CHAPTER 40. COMPETITION FOR MUNICIPALLY OWNED UTILITIES AND RIVER AUTHORITIES - Texas Statutes

UTILITIES CODE

TITLE 2. PUBLIC UTILITY REGULATORY ACT

SUBTITLE B. ELECTRIC UTILITIES

CHAPTER 40. COMPETITION FOR MUNICIPALLY OWNED UTILITIES AND RIVER

AUTHORITIES

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 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, Sec. 39, eff. Sept. 1,

1999. Amended by Acts 2001, 77th Leg., ch. 1420, Sec. 8.401, eff.

Sept. 1, 2001.

Sec. 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 552, Local

Government Code, or by municipal charter.

Added by Acts 1999, 76th Leg., ch. 405, Sec. 39, eff. Sept. 1,

1999. Amended by Acts 2001, 77th Leg., ch. 1420, Sec. 8.402, eff.

Sept. 1, 2001.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

885, Sec. 3.77(29), eff. April 1, 2009.

Sec. 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, Sec. 39, eff. Sept. 1,

1999. Amended by Acts 2001, 77th Leg., ch. 1420, Sec. 8.403, eff.

Sept. 1, 2001.

Sec. 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, Sec. 39, eff. Sept. 1,

1999.

SUBCHAPTER B. MUNICIPALLY OWNED UTILITY CHOICE

Sec. 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, Sec. 39, eff. Sept. 1,

1999.

Sec. 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, Sec. 39, eff. Sept. 1,

1999.

Sec. 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, Sec. 39, eff. Sept. 1,

1999.

Sec. 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, Sec. 39, eff. Sept. 1,

1999.

Sec. 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;

(10) make any other decisions affecting the municipally owned

utility's participation in customer choice that are not

inconsistent with this chapter; and

(11) determine the extent to which the municipally owned utility

offers energy efficiency programs and how the programs are

administered by the utility, except as provided by Section

39.9051(e).

(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, Sec. 39, eff. Sept. 1,

1999.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

939, Sec. 27, eff. September 1, 2007.

Sec. 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, Sec. 39, eff. Sept. 1,

1999.

Sec. 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, Sec. 39, eff. Sept. 1,

1999.

Sec. 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, Sec. 39, eff. Sept. 1,

1999.

Sec. 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, Sec. 39, eff. Sept. 1,

1999.

Sec. 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, Sec. 39, eff. Sept. 1,

1999.

SUBCHAPTER C. RIGHTS NOT AFFECTED

Sec. 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, Sec. 39, eff. Sept. 1,

1999.

Sec. 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, Sec. 39, eff. Sept. 1,

1999.

Sec. 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, Sec. 39, eff. Sept. 1,

1999.

Sec. 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, Sec. 39, eff. Sept. 1,

1999.