is intended to be protected under this section; (11) a utility does not subsidize the business activities of an affiliate with revenues from a regulated service; (12) a utility and its affiliates fully allocate costs for any shared services, corporate support services, and other items described by Subdivisions (8) and (9); (13) a utility and its affiliates keep separate books of accounts and records and the commission may review records relating to a transaction between a utility and an affiliate; (14) assets transferred or services provided between a utility and an affiliate, other than transfers that facilitate unbundling under Section 39.051 or asset valuation under Section 39.262, are priced at a level that is fair and reasonable to the customers of the utility and reflects the market value of the assets or services or the utility's fully allocated cost to provide those assets or services; (15) regulated services that a utility provides on a routine or recurring basis are included in a tariff that is subject to commission approval; (16) each transaction between a utility and a competitive affiliate is conducted at arm's length; and (17) a utility does not allow an affiliate to obtain credit under an arrangement that would include a specific pledge of assets in the rate base of the utility or a pledge of cash reasonably necessary for utility operations. (e) The commission shall by rule establish a code of conduct that must be observed by electric cooperatives and municipally owned utilities and their affiliates to protect against anticompetitive practices. The rules adopted by the commission under this subsection shall be consistent with Chapters 40 and 41 and may not be more restrictive than the rules adopted under Subsection (d). (f) Following review of the annual reports submitted to it under Sections 39.155(b) and (c), the commission shall determine whether specific transmission or distribution constraints or bottlenecks within this state give rise to market power in specific geographic markets in the state. The commission, on a finding that specific transmission or distribution constraints or bottlenecks within this state give rise to market power, may order reasonable mitigation of that potential market power by ordering, under Section 39.203(e), one or more electric utilities or transmission and distribution utilities to construct additional transmission or distribution capacity, or both, subject to the certification provisions of this title. (g) The sharing of corporate support services in accordance with this section may not allow or provide a means for 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. (h) A utility or competitive affiliate may not circumvent the provisions or the intent of the provisions of Subsection (d) by using any utility affiliate to provide information, services, or subsidies between the utility and a competitive affiliate. (i) In this section: (1) "Competitive affiliate" means an affiliate of a utility that provides services or sells products in a competitive energy-related market in this state, including telecommunications services, to the extent those services are energy related. (2) "Corporate support services" means services shared by a utility, its parent holding company, or a separate affiliate created to perform corporate support services, with its affiliates of joint corporate oversight, governance, support systems, and personnel. Examples of services that may be shared, to the extent the services comply with the requirements prescribed by Subsections (d) and (g), include human resources, procurement, information technology, regulatory services, administrative services, real estate services, legal services, accounting, environmental services, research and development, internal audit, community relations, corporate communications, financial services, financial planning and management support, corporate services, corporate secretary, lobbying, and corporate planning. Examples of services that may not be shared include engineering, purchasing of electric transmission, transmission and distribution system operations, and marketing. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.SUBCHAPTER E. PRICE REGULATION AFTER COMPETITION § 39.205. REGULATION OF COSTS FOLLOWING FREEZE PERIOD. At the conclusion of the freeze period, any remaining costs associated with nuclear decommissioning obligations continue to be subject to cost of service rate regulation and shall be included as a nonbypassable charge to retail customers. The commission may adopt rules necessary to ensure that money for decommissioning is prudently collected, managed, and spent for its intended purpose and that money that remains unspent after decommissioning is completed is returned to retail customers. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. Amended by Acts 2005, 79th Leg., ch. 121, § 2, eff. Sept. 1, 2005.SUBCHAPTER D. MARKET STRUCTURE § 39.158. MERGERS AND CONSOLIDATIONS. (a) An owner of electric generation facilities that offers electricity for sale in the state and proposes to merge, consolidate, or otherwise become affiliated with another owner of electric generation facilities that offers electricity for sale in this state shall obtain the approval of the commission before closing if the electricity offered for sale in the power region by the merged, consolidated, or affiliated entity will exceed one percent of the total electricity for sale in the power region. The approval shall be requested at least 120 days before the date of the proposed closing. The commission shall approve the transaction unless the commission finds that the transaction results in a violation of Section 39.154. If the commission finds that the transaction as proposed would violate Section 39.154, the commission may condition approval of the transaction on adoption of reasonable modifications to the transaction as prescribed by the commission to mitigate potential market power abuses. (b) Nothing in this chapter shall be construed to confer immunity from state or federal antitrust laws. This chapter is intended to complement other state and federal antitrust provisions. Therefore, antitrust remedies may also be sought in state or federal court to remedy anticompetitive activities. (c) This section may not be deemed to authorize commission review or approval of transactions entered into between or among municipally owned utilities, river authorities, special districts created by law, or other political subdivisions, whether or not those transactions may be characterized as mergers, consolidations, or other affiliations, when the transaction is authorized or structured under state law. (d) Notwithstanding any other provision of this title, an electric utility which, before the effective date of this chapter, entered into a stipulation or agreement in support of approval of a merger which was approved by the commission on or after January 1, 1996, requiring the utility to pass through to ratepayers the savings resulting from the merger of that utility with another utility shall continue to be bound by the terms of that stipulation or agreement. The commission shall ensure that the pass-through of all merger savings required under any such stipulation or agreement shall be fully implemented during the freeze period and shall be reflected in setting the price to beat for that utility. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.SUBCHAPTER E. PRICE REGULATION AFTER COMPETITION § 39.201. COST OF SERVICE TARIFFS AND CHARGES. (a) Each electric utility shall, on or before April 1, 2000, file proposed tariffs for its proposed transmission and distribution utility. (b) The filing under this section shall include supporting cost data for determination of nonbypassable delivery charges, which shall be the sum of: (1) transmission and distribution utility charges by customer class based on a forecasted 2002 test year; (2) a system benefit fund fee; and (3) an expected competition transition charge, if any. (c) Each electric utility shall also identify the unbundled generation and retail energy service costs by customer class. (d) In accordance with a schedule and procedures it establishes, the commission shall hold a hearing and approve or modify and make effective as of January 1, 2002, the transmission and distribution utility's proposed tariffs for transmission and distribution services, the system benefit fund fee, and the expected competition transition charge as determined under Subsections (g) and (h) and as implemented under Subsections (i)-(l), if any. (e) The system benefit fund fee shall be that established by the commission under Section 39.903. (f) The expected competition transition charge shall be that as determined under Subsections (g) and (h) and as implemented under Subsections (i)-(l). (g) The expected competition transition charge approved by the commission shall be calculated from the amount of stranded costs as defined in Subchapter F that are reasonably projected to exist on the last day of the freeze period modified to reflect any adjustments determined appropriate by the commission under Section 39.261(c). (h) The electric utility shall use the ECOM administrative model referenced in Section 39.262 to determine estimated stranded costs. The model must include updated company-specific inputs. Natural gas prices used in the model must be market-based natural gas forward prices, where available. Growth rates in generating plant operations and maintenance costs and allocated administrative and general costs shall be benchmarked by comparing those costs to the best available information on cost trends for comparable generating plants. Capital additions shall be benchmarked using the limitation in Section 39.259(b). (i) An electric utility may: (1) at any time after the start of the freeze period, securitize 100 percent of its regulatory assets as defined by Section 39.302 and up to 75 percent of its estimated stranded costs as defined by this section and recover those charges through a transition charge, in accordance with a financing order issued by the commission under Section 39.303; (2) implement, under bond, a nonbypassable charge of up to 100 percent of its estimated stranded costs; or (3) use a combination of the two methods under Subdivisions (1) and (2). (j) Any competition transition charge shall be allocated among retail customer classes according to Section 39.253. (k) In determining the length of time over which stranded costs under Subsection (h) may be recovered, the commission shall consider: (1) the electric utility's rates as of the end of the freeze period; (2) the sum of the transmission and distribution charges and the system benefit fund fees; (3) the proportion of estimated stranded costs to the invested capital of the electric utility; and (4) any other factor consistent with the public interest as expressed in this chapter. (l) Two years after customer choice is introduced, the stranded cost estimate under this section shall be reviewed and, if necessary, adjusted to reflect a final, actual valuation in the true-up proceeding under Section 39.262. If, based on that proceeding, the competition transition charge is not sufficient, the commission may extend the collection period for the charge or, if necessary, increase the charge. Alternatively, if it is found in the true-up proceeding that the competition transition charge is larger than is needed to recover any remaining stranded costs, the commission may: (1) reduce the competition transition charge, to the extent it has not been securitized; (2) reverse, in whole or in part, the depreciation expense that has been redirected under Section 39.256; (3) reduce the transmission and distribution utility's rates; or (4) implement a combination of the elements in Subdivisions (1)-(3). Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.202. PRICE TO BEAT. (a) From January 1, 2002, until January 1, 2007, an affiliated retail electric provider shall make available to residential and small commercial customers of its affiliated transmission and distribution utility rates that, on a bundled basis, are six percent less than the affiliated electric utility's corresponding average residential and small commercial rates, on a bundled basis, that were in effect on January 1, 1999, adjusted to reflect the fuel factor determined as provided by Subsection (b) and adjusted for any base rate reduction as stipulated to by an electric utility in a proceeding for which a final order had not been issued by January 1, 1999. These rates on a bundled basis shall be known as the "price to beat" for residential and small commercial customers, except that the "price to beat" for a utility is the rate in effect as a result of a settlement approved by the commission after January 1, 1999, if the commission 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 commission after October 1, 1998. (b) The commission shall determine the fuel factor for each electric utility as of December 31, 2001. (c) After the date of customer choice, each affiliated power generation company shall file a final fuel reconciliation for the period ending the day before the date customer choice is introduced. The final fuel balance from that reconciliation shall be included in the true-up proceeding under Section 39.262. (d) An affiliated retail electric provider shall make public its price to beat in a manner that provides adequate disclosure as determined by the commission. (e) The affiliated retail electric provider may not charge rates for residential or small commercial customers that are different from the price to beat until the earlier of 36 months after the date customer choice is introduced or: (1) for service to residential customers, the date the commission determines that 40 percent or more of the electric power consumed by residential customers within the affiliated transmission and distribution utility's certificated service area before the onset of customer choice is committed to be served by nonaffiliated retail electric providers; or (2) for service to small commercial customers, the date the commission determines that 40 percent or more of the electric power consumed by small commercial customers within the affiliated transmission and distribution utility's certificated service area before the onset of customer choice is committed to be served by nonaffiliated retail electric providers. (f) Notwithstanding Subsection (e), the affiliated retail electric provider may charge rates that are different from the price to beat for service to aggregated loads of nonresidential customers having an aggregated peak demand greater than 1,000 kilowatts, provided that all affected customers are: (1) commonly owned; or (2) franchisees of the same franchisor. (g) The affiliated retail electric provider may not encourage or provide an incentive to a customer to switch to a nonaffiliated retail electric provider, promote any nonaffiliated retail electric provider, or exchange customers with any nonaffiliated retail electric provider to comply with the requirements of Subsection (e)(1) or (2). (h) The following standards shall be used for measuring electric power consumption during the period before the onset of customer choice: (1) the consumption of residential and small commercial customers with an annual peak demand less than or equal to 20 kilowatts shall be based on the average annual consumption of those respective groups during the year 2000; (2) consumption for all small commercial customers with an annual peak demand larger than 20 kilowatts shall be based on each customer's usage during the year 2000; and (3) for purposes of determining whether an affiliated retail electric provider has met the requirements of Subsection (e)(2), the aggregated loads of nonresidential customers having a peak demand greater than 1,000 kilowatts that are served by the affiliated retail electric provider at a rate different from the price to beat under Subsection (f) shall be deducted from the electric power consumption of small commercial customers during the period before the onset of customer choice. (i) For purposes of Subsection (h)(2), if less than 12 months of consumption history exists for any such customer, the usage history shall be supplemented with the prior history of that customer's location. For service to a new location, the annual consumption shall be determined as the transmission and distribution utility's estimate of the maximum annual kilowatt demand used in sizing the electric service to that customer multiplied by 8,760 hours, and that product multiplied by the average annual customer load factor for small commercial customers with loads greater than 20 kilowatts for the year 2000. (j) On determining that its affiliated retail electric provider has met the requirements of Subsection (e)(1) or (2), an electric utility or a transmission and distribution utility shall make a filing with the commission attesting to the fact that those requirements have been met and that the restrictions of Subsection (e)(1) or (2) and the true-up in Section 39.262(e) are no longer applicable. The commission shall adopt appropriate procedures to enable it to accept or reject the filing within 30 days. (k) Following the true-up proceedings conducted under Section 39.262, the commission may adjust the price to beat. (l) An affiliated retail electric provider may request that the commission adjust the fuel factor established under Subsection (b) not more than twice a year if the affiliated retail electric provider demonstrates that the existing fuel factor does not adequately reflect significant changes in the market price of natural gas and purchased energy used to serve retail customers. (m) In a power region outside of ERCOT, if customer choice is introduced before the requirements of Section 39.152(a) are met, an affiliated retail electric provider shall charge rates to customers other than residential and small commercial customers that are no higher than the rates that, on a bundled basis, were in effect on January 1, 1999, adjusted to reflect the fuel factor as provided by Subsection (b) and adjusted for any base rate reduction as stipulated to by an electric utility in a proceeding for which a final order had not been issued by January 1, 1999. (n) Notwithstanding Subsection (a), in a power region outside of ERCOT, if customer choice is introduced before the requirements of Section 39.152(a) are met, an affiliated retail electric provider shall continue to offer the price to beat to residential and small commercial customers, unless the price is changed by the commission in accordance with this chapter, until the later of 60 months after the date customer choice is introduced or the requirements of Section 39.152(a) are met. (o) In this section, "small commercial customer" means a commercial customer having a peak demand of 1,000 kilowatts or less. (p) On finding that a retail electric provider will be unable to maintain its financial integrity if it complies with Subsection (a), the commission shall set the retail electric provider's price to beat at the minimum level that will allow the retail electric provider to maintain its financial integrity. However, in no event shall the price to beat exceed the level of rates, on a bundled basis, charged by the affiliated electric utility on September 1, 1999, adjusted for fuel as provided by Subsection (b). Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.203. TRANSMISSION AND DISTRIBUTION SERVICE. (a) All transmission and distribution utilities shall provide transmission service at wholesale under Subchapter A, Chapter 35. In addition, on and after January 1, 2002, a transmission and distribution utility shall provide transmission or distribution service, or both, at retail to an electric utility, a retail electric provider, a municipally owned utility, an electric cooperative, or an end-use customer at rates, terms of access, and conditions that are comparable to those that apply to the transmission and distribution utility and its affiliates. A municipally owned utility offering customer choice or an electric cooperative offering customer choice shall likewise provide transmission or distribution service, or both, at retail to all such entities in accordance with the commission's rules applicable to terms and conditions of access and at rates adopted in accordance with Sections 40.055(a)(1) and 41.055(1), respectively. (b) When necessary to serve a wholesale customer an electric utility, an electric cooperative that has not opted for customer choice, or a municipally owned utility that has not opted for customer choice shall provide wholesale transmission service at distribution voltage. A customer of a municipally owned utility that has not opted for customer choice or of an electric cooperative that has not opted for customer choice may not claim the status of a wholesale customer or be 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. (c) On or before January 1, 2002, the commission shall establish for all retail electric utilities offering customer choice reasonable and comparable terms and conditions, in accordance with Section 39.201, that comply with Subsection (a) for open access on distribution facilities and shall establish, for all retail electric utilities offering customer choice other than municipally owned utilities and electric cooperatives, reasonable and comparable rates for open access on distribution facilities. (d) The terms of access, conditions, and rates established under Subsection (c) shall be comparable to the terms of access, conditions, and rates that the electric utility applies to itself or its affiliates. The rules shall also provide that all ancillary services provided by the utility to itself or its affiliates are also available to third parties on request on a nondiscriminatory basis. (e) The commission may require an electric utility or a transmission and distribution utility to construct or enlarge facilities to ensure safe and reliable service for the state's electric markets and to reduce transmission constraints within ERCOT in a cost-effective manner where the constraints are such that they are not being resolved through Chapter 37 or the ERCOT transmission planning process. The commission shall require an electric utility or a transmission and distribution utility to construct or enlarge transmission or transmission-related facilities for the purpose of meeting the goal for generating capacity from renewable energy technologies under Section 39.904(a). In any proceeding brought under Chapter 37, an electric utility or transmission and distribution utility ordered to construct or enlarge facilities under this subchapter need not prove that the construction ordered is necessary for the service, accommodation, convenience, or safety of the public and need not address the factors listed in Sections 37.056(c)(1)-(3) and (4)(E). Notwithstanding any other law, including Section 37.057, in any proceeding brought under Chapter 37 by an electric utility or a transmission and distribution utility related to an application for a certificate of public convenience and necessity to construct or enlarge transmission or transmission-related facilities under this subsection, the commission shall issue a final order before the 181st day after the date the application is filed with the commission. If the commission does not issue a final order before that date, the application is approved. (f) The commission's rules must be consistent with the standards of this title and may not be contrary to an applicable decision, rule, or policy statement of a federal regulatory agency having jurisdiction. (g) Each power region shall have generally applicable tariffs approved by the commission or a federal regulatory agency having jurisdiction that guarantees open and nondiscriminatory access as required by Section 39.152. This subsection may not be deemed to vest in the commission power to set or approve distribution access rates of a municipally owned utility or an electric cooperative that has adopted customer choice. (h) A customer in a multiply certificated service area may switch its retail distribution service provider among certificated retail electric utilities only by disconnecting from the facilities of one retail electric utility and connecting to the facilities of another retail electric utility. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. Amended by Acts 2003, 78th Leg., ch. 295, § 3, eff. June 18, 2003; Acts 2005, 79th Leg., 1st C.S., ch. 1, § 2, eff. Sept. 1, 2005. § 39.204. TARIFFS FOR OPEN ACCESS. Each transmission and distribution utility shall file a tariff implementing the open access rules with the commission or the federal regulatory authority having jurisdiction over the transmission and distribution service of the utility not later than the 90th day before the date customer choice is offered by that utility. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.SUBCHAPTER F. RECOVERY OF STRANDED COSTS THROUGH COMPETITION TRANSITION CHARGE § 39.251. DEFINITIONS. In this subchapter: (1) "Above market purchased power costs" means wholesale demand and energy costs that a utility is obligated to pay under an existing purchased power contract to the extent the costs are greater than the purchased power market value. (2) "Existing purchased power contract" means a purchased power contract in effect on January 1, 1999, including any amendments and revisions to that contract resulting from litigation initiated before January 1, 1999. (3) "Generation assets" means all assets associated with the production of electricity, including generation plants, electrical interconnections of the generation plant to the transmission system, fuel contracts, fuel transportation contracts, water contracts, lands, surface or subsurface water rights, emissions-related allowances, and gas pipeline interconnections. (4) "Market value" means, for nonnuclear assets and certain nuclear assets, the value the assets would have if bought and sold in a bona fide third-party transaction or transactions on the open market under Section 39.262(h) or, for certain nuclear assets, as described by Section 39.262(i), the value determined under the method provided by that subsection. (5) "Purchased power market value" means the value of demand and energy bought and sold in a bona fide third-party transaction or transactions on the open market and determined by using the weighted average costs of the highest three offers from the market for purchase of the demand and energy available under the existing purchased power contracts. (6) "Retail stranded costs" means that part of net stranded cost associated with the provision of retail service. (7) "Stranded cost" means the positive excess of the net book value of generation assets over the market value of the assets, taking into account all of the electric utility's generation assets, any above market purchased power costs, and any deferred debit related to a utility's discontinuance of the application of Statement of Financial Accounting Standards No. 71 ("Accounting for the Effects of Certain Types of Regulation") for generation-related assets if required by the provisions of this chapter. For purposes of Section 39.262, book value shall be established as of December 31, 2001, or the date a market value is established through a market valuation method under Section 39.262(h), whichever is earlier, and shall include stranded costs incurred under Section 39.263. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.252. RIGHT TO RECOVER STRANDED COSTS. (a) An electric utility is allowed to recover all of its net, verifiable, nonmitigable stranded costs incurred in purchasing power and providing electric generation service. (b)(1) Recovery of retail stranded costs by an electric utility shall be from all existing or future retail customers, including the facilities, premises, and loads of those retail customers, within the utility's geographical certificated service area as it existed on May 1, 1999. A retail customer may not avoid stranded cost recovery charges by switching to new on-site generation except as provided by Section 39.262(k). For purposes of this subchapter, "new on-site generation" means electric generation capacity greater than 10 megawatts capable of being lawfully delivered to the site without use of utility distribution or transmission facilities and which was not, on or before December 31, 1999, either: (A) a fully operational facility; or (B) a project supported by substantially complete filings for all necessary site-specific environmental permits under the rules of the Texas Natural Resource Conservation Commission in effect at the time of filing. (2) If a customer commences taking energy from new on-site generation which materially reduces the customer's use of energy delivered through the utility's facilities, the customer shall pay an amount each month computed by multiplying the output of the on-site generation by the new sum of competition transition charges under Section 39.201 and transition charges under Subchapter G which are in effect during that month. Payment shall be made to the utility, its successors, an assignee, or other collection agent responsible for collecting the competition transition charges and transition charges and shall be collected in addition to the competition transition charges and transition charges applicable to energy actually delivered to the customer through the utility's facilities. (c) In multiply certificated areas, a retail customer may not avoid stranded cost recovery charges by switching to another electric utility, electric cooperative, or municipally owned utility after May 1, 1999. A customer in a multiply certificated service area that requested to switch providers on or before May 1, 1999, or was not taking service from an electric utility on May 1, 1999, and does not do so after that date is not responsible for paying retail stranded costs of that utility. (d) An electric utility shall pursue commercially reasonable means to reduce its potential stranded costs, including good faith attempts to renegotiate above-cost fuel and purchased power contracts or the exercise of normal business practices to protect the value of its assets. The commission shall consider the utility's efforts under this subsection when determining the amount of the utility's stranded costs; provided, however, that nothing in this section authorizes the commission to substitute its judgment for a market valuation of generation assets determined under Sections 39.262(h) and (i). Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.253. ALLOCATION OF STRANDED COSTS. (a) Any capital costs incurred by an electric utility to improve air quality under Section 39.263 or 39.264 that are included in a utility's invested capital in accordance with those sections shall be allocated among customer classes as follows: (1) 50 percent of those costs shall be allocated in accordance with the methodology used to allocate the costs of the underlying assets in the electric utility's most recent commission order addressing rate design; and (2) the remainder shall be allocated on the basis of the energy consumption of the customer classes. (b) All other retail stranded costs shall be allocated among retail customer classes in accordance with Subsections (c)-(i). (c) The allocation to the residential class shall be determined by allocating to all customer classes 50 percent of the stranded costs in accordance with the methodology used to allocate the costs of the underlying assets in the electric utility's most recent commission order addressing rate design and allocating the remainder of the stranded costs on the basis of the energy consumption of the classes. (d) After the allocation to the residential class required by Subsection (c) has been calculated, the remaining stranded costs shall be allocated to the remaining customer classes in accordance with the methodology used to allocate the costs of the underlying assets in the electric utility's most recent commission order addressing rate design. Non-firm industrial customers shall be allocated stranded costs equal to 150 percent of the amount allocated to that class. (e) After the allocation to the residential class required by Subsection (c) and the allocation to the nonfirm industrial class required by Subsection (d) have been calculated, the remaining stranded costs shall be allocated to the remaining customer classes in accordance with the methodology used to allocate the costs of the underlying assets in the electric utility's most recent commission order addressing rate design. (f) Notwithstanding any other provision of this section, to the extent that the total retail stranded costs, including regulatory assets, of investor-owned utilities exceed $5 billion on a statewide basis, any stranded costs in excess of $5 billion shall be allocated among retail customer classes in accordance with the methodology used to allocate the costs of the underlying assets in the electric utility's most recent commission order addressing rate design. (g) The energy consumption of the customer classes used in Subsections (a)(2) and (c) shall be based on the relevant class characteristics as of May 1, 1999, adjusted for normal weather conditions. (h) For purposes of this section, "stranded costs" includes regulatory assets. (i) Except as provided by Section 39.262(k), no customer or customer class may avoid the obligation to pay the amount of stranded costs allocated to that customer class. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.254. USE OF REVENUES FOR UTILITIES WITH STRANDED COSTS. This subchapter provides a number of tools to an electric utility to mitigate stranded costs. Each electric utility that was reported by the commission to have positive "excess costs over market" (ECOM), denoted as the "base case" for the amount of stranded costs before full retail competition in 2002 with respect to its Texas jurisdiction, in the April 1998 Report to the Texas Senate Interim Committee on Electric Utility Restructuring entitled "Potentially Strandable Investment (ECOM) Report: 1998 Update," must use these tools to reduce the net book value of, otherwise referred to as "accelerate" the cost recovery of, its stranded costs each year. Any positive difference under the report required by Section 39.257(b) shall be applied to the net book value of generation assets. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.255. USE OF REVENUES FOR UTILITIES WITH NO STRANDED COSTS. (a) An electric utility that does not have stranded costs described by Section 39.254 shall be permitted to use any positive difference under the report required by Section 39.257(b) on capital expenditures to improve or expand transmission or distribution facilities, or on capital expenditures to improve air quality, as approved by the commission. Any such capital expenditures shall be made in the calendar year immediately following the year for which the report required by Section 39.257 is calculated. The capital expenditures shall be reflected in any future proceeding under this chapter to set transmission or distribution rates as a reduction to the utility's transmission and distribution invested capital, as approved by the commission. (b) To the extent that positive differences under the report required by Section 39.257(b) are not used for capital expenditures, the amounts shall be flowed back to the electric utility's Texas jurisdictional customers through the power cost recovery factor. (c) This section applies only to the use of positive differences under the report required by Section 39.257(b) for each year during the freeze period. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.256. OPTION TO REDIRECT DEPRECIATION. (a) For the calendar years of 1998, 1999, 2000, and 2001, an electric utility described by Section 39.254 may redirect all or a part of the depreciation expense relating to transmission and distribution assets to its net generation plant assets. (b) The electric utility shall report a decision under Subsection (a) to the commission and any other applicable regulatory authority. (c) Any adjustments made to the book value of transmission and distribution assets or the creation of any related regulatory assets resulting from the redirection under this section shall be accepted and applied by the commission for establishing net invested capital and transmission and distribution rates for retail customers in all future proceedings. (d) Notwithstanding Subsection (c), the design of post-freeze-period retail rates may not: (1) shift the allocation of responsibility for stranded costs; (2) include the adjusted costs in wholesale transmission and distribution rates; or (3) apply the adjustments for the purpose of establishing net invested capital and transmission and distribution rates for wholesale customers. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.257. ANNUAL REPORT. (a) Beginning with the 1999 calendar year, each electric utility shall file a report with the commission not later than 90 days after the end of each year during the freeze period under a schedule and a format determined by the commission. (b) The report shall identify any positive difference between annual revenues, reduced by the amount of annual revenues under Sections 36.203 and 36.205, the revenues received under the interutility billing process as adopted by the commission to implement Sections 35.004, 35.006, and 35.007, revenues associated with transition charges as defined by Section 39.302, and annual costs. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.258. ANNUAL REPORT: DETERMINATION OF ANNUAL COSTS. For the purposes of determining the annual costs in each annual report, the following amounts shall be used: (1) the lesser of: (A) the utility's Texas jurisdictional operation and maintenance expense reflected in each utility's Federal Energy Regulatory Commission Form 1 of the report year, plus factoring expenses not included in operation and maintenance, adjusted for: (i) costs under Sections 36.062, 36.203, and 36.205; and (ii) revenues recorded under the interutility billing process adopted by the commission to implement Sections 35.004, 35.006, and 35.007; or (B) the Texas jurisdictional operation and maintenance expense reflected in each utility's 1996 Federal Energy Regulatory Commission Form 1, plus factoring expenses not included in operation and maintenance, adjusted for: (i) costs under Sections 36.062, 36.203, and 36.205, and not indexed for inflation; (ii) any difference between the annual revenues and the expenses recorded under the interutility billing process adopted by the commission to implement Sections 35.004, 35.006, and 35.007; and (iii) the annual percentage change in the average number of utility customers; (2) the amount of nuclear decommissioning expense approved in the electric utility's last rate proceeding before the commission, as may be required to be adjusted to comply with applicable federal regulatory requirements; (3) the depreciation rates approved in the electric utility's last rate proceeding before the commission; (4) the amortization expense approved in the electric utility's last rate proceeding before the commission or in any other proceeding in which deferred costs and the amortization of those costs are established, except that if the items are fully amortized during the freeze period, the expense shall be adjusted accordingly; (5) taxes and fees, including municipal franchise fees to the extent not included in Subdivision (1), other than federal income taxes, and assessments incurred that year; (6) federal income tax expense, computed according to the stand-alone methodology and using the actual capital structure and actual cost of debt as of December 31 of the report year; (7) return on invested capital, computed by multiplying invested capital as of December 31 of the report year, determined as provided by Section 39.259, by the cost of capital approved in the electric utility's most recent rate proceeding before the commission in which the cost of capital was specifically adopted, or, in the case of a range, the midpoint of the range, if the final rate order for the proceeding was issued on or after January 1, 1992, or if such an order does not exist, a cost of capital of 9.6 percent shall be used; and (8) the amount resulting from any operation and maintenance expense savings tracker from a merger of two utilities and contained in a settlement agreement approved by the commission before January 1, 1999. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.259. ANNUAL REPORT: DETERMINATION OF INVESTED CAPITAL. (a) For the purposes of determining invested capital in each annual report, the net plant in service, regulatory assets, and deferred federal income taxes shall be updated each year, and generation-related invested capital shall be reduced by the amount of securitization under Sections 39.201(i) and 39.262(c) to the extent otherwise included in invested capital. (b) Capital additions to a plant in an amount less than 1-1/2 percent of the electric utility's net plant in service on December 31, 1998, less plant items previously excluded by the commission, for each of the years 1999 through 2001 are presumed prudent. (c) All other items in invested capital shall be as approved in the electric utility's last rate proceeding before the commission. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.260. USE OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. (a) The definition and identification of invested capital and other terms used in this subchapter and Subchapter G that affect the net book value of generation assets and the treatment of transactions performed under Section 35.035 and other transactions authorized by this title or approved by the regulatory authority that affect the net book value of generation assets during the freeze period shall be treated in accordance with generally accepted accounting principles as modified by regulatory accounting rules generally applicable to utilities. (b) The principles and criteria described by Subsection (a), including the criteria for applicability of Statement of Financial Accounting Standards No. 71 ("Accounting for the Effects of Certain Types of Regulation"), shall be applied for purposes of this subchapter as they existed on January 1, 1999. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.261. REVIEW OF ANNUAL REPORT. (a) The annual report filed under this subchapter is a public document and shall be reviewed by the staff of the commission and the office. Both staffs may review work papers and supporting documents and engage in discussions with the utility about the data underlying the reports. (b) The staff of the commission and the office shall communicate in writing to an electric utility not later than the 180th day after the date the report is filed if they have any disagreements with the data or computations. (c) The commission shall finalize and resolve any disagreements related to the annual report, consistent with the requirements of Section 39.258, as follows: (1) for each calendar year, the commission shall finalize the annual report before establishing the competition transition charge under Section 39.201; and (2) for each calendar year, the commission shall finalize the annual report and reflect the result as part of the true-up proceeding under Section 39.262. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.262. TRUE-UP PROCEEDING. (a) An electric utility, together with its affiliated retail electric provider and its affiliated transmission and distribution utility, may not be permitted to overrecover stranded costs through the procedures established by this section or through the application of the measures provided by the other sections of this chapter. (b) After the freeze period, an electric utility located in a power region that is not certified under Section 39.152 shall continue to file annual reports under Sections 39.257, 39.258, and 39.259 as if the freeze period remained in effect, until the time the power region qualifies as certified under Section 39.152. In addition, the commission staff and the office shall continue to review the annual reports as provided by Section 39.261. (c) After January 10, 2004, at a schedule and under procedures to be determined by the commission, each transmission and distribution utility, its affiliated retail electric provider, and its affiliated power generation company shall jointly file to finalize stranded costs under Subsections (h) and (i) and reconcile those costs with the estimated stranded costs used to develop the competition transition charge in the proceeding held under Section 39.201. Any resulting difference shall be applied to the nonbypassable delivery rates of the transmission and distribution utility, except that at the utility's option, any or all of the remaining stranded costs may be securitized under Subchapter G. (d) The affiliated power generation company shall reconcile, and either credit or bill to the transmission and distribution utility, the net sum of: (1) the former electric utility's final fuel balance determined under Section 39.202(c); and (2) any difference between the price of power obtained through the capacity auctions under Sections 39.153 and 39.156 and the power cost projections that were employed for the same time period in the ECOM model to estimate stranded costs in the proceeding under Section 39.201. (e) To the extent that the price to beat exceeded the market price of electricity, the affiliated retail electric provider shall reconcile and credit to the affiliated transmission and distribution utility any positive difference between the price to beat established under Section 39.202, reduced by the nonbypassable delivery charge established under Section 39.201, and the prevailing market price of electricity during the same time period. A reconciliation for the applicable customer class is not required under this subsection for an affiliated retail electric provider that satisfies the requirements of Section 39.202(e)(1) or (2) before the expiration of two years from the introduction of customer choice. If a reconciliation is required, in no event shall the amount credited exceed an amount equal to the number of residential or small commercial customers served by the affiliated transmission and distribution utility that are buying electricity from the affiliated retail electric provider at the price to beat on the second anniversary of the beginning of competition, minus the number of new customers obtained outside the service area, multiplied by $150. (f) To the extent that any amount of regulatory assets included in a transition charge or competition transition charge exceeds the amount of regulatory assets approved in a rate order which became effective on or before September 1, 1999, the commission shall conduct a review during the true-up proceeding to determine whether such amounts were appropriately calculated and constituted reasonable and necessary costs pursuant to Subchapter B, Chapter 36. If the commission finds that the amount of regulatory assets specified in Section 39.302(5) is subject to modification, a credit or other rate adjustment shall be made to the transmission and distribution utility's nonbypassable delivery rates; provided, however, that no adjustment may be made to a transition charge established under Subchapter G. (g) Based on the credits or bills received from its affiliates under Subsections (d), (e), and (f), the transmission and distribution utility shall make necessary adjustments to the nonbypassable delivery rates it charges to retail electric providers. If the commission determines that the nonbypassable delivery rates are not sufficient, the commission may extend the original collection period for the charge or, if necessary, increase the charge. Alternatively, if the commission determines that the nonbypassable delivery rates are larger than are needed to recover the transmission and distribution utility's costs, the commission shall correspondingly reduce: (1) the competition transition charge, to the extent it has not been securitized; (2) the depreciation expense that has been redirected under Section 39.256; (3) the transmission and distribution utility's rates; or (4) a combination of the elements in Subdivisions (1)-(3). (h) Except as provided in Subsection (i), for the purpose of finalizing the stranded cost estimate used to establish the competition transition charge under Section 39.201, the affiliated power generation company shall quantify its stranded costs using one or more of the following methods: (1) Sale of Assets. If, at any time after December 31, 1999, an electric utility or its affiliated power generation company has sold some or all of its generation assets, which sale shall include all generating assets associated with each generating plant that is sold, in a bona fide third-party transaction under a competitive offering, the total net value realized from the sale establishes the market value of the generation assets sold. If not all assets are sold, the market value of the remaining generation assets shall be established by one or more of the other methods in this section. (2) Stock Valuation Method. If, at any time after December 31, 1999, an electric utility or its affiliated power generation company has transferred some or all of its generation assets, including, at the election of the electric utility or power generation company, any fuel and fuel transportation contracts related to those assets, to one or more separate affiliated or nonaffiliated corporations, not less than 51 percent of the common stock of each corporation is spun off and sold to public investors through a national stock exchange, and the common stock has been traded for not less than one year, the resulting average daily closing price of the common stock over 30 consecutive trading days chosen by the commission out of the last 120 consecutive trading days before the filing required under Subsection (c) establishes the market value of the common stock equity in each transferee corporation. The book value of each transferee corporation's debt and preferred stock securities shall be added to the market value of its assets. The market value of each transferee corporation's assets shall be reduced by the corresponding net book value of the assets acquired by each transferee corporation from any entity other than the affiliated electric utility or power generation company. The resulting market value of the assets establishes the market value of the generation assets transferred by the electric utility or power generation company to each separate corporation. If not all assets are disposed of in this manner, the market value of the remaining assets shall be established by one or more of the other methods in this section. (3) Partial Stock Valuation Method. If, at any time after December 31, 1999, an electric utility or its affiliated power generation company has transferred some or all of its generation assets, including, at the election of the electric utility or power generation company, any fuel and fuel transportation contracts related to those assets, to one or more separate affiliated or nonaffiliated corporations, at least 19 percent, but less than 51 percent, of the common stock of each corporation is spun off and sold to public investors through a national stock exchange, and the common stock has been traded for not less than one year, the resulting average daily closing price of the common stock over 30 consecutive trading days chosen by the commission out of the last 120 consecutive trading days before the filing required under Subsection (c) shall be presumed to establish the market value of the common stock equity in each transferee corporation. The commission may accept the market valuation to conclusively establish the value of the common stock equity in each transferee corporation or convene a valuation panel of three independent financial experts to determine whether the percentage of common stock sold is fairly representative of the total common stock equity or whether a control premium exists for the retained interest. The valuation panel must consist of financial experts, chosen from proposals submitted in response to commission requests, from the top 10 nationally recognized investment banks with demonstrated experience in the United States electric industry as indicated by the dollar amount of public offerings of long-term debt and equity of United States investor-owned electric companies over the immediately preceding three years as ranked by the publications "Securities Data" or "Institutional Investor." If the panel determines that a control premium exists for the retained interest, the panel shall determine the amount of the control premium, and the commission shall adopt the determination but may not increase the market value by a control premium greater than 10 percent. The costs and expenses of the panel, as approved by the commission, shall be paid by each transferee corporation. The determination of the commission based on the finding of the panel conclusively establishes the value of the common stock of each transferee corporation. The book value of each transferee corporation's debt and preferred stock securities shall be added to the market value of its assets. The market value of each transferee corporation's assets shall be reduced by the corresponding net book value of the assets acquired by each transferee corporation from any entity other than the affiliated electric utility or power generation company. The resulting market value of the assets establishes the market value of the generation assets transferred by the electric utility or power generation company to each separate corporation. (4) Exchange of Assets. If, at any time after December 31, 1999, an electric utility or its affiliated power generation company has transferred some or all of its generation assets, including any fuel and fuel transportation contracts related to those assets, in a bona fide third-party exchange transaction, the stranded costs related to the transferred assets shall be the difference between the book value and the market value of the transferred assets at the time of the exchange, taking into account any other consideration received or given. The market value of the transferred assets may be determined through an appraisal by a nationally recognized independent appraisal firm, if the market value is subject to a market valuation by means of an offer of sale in accordance with this subdivision. To obtain a market valuation by means of an offer of sale, the owner of the asset shall offer it for sale to other parties under procedures that provide broad public notice of the offer and a reasonable opportunity for other parties to bid on the asset. The owner of the asset may establish a reserve price for any offer based on the sum of the appraised value of the asset and the tax impact of selling the asset, as determined by the commission. (i) Unless an electric utility or its affiliated power generation company combines all of its remaining generation assets into one or more transferee corporations as described in Subsections (h)(2) and (3), the electric utility shall quantify its stranded costs for nuclear assets using the ECOM method. The ECOM method is the estimation model prepared for and described by the commission's April 1998 Report to the Texas Senate Interim Committee on Electric Restructuring entitled "Potentially Strandable Investment (ECOM) Report: 1998 Update." The methodology used in the model must be the same as that used in the 1998 report to determine the "base case." At the time of the proceeding under this section, the ECOM model shall be rerun using updated company-specific inputs required by the model, updating the market price of electricity, and using updated natural gas price forecasts and the capacity cost based on the long-run marginal cost of the most economic new generation technology then available. Natural gas price projections used in the model must be market-based natural gas forward prices, where available. Growth rates in generating plant operations and maintenance costs and allocated administrative and general costs shall be benchmarked by comparing those costs to the best available information on cost trends for comparable generating plants. Capital additions shall be benchmarked using the limitation in Section 39.259(b). (j) The commission shall issue a final order not later than the 150th day after the date of the filing under this section by the transmission and distribution utility, its affiliated retail electric provider, and its affiliated power generation company, and the resulting order shall be subject to judicial review under Chapter 2001, Government Code. (k) Notwithstanding Section 39.252, to the extent that a customer's actual load has been lawfully served by a fully operational qualifying facility before September 1, 2001, or by an on-site power production facility with a rated capacity of 10 megawatts or less, any charge for recovery of stranded costs under this section or Subchapter G assessed on that customer after the facility becomes fully operational shall be included only in those tariffs or charges associated with the services actually provided by the transmission and distribution utility, if any, to the customer after the facility became fully operational and may not include any costs associated with the service provided to the customer by the electric utility or its affiliated transmission and distribution utility under their tariffs before the operation of that qualifying facility. To qualify under this subsection, a qualifying facility must have made substantially complete filings on or before December 31, 1999, for all necessary site-specific environmental permits under the rules of the Texas Natural Resource Conservation Commission in effect at the time of filing. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.263. STRANDED COST RECOVERY OF ENVIRONMENTAL CLEANUP COSTS. (a) Subject to Subsection (c), capital costs incurred by an electric utility to improve air quality before January 1, 2002, are eligible for inclusion as net invested capital under Section 39.259, notwithstanding the limitations imposed under Sections 39.259(b) and (c). (b) Subject to Subsection (c), capital costs incurred by an electric utility or an affiliated power generation company to improve air quality after January 1, 2002, and before May 1, 2003, are eligible for inclusion in the determination of invested capital in the true-up proceeding under Section 39.262. (c) Reasonable costs incurred under Subsections (a) and (b) shall be included as invested capital and considered in an electric utility's stranded cost determination only to the extent that: (1) the cost is applied to offset or reduce the emission of airborne contaminants from an electric generating facility, where: (A) the reduction or offset is determined by the Texas Natural Resource Conservation Commission to be an essential component in achieving compliance with a national ambient air quality standard; or (B) the reduction or offset is necessary in order for an unpermitted electric generating facility to obtain a permit in the manner provided by Section 39.264; (2) the retrofit decision is determined to be the most cost-effective after consideration of alternative measures, including the retirement of the generating facility; and (3) the amount and location of resulting emission reductions is consistent with the air quality goals and policies of the Texas Natural Resource Conservation Commission. (d) If the retirement of a generating facility is the most cost-effective alternative, taking into account the cost of replacement generating capacity, the net book value, including retirement costs and offsetting salvage value, of the affected facility shall be included in the electric utility's stranded cost determination, notwithstanding Section 39.259(c). Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.264. EMISSIONS REDUCTIONS OF "GRANDFATHERED FACILITIES". (a) In this section: (1) "Conservation commission" means the Texas Natural Resource Conservation Commission. (2) "Electric generating facility" means a facility that generates electric energy for compensation and is owned or operated by a person in this state, including a municipal corporation, electric cooperative, or river authority. (b) 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. (c) It is the intent of the legislature that, for the 12-month period beginning on May 1, 2003, and for each 12-month period after the end of that period, total annual emissions of nitrogen oxides from facilities subject to this section may not exceed levels equal to 50 percent of the total emissions of that pollutant during 1997, as reported to the conservation commission, and total annual emissions of sulphur dioxides from coal-fired facilities subject to this section may not exceed levels equal to 75 percent of the total emissions of that pollutant during 1997, as reported to the conservation commission. The limitations prescribed by this subsection may be met through an emissions allocation and allowance transfer system described by this section. (d) A municipal corporation, electric cooperative, or river authority may exclude any electric generating facilities of 25 megawatts or less from the requirements prescribed by this section. Not later than January 1, 2000, a municipal corporation, electric cooperative, or river authority must inform the conservation commission of its intent to exclude those facilities. (e) The owner or operator of an electric generating facility shall apply to the conservation commission for a permit for the emission of air contaminants on or before September 1, 2000. A permit issued by the conservation commission under this section shall require the facility to achieve emissions reductions or trading emissions allowances as provided by this section. If the facility uses coal as a fuel, the permit must also be conditioned on the facility's emissions meeting opacity limitations provided by conservation commission rules. Notwithstanding Section 382.0518(g), Health and Safety Code, a facility that does not obtain a permit as required by this subsection may not operate after May 1, 2003, unless the conservation commission finds good cause for an extension. (f) The conservation commission shall develop rules for the permitting of electric generating facilities. The rules adopted under this subsection shall provide, by region, for the allocation of emissions allowances of sulphur dioxides and nitrogen oxides among electric generating facilities and for facilities to trade emissions allowances for those contaminants. (g) The conservation commission by rule shall establish an East Texas Region, a West Texas Region, and an El Paso Region for allocation of air contaminants under the permitting program under Subsection (f). The East Texas Region must contain all counties traversed by or east of Interstate Highway 35 or Interstate Highway 37, including Bosque, Coryell, Hood, Parker, Somervell, and Wise counties. The West Texas Region includes all of the state not contained in the East Texas Region or the El Paso Region. The El Paso Region includes El Paso County. (h) Not later than January 1, 2000, the conservation commission shall allocate to each electric generating facility in each region a number of annual emissions allowances, with each allowance equal to one ton of sulphur dioxides or of nitrogen oxides emitted in a year, that permit emissions of the contaminants from the facility in that year. The conservation commission must allocate to each facility a number of emissions allowances equal to an emissions rate measured in pounds per million British thermal units divided by 2,000 and multiplied by the facility's total heat input in terms of million British thermal units during 1997. For the East Texas Region, the emissions rate shall be 0.14 pounds per million British thermal units for nitrogen oxides and 1.38 pounds per million British thermal units for sulphur dioxides. For the West Texas and El Paso regions, the emissions rate shall be 0.195 pounds per million British thermal units for nitrogen oxides. Allowances for sulphur dioxides may only be allocated among coal-fired facilities. (i) A person, municipal corporation, electric cooperative, or river authority that owns and operates an electric generating facility not covered by this section may elect to designate that facility to become subject to the requirements of this section and to receive emissions allowances for the purpose of complying with the emissions limitations prescribed by Subsection (c). The conservation commission shall adopt rules governing this election that: (1) require an owner or operator of an electric generating facility to designate to the conservation commission in its permit application under Subsection (e) any facilities that will become subject to this section; (2) require the conservation commission, notwithstanding the allocation mechanism provided by Subsection (h), to allocate additional allowances to facilities governed by this subsection in an amount equal to each facility's actual emissions in tons in 1997; (3) provide that any unit designated under this subsection may not transfer or bank allowances conserved as a result of reduced utilization or shutdown, except that the allowances may be transferred or carried forward for use in subsequent years to the extent that the reduced utilization or shutdown results from the replacement of thermal energy from the unit designated under this subsection with thermal energy generated by any other unit; and (4) provide that emissions reductions from electing facilities designated in this subsection may only be used to satisfy the emissions reductions for grandfathered facilities defined in Subsection (c) to the extent that reductions used to satisfy the limitations in Subsection (c) are beyond the requirements of any other state or federal standard, or both. (j) The conservation commission by rule shall permit a facility to trade emissions allocations with other electric generating facilities only in the same region. (k) The conservation commission by rule shall provide methods for the conservation commission to determine whether a facility complies with the permit issued under this section. The rules must provide for: (1) monitoring and reporting actual emissions of sulphur dioxides and nitrogen oxides from each facility; (2) provisions for saving unused allowances for use in later years; and (3) a system for tracking traded allowances. (l) A facility may not trade an unused allowance for a contaminant for use as a credit for another contaminant. (m) A person possessing market power shall not withhold emissions allowances from the market in a manner that is unreasonably discriminatory or tends to unreasonably restrict, impair, or reduce the level of competition. (n) The conservation commission shall penalize a facility that emits an air contaminant that exceeds the facility's allowances for that contaminant by: (1) enforcing an administrative penalty, in an amount determined by conservation commission rules, for each ton of air contaminant emissions by which the facility exceeds its allocated emissions allowances; and (2) reducing the facility's emissions allowances for the next year by an amount of emissions equal to the excessive emissions in the year the facility emitted the excessive air contaminants. (o) The conservation commission may penalize a facility that emits an air contaminant that exceeds the facility's allowances for that contaminant by: (1) ordering the facility to cease operations; or (2) taking other enforcement action provided by conservation commission rules. (p) The conservation commission by rule shall provide for a facility in the El Paso Region to meet emissions allowances by using credits from emissions reductions achieved in Ciudad Juarez, United Mexican States. (q) If the conservation commission or the United States Environmental Protection Agency determines that reductions in nitrogen oxides emissions in the El Paso Region otherwise required by this section would result in increased ambient ozone levels in El Paso County, facilities in the El Paso Region are exempt from the nitrogen oxides reduction requirements. (r) An applicant for a permit under Subsection (e) shall publish notice of intent to obtain the permit in accordance with Section 382.056, Health and Safety Code. The conservation commission shall provide an opportunity for a public hearing and the submission of public comment and send notice of a decision on an application for a permit under Subsection (e) in the same manner as provided by Sections 382.0561 and 382.0562, Health and Safety Code. The conservation commission shall review and renew a permit issued under this section in accordance with Section 382.055, Health and Safety Code. (s) This section does not limit the authority of the conservation commission to require further reductions of nitrogen oxides, sulphur dioxides, or any other pollutant from generating facilities subject to this section or Section 39.263. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.265. RIGHTS NOT AFFECTED. This chapter is not intended to alter any rights of utilities to recover stranded costs from wholesale customers. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.SUBCHAPTER G. SECURITIZATION § 39.301. PURPOSE. The purpose of this subchapter is to enable utilities to use securitization financing to recover regulatory assets and stranded costs, because this type of debt will lower the carrying costs of the assets relative to the costs that would be incurred using conventional utility financing methods. The proceeds of the transition bonds shall be used solely for the purposes of reducing the amount of recoverable regulatory assets and stranded costs, as determined by the commission in accordance with this chapter, through the refinancing or retirement of utility debt or equity. The commission shall ensure that securitization provides tangible and quantifiable benefits to ratepayers, greater than would have been achieved absent the issuance of transition bonds. The commission shall ensure that the structuring and pricing of the transition bonds result in the lowest transition bond charges consistent with market conditions and the terms of the financing order. The amount securitized may not exceed the present value of the revenue requirement over the life of the proposed transition bond associated with the regulatory assets or stranded costs sought to be securitized. The present value calculation shall use a discount rate equal to the proposed interest rate on the transition bonds. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.302. DEFINITIONS. In this subchapter: (1) "Assignee" means any individual, corporation, or other legally recognized entity to which an interest in transition property is transferred, other than as security, including any assignee of that party. (2) "Financing order" means an order of the commission adopted under Section 39.201 or 39.262 approving the issuance of transition bonds and the creation of transition charges for the recovery of qualified costs. (3) "Financing party" means a holder of transition bonds, including trustees, collateral agents, and other persons acting for the benefit of the holder. (4) "Qualified costs" means 100 percent of an electric utility's regulatory assets and 75 percent of its recoverable costs determined by the commission under Section 39.201 and any remaining stranded costs determined under Section 39.262 together with the costs of issuing, supporting, and servicing transition bonds and any costs of retiring and refunding the electric utility's existing debt and equity securities in connection with the issuance of transition bonds. The term includes the costs to the commission of acquiring professional services for the purpose of evaluating proposed transactions under Section 39.201 and this subchapter. (5) "Regulatory assets" means the generation-related portion of the Texas jurisdictional portion of the amount reported by the electric utility in its 1998 annual report on Securities and Exchange Commission Form 10-K as regulatory assets and liabilities, offset by the applicable portion of generation-related investment tax credits permitted under the Internal Revenue Code of 1986. (6) "Transition bonds" means bonds, debentures, notes, certificates of participation or of beneficial interest, or other evidences of indebtedness or ownership that are issued by an electric utility, its successors, or an assignee under a financing order, that have a term not longer than 15 years, and that are secured by or payable from transition property. If certificates of participation, beneficial interest, or ownership are issued, references in this subchapter to principal, interest, or premium shall refer to comparable amounts under those certificates. (7) "Transition charges" means nonbypassable amounts to be charged for the use or availability of electric services, approved by the commission under a financing order to recover qualified costs, that shall be collected by an electric utility, its successors, an assignee, or other collection agents as provided for in the financing order. (8) "Transition property" means the property described in Section 39.304. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.303. FINANCING ORDERS; TERMS. (a) The commission shall adopt a financing order, on application of a utility to recover the utility's regulatory assets and eligible stranded costs under Section 39.201 or 39.262, on making a finding that the total amount of revenues to be collected under the financing order is less than the revenue requirement that would be recovered over the remaining life of the stranded costs using conventional financing methods and that the financing order is consistent with the standards in Section 39.301. (b) The financing order shall detail the amount of regulatory assets and stranded costs to be recovered and the period over which the nonbypassable transition charges shall be recovered, which period may not exceed 15 years. (c) Transition charges shall be collected and allocated among customers in the same manner as competition transition charges under Section 39.201. (d) A financing order shall become effective in accordance with its terms, and the financing order, together with the transition charges authorized in the order, shall thereafter be irrevocable and not subject to reduction, impairment, or adjustment by further action of the commission, except as permitted by Section 39.307. (e) The commission shall issue a financing order under Subsections (a) and (g) not later than 90 days after the utility files its request for the financing order. (f) A financing order is not subject to rehearing by the commission. A financing order may be reviewed by appeal only to a Travis County district court by a party to the proceeding filed within 15 days after the financing order is signed by the commission. The judgment of the district court may be reviewed only by direct appeal to the Supreme Court of Texas filed within 15 days after entry of judgment. All appeals shall be heard and determined by the district court and the Supreme Court of Texas as expeditiously as possible with lawful precedence over other matters. Review on appeal shall be based solely on the record before the commission and briefs to the court and shall be limited to whether the financing order conforms to the constitution and laws of this state and the United States and is within the authority of the commission under this chapter. (g) At the request of an electric utility, the commission may adopt a financing order providing for retiring and refunding transition bonds on making a finding that the future transition charges required to service the new transition bonds, including transaction costs, will be less than the future transition charges required to service the transition bonds being refunded. On the retirement of the refunded transition bonds, the commission shall adjust the related transition charges accordingly. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.304. PROPERTY RIGHTS. (a) The rights and interests of an electric utility or successor under a financing order, including the right to impose, collect, and receive transition charges authorized in the order, shall be only contract rights until they are first transferred to an assignee or pledged in connection with the issuance of transition bonds, at which time they will become "transition property." (b) Transition property shall constitute a present property right for purposes of contracts concerning the sale or pledge of property, even though the imposition and collection of transition charges depends on further acts of the utility or others that have not yet occurred. The financing order shall remain in effect and the property shall continue to exist for the same period as the pledge of the state described in Section 39.310. (c) All revenues and collections resulting from transition charges shall constitute proceeds only of the transition property arising from the financing order. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.305. NO SETOFF. The interest of an assignee or pledgee in transition property and in the revenues and collections arising from that property are not subject to setoff, counterclaim, surcharge, or defense by the electric utility or any other person or in connection with the bankruptcy of the electric utility or any other entity. A financing order shall remain in effect and unabated notwithstanding the bankruptcy of the electric utility, its successors, or assignees. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.306. NO BYPASS. A financing order shall include terms ensuring that the imposition and collection of transition charges authorized in the order shall be nonbypassable. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.307. TRUE-UP. A financing order shall include a mechanism requiring that transition charges be reviewed and adjusted at least annually, within 45 days of the anniversary date of the issuance of the transition bonds, to correct any overcollections or undercollections of the preceding 12 months and to ensure the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with the transition bonds. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.308. TRUE SALE. An agreement by an electric utility or assignee to transfer transition property that expressly states that the transfer is a sale or other absolute transfer signifies that the transaction is a true sale and is not a secured transaction and that title, legal and equitable, has passed to the entity to which the transition property is transferred. This true sale shall apply regardless of whether the purchaser has any recourse against the seller, or any other term of the parties' agreement, including the seller's retention of an equity interest in the transition property, the fact that the electric utility acts as the collector of transition charges relating to the transition property, or the treatment of the transfer as a financing for tax, financial reporting, or other purposes. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.309. SECURITY INTERESTS; ASSIGNMENT; COMMINGLING; DEFAULT. (a) Transition property does not constitute an account or general intangible under Section 9.106, Business & Commerce Code. The creation, granting, perfection, and enforcement of liens and security interests in transition property are governed by this section and not by the Business & Commerce Code. (b) A valid and enforceable lien and security interest in transition property may be created only by a financing order and the execution and delivery of a security agreement with a financing party in connection with the issuance of transition bonds. The lien and security interest shall attach automatically from the time that value is received for the bonds and, on perfection through the filing of notice with the secretary of state in accordance with the rules prescribed under Subsection (d), shall be a continuously perfected lien and security interest in the transition property and all proceeds of the property, whether accrued or not, shall have priority in the order of filing and take precedence over any subsequent judicial or other lien creditor. If notice is filed within 10 days after value is received for the transition bonds, the security interest shall be perfected retroactive to the date value was received, otherwise, the security interest shall be perfected as of the date of filing. (c) Transfer of an interest in transition property to an assignee shall be perfected against all third parties, including subsequent judicial or other lien creditors, when the financing order becomes effective, transfer documents have been delivered to the assignee, and a notice of that transfer has been filed in accordance with the rules prescribed under Subsection (d); provided, however, that if notice of the transfer has not been filed in accordance with this subsection within 10 days after the delivery of transfer documentation, the transfer of the interest is not perfected against third parties until the notice is filed. (d) The secretary of state shall implement this section by establishing and maintaining a separate system of records for the filing of notices under this section and prescribing the rules for those filings based on Chapter 9, Business & Commerce Code, adapted to this subchapter and using the terms defined in this subchapter. (e) The priority of a lien and security interest perfected under this section is not impaired by any later modification of the financing order under Section 39.307 or by the commingling of funds arising from transition charges with other funds, and any other security interest that may apply to those funds shall be terminated when they are transferred to a segregated account for the assignee or a financing party. If transition property has been transferred to an assignee, any proceeds of that property shall be held in trust for the assignee. (f) If a default or termination occurs under the transition bonds, the financing parties or their representatives may foreclose on or otherwise enforce their lien and security interest in any transition property as if they were secured parties under Chapter 9, Business & Commerce Code, and the commission may order that amounts arising from transition charges be transferred to a separate account for the financing parties' benefit, to which their lien and security interest shall apply. On application by or on behalf of the financing parties, a district court of Travis County shall order the sequestration and payment to them of revenues arising from the transition charges. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.310. PLEDGE OF STATE. Transition bonds are not a debt or obligation of the state and are not a charge on its full faith and credit or taxing power. The state pledges, however, for the benefit and protection of financing parties and the electric utility, that it will not take or permit any action that would impair the value of transition property, or, except as permitted by Section 39.307, reduce, alter, or impair the transition charges to be imposed, collected, and remitted to financing parties, until the principal, interest and premium, and any other charges incurred and contracts to be performed in connection with the related transition bonds have been paid and performed in full. Any party issuing transition bonds is authorized to include this pledge in any documentation relating to those bonds. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.311. TAX EXEMPTION. Transactions involving the transfer and ownership of transition property and the receipt of transition charges are exempt from state and local income, sales, franchise, gross receipts, and other taxes or similar charges. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.312. NOT PUBLIC UTILITY. An assignee or financing party may not be considered to be a public utility or person providing electric service solely by virtue of the transactions described in this subchapter. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.313. SEVERABILITY. Effective on the date the first utility transition bonds are issued under this subchapter, if any provision in this title or portion of this title is held to be invalid or is invalidated, superseded, replaced, repealed, or expires for any reason, that occurrence does not affect the validity or continuation of this subchapter, Section 39.201, 39.251, 39.252, or 39.262, or any part of those provisions, or any other provision of this title that is relevant to the issuance, administration, payment, retirement, or refunding of transition bonds or to any actions of the electric utility, its successors, an assignee, a collection agent, or a financing party, which shall remain in full force and effect. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.SUBCHAPTER H. CERTIFICATION AND REGISTRATION; PENALTIES § 39.351. REGISTRATION OF POWER GENERATION COMPANIES. (a) A person may not generate electricity unless the person is registered with the commission as a power generation company in accordance with this section. A person may register as a power generation company by filing the following information with the commission: (1) a description of the location of any facility used to generate electricity; (2) a description of the type of services provided; (3) a copy of any information filed with the Federal Energy Regulatory Commission in connection with registration with that commission; and (4) any other information required by commission rule, provided that in requiring that information the commission shall protect the competitive process in a manner that ensures the confidentiality of competitively sensitive information. (b) A power generation company shall comply with the reliability standards adopted by an independent organization certified by the commission to ensure the reliability of the regional electrical network for a power region in which the power generation company is generating or selling electricity. (c) A power generation company may register any time after September 1, 2000. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.352. CERTIFICATION OF RETAIL ELECTRIC PROVIDERS. (a) After the date of customer choice, a person, including an affiliate of an electric utility, may not provide retail electric service in this state unless the person is certified by the commission as a retail electric provider, in accordance with this section. (b) The commission shall issue a certificate to provide retail electric service to a person applying for certification who demonstrates: (1) the financial and technical resources to provide continuous and reliable electric service to customers in the area for which the certification is sought; (2) the managerial and technical ability to supply electricity at retail in accordance with customer contracts; (3) the resources needed to meet the customer protection requirements of this title; and (4) ownership or lease of an office located within this state for the purpose of providing customer service, accepting service of process, and making available in that office books and records sufficient to establish the retail electric provider's compliance with the requirements of this subchapter. (c) A person applying for certification under this section shall comply with all applicable customer protection provisions, disclosure requirements, and marketing guidelines established by the commission and by this title. (d) Notwithstanding Subsections (b)(1)-(3), if a retail electric provider files with the commission a signed, notarized affidavit from each retail customer with which it has contracted to provide one megawatt or more of capacity stating that the customer is satisfied that the retail electric provider meets the standards prescribed by Subsections (b)(1)-(3) and Subsection (c), the retail electric provider shall be certified for purposes of serving those customers only, so long as it demonstrates that it meets the requirements of Subsection (b)(4). (e) A retail electric provider may apply for certification any time after September 1, 2000. (f) The commission shall use any information required in this section in a manner that ensures the confidentiality of competitively sensitive information. (g) If a retail electric provider serves an aggregate load in excess of 300 megawatts within this state, not less than five percent of the load in megawatt hours must consist of residential customers. This requirement applies to an affiliated retail electric provider only with respect to load served outside of the electric utility's service area, and, in relation to that load, the affiliated retail electric provider shall meet the requirements of this subsection by serving residential customers outside of the electric utility's service area. For the purpose of this subsection, the load served by retail electric providers that are under common ownership shall be combined. A retail electric provider may meet the requirements of this subsection by demonstrating on an annual basis that it serves residential load amounting to five percent of its total load, by demonstrating that another retail electric provider serves sufficient qualifying residential load on its behalf, or by paying an amount into the system benefit fund equal to $1 multiplied by a number equal to the difference between the number of megawatt hours it sold to residential customers and the number of megawatt hours it was required to sell to such customers, or in the case of an affiliated retail electric provider, $1 multiplied by a number equal to the difference between the number of megawatt hours sold to residential customers outside of the electric utility's service area and the number of megawatt hours it was required to sell to such customers outside of the electric utility's service area. Qualifying residential load may not include customers served by an affiliated retail electric provider in its own service area. Each retail electric provider shall file reports with the commission that are necessary to implement this subsection. This subsection applies for 36 months after retail competition begins. The commission shall adopt rules to implement this subsection. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.353. REGISTRATION OF AGGREGATORS. (a) A person may not provide aggregation services in the state unless the person is registered with the commission as an aggregator. (b) In this subchapter, "aggregator" means a person joining two or more customers, other than municipalities and political subdivision corporations, into a single purchasing unit to negotiate the purchase of electricity from retail electric providers. Aggregators may not sell or take title to electricity. Retail electric providers are not aggregators. (c) A person registering under this section shall comply with all customer protection provisions, all disclosure requirements, and all marketing guidelines established by the commission and by this title. (d) The commission shall establish terms and conditions it determines necessary to regulate the reliability and integrity of aggregators in the state by June 1, 2000. (e) An aggregator may register any time after September 1, 2000. (f) The commission shall have up to 60 days to process applications for registration filed by aggregators. (g) Registration is not required of a customer that is aggregating loads from its own location or facilities. (h) The commission shall work with the Texas Department of Economic Development to communicate information about opportunities for operation as aggregators to potential new aggregators, including small and historically underutilized businesses. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.3535. MILITARY BASES AGGREGATORS. (a) In this section, "military bases aggregator" means a person joining two or more military bases that are located in areas of the state offering customer choice under this chapter into a single purchasing unit to negotiate electricity purchases from retail electric providers. (b) It is the policy of this state to encourage military bases located in areas of the state offering customer choice under this chapter to aggregate their facilities into a single purchasing unit as a method to reduce costs of electricity consumed by those bases. The commission shall provide assistance to a military bases aggregator regarding the evaluation of offers from retail electric providers on the request of the military bases aggregator. (c) An aggregator registered under another section of this subchapter may provide aggregation services to military bases. (d) A person, including a state agency, may register as a military bases aggregator to provide aggregation services exclusively to military bases located in areas of the state offering customer choice under this chapter. (e) A person registered as a military bases aggregator under Subsection (d) is not required to comply with customer protection provisions, disclosure requirements, or marketing guidelines prescribed by this title or established by the commission while providing aggregation services exclusively to military bases. (f) The commission shall expedite consideration of an application submitted by an applicant for registration under Subsection (d). Added by Acts 2003, 78th Leg., ch. 149, § 22, eff. May 27, 2003. § 39.354. REGISTRATION OF MUNICIPAL AGGREGATORS. (a) A municipal aggregator may not provide aggregation services in the state unless the municipal aggregator registers with the commission. (b) In this section, "municipal aggregator" means a person authorized by two or more municipal governing bodies to join the bodies into a single purchasing unit to negotiate the purchase of electricity from retail electric providers or aggregation by a municipality under Chapter 304, Local Government Code. (c) A municipal aggregator may register any time after September 1, 2000. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. Amended by Acts 2001, 77th Leg., ch. 1420, § 21.002(22), eff. Sept. 1, 2001. § 39.3545. REGISTRATION OF POLITICAL SUBDIVISION AGGREGATORS. (a) A political subdivision aggregator may not provide aggregation services in the state unless the political subdivision aggregator registers with the commission. (b) In this section, "political subdivision aggregator" means a person or political subdivision corporation authorized by two or more political subdivision governing bodies to join the bodies into a single purchasing unit or multiple purchasing units to negotiate the purchase of electricity from retail electric providers for the facilities of the aggregated political subdivisions or aggregation by a person or political subdivision under Chapter 304, Local Government Code. (c) A political subdivision aggregator may register any time after September 1, 2000. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999; Acts 2001, 77th Leg., ch. 1420, § 21.002(23), eff. Sept. 1, 2001. § 39.355. REGISTRATION OF POWER MARKETERS. A person may not sell electric energy at wholesale as a power marketer unless the person registers with the commission pursuant to Section 35.032. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.356. REVOCATION OF CERTIFICATION. (a) The commission may suspend, revoke, or amend a retail electric provider's certificate for significant violations of this title or the rules adopted under this title or of any reliability standard adopted by an independent organization certified by the commission to ensure the reliability of a power region's electrical network, including the failure to observe any scheduling, operating, planning, reliability, or settlement protocols established by the independent organization. The commission may also suspend or revoke a retail electric provider's certificate if the provider no longer has the financial or technical capability to provide continuous and reliable electric service. (b) The commission may suspend or revoke a power generation company's registration for significant violations of this title or the rules adopted under this title or of the reliability standards adopted by an independent organization certified by the commission to ensure the reliability of a power region's electrical network, including the failure to observe any scheduling, operating, planning, reliability, or settlement protocols established by the independent organization. (c) The commission may suspend or revoke an aggregator's registration for significant violations of this title or of the rules adopted under this title. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.357. ADMINISTRATIVE PENALTY. In addition to the suspension, revocation, or amendment of a certification, the commission may impose an administrative penalty, as provided by Section 15.023, for violations described by Section 39.356. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.358. LOCAL REGISTRATION OF RETAIL ELECTRIC PROVIDER. (a) A municipality may require a retail electric provider to register with the municipality as a condition of serving residents of the municipality. The municipality may assess a reasonable administrative fee for this purpose. (b) The municipality may suspend or revoke a retail electric provider's registration and operation in that municipality for significant violations of this chapter or the rules adopted under this chapter. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.SUBCHAPTER I. PROVISIONS FOR CERTAIN NON-ERCOT UTILITIES § 39.401. APPLICABILITY. This subchapter shall apply to investor-owned electric utilities operating solely outside of ERCOT having fewer than six synchronous interconnections with voltage levels above 69 kilovolts systemwide on the effective date of this subchapter. The legislature finds that circumstances exist that require that areas served by such utilities be treated as competitive development areas in which it is not in the public interest to transition to full retail customer choice at this time. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. Amended by Acts 2001, 77th Leg., ch. 1041, § 1, eff. June 15, 2001. § 39.402. REGULATION OF UTILITY AND TRANSITION TO COMPETITION. (a) Until the later of January 1, 2007, or the date on which an electric utility subject to this subchapter is authorized by the commission to implement customer choice, the rates of the utility shall be regulated under traditional cost of service regulation and the utility is subject to all applicable regulatory authority prescribed by this subtitle and Subtitle A, including Chapters 14, 32, 33, 36, and 37. Until the date on which an electric utility subject to this subchapter implements customer choice, the provisions of this chapter, other than this subchapter, Section 39.904, and the provisions relating to the duty to obtain a permit from the Texas Natural Resource Conservation Commission for an electric generating facility and to reduce emissions from an electric generating facility, shall not apply to that utility. That portion of any commission order entered before September 1, 2001, to comply with this subchapter shall be null and void. (b) Until the date on which an electric utility subject to this subchapter implements customer choice, Section 33.008 does not apply and the utility shall pay franchise fees to a municipality as required by the utility's franchise agreement with the municipality. After the date on which an electric utility subject to this subchapter implements customer choice, Section 33.008 applies. However, for purposes of computing the franchise fees as provided by Section 33.008(b), the calendar year immediately preceding the implementation of customer choice shall be substituted for the year 1998. (c) On or after January 1, 2007, an electric utility subject to this subchapter may choose to participate in customer choice. An electric utility that chooses to participate in customer choice shall file a transition to competition plan with the commission. This transition to competition plan shall identify how utilities subject to this subchapter intend to mitigate market power and achieve full customer choice, including specific alternatives for constructing additional transmission facilities, auctioning rights to generation capacity, divesting generation capacity, or any other measure that is consistent with the public interest. The utility shall also include in the transition to competition plan a provision to establish a price to beat for residential customers and commercial customers having a peak load of 1,000 kilowatts or less. The commission may prescribe additional information or provisions that must be included in the plan. The commission shall approve, modify, or reject a plan within 180 days after the date of a filing under this section; provided, however, that if a hearing is requested by any party to the proceeding, the 180-day deadline will be extended one day for each day of hearings. The transition to competition plan may be updated or amended annually, subject to commission approval until the applicable power region is certified as a qualifying power region under Section 39.152. (d) On implementation of customer choice, an electric utility subject to this subchapter is subject to the provisions of this subtitle and Subtitle A to the same extent as other electric utilities, including the provisions of Chapter 37 concerning certificates of convenience and necessity. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. Amended by Acts 2001, 77th Leg., ch. 1041, § 1, eff. June 15, 2001. § 39.407. CUSTOMER CHOICE AND RELEVANT MARKET AND RELATED MATTERS. (a) If an electric utility chooses on or after January 1, 2007, to participate in customer choice, the commission may not authorize customer choice until the applicable power region has been certified as a qualifying power region under Section 39.152(a). Except as otherwise provided by this subsection, the commission shall certify that the requirements of Section 39.152(a)(3) are met for electric utilities subject to this subchapter only upon a finding that the total capacity owned and controlled by each such electric utility and its affiliates does not exceed 20 percent of the total installed generation capacity within the constrained geographic region served by each such electric utility plus the total available transmission capacity capable of delivering firm power and energy to that constrained geographic region. Not later than May 1, 2002, each electric utility subject to this subchapter shall submit to the electric utility restructuring legislative oversight committee an analysis of the needed transmission facilities necessary to make the electric utility's service area transmission capability comparable to areas within the ERCOT power region. On or after September 1, 2003, each electric utility subject to this subchapter shall file the utility's plans to develop the utility's transmission interconnections with the utility's power region or other adjacent power regions. The commission shall review the plan and not later than the 180th day after the date the plan is filed, determine the additional transmission facilities necessary to provide access to power and energy that is comparable to the access provided in areas within the ERCOT power region; provided, however, that if a hearing is requested by any party to the proceeding, the 180-day deadline will be extended one day for each day of hearings. The commission shall, as a part of the commission's approval of the plan, approve a rate rider mechanism for the recovery of the incremental costs of those facilities after the facilities are completed and in-service. A finding of need under this subsection shall meet the requirements of Sections 37.056(c)(1), (2), and (4)(E). The commission may certify that the requirements of Section 39.152(a)(3) are met for electric utilities subject to this subchapter if the commission finds that: (1) each such utility has sufficient transmission facilities to provide customers access to power and energy from capacity controlled by suppliers not affiliated with the incumbent utility that is comparable to the access to power and energy from capacity controlled by suppliers not affiliated with the incumbent utilities in areas of the ERCOT power region; and (2) the total capacity owned and controlled by each such electric utility and its affiliates does not exceed 20 percent of the total installed generation capacity within the power region. (b) In the area of a power region served by an electric utility subject to this subchapter, the electric utility may not choose to participate in customer choice unless the affiliated power generation company 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 on the date the utility chooses to participate in customer choice and was purchasing power at rates that were based on cost of service. 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 of Section 39.152(a) are met. (c) If the requirements of Section 39.152(a) have not been met for an electric utility subject to this subchapter when the electric utility chooses to participate in customer choice, then any power generation company in the power region affiliated with an electric utility subject to this subchapter shall maintain adequate supply and facilities to provide electric service to persons who were retail customers of the electric utility on the date the utility chooses to participate in customer choice. The obligation provided by this subsection remains in effect until the commission determines that the requirements of Section 39.152(a) have been met for the region. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. Amended by Acts 2001, 77th Leg., ch. 1041, § 1, eff. June 15, 2001. § 39.409. RECOUPMENT OF TRANSITION TO COMPETITION COSTS. An electric utility subject to this subchapter is entitled to recover, as provided by this section, all reasonable and necessary expenditures made or incurred before September 1, 2001, to comply with the provisions of this chapter. Not later than December 1, 2001, each electric utility subject to this subchapter may file with the commission an application for recovery detailing the amounts spent or incurred. After notice and hearing, the commission shall review the amounts and, if found to be reasonable and necessary, approve a transition to competition retail rate rider mechanism for the recovery of the approved transition to competition costs. A rate rider implemented to recover approved transition to competition costs shall expire not later than December 31, 2006. Added by Acts 2001, 77th Leg., ch. 1041, § 2, eff. June 15, 2001. § 39.410. CONTRACTUAL OBLIGATIONS. This subchapter may not: (1) interfere with or abrogate the rights or obligations of any party, including a retail or wholesale customer, to a contract with an investor-owned electric utility, river authority, municipally owned utility, or electric cooperative; (2) interfere with or abrogate the rights or obligations of a party under a contract or agreement concerning certificated utility service areas; or (3) result in a change in wholesale power costs to wholesale customers in Texas purchasing electricity under wholesale power contracts the pricing provisions of which are based on formulary rates, fuel adjustments, or average system costs. Added by Acts 2001, 77th Leg., ch. 1041, § 2, eff. June 15, 2001.SUBCHAPTER J. TRANSITION TO COMPETITION IN CERTAIN NON-ERCOT AREAS § 39.451. APPLICABILITY. This subchapter applies only to an investor-owned electric utility that is operating solely outside of ERCOT in areas of this state that were included in the Southeastern Electric Reliability Council on January 1, 2005. Added by Acts 2005, 79th Leg., ch. 1072, § 1, eff. June 18, 2005. § 39.452. REGULATION OF UTILITY AND TRANSITION TO COMPETITION. (a) Until the date on which an electric utility subject to this subchapter is authorized by the commission to implement customer choice under Section 39.453, the rates of the electric utility shall be regulated under traditional cost-of-service regulation and the electric utility is subject to all applicable regulatory authority prescribed by this subtitle and Subtitle A, including Chapters 14, 32, 33, 36, and 37. (b) Notwithstanding Subsection (a), except for adjustments authorized by Sections 36.203, 39.454, 39.455, and 39.456, a person may not file a proceeding to change, alter, or revoke any rate offered or charged by an electric utility subject to this subchapter before June 30, 2007, with an effective date no earlier than June 30, 2008. As part of a Subchapter C, Chapter 36, rate proceeding, the utility shall propose a competitive generation tariff to allow eligible customers the ability to contract for competitive generation. The commission shall approve, reject, or modify the proposed tariff. The tariffs subject to this subsection may not be considered to offer a discounted rate or rates under Section 36.007, and the utility's rates shall be set, in the proceeding in which the tariff is adopted, to recover any costs unrecovered as a result of the implementation of the tariff. (c) That portion of any commission order issued before the effective date of this section requiring the electric utility to comply with a provision of this chapter is void. (d) Until the date on which an electric utility subject to this subchapter implements customer choice: (1) the provisions of this chapter do not apply to that electric utility, other than this subchapter, Sections 39.904 and 39.905, and the provisions relating to the duty to obtain a permit from the Texas Commission on Environmental Quality for an electric generating facility and to reduce emissions from an electric generating facility; and (2) the electric utility is not subject to a rate freeze and, subject to the limitation provided by Subsection (b), may file for rate changes under Chapter 36 and for approval of one or more of the rate rider mechanisms authorized by Sections 39.454 and 39.455. (e) An electric utility subject to this subchapter may proceed with and complete jurisdictional separation to establish two vertically integrated utilities, one of which is solely subject to the retail jurisdiction of the commission and one of which is solely subject to the retail jurisdiction of the Louisiana Public Service Commission. (f) Not later than January 1, 2006, an electric utility subject to this subchapter shall file a plan with the commission for identifying the applicable power region or power regions, enumerating the steps to achieve the certification of a power region in accordance with Section 39.453, and specifying the schedule for achieving the certification of a power region. The utility may amend the plan as appropriate. The commission may, on its own motion or the motion of any affected person, initiate a proceeding to certify a qualified power region under Section 39.152 when the conditions supporting such a proceeding exist. (g) Not later than the earlier of January 1, 2007, or the 90th day after the date the applicable power region is certified in accordance with Section 39.453, the electric utility shall file a transition to competition plan. The transition to competition plan must: (1) identify how the electric utility intends to mitigate market power and to achieve full customer choice, including specific alternatives for constructing additional transmission facilities, auctioning rights to generation capacity, divesting generation capacity, or any other measure that is consistent with the public interest; (2) include a provision to reinstate a customer choice pilot project and to establish a price to beat for residential customers and commercial customers having a peak load of 1,000 kilowatts or less; and (3) include any other additional information or provisions that the commission may require. (h) The commission shall approve, modify, or reject a plan filed under Subsection (g) not later than the 180th day after the date the plan is filed unless a hearing is requested by any party to the proceeding. A modification to the plan by the commission may not be in conflict with the jurisdiction or orders of the Federal Energy Regulatory Commission or result in significant additional cost without allowing for timely recovery for that cost. If a hearing is requested, the 180-day deadline is extended one day for each day of the hearing. The transition to competition plan shall be updated or amended annually, subject to commission approval, until the initiation of customer choice by an electric utility subject to this subchapter. Consistent with its jurisdiction, the commission shall have the authority in approving or modifying the transition to competition plan to require the electric utility to take reasonable steps to facilitate the development of a wholesale generation market within the boundaries of the electric utility's service territory. Added by Acts 2005, 79th Leg., ch. 1072, § 1, eff. June 18, 2005. § 39.453. CUSTOMER CHOICE AND RELEVANT MARKET AND RELATED MATTERS. (a) The commission may not authorize customer choice until the commission certifies the applicable power region as a qualifying power region under Section 39.152(a). Sections 39.152(b)-(d) also apply to the electric utility and commission in determining whether to certify the applicable power region. (b) The commission shall certify that the requirement of Section 39.152(a)(3) is met for an electric utility subject to this subchapter only if the commission finds that the total capacity owned and controlled by the electric utility and the utility's affiliates does not exceed 20 percent of the total installed generation capacity within the power region of that utility. Added by Acts 2005, 79th Leg., ch. 1072, § 1, eff. June 18, 2005. § 39.454. RECOUPMENT OF TRANSITION TO COMPETITION COSTS. An electric utility subject to this subchapter is entitled to recover, as provided by this section, all reasonable and necessary expenditures made or incurred before the effective date of this section to comply with this chapter, to the extent the costs have not otherwise been recovered. The electric utility may file with the commission an application for recovery that gives details of the amounts spent or incurred. After notice and hearing, the commission shall review the amounts and, if the amounts are found to be reasonable and necessary and not otherwise previously recovered, approve a transition to competition retail rate rider mechanism for the recovery of the approved transition to competition costs. A rate proceeding under Chapter 36 is not required to implement the rider. A rate rider implemented to recover approved transition to competition costs shall provide for recovery of those costs over a period not to exceed 15 years, with appropriate carrying costs. Added by Acts 2005, 79th Leg., ch. 1072, § 1, eff. June 18, 2005. § 39.455. RECOVERY OF INCREMENTAL CAPACITY COSTS. An electric utility subject to this subchapter is entitled to recover, through a rate rider mechanism, reasonable and necessary costs of incremental resources required to meet load requirements to the extent those costs result in the utility expending more for capacity costs under purchase power agreements than were included in the utility's last base rate case, adjusted for load growth. Any rider under this section shall be implemented after review and approval by the commission, after notice and opportunity for hearing. Following the initial implementation of the rider, an electric utility subject to this subchapter may request revisions semiannually, after notice and opportunity for hearing, on the dates provided in the commission's rules for filing petitions to revise the utility's fuel factor. In conjunction with the utility's fuel reconciliation proceedings, the commission shall reconcile the costs recovered under the rider and the actual incremental capacity costs eligible for recovery under this section. The rider shall expire on the introduction of customer choice or on the implementation of rates resulting from the filing of a Subchapter C, Chapter 36, rate proceeding. In no event may the amount recovered annually under the rider exceed five percent of the utility's annual base rate revenues. Added by Acts 2005, 79th Leg., ch. 1072, § 1, eff. June 18, 2005. § 39.456. FRANCHISE AGREEMENTS. A municipality, with the agreement of an electric utility, may accelerate the expiration date of a franchise agreement that was in existence on September 1, 1999. Any new franchise agreement must be approved by the governing body of the municipality. To the extent that a new franchise agreement would result in an increase in the payment of franchise fees to the municipality, and subject to the terms of the franchise agreement, either the electric utility or the municipality, without the need for a rate proceeding under Chapter 36, may file with the commission for approval of a rider for the electric utility's recovery of franchise payments resulting from the agreement, so long as such rider is collected only from customers of the electric utility that are located within the boundaries of the municipality. Added by Acts 2005, 79th Leg., ch. 1072, § 1, eff. June 18, 2005. § 39.457. CONTRACTUAL RIGHTS. In the event that the electric utility subject to this subchapter either merges, consolidates, or otherwise becomes affiliated with another owner of electric generation, or completes the jurisdictional separation authorized by Section 39.452(e) and the resulting vertically integrated utility proposes to join a regional transmission organization, and either action adversely affects the rights or obligations of an electric cooperative under a wholesale generation or transmission agreement entered into before the effective date of this subchapter or otherwise adversely affects the electric cooperative's access to its existing generation resources under said agreements, then the utility shall submit a proposal agreeable to the cooperative and the utility for addressing such rights and obligations in the appropriate regulatory proceeding. Such proposal shall be consistent with applicable law regarding the rights and obligations of the electric cooperative and the utility under such existing generation or transmission agreements. Added by Acts 2005, 79th Leg., ch. 1072, § 1, eff. June 18, 2005.SUBCHAPTER Z. MISCELLANEOUS PROVISIONS § 39.9016. NUCLEAR SAFETY FEE. An electric utility that operates a nuclear asset located in a county on the coast of the Gulf of Mexico shall pay a nuclear safety fee for the year 2000 and the year 2001 to each taxing unit in which the nuclear asset is located, other than a school district, in an amount equal to the difference between the ad valorem taxes imposed by the taxing unit in 1999 and the amount of ad valorem taxes imposed by the unit in the year for which the fee is due, except that the amount of the fee may not exceed one-half the taxes imposed on the asset by the unit in 1999. The nuclear safety fee shall be considered a tax or fee under Section 39.258(5). Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.902. CUSTOMER EDUCATION. (a) On or before January 1, 2001, the commission shall develop and implement an educational program to inform customers, including low-income and non-English-speaking customers, about changes in the provision of electric service resulting from the opening of the retail electric market and the customer choice pilot program under this chapter. The educational program shall be neutral and nonpromotional and shall provide customers with the information necessary to make informed decisions relating to the source and type of electric service available for purchase and other information the commission considers necessary. The educational program shall inform customers of their rights and of the protections available through the commission and the office. The educational program may not duplicate customer information efforts undertaken by retail electric providers or other private entities. The educational program may not be targeted to areas served by municipally owned utilities or electric cooperatives that have not adopted customer choice. In planning and implementing this program, the commission shall consult with the office, with the Texas Department of Housing and Community Affairs, and with customers of and providers of retail electric service. The commission may enter into contracts for professional services to carry out the customer education program. (b) The commission shall report on the status of the educational program, developed and implemented as provided by Subsection (a), to the electric utility restructuring legislative oversight committee on or before December 1, 2001. (c) After the opening of the retail electric market, the commission shall conduct ongoing customer education designed to help customers make informed choices of electric services and retail electric providers. As part of ongoing education, the commission may provide customers information concerning specific retail electric providers, including instances of complaints against them and records relating to quality of customer service. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.903. SYSTEM BENEFIT FUND. (a) The system benefit fund is an account in the general revenue fund. Money in the account may be appropriated only for the purposes provided by this section or other law. Interest earned on the system benefit fund shall be credited to the fund. Section 403.095, Government Code, does not apply to the system benefit fund. (b) The system benefit fund is financed by a nonbypassable fee set by the commission in an amount not to exceed 65 cents per megawatt hour. The system benefit fund fee is allocated to customers based on the amount of kilowatt hours used. (c) The nonbypassable fee may not be imposed on the retail electric customers of a municipally owned utility or electric cooperative before the sixth month preceding the date on which the utility or cooperative implements customer choice. Money distributed from the system benefit fund to a municipally owned utility or an electric cooperative shall be proportional to the nonbypassable fee paid by the municipally owned utility or the electric cooperative, subject to the reimbursement provided by Subsection (i). On request by a municipally owned utility or electric cooperative, the commission shall reduce the nonbypassable fee imposed on retail electric customers served by the municipally owned utility or electric cooperative by an amount equal to the amount provided by the municipally owned utility or electric cooperative or its ratepayers for local low-income programs and local programs that educate customers about the retail electric market in a neutral and nonpromotional manner. (d) The commission shall annually review and approve system benefit fund accounts, projected revenue requirements, and proposed nonbypassable fees. The commission shall report to the electric utility restructuring legislative oversight committee if the system benefit fund fee is insufficient to fund the purposes set forth in Subsection (e) to the extent required by this section. (e) Money in the system benefit fund may be appropriated to provide funding solely for the following regulatory purposes, in the following order of priority: (1) programs to: (A) assist low-income electric customers by providing the 10 percent reduced rate prescribed by Subsection (h); and (B) provide one-time bill payment assistance to electric customers who are or who have in their households one or more seriously ill or disabled low-income persons and who have been threatened with disconnection for nonpayment; (2) customer education programs, administrative expenses incurred by the commission in implementing and administering this chapter, and expenses incurred by the office under this chapter; (3) programs to assist low-income electric customers by providing the targeted energy efficiency programs described by Subsection (f)(2); (4) programs to assist low-income electric customers by providing the 20 percent reduced rate prescribed by Subsection (h); and (5) reimbursement to the commission and the Health and Human Services Commission for expenses incurred in the implementation and administration of an integrated eligibility process created under Section 17.007 for customer service discounts relating to retail electric service, including outreach expenses the commission determines are reasonable and necessary. (f) Notwithstanding Section 39.106(b), the commission shall adopt rules regarding programs to assist low-income electric customers on the introduction of customer choice. The programs may not be targeted to areas served by municipally owned utilities or electric cooperatives that have not adopted customer choice. The programs shall include: (1) reduced electric rates as provided by Subsections (h)-(l); and (2) targeted energy efficiency programs to be administered by the Texas Department of Housing and Community Affairs in coordination with existing weatherization programs. (g) Until customer choice is introduced in a power region, an electric utility may not reduce, in any manner, programs already offered to assist low-income electric customers. (h) The commission shall adopt rules for a retail electric provider to determine a reduced rate for eligible customers to be discounted off the standard retail service package as approved by the commission under Section 39.106, or the price to beat established by Section 39.202, whichever is lower. Municipally owned utilities and electric cooperatives shall establish a reduced rate for eligible customers to be discounted off the standard retail service package established under Section 40.053 or 41.053, as appropriate. The reduced rate for a retail electric provider shall result in a total charge that is at least 10 percent and, if sufficient money in the system benefit fund is available, up to 20 percent, lower than the amount the customer would otherwise be charged. To the extent the system benefit fund is insufficient to fund the initial 10 percent rate reduction, the commission may increase the fee to an amount not more than 65 cents per megawatt hour, as provided by Subsection (b). If the fee is set at 65 cents per megawatt hour or if the commission determines that appropriations are insufficient to fund the 10 percent rate reduction, the commission may reduce the rate reduction to less than 10 percent. For a municipally owned utility or electric cooperative, the reduced rate shall be equal to an amount that can be fully funded by that portion of the nonbypassable fee proceeds paid by the municipally owned utility or electric cooperative that is allocated to the utility or cooperative by the commission under Subsection (e) for programs for low-income customers of the utility or cooperative. 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 utilities or electric cooperatives. (i) A retail electric provider, municipally owned utility, or electric cooperative seeking reimbursement from the system benefit fund may not charge an eligible low-income customer a rate higher than the appropriate rate determined under Subsection (h). A retail electric provider not subject to the price to beat, or a municipally owned utility or electric cooperative subject to the nonbypassable fee under Subsection (c), shall be reimbursed from the system benefit fund for the difference between the reduced rate and the rate established under Section 39.106 or, as appropriate, the rate established under Section 40.053 or 41.053. A retail electric provider who is subject to the price to beat shall be reimbursed from the system benefit fund for the difference between the reduced rate and the price to beat. The commission shall adopt rules providing for the reimbursement. (j) The commission shall adopt rules providing for methods of enrolling customers eligible to receive reduced rates under Subsection (h). The rules must provide for automatic enrollment as one enrollment option. The Texas Department of Human Services, on request of the commission, shall assist in the adoption and implementation of these rules. The commission and the Texas Department of Human Services shall enter into a memorandum of understanding establishing the respective duties of the commission and the department in relation to the automatic enrollment. (j-1) The commission shall adopt rules governing the bill payment assistance program provided under Subsection (e)(1)(B). The rules must provide that a customer is eligible to receive the assistance only if the assistance is necessary to prevent the disconnection of service for nonpayment of bills and the electric customer is or has in the customer's household one or more seriously ill or disabled low-income persons whose health or safety may be injured by the disconnection. The commission may prescribe the documentation necessary to demonstrate eligibility for the assistance and may establish additional eligibility criteria. The Health and Human Services Commission, on request of the commission, shall assist in the adoption and implementation of these rules. (k) A retail electric provider is prohibited from charging the customer a fee for participation in the reduced rate program. (l) For the purposes of this section, a "low-income electric customer" is an electric customer: (1) whose household income is not more than 125 percent of the federal poverty guidelines; or (2) who receives food stamps from the Texas Department of Human Services or medical assistance from a state agency administering a part of the medical assistance program. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. Amended by Acts 2001, 77th Leg., ch. 1466, § 19(a), eff. June 15, 2001; Acts 2001, 77th Leg., ch. 1394, § 3, eff. Sept. 1, 2001; Acts 2001, 77th Leg., ch. 1451, § 3, eff. Sept. 1, 2001; Acts 2003, 78th Leg., ch. 211, § 2.02, eff. June 16, 2003; Acts 2003, 78th Leg., ch. 1296, § 4(a), eff. June 20, 2003; Acts 2005, 79th Leg., ch. 412, § 17, eff. Sept. 1, 2005; Acts 2005, 79th Leg., ch. 728, § 21.001, eff. Sept. 1, 2005; Acts 2005, 79th Leg., ch. 797, Secs. 11, 12, eff. Sept. 1, 2005; Acts 2005, 79th Leg., ch. 899, § 14.01, eff. Aug. 29, 2005. § 39.905. GOAL FOR ENERGY EFFICIENCY. (a) It is the goal of the legislature that: (1) electric utilities will administer energy savings incentive programs in a market-neutral, nondiscriminatory manner but will not offer underlying competitive services; (2) all customers, in all customer classes, have a choice of and access to energy efficiency alternatives and other choices from the market that allow each customer to reduce energy consumption, peak demand, or energy costs; and (3) each electric utility will provide, through market-based standard offer programs or limited, targeted, market-transformation programs, incentives sufficient for retail electric providers and competitive energy service providers to acquire additional cost-effective energy efficiency equivalent to at least 10 percent of the electric utility's annual growth in demand. (b) The commission shall provide oversight and adopt rules and procedures, as necessary, to ensure that the utilities can achieve the goal of this section. (c) A standard offer program provided under Subsection (a)(3) must be neutral with respect to technologies, equipment, and fuels, including thermal, chemical, mechanical, and electrical energy storage technologies. (d) The commission shall adopt the following market-transformation program options that the utilities may choose to implement in order to satisfy the goal in Subsection (a)(3): (1) energy-smart schools; (2) appliance retirement and recycling; (3) air conditioning system tune-ups; and (4) the use of trees or other landscaping for energy efficiency. (e) An electric utility may use money approved by the commission for energy efficiency programs to perform necessary research and development to foster continuous improvement and innovation in the application of technology and program design and implementation. Money the utility uses under this subsection may not exceed 10 percent of the amount the commission approved for energy efficiency programs in the utility's most recent full rate proceeding. (f) Unless funding is provided under Section 39.903, beginning January 1, 2006, each unbundled transmission and distribution utility shall include in its energy efficiency plan a targeted low-income energy efficiency program as described by Section 39.903(f)(2), and the savings achieved by the program shall count toward the transmission and distribution utility's energy efficiency goal. The commission shall determine the appropriate level of funding to be allocated to both targeted and standard offer low-income energy efficiency programs in each unbundled transmission and distribution utility service area. The total expenditures for both targeted and standard offer low-income energy efficiency programs will be based on the amount spent by the transmission and distribution utility on the commission's hard-to-reach program in calendar year 2003. This level of funding for low-income energy efficiency programs shall be provided from money approved by the commission for the transmission and distribution utility's energy efficiency programs. The state agency that administers the federal weatherization assistance program shall provide reports as required by the commission to provide the most current information available on energy and peak demand savings achieved in each transmission and distribution utility service area. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. Amended by Acts 2005, 79th Leg., ch. 328, § 1, eff. Sept. 1, 2005. § 39.904. GOAL FOR RENEWABLE ENERGY. (a) It is the intent of the legislature that by January 1, 2015, an additional 5,000 megawatts of generating capacity from renewable energy technologies will have been installed in this state. The cumulative installed renewable capacity in this state shall total 5,880 megawatts by January 1, 2015, and the commission shall establish a target of 10,000 megawatts of installed renewable capacity by January 1, 2025. The cumulative installed renewable capacity in this state shall total 2,280 megawatts by January 1, 2007, 3,272 megawatts by January 1, 2009, 4,264 megawatts by January 1, 2011, 5,256 megawatts by January 1, 2013, and 5,880 megawatts by January 1, 2015. Of the renewable energy technology generating capacity installed to meet the goal of this subsection after September 1, 2005, the commission shall establish a target of having at least 500 megawatts of capacity from a renewable energy technology other than a source using wind energy. (b) The commission shall establish a renewable energy credits trading program. Any retail electric provider, municipally owned utility, or electric cooperative that does not satisfy the requirements of Subsection (a) by directly owning or purchasing capacity using renewable energy technologies shall purchase sufficient renewable energy credits to satisfy the requirements by holding renewable energy credits in lieu of capacity from renewable energy technologies. (c) Not later than January 1, 2000, the commission shall adopt rules necessary to administer and enforce this section. At a minimum, the rules shall: (1) establish the minimum annual renewable energy requirement for each retail electric provider, municipally owned utility, and electric cooperative operating in this state in a manner reasonably calculated by the commission to produce, on a statewide basis, compliance with the requirement prescribed by Subsection (a); and (2) specify reasonable performance standards that all renewable capacity additions must meet to count against the requirement prescribed by Subsection (a) and that: (A) are designed and operated so as to maximize the energy output from the capacity additions in accordance with then-current industry standards; and (B) encourage the development, construction, and operation of new renewable energy projects at those sites in this state that have the greatest economic potential for capture and development of this state's environmentally beneficial renewable resources. (d) In this section, "renewable energy technology" means any technology that exclusively relies on an energy source that is naturally regenerated over a short time and derived directly from the sun, indirectly from the sun, or from moving water or other natural movements and mechanisms of the environment. Renewable energy technologies include those that rely on energy derived directly from the sun, on wind, geothermal, hydroelectric, wave, or tidal energy, or on biomass or biomass-based waste products, including landfill gas. A renewable energy technology does not rely on energy resources derived from fossil fuels, waste products from fossil fuels, or waste products from inorganic sources. (e) A municipally owned utility operating a gas distribution system may credit toward satisfaction of the requirements of this section any production or acquisition of landfill gas supplied to the gas distribution system, based on conversion to kilowatt hours of the thermal energy content in British thermal units of the renewable source and using for the conversion factor the annual heat rate of the most efficient gas-fired unit of the combined utility's electric system as measured in British thermal units per kilowatt hour and using the British thermal unit measurement based on the higher heating value measurement. (f) A municipally owned utility operating a gas distribution system may credit toward satisfaction of the requirements of this section any production or acquisition of landfill gas supplied to the gas distribution system, based on conversion to kilowatt hours of the thermal energy content in British thermal units of the renewable source and using for the conversion factor the systemwide average heat rate of the gas-fired units of the combined utility's electric system as measured in British thermal units per kilowatt hour. (g) The commission, after consultation with each appropriate independent organization, electric reliability council, or regional transmission organization: (1) shall designate competitive renewable energy zones throughout this state in areas in which renewable energy resources and suitable land areas are sufficient to develop generating capacity from renewable energy technologies; (2) shall develop a plan to construct transmission capacity necessary to deliver to electric customers, in a manner that is most beneficial and cost-effective to the customers, the electric output from renewable energy technologies in the competitive renewable energy zones; and (3) shall consider the level of financial commitment by generators for each competitive renewable energy zone in determining whether to designate an area as a competitive renewable energy zone and whether to grant a certificate of convenience and necessity. (h) In considering an application for a certificate of public convenience and necessity for a transmission project intended to serve a competitive renewable energy zone, the commission is not required to consider the factors provided by Sections 37.056(c)(1) and (2). (i) Transmission service to a competitive renewable energy zone must be provided in a manner consistent with Subchapter A, Chapter 35. (j) The commission, after consultation with each appropriate independent organization, electric reliability council, or regional transmission organization, shall file a report with the legislature not later than December 31 of each even-numbered year. The report must include: (1) an evaluation of the commission's implementation of competitive renewable energy zones; (2) the estimated cost of transmission service improvements needed for each competitive renewable energy zone; and (3) an evaluation of the effects that additional renewable generation has on system reliability and on the cost of alternatives to mitigate the effects. (k) The commission and the independent organization certified for ERCOT shall study the need for increased transmission and generation capacity throughout this state and report to the legislature the results of the study and any recommendations for legislation. The report must be filed with the legislature not later than December 31 of each even-numbered year and may be filed as a part of the report required by Subsection (j). (l) The commission may adopt rules requiring renewable power facilities to have reactive power control capabilities or any other feasible technology designed to reduce the facilities' effects on system reliability. (m) Notwithstanding any other provision of law, the commission shall ensure that all renewable capacity installed in this state and all renewable energy credits awarded, produced, procured, or sold from renewable capacity in this state are counted toward the goal in Subsection (a). (n) Notwithstanding any other provision of law, the commission shall have the authority to cap the price of renewable energy credits and may suspend the goal contained in Subsection (a) if such suspension is necessary to protect the reliability and operation of the grid. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. Amended by Acts 2005, 79th Leg., 1st C.S., ch. 1, § 3, eff. Sept. 1, 2005. § 39.9044. GOAL FOR NATURAL GAS. (a) It is the intent of the legislature that 50 percent of the megawatts of generating capacity installed in this state after January 1, 2000, use natural gas. To the extent permitted by law, the commission shall establish a program to encourage utilities to comply with this section by using natural gas produced in this state as the preferential fuel. This section does not apply to generating capacity for renewable energy technologies. (b) The commission shall establish a natural gas energy credits trading program. Any power generation company, municipally owned utility, or electric cooperative that does not satisfy the requirements of Subsection (a) by directly owning or purchasing capacity using natural gas technologies shall purchase sufficient natural gas energy credits to satisfy the requirements by holding natural gas energy credits in lieu of capacity from natural gas energy technologies. (c) Not later than January 1, 2000, the commission shall adopt rules necessary to administer and enforce this section and to perform any necessary studies in cooperation with the Railroad Commission of Texas. At a minimum, the rules shall: (1) establish the minimum annual natural gas generation requirement for each power generation company, municipally owned utility, and electric cooperative operating in this state in a manner reasonably calculated by the commission to produce, on a statewide basis, compliance with the requirement prescribed by Subsection (a); and (2) specify reasonable performance standards that all natural gas capacity additions must meet to count against the requirement prescribed by Subsection (a) and that: (A) are designed and operated so as to maximize the energy output from the capacity additions in accordance with then-current industry standards and best industry standards; and (B) encourage the development, construction, and operation of new natural gas energy projects at those sites in this state that have the greatest economic potential for capture and development of this state's environmentally beneficial natural gas resources. (d) The commission, with the assistance of the Railroad Commission of Texas, shall adopt rules allowing and encouraging retail electric providers and municipally owned utilities and electric cooperatives that have adopted customer choice to market electricity generated using natural gas produced in this state as environmentally beneficial. The rules shall allow a provider, municipally owned utility, or cooperative to: (1) emphasize that natural gas produced in this state is the cleanest-burning fossil fuel; and (2) label the electricity generated using natural gas produced in this state as "green" electricity. (e) In this section, "natural gas technology" means any technology that exclusively relies on natural gas as a primary fuel source. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.9048. NATURAL GAS FUEL. It is the intent of the legislature that: (1) the cost of generating electricity remain as low as possible; and (2) the state establish and publicize a program to keep the costs of fuel, such as natural gas, used for generating electricity low. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.906. DISPLACED WORKERS. In order to mitigate potential negative impacts on utility personnel directly affected by electric industry restructuring, the commission shall allow the recovery of reasonable employee-related transition costs incurred and projected for severance, retraining, early retirement, outplacement, and related expenses for the employees. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.907. LEGISLATIVE OVERSIGHT COMMITTEE. (a) In this section, "committee" means the electric utility restructuring legislative oversight committee. (b) The committee is composed of six members as follows: (1) the chair of the House Committee on Regulated Industries; (2) three members of the senate appointed by the lieutenant governor; and (3) two members of the house of representatives appointed by the speaker of the house of representatives. (c) An appointed member of the committee serves at the pleasure of the appointing official. In making appointments to the committee, the appointing officials shall attempt to appoint persons who represent the gender composition, minority populations, and geographic regions of the state. (d) Repealed by Acts 2005, 79th Leg., ch. 1227, § 5.01(5). (e) The committee shall: (1) meet at least annually with the commission; (2) receive information about rules relating to electric utility restructuring proposed by the commission and may submit comments to the commission on those proposed rules; (3) review recommendations for legislation proposed by the commission; and (4) monitor the effectiveness of electric utility restructuring, including the fairness of rates, the reliability of service, and the effect of stranded costs, market power, and regulation on the normal forces of competition. (f) The committee may request reports and other information from the commission as necessary to carry out this section. (g) Not later than November 15 of each even-numbered year, the committee shall report to the governor, lieutenant governor, and speaker of the house of representatives on the committee's activities under Subsection (e). The report shall include: (1) an analysis of any problems caused by electric utility restructuring; and (2) recommendations of any legislative action necessary to address those problems and to further retail competition within the electric power industry. (h) The chair of the House Committee on Regulated Industries and one of the members of the senate serving on the committee, designated by the lieutenant governor, shall serve as joint chairs of the committee. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. Amended by Acts 2003, 78th Leg., ch. 617, § 1, eff. June 20, 2003; Acts 2003, 78th Leg., ch. 1328, § 12, eff. June 21, 2003; Acts 2003, 78th Leg., 3rd C.S., ch. 7, § 1, eff. Oct. 13, 2003; Acts 2005, 79th Leg., ch. 1227, § 5.01(5), eff. Sept. 1, 2005. § 39.908. EFFECT OF SUNSET PROVISION. (a) If the commission is abolished and the other provisions of this title expire as provided by Chapter 325, Government Code (Texas Sunset Act), this subchapter, including the provisions of this title referred to in this subchapter, continues in full force and effect and does not expire. (b) The authorities, duties, and functions of the commission under this chapter shall be performed and carried out by a successor agency to be designated by the legislature before abolishment of the commission or, if the legislature does not designate the successor, by the secretary of state. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.909. PLAN AND REPORT OF WORKFORCE DIVERSITY AND OTHER BUSINESS PRACTICES. (a) In this section, "small business" and "historically underutilized business" have the meanings assigned by Section 481.191, Government Code. (b) Before January 1, 2000, each electric utility shall develop and submit to the commission a comprehensive five-year plan to enhance diversity of its workforce in all occupational categories and to increase contracting opportunities for small and historically underutilized businesses. The plan must consist of: (1) the electric utility's historical and current performance with regard to workforce diversity and contracting with small and historically underutilized businesses; (2) initiatives that the electric utility will pursue in these areas over the period of the plan; (3) a listing of programs and activities the electric utility will undertake to achieve each of those initiatives; and (4) a listing of the business partnership initiatives the electric utility will undertake to facilitate small and historically underutilized business entry into the electric energy market as generators and retail energy providers taking into account opportunities for contracting and joint ventures. (c) Each electric utility shall submit an annual report to the commission and the legislature relating to its efforts to improve workforce diversity and contracting opportunities for small and historically underutilized businesses. The report must be submitted on October 1 of each year or may be included as part of any other annual report submitted by the electric utility to the commission. The report must include: (1) the diversity of the electric utility's workforce as of the time of the report; (2) the electric utility's level of contracting with small and historically underutilized businesses; (3) the specific progress made under the plan under Subsection (b); (4) the specific initiatives, programs, and activities undertaken under the plan during the preceding year; (5) an assessment of the success of each of those initiatives, programs, and activities; (6) the extent to which the electric utility has carried out its initiatives to facilitate opportunities for contracts or joint ventures with small and historically underutilized businesses; and (7) the initiatives, programs, and activities the electric utility will pursue during the next year to increase the diversity of its workforce and contracting opportunities for small and historically underutilized businesses. Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999. § 39.910. INCENTIVE PROGRAM AND GOAL FOR ENERGY EFFICIENCY FOR MILITARY BASES. (a) The commission by rule shall establish an electric energy efficiency incentive program under which each electric utility in an area where customer choice is not available will provide incentives sufficient for military bases, retail electric providers, or competitive energy service providers to install energy efficiency devices or other alternatives at military bases. The commission shall design the program to provide military bases with a variety of choices for cost-effective energy efficiency devices and other alternatives from the market to reduce energy consumption and energy costs. (b) The commission shall establish a goal for the program to reduce, before January 1, 2005, the consumption of electricity by military bases in this state by five percent as compared to consumption levels in 2002. (c) The commission shall approve a nonbypassable surcharge or other rate mechanism to recover costs associated with the program established under this section. (d) An electric utility shall administer the electric energy efficiency incentive program in a market-neutral, nondiscriminatory manner. An electric utility may not offer underlying competitive services. Added by Acts 2003, 78th Leg., ch. 149, § 23, eff. May 27, 2003.
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