CHAPTER 40. COMPETITION FOR MUNICIPALLY OWNED UTILITIES AND RIVER AUTHORITIES
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.