Electric Industry Restructuring Act Exposed

The Electric Industry Restructuring Act does not include adoption or approval information. ALEC has attempted to distance itself from this piece of legislation after the launch of ALECexposed.org in 2011, but it has done nothing to get it repealed in the states where it previously pushed for it to be made into law.

ALEC Bill Text

Model Legislation

Section 1. (Short Title.)

This act shall be referred to as the Electric Industry Restructuring Act.

Section 2. (Statement of Purpose.)

The Legislature finds and declares as follows:

(1) The generation of electricity is not a natural monopoly and should not be regulated as if it were a natural monopoly.

(2) Regulation of the monopoly electric industry has resulted in uncompetitive rates which vary considerably among electric utilities.

(3) High rates and rate disparities hinder the sustained and orderly economic development of (State).

(4) Restructuring the electric generation industry to facilitate retail competition will lower prices, increase customer choice and improve the quality and variety of generation services available, thereby promoting the public interest.

(5) It is technically and administratively practical to restructure the electric industry in (State) to promote retail customer choice.

(6) Competition in the retail market for electricity will have long term benefits for the economy of (State), including lower prices for electrical service to all consumers, more efficient use of resources, innovation in service and supply and a more diverse and decentralized electricity supply system.

(7) A competitive market place is the most efficient way to lower prices, increase value for consumers, and reduce the cost of regulatory oversight.

(8) The economy of (State) is dependent upon the availability of reliable, low-cost energy, which is essential to the economic viability of the state.

(9) Restructuring of electric utilities to provide greater competition and more efficient regulation is a nationwide phenomenon and (State) must aggressively pursue restructuring and increased customer choice in order to provide electric service at lower and more competitive rates.

(10) It is in the public interest to permit all retail electric customers to choose their supplier of electric generation services in a competitive market and to continue to regulate electric transmission and distribution in order to provide safe and reliable electricity at the lowest possible prices for all consumers, while maintaining the consumer services of customer assistance and reliability.

(11) It is the policy of the Legislature to authorize and permit competition in the supply of electricity to consumers in this State only in accordance with the following principles, and subsequent sections of this act:

[a] Competition. Competitive markets are preferred to regulation. Regulation should serve as a substitute only in those circumstances where competition cannot provide results that serve the best interests of all consumers.

[b] Customer Choice. To realize the full benefits of competition, all customers should be able to choose among and access a wide any of competing, qualified suppliers of electricity. All customers must have the opportunity to benefit from competition, which should be implemented in a fair and equitable manner. Customers should be made aware of their new rights, and the benefits and risks of customer choice.

[c] Unbundling of Services. Generation services should become fully competitive, while the provision of transmission and distribution should accomplish the triple objectives of open access, comparability of service for all users, and nondiscriminatory pricing, while recognizing that federal and state jurisdictional uncertainties over wholesale and retail services should be resolved. Companies which own both transmission and distribution, as well as generation, should not be allowed to use any monopoly position in those services as a barrier to competition in generation. The determinations of corporate structure, excluding market power issues, should be left to the marketplace and not dictated by the government.

[d] Access. Customer access to alternative suppliers of electricity requires open access to the transmission grid and distribution system and is critical to creating a fully competitive market structure. Owners, Operators, and providers of transmission and distribution facilities and services, including all federal, state and local public power agencies, should be required to provide access to those facilities, ancillary services, and other services which are not available competitively to any buyer or seller on a nondiscriminatory and comparable basis.

[e] Fair Dealing. Competition among electric suppliers and buyers must be fair, nondiscriminatory, and consistent. In order to ensure a level playing field, all competitors should be subject to the same legal, regulatory and tax treatments. Subsidies and disparate regulation or legal requirements that favor certain competitors or disadvantage others should be eliminated by the states. No competitor shall be allowed access t0 a utility’s customers unless comparable and reciprocal access is provided to that competitor’s customers.

[f] Reliability and Safety. Reliable and safe electric service must be maintained or improved. State and federal regulators should have the necessary authority to assure the reliability and safety of the electric system.

[g] Recovery of Stranded Costs. Following the process established herein, the utilities are entitled to recover prudently incurred, net, verifiable stranded costs and investments. The state legislature should have the responsibility to determine the just and reasonable recovery mechanisms to determine net stranded costs and investments, including mitigation incentives. It should provide for a public process that applies to investments and costs stranded by competition. It should set the time frame involved for an expeditious transition. And, it should employ mechanisms that do not disadvantage one class of customer or supplier over another. The amount of recovery will be determined by the state’s public utility regulatory body, or other appropriate agency designated by the legislature.

[h] Sanctity of Contract. The rights and obligations embodied in contractual arrangements are and will be an indispensable element of an effective competitive power market. Legislation should not interfere with the rights of parties under contract.

[i] Environmental and Social Policy. The energy marketplace should not be used as a vehicle for accomplishing government mandated, government sponsored, consumer or tax payer subsidized, social or environmental programs. These programs should not be incorporated in electric utility rate structures but instead be unbundled from rates. The costs of these social programs, such as maintenance of minimum living standards, or environmental programs should be financed by legislatively enacted separate changes.

[j] Transmission and Distribution Pricing. To the extent that states have jurisdiction over transmission and distribution pricing, pricing methodologies should be encouraged to enhance reliability, compensate transmission Owners fairly, allow for widest possible markets, and relieve transmission congestion.

[k] Transition t0 Competition/Date Certain. Each state should establish a date certain to accomplish the transition t0 competition. A specific, limited time frame should be established for the transition from a regulated monopoly to competition during which there should be some certainty in rates, a resolution of outstanding federal and state issues, the securing of appropriate regulatory approvals, and establishment of an appropriate market structure. In addition, sufficient measures to preserve the integrity, safety and reliability of the state’s electric system should be established.

[l] Obligation to Connect. In a competitive retail market, local utilities should be relieved of the traditional obligation to verve the public, which should be replaced with an obligation to connect, and distribution should remain a regulated monopoly service for incumbent providers.

[m] State Tax Revenues. Each state electing to adopt electric competition should assess the amount of state and local tax revenues derived from previously regulated electric suppliers that will enter the competitive market and note how revenues to each state or local government entity are changed by restructuring to competition.

[n] Federal Barriers. The repeal of PUHCA and PURPA and the reform of other federal laws that impede competitive electric markets must be accomplished to complement state plans for the transition to customer choice. The process of restructuring generation services with consumer choice has profound interstate implications. Assured reliability of the grid, consumer and supplier access to sufficiently wide markets, a competitive playing field free of uneven subsidies and anti-competitive advantages, and resolution of existing state/federal jurisdiction over transmission and distribution services are all essential to workable competition. States must cooperate with Congress to remove federal barriers which must be part of the transition to competition.

Section 3. (Definitions.)

Section 4. (Standards for Retail Electric Competition Plans.)

(A) Competitive market. No later than thirty-six months after enactment, electric generation shall be deregulated and subject to the competitive market in accordance with the provisions of the industry restructuring plan developed by the commission.

(B) Adoption. The commission shall adopt and publish a plan no later than twelve months after enactment for restructuring the (State) electric industry, consistent with the policies and procedures established under this act, with the objective of having full customer choice no later than thirty-six months after enactment. The plan shall address appropriate steps to achieve an orderly transition to a competitive market.

(C) Contents of plan. The plan shall incorporate the substance of this Act and may include other provisions as the commission shall deem appropriate and necessary to expedite the transition to full customer choice. Such plan shall, during the period of transition, but no later than twelve months after enactment, address transition issues, including:

(1) Rate certainty;

(2) Outstanding federal and state issues;

(3) Appropriate regulatory approvals; and

(4) Legislative intent and public comment.

(D) Consumer Education and Information. The plan developed by the commission shall include a program for making retail customers aware of their new rights and the benefits and risks of customer choice.

Section 5. (Electric Utility Restructuring Plans.)

Not more than eighteen months after enactment, each electric corporation shall file a utility restructuring plan for review and comment before the commission providing for customer choice as set forth herein and establishing a protocol for the disaggregation of services as required by this Act. Such plan shall include:

(1) a schedule for the introduction of customer choice for all of the customers currently served by the electric corporation; and

(2) the manner in which it will otherwise comply with each provision of this Act. 3.

Section 6. (Retail Customer Choice.

All retail customers shall be permitted to choose their providers of electric generation services no later than December 31, 2000, through the following means:

(1) Bi-lateral contract. Retail customers may negotiate a bi-lateral contract with a generator of electricity, under which contract electricity shall be transmitted and distributed to the retail customer, subject to the restrictions contained in this section.

(2) Market aggregator. Retail customers may choose to receive generation and other energy services from a market aggregator. Market aggregators may generate electricity directly, buy and sell electricity or enter into financial contracts for electric generation resources. Market aggregators may be brokers, cooperatives, buying clubs, municipalities or other entities which buy OF arrange for electric generation services through a power pool or through direct contracts.

(3) Default provider. A default provider or providers for any local distribution customer, who has not chosen an alternative source of generation, shall be established by the commission. The commission shall set forth standards to ensure the participation of default providers serving all classes of Customers.

Section 7. (Supplier Registration.

(A) All suppliers of electric supply and power delivery or ancillary services shall register with the commission. Registration shall include the following:

(1) applicant’s technical ability to obtain and deliver electricity and provide any other proposed services;

(2) documentation of financial capability of the applicant to provide the proposed services; and

(3) a description of the form of ownership,

(B) The commission shall not limit market entry for economic reasons nor regulate generation prices

Section 8. (Unbundling of Services.)

(A) General rule. The commission plan for restructuring of the electric utilities shall require that all existing electric utilities shall operationally and/or financially separate electric generation, transmission and distributions assets and operations as described in this section.

(B) Comparability of services and non-discriminatory pricing standards

(1) Both LDU’s and other companies which are not LDU’s or electric utilities may own transmission facilities.

(2) Affiliates of electric utilities and LDU’s may own electric generation assets. Such affiliates may sell generation directly to a customer, provided that generation assets and services, be operationally separate from transmission and/or distribution affiliates, if any.

(3) Affiliates of electric utilities and LDU’s may offer unbundled generation services as approved by the commission. Prices for unbundled generation services shall not be established by the commission, but shall be determined by competitive market forces.

(4) the commission shall adopt a plan designed to permit all providers of generation services to compete equally to supply power to (State) and to mitigate concentrations of undue market power.

Section 9. (Open Access.)

(A) Owners, operators, and providers of transmission and distribution facilities and ancillary services, including all federal, state and local public power agencies are required to provide access to those facilities, ancillary services, and other services available to any buyer or seller on a nondiscriminatory and comparable basis. The commission shall promote non-discriminatory open access to the electric system for wholesale and retail transactions.

(B) Companies providing transmission or distribution services shall file at the Federal Energy Regulatory Commission or with the commission, as appropriate, comparable service tariffs that provide open access for all competitors. The commission shall monitor jurisdictional companies providing transmission or distribution services and take necessary measures to ensure that no supplier has an unfair advantage in offering access to and pricing such services.

(C) The commission shall establish by regulation, and consistent with federal law, standards and conditions for the exchange of reciprocal rights for transmission and distribution access between corporations located within the state and those located outside the state.

Section 10. (Reciprocity.)

Upon enactment, all intrastate owners and operators of transmission and distribution facilities shall have comparable and reciprocal access to the transmission and distribution customers of other transmission and distribution facility owners and operators, for the purpose of providing generation services to such customers. This section shall in no way impede any transactions involving interstate commerce.

Section 11. (Obligation to Connect.)

(A) The local utility shall be relieved of its traditional obligation to serve but shall have an obligation to connect all customers within their service territory on non-discriminatory terms and conditions.

(B) Consumers shall have the right to select their source of power supply, and shall have nondiscriminatory access to interconnection with its host electric utility, which utility shall be required to transport the electricity from the point of generation to the host’s distribution facilities;

(C) In the case of residential customer, or a customer in any other class or subclass of customers designated by the public utilities commission, failure by such customer to make their own alternative arrangements for power supply and delivery shall be deemed to constitute a request to connect to the distribution system of its host electric utility to arrange for such supply or services. Section 12. {Eminent Domain.) The right of eminent domain shall not be used to:

(1) deny physical access or interconnection to transmission or distribution facilities;

(2) restrict the construction of new transmission or distribution facilities by any qualified party; or

(3) otherwise limit competition.

Section 13. (Transmission and Distribution Pricing.)

(A) To the extent that states have jurisdiction over transmission and distribution pricing, the commission shall encourage pricing mechanisms to enhance reliability, compensate transmission owners fairly, allow for widest possible markets, and relieve transmission congestion.

(B) The commission shall establish just and reasonable rates for unbundled local distribution services. Such rates shall provide for costs of providing distribution services. Rates shall be based upon cost of service or performance-based incentives combined with other considerations to promote efficient, safe and reliable services at the lowest possible cost.

(C) Each electric utility shall tile unbundled service tariffs to provide services to all eligible purchasers on a nondiscriminatory basis.

(D) The commission shall have jurisdiction over all aspects of transmission rates and services not subject to the exclusive jurisdiction of the federal energy regulatory commission.

Section 14. (Environmental and Social Policies.)

The subsidies for environmental, social, and other mandated programs should be unbundled from electric rates. These programs should be financed by general tax revenues or legislatively-enacted separate charges appearing on electric bills. The commission shall prepare and submit a report to the legislature that recommends state legislative action, as appropriate, to remove barriers to fair competition.

Section 15. (Fair Dealing.)

(A) Municipal and state electric service providers and electric member cooperatives shall be treated as utilities for purposes of this act.

(B) All distribution service providers shall:

(1) be subject to the jurisdiction of the commission and be regulated on the same basis, including but not limited to regulation of rates, terms and conditions; and

(2) be subject to uniform tax obligations.

Section 16. (Recovery of Stranded Costs.)

(A) General policy.

(1) Following the process established herein, the utilities are entitled to recovery prudently incurred, net, verifiable stranded costs and investments. The state legislature should have the responsibility to determine the just and reasonable recovery mechanisms to determine net stranded costs and investments, including mitigation incentives. It should provide for a public process that applies to investments and costs stranded by competition. It should set the time frame involved for an expeditious transition. And, it should employ mechanisms that do not disadvantage one class of customer or supplier over another. The amount of recovery will be determined by the state’s public utility regulatory body, or other appropriate agency designated by the legislature.

(2) Intent. It is the intent of the Legislature to provide appropriate tools and reasonable guidance to the 6 ; commission in order to assist in addressing claims for stranded cost recovery and fulfilling its responsibility to determine rates which are equitable, appropriate, balanced, and in the public interest. In making its determinations, the commission shall balance the interests of the consumers and utility investors during the limited recovery period. Nothing in this section is intended to provide any greater opportunity for stranded cost recovery than is available under applicable regulation or act on the effective date of this act.

(B) Normal course of business. Stranded cost charges shall not be recoverable for changes in usage occurring in the normal course of business, including those resulting from changes in business cycles, termination of operations, weather, reduced production, changes in manufacturing processes, installation or expansion of new self-generation or co-generation equipment, performance of existing self-generation or co-generation equipment, energy conservation efforts or other similar factors.

(C) Duties and Responsibilities of Public Regulatory Body

(1) Duty to mitigate. Electric utilities shall have the duty to prudently, thoroughly and aggressively mitigate stranded costs as of the effective date of this act.

(2) Stranded cost recovery plan

[a] each public utility may tile a recovery plan within three months after adoption of the plan by the commission. The recovery plan shall document anticipated stranded costs, mitigation proposals and offsetting increases in the value of other assets.

[b] The recovery plan shall propose a transition charge, which shall be allocated to all customers pursuant to the most recent rate design approved by the commission subject to paragraph (4).

[c] The recovery plan shall permit collection of a transition charge to recover net, unmitigated stranded costs over a period of not less than three or no more than five years.

[d] The recovery plan shall establish net, un-mitigatable stranded costs and a limited recovery period designed to recover such costs expeditiously, provided that the recovery period and the amount of qualified transition costs shall yield a transition charge which shall not cause the total price for electric power, including transmission and distribution services, for any customer to exceed the cost per kilowatt-hour paid on the effective date of this act during the recovery period.

[e] Recovery mechanisms that impede competition such as entry and exit fees shall not be utilized.

[f] The commission shall approve and publish a recovery plan for each utility submitting a plan not more than 2 1 months after enactment.

[g] Any stranded costs not recovered under this act and the recovery plan, as modified and approved by the commission, within five years shall not be recoverable by the public utility.

(3) Duty to cooperate. Electric utilities shall have a duty to cooperate with the commission in the implementation of this act as a precondition for recovery of stranded costs. Approval of a recovery plan and collection of any stranded costs shall be deemed a settlement of all such claims by a public utility. No public utility seeking to establish claims for recovery of stranded costs through any other means shall be eligible for recovery pursuant to a recovery plan or the collection of a transition charge.

(4) Commission responsibility. The commission shall be responsible for the final determination of permissible stranded cost recovery charges for each electric corporation and for approval of the recovery plan subject to its determination in a rate case proceeding that such charge and such plan are equitable, appropriate, balanced and promote customer choice.

(D) Recovery Criteria and Methodology

(1) Net un-mitigatable stranded cost recovery. Electric utilities shall be allowed to recover the net un-mitigatable stranded costs associated with required environmental mandates currently approved for cost recovery, and power acquisitions mandated by federal statutes.

(2) Mitigation obligation. Electric utilities have had and continue to have an obligation to take all reasonable measures to prudently, thoroughly and aggressively mitigate stranded costs. Mitigation measures may include, but shall not be limited to:

[a] Reduction of expenses.

[b] Renegotiation of existing contracts.

[c] Refinancing of existing debt.

[d] Sale, write-off or write-down of uneconomic or surplus assets, including regulatory assets not directly related to the provision of electricity service.

(3) Net basis. Stranded costs shall be determined on a net basis, be verifiable (shall not include transmission and distribution assets), and be reconciled to actual electricity Market conditions from time to time, Stranded costs shall include an offset for the market value of any assets, domestic or foreign, obtained or controlled by an electric utility by purchase acquisition, merger or other means within three years prior to the effective date of this act.

(4) Power purchase contracts. Power purchase contract obligations shall continue for the duration of the contract. Costs arising pursuant to such contracts or associated with any buy-out, buy-down, or renegotiation of the contracts shall be eligible for recovery in stranded cost recovery charges.

(5) Stranded benefits. Stranded benefits, any utility asset whose market value exceeds the book value, shall be used to reduce stranded costs.

(6) Stranded cost recovery. Any recovery of stranded costs shall be through a non-by passable, nondiscriminatory, appropriately structured charge that is fair to all customer classes, lawful, constitutional, limited in duration, and consistent with the promotion of fully competitive markets. Recovery mechanisms that impede competition such as entry and exit fees shall not be utilized. Charges to recover stranded costs shall only apply to customers within a utility’s retail service territory, except for such costs that have resulted from the provision of wholesale power to another utility. The charges shall not apply to wheeling-through transactions nor should they apply to any competitive alternative which existed prior to the effective date of this act, including but not limited to self-generation and sales of non-firm electricity.

(7) Stranded cost recovery collection. The commission is authorized to allow utilities to collect a stranded cost recovery charge, subject to its determination in the context of a rate case proceeding that such charge is equitable, appropriate, balanced, in the public interest, and consistent with the intent of this act. The burden of proof for any stranded cost recovery claim shall be borne by the electric utility making such claim.

Section 17. (Reliability and Safety.)

(A) The commission shall promulgate appropriate rules and regulations that ensure that reliable and safe electric service, with minimum residential consumer service safeguards, is maintained or improved.

(B) All electric utilities and providers of electric power delivery and/or ancillary services shall have in place a sufficient measures to preserve the integrity, safety, reliability and quality of electric service in the state Market entrants shall have appropriate provisions for capacity reserves, spinning reserves and other ancillary services, while maintaining the integrity of the bulk transmission network.

Section 18. (Contract Rights.

Nothing in this act shall interfere with the rights of parties under contract.

Section 19. (Remedies.)

No transmission or distribution utility shall be liable for any damages to any current or future customer if such customer’s chosen generation supplier or provider of unbundled services fails to deliver such service in accordance with the terms of its bilateral contract with such customer. This provision shall not be applied to relieve liability arising from the transmission or distribution utility’s own actions or failure to act.

Section 20. (Federal Barriers.)

The repeal of PUHCA and PURPA and the reform of other federal laws that impede competitive electric markets must be accomplished to complement state plans for the transition to customer choice. The process of restructuring generation services with consumer choice has profound interstate implications. Assured reliability of the grid, consumer and supplier access to sufficiently wide markers, a competitive playing field free of uneven subsidies and anti-competitive advantages, and resolution of existing state/federal jurisdiction over transmission and distribution services are all essential to workable competition. States must cooperate with Congress to remove federal barriers which must be part of the transition to competition.

Section 21. (Jurisdiction and Authority.)

Any existing jurisdictional uncertainties shall not delay the implementation of this act

Section 22. (Legislative Oversight.)

(A) There is established a legislative oversight committee on electric utility restructuring consisting of 14 members as follows:

(1) Seven members of the house, at least three of which shall be appointed by the minority leader and the remainder appointed by the speaker of the house.

(2) Seven members of the senate, at least three of which shall be appointed by the minority leader and the remainder appointed by the president of the senate.

(B) Committee members shall be appointed within sixty days of the effective date of this act to an initial term expiring on {insert date} Subsequent terms shall be for up to two years expiring on January 1 of even numbered years. Members may succeed themselves.

(C) A chairperson shall be selected by a majority of the committee members.

(D) The legislative oversight committee on electric utility restructuring, 0 shall expire when the full transition to retail competition is completed.

(E) The committee shall provide an annual report on or before November 1 to the governor, the speaker of the house, the senate president and the public service/utilities commission on the status of electric utility restructuring. (F) The committee shall meet quarterly or as often as is necessary to conduct its business.

(G) The committee shall be responsible for the following:

(1) Working with the commission to assess the transition to a competitive market.

(2) Working with the commission and other agencies, where necessary, to implement this act, its legislative intent and its restructuring principles.

(3) Working with the commission to develop any new legislation where necessary to promote electric utility restructuring and retail choice of electricity suppliers and to propose changes to or recodification of existing statutes to be more consistent with the restructuring principles established in this act. W) State Tax Revenues. The (insert appropriate legislative committee], working with {insert state taxing entity responsible for revenues and assessments}, shall analyze the amount of state and local tax revenues derived from previously regulated electric suppliers that will enter the competitive market and report to the legislature annually how revenues to the state or local government are changed by restructuring to competition. Such {insert legislative committee] should then recommend legislative changes to address the establishment of comparable state and local taxation burdens on all market participants in the supply of electric power. Any legislation recommended by the {insert legislative committee} should place comparable state and local taxation burdens upon all market participants.

Section 23. (Sunset Provision.)

The power of the public utility commission to regulate the terms and conditions of electricity service, including the regulation of transmission and distribution service and rates, shall expire 10 years after completion plans arc adopted by the state. At the time of expiration, the only regulatory authority remaining with the public utility commission shall be to ensure the safety of electricity service.

Section 24. (Superseded Laws.)

All currently effective acts or parts of acts are repealed to the extent they are inconsistent with this act

Section 25. (Severability.)

If any provision of this act or application thereof to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the act which can be given effect without the invalid provision or applications, and to this end the provisions of this are severable.

Section 26. (Effective Date.)

This act shall take effect immediately