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Senate Interim Committee on State Affairs

IMPLEMENTATION OF S.B. 373

ELECTRIC UTILITY REGULATION
Charges

Monitor the implementation of the provisions of S.B. 373, 74th Legislature, regarding electric utility regulation including:

Assessing the effectiveness of the integrated resource planning process as implemented by the Public Utility Commission (PUC);

Assessing the effectiveness of the rate deregulation of electric cooperatives; and

Assessing the impact on the electric utility wholesale market and on the development of competition in the electric industry.

CHAPTER I: WHOLESALE COMPETITION
Background

S.B. 373. In response to federal legislative, judicial, and administrative actions, the 74th Legislature provided for wholesale competition in the electric industry. Section 2.001 of S.B. 373 states that

"the wholesale electric industry . . . is becoming a more competitive industry which does not lend itself to traditional electric utility regulatory rules, policies, and principles and that, therefore, the public interest requires that new rules, policies, and principles be formulated and applied to protect the public interest in a more competitive market place."

Accordingly, S.B. 373 stipulates the following:

Exempt wholesale generators and power marketers may sell electric energy only at wholesale;

Utilities that own or operate transmission facilities are required to provide wholesale transmission service with rates and conditions that are comparable to the utility's rates for use of its own system;

An electric utility may exercise rate flexibility (that is, charge less than its normal tariff for either a wholesale or retail customer), subject to PUC approval.

PUC Dockets. S.B. 373 requires the PUC to report to the legislature on the scope of competition in electric markets and the impact of competition and industry restructuring on customers in both competitive and non-competitive markets. According to the report, the scope of competition language in the statute gives the PUC "some latitude to address issues beyond the wholesale competitive environment."

In September 1995, the PUC commissioners discussed the current status of electric industry restructuring and decided to set up a separate docket on restructuring issues in addition to the statutorily required reports on stranded costs and the scope of competition. The commission is scheduled to issue draft reports on Scope of Competition and Stranded Investment by September 4, with a final vote scheduled for October. While the report recognizes that the commission needs to study restructuring issues, it expresses concern that staff resources are being allocated to retail access issues to the detriment of researching the wholesale market (p. 19).
Recommendations

  • Retain the wholesale competitive market and continue to monitor other states' restructuring efforts. The report states: "it would be ill-advised for the members of this committee to recommend moving beyond the current wholesale competitive market until Texas has an opportunity to understand the effectiveness of the regulatory framework established in S.B. 373." (p. 97)

  • Emphasize the importance of reliability in a competitively restructure market. While it is possible that a competitively restructured market can maintain the high quality of service that the existing structure provides, this cannot be considered a certainly until the shape of a restructured market is determined.

  • Monitor the wholesale stranded cost study at the PUC and draft appropriate statutory language.

  • Any study conducted by the PUC should recognize federal tax implications as well as accounting principles relating the industry.

    CHAPTER II: INTEGRATED RESOURCE PLANNING
    Background

    S.B. 373 adds a new section governing the integrated resource planning (IRP) process. Each utility is required to develop a plan to provide electricity at the lowest reasonable system cost, and the PUC is required to develop an IRP planning process. At the time of the printing of the interim report, the PUC was still in the process of finalizing the IRP rule.
    Recommendations

  • Continue the current IRP policy with no modifications.

  • Assess what level of oversight policymakers should exercise in the interest of a properly diversified resource mix.

    CHAPTER III: ELECTRIC COOPERATIVE DEREGULATION
    Background

    Although rural electric cooperatives (COOPs) are non-profit and self-governing, until recently they have been under the rate jurisdiction of the PUC, leading to excessive costs even though most COOP rate cases are uncontested. Positive findings from other states helped convince the Texas Legislature to deregulate the rates of distribution COOPs in Texas. The legislature also included safeguards to protects the interests of COOP customers and certain investor-owned utilities operating in dually certified areas.

    To date, the PUC has issued 37 certificates of deregulation, all approved in voter elections.
    Recommendations

    The report makes no recommendations, stating that it is too early to conclusively evaluate the effectiveness of electric coop deregulation. At this stage there have been very few, if any, problems with the system put into place by S.B. 373. The popularity of COOP deregulation, coupled with the total absence of petitions for rate review, seems to indicate the new setup is operating effectively.

    STATE OFFICE OF ADMINISTRATIVE HEARINGS
    Charge

    Determine the effectiveness of the transfer of administrative hearings from individual state agencies to the State Office of Administrative Hearings (SOAH).
    Background

    The Senate State Affairs Committee prepared an interim report for this charge. Prior to the creation of the SOAH, contested case hearings were of the "agency-staff" approach, employing judges who were under the direct supervision of the agency. SOAH was established in 1991 by the 72nd Legislature to create a centralized state office of administrative hearings.
    Recommendations

  • Require particular training and area specialization training for administrative law judges.

  • Establish disciplinary review procedures for administrative law judges.

  • Allow proposals for decisions issued by SOAH administrative law judges to stand as final decisions for occupational regulatory agencies.

  • Authorize administrative law judges to issue sanctions and study adoption of more uniform administrative rules.

  • Encourage alternative methods of facilitating hearings.

  • Apply the Texas Sunset Act to the State Office of Administrative Hearings.