UTILITIES CODE
CHAPTER 40. COMPETITION FOR MUNICIPALLY OWNED UTILITIES AND RIVER
AUTHORITIES
SUBCHAPTER A. GENERAL PROVISIONS
§ 40.001. APPLICABLE LAW. (a) Notwithstanding any
other provision of law, except Sections 39.155, 39.157(e), 39.203,
39.903, and 39.904, this chapter governs the transition to and the
establishment of a fully competitive electric power industry for
municipally owned utilities. With respect to the regulation of
municipally owned utilities, this chapter controls over any other
provision of this title, except for sections in which the term
"municipally owned utility" is specifically used.
(b) Except as specifically provided in this subsection,
Chapter 39 does not apply to a river authority operating a steam
generating plant on or before January 1, 1999, or a corporation
authorized by Chapter 152, Water Code, or Section 32.053. A river
authority operating a steam generating plant on or before January
1, 1999, is subject to Sections 39.051(a)-(c), 39.108, 39.155,
39.157(e), and 39.203.
(c) For purposes of Section 39.051, hydroelectric assets
may not be deemed to be generating assets, and the transfer of
generating assets to a corporation authorized by Chapter 152, Water
Code, satisfies the requirements of Section 39.051.
(d) Accommodation shall be made in the code of conduct
established under Section 39.157(e) for the provisions of Chapter
152, Water Code, and the commission may not prohibit a river
authority and any related corporation from sharing officers,
directors, employees, equipment, and facilities or from providing
goods or services to each other at cost without the need for a
competitive bid.
Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.
Amended by Acts 2001, 77th Leg., ch. 1420, § 8.401, eff. Sept. 1,
2001.
§ 40.002. DEFINITION. For purposes of this chapter,
"body vested with the power to manage and operate a municipally
owned utility" means a body created in accordance with Section
1502.070, Government Code, or Subchapter G, Chapter 402, Local
Government Code, or by municipal charter.
Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.
Amended by Acts 2001, 77th Leg., ch. 1420, § 8.402, eff. Sept. 1,
2001.
§ 40.003. SECURITIZATION. (a) Municipally owned
utilities and river authorities may adopt and use securitization
provisions having the effect of the provisions provided by
Subchapter G, Chapter 39, to recover through appropriate charges
their stranded costs, at a recovery level deemed appropriate by the
municipally owned utility or river authority up to 100 percent,
under rules and procedures that shall be established:
(1) in the case of a municipally owned utility, by the
municipal governing body or a body vested with the power to manage
and operate the municipally owned utility, including procedures
providing for rate orders of the governing body having the effect of
financing orders, providing for a separate nonbypassable charge
approved by the governing body, in the nature of a transition
charge, to be collected from all retail electric customers of the
municipally owned utility, identified as of a date determined by
the governing body, to fund the recovery of the stranded costs of
the municipally owned utility and of all reasonable related
expenses, as determined by the governing body, and providing for
the issuance of bonds, having a term and other characteristics as
determined by the governing body, as necessary to recover the
amount deemed appropriate by the governing body through
securitization financing; and
(2) in the case of a river authority, by the
commission.
(b) In order to implement securitization financing under
the rules and procedures established by and for a municipally owned
utility under Subsection (a)(1), municipalities are expressly
authorized and empowered to issue bonds, notes, or other
obligations, including refunding bonds, payable from and secured by
a lien on and pledge of the revenues collected under an order of the
governing body of the municipality, and the bonds shall be issued,
without an election or any requirement of giving notice of intent to
issue the bonds, by ordinance adopted by the governing body of the
municipality, in the form and manner and sold on a negotiated basis
or on receipt of bids and on the terms and conditions as shall be
determined by the governing body of the municipality.
(c) Bonds issued under the authority conferred by
Subsections (a)(1) and (2) and Subsection (b) may be issued in the
form and manner, with or without credit enhancement or liquidity
enhancement and using the procedures as provided in Chapter 1201,
Government Code, or other laws applicable to the issuance of bonds,
including Subchapters A-C, Chapter 1207, Government Code, and
Chapter 1371, Government Code, as if those laws were fully restated
in this section and made a part of this section for all purposes,
and a municipality or river authority shall have the right and
authority to use those other laws, notwithstanding any applicable
restrictions contained in those laws, to the extent convenient or
necessary to carry out any power or authority, express or implied,
granted under this section, in the issuance of bonds by a
municipality or river authority in connection with securitization
financing. This section is wholly sufficient authority for the
issuance of bonds, notes, or other obligations, including refunding
bonds, and the performance of the other authorized acts and
procedures, without reference to any other laws or any restrictions
or limitations contained in those laws. To the extent of any
conflict or inconsistency between the provisions of this
authorization and any provisions of any other law or home-rule
charter, the authorization and power to issue bonds conferred on
municipalities or river authorities under this section shall
prevail and control.
(d) The rules and procedures for securitization established
by the commission under Subsection (a)(2) shall include procedures
for the recovery of qualified costs under the terms of a financing
order adopted by the governing body of the river authority.
(e) The rules and procedures for securitization established
by the commission under Subsection (a)(2) shall include rules and
procedures for the issuance of transition bonds. Findings made by
the governing body of a river authority in a financing order issued
under the rules and procedures described in this subsection shall
be conclusive, and any transition charge incorporated in the rate
order to recover the principal, interest, and all reasonable
expenses associated with any transition bonds shall constitute
property rights, as described in Subchapter G, Chapter 39, and
otherwise conform in all material respects to the transition
charges provided by Subchapter G, Chapter 39.
(f) The rules and procedures established under this section
shall be consistent with other law applicable to municipally owned
utilities and river authorities and with the terms of any
resolutions, orders, charter provisions, or ordinances authorizing
outstanding bonds or other indebtedness of the municipalities or
river authorities.
Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.
Amended by Acts 2001, 77th Leg., ch. 1420, § 8.403, eff. Sept. 1,
2001.
§ 40.004. JURISDICTION OF COMMISSION. Except as
specifically otherwise provided in this chapter, the commission has
jurisdiction over municipally owned utilities only for the
following purposes:
(1) to regulate wholesale transmission rates and
service, including terms of access, to the extent provided by
Subchapter A, Chapter 35;
(2) to regulate certification of retail service areas
to the extent provided by Chapter 37;
(3) to regulate rates on appeal under Subchapters D
and E, Chapter 33, subject to Section 40.051(c);
(4) to establish a code of conduct as provided by
Section 39.157(e) applicable to anticompetitive activities and to
affiliate activities limited to structurally unbundled affiliates
of municipally owned utilities, subject to Section 40.054;
(5) to establish terms and conditions for open access
to transmission and distribution facilities for municipally owned
utilities providing customer choice, as provided by Section 39.203;
(6) to require collection of the nonbypassable fee
established under Section 39.903(b) and to administer the renewable
energy credits program under Section 39.904(b) and the natural gas
energy credits program under Section 39.9044(b); and
(7) to require reports of municipally owned utility
operations only to the extent necessary to:
(A) enable the commission to determine the
aggregate load and energy requirements of the state and the
resources available to serve that load; or
(B) enable the commission to determine
information relating to market power as provided by Section 39.155.
Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.
SUBCHAPTER B. MUNICIPALLY OWNED UTILITY CHOICE
§ 40.051. GOVERNING BODY DECISION. (a) The municipal
governing body or a body vested with the power to manage and operate
a municipally owned utility has the discretion to decide when or if
the municipally owned utility will provide customer choice.
(b) Municipally owned utilities may choose to participate
in customer choice at any time on or after January 1, 2002, by
adoption of an appropriate resolution of the municipal governing
body or a body vested with power to manage and operate the
municipally owned utility. The decision to participate in customer
choice by the adoption of a resolution is irrevocable.
(c) After a decision to offer customer choice has been made,
Subchapters D and E, Chapter 33, do not apply to any action taken
under this chapter.
Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.
§ 40.052. UTILITY NOT OFFERING CUSTOMER CHOICE. (a) A
municipally owned utility that has not chosen to participate in
customer choice may not offer electric energy at unregulated prices
directly to retail customers outside its certificated retail
service area.
(b) A municipally owned utility under Subsection (a)
retains the right to offer and provide a full range of customer
service and pricing programs to the customers within its
certificated area and to purchase and sell electric energy at
wholesale without geographic restriction.
Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.
§ 40.053. RETAIL CUSTOMER'S RIGHT OF CHOICE. (a) If a
municipally owned utility chooses to participate in customer
choice, after that choice all retail customers served by the
municipally owned utility within the certificated retail service
area of the municipally owned utility shall have the right of
customer choice consistent with the provisions of this chapter, and
the municipally owned utility shall provide open access for retail
service.
(b) Notwithstanding Section 39.107, the metering function
may not be deemed a competitive service for customers of the
municipally owned utility within that service area and may, at the
option of the municipally owned utility, continue to be offered by
the municipally owned utility as sole provider.
(c) On its initiation of customer choice, a municipally
owned utility shall designate itself or another entity as the
provider of last resort for customers within the municipally owned
utility's certificated service area as that area existed on the
date of the utility's initiation of customer choice. The
municipally owned utility shall fulfill the role of default
provider of last resort in the event no other entity is available to
act in that capacity.
(d) If a customer is unable to obtain service from a retail
electric provider, on request by the customer, the provider of last
resort shall offer the customer the standard retail service package
for the appropriate customer class, with no interruption of
service, at a fixed, nondiscountable rate that is at least
sufficient to cover the reasonable costs of providing that service,
as approved by the governing body of the municipally owned utility
that has the authority to set rates.
(e) The governing body of a municipally owned utility may
establish the procedures and criteria for designating the provider
of last resort and may redesignate the provider of last resort
according to a schedule it considers appropriate.
Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.
§ 40.054. SERVICE OUTSIDE AREA. (a) A municipally
owned utility participating in customer choice shall have the right
to offer electric energy and related services at unregulated prices
directly to retail customers who have customer choice without
regard to geographic location.
(b) In providing service under Subsection (a) to retail
customers outside its certificated retail service area as that area
exists on the date of adoption of customer choice, a municipally
owned utility is subject to the commission's rules establishing a
code of conduct regulating anticompetitive practices.
(c) For municipally owned utilities participating in
customer choice, the commission shall have jurisdiction to
establish terms and conditions, but not rates, for access by other
retail electric providers to the municipally owned utility's
distribution facilities.
(d) Accommodation shall be made in the commission's terms
and conditions for access and in the code of conduct for specific
legal requirements imposed by state or federal law applicable to
municipally owned utilities.
(e) The commission does not have jurisdiction to require
unbundling of services or functions of, or to regulate the recovery
of stranded investment of, a municipally owned utility or, except
as provided by this section, jurisdiction with respect to the
rates, terms, and conditions of service for retail customers of a
municipally owned utility within the utility's certificated
service area.
(f) A municipally owned utility shall maintain separate
books and records of its operations from those of the operations of
any affiliate.
Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.
§ 40.055. JURISDICTION OF MUNICIPAL GOVERNING
BODY. (a) The municipal governing body or a body vested with the
power to manage and operate a municipally owned utility has
exclusive jurisdiction to:
(1) set all terms of access, conditions, and rates
applicable to services provided by the municipally owned utility,
subject to Sections 40.054 and 40.056, including nondiscriminatory
and comparable rates for distribution but excluding wholesale
transmission rates, terms of access, and conditions for wholesale
transmission service set by the commission under this subtitle,
provided that the rates for distribution access established by the
municipal governing body shall be comparable to the distribution
access rates that apply to the municipally owned utility and the
municipally owned utility's affiliates;
(2) determine whether to unbundle any energy-related
activities and, if the municipally owned utility chooses to
unbundle, whether to do so structurally or functionally;
(3) reasonably determine the amount of the municipally
owned utility's stranded investment;
(4) establish nondiscriminatory transition charges
reasonably designed to recover the stranded investment over an
appropriate period of time, provided that recovery of retail
stranded costs 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;
(5) determine the extent to which the municipally
owned utility will provide various customer services at the
distribution level, including other services that the municipally
owned utility is legally authorized to provide, or will accept the
services from other providers;
(6) manage and operate the municipality's electric
utility systems, including exercise of control over resource
acquisition and any related expansion programs;
(7) establish and enforce service quality and
reliability standards and consumer safeguards designed to protect
retail electric customers, including safeguards that will
accomplish the objectives of Sections 39.101(a) and (b), consistent
with this chapter;
(8) determine whether a base rate reduction is
appropriate for the municipally owned utility;
(9) determine any other utility matters that the
municipal governing body or body vested with power to manage and
operate the municipally owned utility believes should be included;
and
(10) make any other decisions affecting the
municipally owned utility's participation in customer choice that
are not inconsistent with this chapter.
(b) In multiply certificated areas, a retail customer,
including a retail customer of an electric cooperative or a
municipally owned utility, may not avoid stranded cost recovery
charges by switching to another electric utility, electric
cooperative, or municipally owned utility.
Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.
§ 40.056. ANTICOMPETITIVE ACTIONS. (a) If, on
complaint by a retail electric provider, the commission finds that
a municipal rule, action, or order relating to customer choice is
anticompetitive or does not provide other retail electric providers
with nondiscriminatory terms and conditions of access to
distribution facilities or customers within the municipally owned
utility's certificated retail service area that are comparable to
the municipally owned utility's and its affiliates' terms and
conditions of access to distribution facilities or customers, the
commission shall notify the municipally owned utility.
(b) The municipally owned utility shall have three months to
cure the anticompetitive or noncompliant behavior described in
Subsection (a), following opportunity for hearing on the complaint.
If the rule, action, or order is not fully remedied within that
time, the commission may prohibit the municipally owned utility or
affiliate from providing retail service outside its certificated
retail service area until the rule, action, or order is remedied.
Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.
§ 40.057. BILLING. (a) A municipally owned utility
that opts for customer choice may continue to bill directly
electric customers located in its certificated retail service area,
as that area exists on the date of adoption of customer choice, for
all transmission and distribution services. The municipally owned
utility may also bill directly for generation services and customer
services provided by the municipally owned utility to those
customers.
(b) A municipally owned utility that opts for customer
choice may not adopt anticompetitive billing practices that would
discourage customers in its service area from choosing a retail
electric provider.
(c) A customer that is being provided wires service by a
municipally owned utility at distribution or transmission voltage
and that is served by a retail electric provider for retail service
has the option of being billed directly by each service provider or
to receive a single bill for distribution, transmission, and
generation services from the municipally owned utility.
Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.
§ 40.058. TARIFFS FOR OPEN ACCESS. A municipally owned
utility that owns or operates transmission and distribution
facilities shall file with the commission tariffs implementing the
open access rules established by the commission under Section
39.203 and shall file with the commission the rates for open access
on distribution facilities as set by the municipal regulatory
authority, before the 90th day preceding the date the utility
offers customer choice. The commission does not have authority to
determine the rates for distribution access service for a
municipally owned utility.
Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.
§ 40.059. MUNICIPAL POWER AGENCY; RECOVERY OF STRANDED
COSTS. (a) In this section, "member city" means a municipality
that participated in the creation of a municipal power agency
formed under Chapter 163 by the adoption of a concurrent resolution
by the municipality on or before August 1, 1975.
(b) After a member city adopts a resolution choosing to
participate in customer choice under Section 40.051(b), a member
city may include stranded costs described in Subsection (c) in its
distribution costs and may recover those costs through a
nonbypassable charge. The nonbypassable charge shall be as
determined by the member city's governing body and may be spread
over 16 years.
(c) The stranded costs that may be recovered under this
section are those costs that were determined by the commission and
stated in the commission's April 1998 Report to the Texas Senate
Interim Committee on Electric Utility Restructuring entitled
"Potentially Strandable Investment (ECOM) Report: 1998 Update" and
specifically stated in the report at Appendix A (ECOM Estimates
Including the Effects of Transition Plans) under the commission
base case benchmark base market price for the year 2002.
(d) The stranded cost amounts described in this section may
not be included in the generation costs used in setting rates by the
member city's governing body.
(e) The provisions of this section are cumulative of all
other provisions of this chapter, and nothing in this section shall
be construed to limit or restrict the application of any provision
of this chapter to the member cities.
(f) The municipal power agency shall extinguish the
agency's indebtedness by sale of the electric facility to one or
more purchasers, by way of a sale through the issuance of taxable or
tax-exempt debt to the member cities, or by any other method. The
agency shall set as an objective the extinguishment of the agency's
debt by September 1, 2000. In the event this objective is not met,
the agency shall provide detailed reasons to the electric utility
restructuring legislative oversight committee by November 1, 2000,
why the agency was not able to meet this objective.
(g) The municipal power agency or its successor in interest
may, at its option, use the rate of return method for calculating
its transmission cost of service. If the rate of return method is
used, the return component for the transmission cost of service
revenue requirement shall be sufficient to meet the transmission
function's pro rata share of levelized debt service and debt
service coverage ratio (1.50) and other annual debt obligations;
provided, however, that the total levelized debt service may not
exceed the total debt service under the current payment schedule.
Any additional revenue generated by the methodology described in
this subsection shall be applied to reduce the agency's outstanding
indebtedness.
Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.
§ 40.060. NO POWER TO AMEND CERTIFICATES. Nothing in
this chapter empowers a municipal governing body or a body vested
with the power to manage and operate a municipally owned utility to
issue, amend, or rescind a certificate of public convenience and
necessity granted by the commission. This subsection does not
affect the ability of a municipal governing body or a body vested
with the power to manage and operate the municipally owned utility
to pass a resolution under Section 40.051(b).
Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.
SUBCHAPTER C. RIGHTS NOT AFFECTED
§ 40.101. INTERFERENCE WITH CONTRACT. (a) This
subtitle may not interfere with or abrogate the rights or
obligations of parties, including a retail or wholesale customer,
to a contract with a municipally owned utility or river authority.
(b) This subtitle may not interfere with or abrogate the
rights or obligations of a party under a contract or agreement
concerning certificated utility service areas.
Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.
§ 40.102. ACCESS TO WHOLESALE MARKET. Nothing in this
subtitle shall limit the access of municipally owned utilities to
the wholesale electric market.
Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.
§ 40.103. PROTECTION OF BONDHOLDERS. Nothing in this
subtitle or any rule adopted under this subtitle shall impair
contracts, covenants, or obligations between this state, river
authorities, municipalities, and the bondholders of revenue bonds
issued by the river authorities or municipalities.
Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.
§ 40.104. TAX-EXEMPT STATUS. Nothing in this subtitle
may impair the tax-exempt status of municipalities, electric
cooperatives, or river authorities, nor shall anything in this
subtitle compel any municipality, electric cooperative, or river
authority to use its facilities in a manner that violates any
contractual provisions, bond covenants, or other restrictions
applicable to facilities financed by tax-exempt debt.
Notwithstanding any other provision of law, the decision to
participate in customer choice by the adoption of a resolution in
accordance with Section 40.051(b) is irrevocable.
Added by Acts 1999, 76th Leg., ch. 405, § 39, eff. Sept. 1, 1999.
