16 TAC §§25.272-25.275
The Public Utility Commission of Texas proposes new §25.272,
Code of Conduct for Electric Utilities and Their Affiliates, §25.273,
Corporate Support Service Agreements Between Electric Utilities and Their
Affiliates, §25.274, Contracts Between Electric Utilities and Their Affiliates,
and §25.275, Compliance Proceeding to Implement Code of Conduct for Electric
Utilities and Their Affiliates. These sections are proposed under Project
Number 17549. Section 25.272 establishes broad safeguards to govern the interaction
between regulated electric utilities and their affiliates. Section 25.273
establishes the requirements for the implementation of corporate support service
agreements between regulated utilities and their affiliates. Section 25.274
establishes the fair, competitive bidding process that utilities may use to
obtain products and services from an affiliate or other third party, and establishes
requirements for any contracts with affiliates that may result from this competitive
bidding process. Section 25.275 establishes the requirements for the compliance
proceedings that will be necessary for the implementation of these new rules
relating to affiliate activities.
In Project Number 14400, the commission's rulemaking to address integrated
resource planning (completed in 1996), the commission indicated that it would
address at a later date the issues of energy services unbundling and utilities'
relationships with their affiliates. This rulemaking addresses affiliate activities,
and the issue of energy services unbundling has been addressed in Project
Number 19205.
Project Number 17549,
Rulemaking to Address Affiliate
Activities,
was established June 25, 1997, with a request from commission
staff for all parties to file lists of issues to be included in a rulemaking
on affiliate relationships. At the outset, the rulemaking encompassed both
industries that the commission regulates, electric and telecommunications.
A workshop was held on December 18, 1997, to discuss draft rule language.
On February 13, 1998, the telecommunications portion was severed into a separate
rulemaking, Project Number 18811,
Rulemaking to Address
Affiliate Activities for Telecommunications Utilities.
The electric
rulemaking was restyled as
Code of Conduct for Electric
Utilities and Their Affiliates
and retained Project Number 17549. In
Project Number 17549, new rules §§25.84, 25.271-25.274 were published
for comment in the
Texas Register
on May 22,
1998 (23 TexReg 5294). A public hearing was held on July 13, 1998, pursuant
to the Administrative Procedure Act §2001.029, Texas Government Code
Annotated (Vernon 1999) (APA) to solicit oral comments from interested parties.
On August 20, 1998, the commission withdrew the proposed new rule sections.
A new §25.84, relating to Annual Reporting of Affiliate Transactions
for Electric Utilities, was published in the
Texas
Register
on September 25, 1998, (23 TexReg 9680) and the commission
voted to adopt §25.84 at its December 14, 1998, open meeting. Also on
December 14, 1998, the commission voted to republish for comment the broader
code of conduct provisions contained in §§25.272-25.275 (formerly
numbered as §§25.271-25.274 in the May 1998 proposal). These proposed
new rule sections are the subject of this document.
The commission's decision to withdraw the proposal in August 1998 was based
on the premises that other activities at the commission (e.g., revision of
the commission's transmission access and pricing rule) had a higher priority
and that affiliate activities were likely to be addressed in the 1999 Legislative
Session in the context of an electric industry restructuring bill. The commission
believed at the time that any affiliate concerns could be handled on an interim,
case-by-case basis (without rules) through the commission's standard complaint
process. Since withdrawing the proposed rule sections, however, the commission
has become increasingly concerned that to wait to promulgate rules on utilities'
conduct relating to affiliates would be imprudent. The commission has become
aware of several instances in which improper behavior relating to affiliates
is or may be occurring. Most notable are Docket Number 17880,
Complaint of Texas Utilities Electric Company Against Hill County Electric
Cooperative, Inc., Brazos Power Marketing Cooperative, Inc., and Brazos Electric
Power Cooperative, Inc.
and Project Number 19529,
Informal Dispute Resolution for Transmission Access in the Rio Grande Valley.
In Docket Number 17880, a generation and transmission (G&T) cooperative
restricted a distribution cooperative's options so that it could only purchase
wholesale power from the G&T's power marketing affiliate. This affiliate
has identical ownership to the G&T, has no employees of its own, and relies
on the G&T's employees to provide all of its services. In addition, it
appears that the power marketing affiliate participated (by using the G&T
cooperative's employees) in the development of contracts between itself and
the distribution cooperative as well as between the distribution cooperative
and the retail customer. This matter currently is pending at the State Office
of Administrative Hearings. Project Number 19529 examines whether a developer
of a power plant received preferential treatment from its affiliated utility
regarding the utility's completion of transmission studies related to interconnecting
new power plants in the utility's service area. A related issue with the same
utility is that it selected power produced by an affiliate and supplied through
a third party to provide needed generation capacity for 1999; some parties
question whether there could have been a biased selection that led the utility
to choose that particular bid rather than a bid from a non-affiliated provider.
The commission recognizes that if these rules are adopted, they may require
further revision if legislation is passed restructuring the electric utility
industry. These proposed rules, however, are meant to be applicable in the
current market and regulatory environment.
Based on its extensive experience in regulating the electric power industry
and in implementing the pro-competitive policies adopted by the U.S. Congress,
the Texas Legislature, and the Federal Energy Regulatory Commission, the commission
finds that there is a strong likelihood that a utility will favor its affiliates
where those affiliates are providing services in competition with other, non-affiliated
entities. The commission concludes that this would not be in the public interest.
Further, based on recent experience conducting periodic electric utility
rate reviews and on other regulators' recent experiences with the motor carrier,
telephone, and natural gas industries, the commission finds that there is
a strong incentive for regulated utilities or their holding companies to subsidize
their competitive activities with revenues or intangible benefits derived
from their regulated monopoly businesses. The commission concludes that this
is not in the public interest.
Finally, the commission finds that current regulations governing the relations
between and among units/divisions of an electric utility (or an electric utility
holding company) are not adequate to prevent or discourage anticompetitive
behavior. The commission concludes that articulating new rules which reflect
the current state of competition in the electric power industry will provide
regulatory certainty, facilitate more efficient competition to the benefit
of customers, and fairly balance the equities among competing service providers.
Based on its experience in regulating the electric power and local telephone
industries, the commission has found that structural solutions are generally
to be preferred over regulatory solutions in fostering competition. An example
of a structural solution would be to completely prohibit a utility or its
affiliate from engaging in activities that are or can be performed by unregulated
entities. However, the commission is aware that efficient competition is fostered
by encouraging the participation of many qualified participants, including
unregulated affiliates. Consequently, these rules attempt to balance these
potentially conflicting interests.
In the natural gas industry, which has become significantly competitive
at the wholesale level, such a balanced solution has been highly effective
in fostering healthy competition. Providing market participants with real-time
knowledge of utility-to-affiliate interactions, for example, has allowed the
natural gas market to police itself, rather than require extensive regulatory
involvement. In both natural gas and electricity, the delivery system remains
a natural monopoly but the production (power generation) and merchant (marketing)
functions are now competitive rather than natural monopolies. Within these
markets, the playing field will be leveled, competition will be fostered,
and customers will benefit from early, clear articulation of policies and
processes governing the relationships between utilities' and affiliates' regulated
and competitive functions. The benefit of such policies has been demonstrated
in natural gas restructuring and in the commission's own two years of experience
with the competitive wholesale electric power market.
In proposing these rules relating to affiliate activities, therefore, the
commission has three objectives: fostering fair competition for all participants
in the market place, preventing cross- subsidization of competitive activities
by monopoly rate payers, and preventing anticompetitive behavior and utilities'
circumvention of their regulatory obligations. As a result of the commission's
establishing the rules governing the relationships between regulated utilities
and their competitive affiliates, participants in the market place will benefit
from full knowledge of "the rules of the road" in the current regulatory environment.
If the Texas Legislature removes existing legal barriers to entry by new entrants
into competitive activities, those functions would be governed by this code
of conduct as well.
The commission requests that interested parties address the following issues
in their comments on the proposed rules. The questions are grouped into twelve
topics: application of the rules to cooperatives, application of the rules
to affiliates that are also regulated utilities, separation of the utility
from its affiliates, limitations on affiliate transactions, definition of
corporate support services, migration of employees, use by an affiliate of
a utility's name and logo, customer requests for information about products
or services offered by affiliates, transfers of assets that take place before
versus after the promulgation of these rules, regulation of transactions related
to "exempt telecommunications carriers," the competitive bidding process,
and review and approval of service agreements and contracts. This grouping
provides a framework for discourse on these topics, and interested parties
should organize their comments according to these categories. The commission
also seeks any additional comments on the proposed rule that interested parties
believe are appropriate.
First, the commission seeks comment on the application of the proposed
rules. Are certain exemptions or modifications to these rules appropriate
for electric cooperatives? If so, what exemptions or modifications would allow
the commission to meet its stated objectives? How might customers of electric
cooperatives be affected by exemptions or modifications of these rules?
Second, the commission requests comment on how affiliates that are also
regulated utilities, under the jurisdiction of this commission or another
regulatory body, might be affected by the proposed rules. Are certain exemptions
or modifications of these rules appropriate for affiliates that are also regulated
utilities? If so, what exemptions or modifications would allow the commission
to meet its stated objectives?
Third, the commission requests comment on the provisions requiring separation
of the utility from its affiliates. The commission notes that there is a clear
trade-off between the degree of structural separation between utilities and
their affiliates versus the amount of regulatory oversight that is required
by the commission to ensure that its three stated objectives are met; in other
words, the greater the separation, the less regulatory oversight required.
To the extent that interested parties make arguments against structural separation
due to potentially lost economies of scale and scope, such parties should
provide an analysis showing how any alleged losses of economies of scale and
scope compare to the increased costs to both the commission and the utility
for the greater regulatory oversight required to balance the degree of separation
between the utility and its affiliates.
Fourth, the commission seeks comment on the proposal to limit transactions
between utilities and their affiliates to the following three possibilities:
corporate support services, products and services offered by the utility through
tariffs, or products and services purchased by the utility as a result of
competitive bidding. Should the commission allow any other affiliate transactions
beyond those entered into through one of these three methods?
Fifth, the commission solicits comment on the definition of corporate support
services. Is the definition appropriate and sufficiently detailed?
Sixth, the commission requests comment on the provisions relating to migration
of employees between the regulated utility and its affiliates. The provision
prohibiting temporary assignment of employees includes an exception for restoration
in the event of a "major service interruption." Is it necessary to define
what constitutes a "major service interruption?" In addition, how and when
should utilities inform the commission that this exception has been invoked?
Seventh, the commission seeks comment on the provision requiring use of
a disclaimer when an affiliate uses the utility's name or logo. Would an outright
prohibition on the use of the utility's name or logo provide for more efficient
implementation of these rules? To the extent that interested parties argue
for allowing use of the regulated utility's name and logo by its affiliates,
with or without a disclaimer, they should address how the commission can ensure
that the utility is fairly compensated for use of the trade name and logo.
For example, should utilities be entitled to receive royalty payments? Furthermore,
is the disclaimer compromise the best possible means to inform consumers that
there is a corporate relationship between the regulated and unregulated entities,
while simultaneously informing consumers that the two entities have different
regulatory obligations and oversight by the commission?
Eighth, the commission requests comment on the provision requiring utilities
to give customers a current list of all affiliated and non-affiliated providers
when a customer requests information about products or services offered by
affiliates and their competitors. The commission believes that customers should
be able to rely on such lists as being reasonably accurate, but that a utility
should not be held liable for any inaccuracy in the list or lack of service
provider viability if such is not the fault of the utility. The commission
requests comment on what additional safeguards could be put in place to address
this issue.
Ninth, the commission requests comment on the issue of how to address transfers
of assets other than generation and transmission assets (from the utility
to an affiliate) that take place before these rules are in effect. The proposed
rules require that such asset transfers be subject to the competitive bidding
requirements of §25.274. However, some utilities may already have made
mass transfers of assets to their affiliates prior to these rules taking effect,
which could afford the affiliate a competitive advantage not available to
other entities, including those firms that are affiliated with a utility that
transfers assets after the rules are adopted. How should the commission address
this potential disparity in competitive advantage?
Tenth, the commission requests comment as to whether these proposed rules
are sufficient to achieve the commission's goal of regulating the transactions
between utilities subject to the provisions of the Public Utility Holding
Company Act of 1935 (PUHCA) and their affiliated "exempt telecommunications
companies" (ETCs) pursuant to the federal Telecommunications Act of 1996 §103,
as codified at 15 U.S.C.A §79z-5c. Are separate rules for these specific
affiliate transactions required? If not, are there any changes that need to
be made to the rules proposed herein to properly regulate transactions between
utilities and their affiliated ETCs?
Eleventh, the commission seeks comment on the competitive bidding process
set forth in proposed §25.274. The commission desires to provide sufficient
guidance for what constitutes a "fair, competitive bidding process" without
being overly prescriptive. How might these requirements be streamlined so
as to provide greater flexibility for utilities to procure products and services
in the event that such products and services are competitively available?
What types of current services being obtained by a utility from an affiliate
would fall under this rule? Should the commission establish a threshold annual
dollar amount under which purchases by a utility from an affiliate, other
than for corporate support services, would not be subject to the competitive
bidding process? If so, what would be an appropriate threshold amount?
Finally, the commission requests comment on the provisions relating to
the commission's review and approval of service agreements and contracts.
Specifically, proposed §25.273 and §25.274 state that corporate
support service agreements and contracts are "subject to commission review
and approval for compliance with PURA requirements and commission rules."
Should the commission require approval of these service agreements and contracts
prior to their implementation by the utility? What procedural requirements
for review and approval of these documents should be instituted by the commission?
How should existing service agreements and contracts be treated by the commission?
Suzanne L. Bertin, assistant director, Office of Policy Development, has
determined that for the first five-year period the sections are in effect
there will be no fiscal implications for state or local government as a result
of the enforcing or administering the sections.
Ms. Bertin also has determined that for each year of the first five years
the sections are in effect, the public benefit anticipated as a result of
enforcing these sections will be improved regulatory oversight of electric
utilities and enhanced competition in the provision of energy-related and
telecommunications-related services.
It is anticipated that there will be economic costs incurred by persons
who are required to comply with the new sections as proposed. The costs incurred
are likely to vary from utility to utility, and are difficult to ascertain.
The benefits accruing from implementation of these rules, however, are expected
to outweigh these costs.
For each year of the first five years the sections are in effect, there
will be no effect on small businesses as a result of enforcing the proposed
sections.
Ms. Bertin has further determined that for the first five years the proposed
sections are in effect there may be a favorable impact on the opportunities
for employment in the geographic areas of Texas affected by implementing the
requirements of the rules, but the magnitude of such an impact cannot be ascertained.
Comments on the proposed rule (16 copies) may be submitted to Filing Clerk,
Public Utility Commission of Texas, 1701 N. Congress Avenue, P.O. Box 13326,
Austin, Texas, 78701-3326, within 30 days after publication. Reply comments
may be submitted within 45 days after publication. All comments should refer
to Project Number 17549. The commission invites specific comments regarding
the costs associated with, and benefits that will be gained by, implementation
of the sections. The commission will consider the costs and benefits in deciding
whether to adopt the sections.
The commission staff will conduct a public hearing on this rulemaking under
Government Code §2001.029 at the commission's offices on March 29, 1999,
at 9:00 a.m.
These sections are proposed under the Public Utility Regulatory
Act, Texas Utilities Code Annotated (Vernon 1999) (PURA) §§11.002(a),
14.001, 14.002, 14.003, 14.151, 14.154, 31.001(c), 32.101(c), 35.003(b), 35.034,
35.035, 36.003, 36.058, 38.021, 38.022, 55.006, 51.001 and 52.001 as well
as 15 U.S.C.A. §79z-5c and Texas Revised Civil Statutes Annotated article
717p (Vernon Supplement 1999). Section 11.002(a) requires establishment of
a comprehensive and adequate regulatory system by the Public Utility Commission
of Texas to ensure just and reasonable rates, operations, and services. Section
14.001 grants the commission the general power to regulate and supervise the
business of each utility within its jurisdiction. Section 14.002 provides
the commission with the authority to make and enforce rules reasonably required
in the exercise of its powers and jurisdiction. Section 14.003 grants the
commission the authority to require submission of information by the utility
regarding its affiliate activities. Section 14.151 grants the commission authority
to prescribe the manner of accounting for all business transacted by the utility.
Section 14.154 grants the commission limited authority over the utility's
affiliates, with respect to their transactions with the utility. Section 31.001(c)
requires that the commission formulate and apply rules, policies, and principles
to protect the public interest in a more competitive electric market place.
Section 32.101(c) requires that customer proprietary information be treated
as highly sensitive trade secrets. Section 35.003(b) prohibits electric utilities
from granting undue preference to a person in connection with the purchase
or sale of energy or other services. Section 35.034 grants the commission
authority to approve transfers of certain assets between utilities and affiliates.
Section 35.035 governs the valuation of assets transferred by a utility to
or from an affiliate. Section 36.003 requires the commission to ensure that
a utility's rates are just and reasonable, sufficient, equitable, and consistent
in application to each class of consumer, and not unreasonably preferential,
prejudicial, or discriminatory. Section 36.058 sets forth the circumstances
under which the commission may allow payments by a utility to an affiliate.
Section 38.021 requires that utilities not grant an unreasonable preference
to or impose an unreasonable disadvantage on different persons in the same
classification. Section 38.022 and §55.006 require that utilities not
discriminate against competitors or engage in practices that restrict or impair
competition in electric and telecommunications markets, respectively. Section
51.001 and §52.001 require that the commission implement innovative new
rules, policies, and principles to protect the public interest in telecommunications
markets and provide equal opportunity to telecommunications competitors. 15
U.S.C.A. §79z-5c grants the commission authority to regulate the transactions
between PUHCA-jurisdictional utilities and their affiliated ETCs. Finally,
Texas Revised Civil Statutes Annotated article 717p (Vernon Supplement 1999)
grants Texas river authorities and their affiliates certain rights and privileges
that differ from those of other electric utilities in the state.
Cross Reference to Statutes: Public Utility Regulatory Act §§11.002(a),
14.001, 14.002, 14.003, 14.151, 14.154, 31.001(c), 32.101(c), 35.003(b), 35.034,
35.035, 36.003, 36.058, 38.021, 38.022, 55.006, 51.001, and 52.001, as well
as 15 U.S.C.A. §79z-5c and Texas Revised Civil Statutes Annotated article
717p (Vernon Supplement 1999).
§25.272.Code of Conduct for Electric Utilities and Their Affiliates.
(a)
Purpose. The provisions of this section establish broad
safeguards to govern the interaction between regulated utilities and their
affiliates. In promulgating these affiliate rules, the commission has three
objectives: fostering fair competition for all participants in the market
place, preventing cross-subsidization of competitive activities by monopoly
rate payers, and preventing anticompetitive behavior and utilities' circumvention
of their regulatory obligations.
(b)
Application. This section applies to all electric utilities
operating in the State of Texas as defined in the Public Utility Regulatory
Act (PURA) §31.002(1), and also to affiliates as defined in PURA §11.003(2)
to the extent specified herein. River authorities are exempted from subsection
(d) of this section pursuant to Texas Revised Civil Statutes Annotated article
717p (Vernon Supplement 1999).
(c)
Definitions. The following words and terms when used in
this section shall have the following meaning unless the context clearly indicates
otherwise:
(1)
Affiliate rules--The body of rules in Chapter 25, Subchapter
K, relating to Relationships with Affiliates, inclusive of §§25.272
of this title, 25.273 of this title (relating to Corporate Support Service
Agreements Between Electric Utilities and Their Affiliates), 25.274 of this
title (relating to Contracts Between Electric Utilities and Their Affiliates)
and 25.275 of this title (relating to Compliance Proceedings to Implement
Code of Conduct for Electric Utilities and Their Affiliates).
(2)
Antitrust laws--Federal and state antitrust laws including
the following:
(A)
Federal antitrust laws --Sherman Act, 15 United States
Code §§1-7; Clayton Act, 15 United States Code §§12-27;
and a portion of the Federal Trade Commission Act, 15 United States Code §45.
(B)
Texas antitrust laws--Texas Free Enterprise and Antitrust
Act of 1983, Texas Business & Commerce Code §§15.01-15.52.
(3)
Arm's length transaction--The standard of conduct
under which unrelated parties, each acting in its own best interest, would
carry out a particular transaction. Applied to related parties, in testing
whether a transaction is at "arm's length," it must be ascertained whether
the transaction could have been made on the same terms to a disinterested
third party in a bargained transaction.
(4)
Corporate support services--Those services, generally
administrative in nature, that relate to the operation of companies in any
corporate family, regardless of whether a company in the corporate family
is involved in the provision of energy, energy- related products or services,
telecommunications, or telecommunications-related products or services. Examples
of services meeting this definition include, but are not limited to, payroll,
shareholder services, insurance, financial reporting, financial planning and
analysis, corporate accounting, corporate security, human resources (compensation,
benefits, employment policies), employee records, pension management, and
telecommunications and information systems only to the extent they are not
used in the provision of electricity, energy-related products or services
or the provision of retail or wholesale telecommunications products or services.
Examples of services not meeting this definition include, but are not limited
to, regulatory affairs, lobbying, legal services, employee recruiting, engineering,
purchasing of electric transmission, system operations, marketing, and telecommunications
and information systems used in the provision of electricity or energy-related
products or services or the provision of retail or wholesale telecommunications
products or services.
(5)
Proprietary customer information--Any information
compiled by an electric utility on a customer in the normal course of providing
electric service which makes possible the identification of any individual
customer by matching such information with the customer's name, address, account
number, type or classification of service, historical electricity usage, expected
patterns of use, types of facilities used in providing service, individual
contract terms and conditions, price, current charges, billing records, or
any other information that the customer has expressly requested not be disclosed.
Information relating to customers that is aggregated, redacted, or organized
in such a way as to make it impossible to identify the customer to whom the
information relates does not constitute proprietary customer information.
(6)
Service agreements--Contracts between a utility and
an affiliate for the provision of corporate support services.
(7)
Temporary, intermittent, or rotational assignments--Non-permanent
assignments that have a duration of less than one year, that begin and end
in intervals, or that are cyclical in nature.
(d)
Structural and transactional safeguards.
(1)
Separate and independent entities. A utility shall be a
corporate entity separate from its affiliates, operating independently.
(2)
Separate officers, directors, and employees. A utility
shall not jointly employ officers, directors, and employees with an affiliate.
The exception is that a parent company officer or director may serve on the
board of the utility or on the board of an affiliate providing services or
products related to energy or telecommunications, but not on both the board
of the utility and of an affiliate providing services or products related
to energy or telecommunications.
(3)
Books and records. A utility shall maintain books,
records, and accounts separate from those of its affiliates, subject to review
by the commission, as follows:
(A)
In accordance with generally accepted accounting principles
and consistent with state and federal guidelines, a utility shall record all
transactions with its affiliates, whether direct or indirect.
(B)
A utility shall prepare financial statements that are not
consolidated with those of its affiliates.
(C)
A utility and its affiliates shall maintain sufficient
records to allow for an audit of the transactions between the utility and
its affiliates. At any time, the commission may, at its discretion, require
a utility to initiate, at the utility's expense, an audit performed by an
independent third party.
(4)
No credit support by a utility. A utility shall
not allow an affiliate to obtain credit under any arrangement that would permit
a creditor, upon default, to have recourse to the utility's assets. The financial
arrangements of a utility's affiliates are subject to the following restrictions:
(A)
Any indebtedness incurred by an affiliate will be without
recourse to the utility;
(B)
A utility shall not enter into any agreements under terms
of which the utility is obligated to commit funds in order to maintain the
financial viability of an affiliate;
(C)
A utility shall not make any investment in an affiliate
under circumstances in which the utility would be liable for the debts and/or
liabilities of the affiliate incurred as a result of acts or omissions of
an affiliate;
(D)
A utility shall not issue any security for the purpose
of financing the acquisition, ownership, or operation of an affiliate;
(E)
A utility shall not assume any obligation or liability
as guarantor, endorser, surety, or otherwise in respect of any security of
an affiliate;
(F)
A utility shall not pledge, mortgage or otherwise use as
collateral any assets of the utility for the benefit of an affiliate;
(G)
This subsection does not affect a utility's obligations
under other law or regulations, such as the obligations of a public utility
holding company under §23.18(c)(2) of this title (relating to Foreign
Utility Company Ownership by Exempt Holding Companies).
(5)
Arm's length transactions. Transactions between
a utility and its affiliates shall be at arm's length. With the exception
of transactions relating to corporate support services, transactions between
a utility and its affiliates for products and services shall be made only
in accordance with tariffs or through a fair, competitive bidding process.
(A)
Tariffs. Tariffs shall meet the requirements delineated
in §23.24 of this title (relating to Form and Filing of Tariffs). Except
as provided for in subparagraph (C) of this paragraph, any sales of a product
or service by a utility to its affiliate shall be governed by a tariff on
file with the commission, making the same products and services available
to any third party entity on the same terms and conditions.
(B)
Competitive bidding.
(i)
Purchase of products or services by a utility from its
affiliate. Except as provided for in subparagraph (C) of this paragraph, a
utility may not enter into a transaction to purchase a product or service
from an affiliate unless the transaction is the result of a fair, competitive
bidding process formalized in a contract subject to the provisions of §25.274
of this title.
(ii)
Transfers of assets other than generation or transmission
facilities. For purposes of this subparagraph, assets are defined as those
that are in rate base, previously were in rate base, or are capital assets
of the utility. Any transfer of assets from a utility to its affiliates, other
than generation or transmission facilities, must be the result of a fair,
competitive bidding process formalized in a contract subject to the provisions
of §25.274 of this title.
(C)
Corporate support services. A utility may engage in transactions
directly related to the provision of corporate support services with its affiliates,
in accordance with the requirements relating to service agreements set forth
in §25.273 of this title. As a general principle, such provision of corporate
support services shall not allow or provide a means for the transfer of confidential
information from the utility to the affiliate, create the opportunity for
preferential treatment or unfair competitive advantage, create opportunities
for cross-subsidization of affiliates, or otherwise provide any means to circumvent
these affiliate rules.
(D)
Transfer of generation or transmission assets. The transfer
of generation or transmission assets from a utility to an affiliate will be
reviewed by the commission pursuant to the provisions of PURA §§14.101,
35.034, and 35.035 and any rule implementing those sections.
(6)
Employee migration.
(A)
Tracking migration of employees. A utility shall track
and document all employee movement between the utility and its affiliates.
Such information shall be made available to the commission on an annual basis
in the context of the utility's filing pursuant to §25.84 of this title
(relating to Annual Reporting of Affiliate Transactions for Electric Utilities).
The tracking information shall include the following: an identification code
for the migrating employee, the respective titles held while employed at each
entity, the effective dates of the migration, and amount of the transfer fee
paid, if applicable. Movement of an employee from a utility to an affiliate
or vice versa shall be accomplished through the employee's termination of
employment with one company and acceptance of employment with the other.
(B)
Employee rotation. Temporary, intermittent, or rotational
assignments of utility employees to affiliates are prohibited. The exception
to this provision is that employees may be temporarily assigned to an affiliated
or non-affiliated utility to assist in restoring power in the event of a major
service interruption.
(7)
Use of property and equipment. A utility shall
not own property in common with its affiliate unless prior approval is obtained
from the commission. A utility's office space and office equipment shall be
physically separate from that of its affiliates, where physical separation
is accomplished by having office space and equipment in either separate buildings
or in secure, controlled-access areas within a building. A utility shall not
share computer systems and information systems with an affiliate, nor shall
a utility allow an affiliate access to its computer and information systems.
The exception to this provision is that computer systems and information systems
may be shared only to the extent necessary for the provision of corporate
support services; however, the utility shall ensure that the proper cost allocation
mechanisms, security access, and other safeguards are in place to ensure full
compliance with these affiliate rules.
(e)
Safeguards relating to provision of products and services.
(1)
Products and services available on a non-discriminatory
basis. If a utility makes a product or service available to an affiliate,
it shall make the same product or service available to all non-affiliates
on a nondiscriminatory basis. A utility shall process all requests for a product
or service from affiliated and non-affiliated entities on a non-discriminatory
basis. If a utility's tariff allows for discretion in its application, the
utility shall apply that provision in the same manner to its affiliates and
non-affiliates, as well as to their respective customers. If a utility's tariff
allows no discretion in its application, the utility shall strictly apply
that provision. Utilities are prohibited from using customer-specific contracts
to circumvent these requirements.
(2)
Discounts, rebates, or fee waivers. If a utility offers
its affiliate a discount, rebate, or fee waiver for any product or service,
it shall make the same available on a non-discriminatory basis to all non-affiliates.
A pricing benefit made available by the utility through an open, competitive
bidding process will be considered to satisfy this requirement. Specifically,
no less than 24 hours prior to a utility's provision to its affiliate of a
discount, rebate, or fee waiver, the utility shall post a conspicuously-placed
notice on its Internet site or public electronic bulletin board for at least
30 consecutive calendar days providing the following information: the name
of the affiliate involved in the transaction; the rate charged; the normal
rate; the period for which the pricing benefit applies; the quantities and
the delivery points involved in the transaction; any conditions or requirements
applicable to the pricing benefit, along with documentation of any cost differential
underlying the pricing benefit, and the procedures by which non-affiliates
may obtain the same benefit.
(3)
Tying arrangements prohibited. A utility shall not
condition or tie the provision of any product, service, pricing benefit, or
waiver of associated terms or conditions, to the purchase of any good or service
from its affiliate. Nor may the utility give the appearance of engaging in
such a tying arrangement.
(f)
Information safeguards.
(1)
Proprietary customer information. A utility shall not release
proprietary customer information to an affiliate or any other person, other
than the customer, without prior affirmative written consent by the customer.
The customer shall be advised in writing that, to the extent that the customer
permits the release of such information, the information shall be made available
to all affiliates and non- affiliates on a strictly nondiscriminatory basis.
(2)
Nondiscriminatory availability of aggregate customer
proprietary information. A utility shall make aggregate proprietary customer
information, including but not limited to information about a utility's energy
purchases, sales, or operations or about a utility's energy-related goods
or services, available to its affiliate only if the utility makes such information
available to all non-affiliates under the same terms and conditions and at
the same price as it is made available to any of its affiliates. In addition,
no later than 24 hours prior to a utility's provision to its affiliate of
aggregate proprietary customer information, the utility shall post a conspicuously-placed
notice on its Internet site or other public electronic bulletin board for
at least 30 consecutive calendar days providing the following information:
the name of the affiliate to which the information will be provided; the rate
charged for the information; a meaningful description of the information provided;
and the procedures by which non-affiliates may obtain the same information
under the same terms and conditions.
(3)
Information shared for corporate support services.
A utility may exchange non- customer related proprietary information on an
exclusive basis with its affiliates, provided the utility follows all commission-adopted
pricing and reporting guidelines for such transactions and it is necessary
to exchange this information in the provision of corporate support services
pursuant to subsection (d)(5)(C) of this section. The affiliate's use of such
non-customer-related proprietary information is limited to use in conjunction
with corporate support services as defined in this rule and is not permitted
for any other use.
(4)
Other limitations on information disclosure. Nothing
in this rule is intended to alter the specific limitations on disclosure of
confidential information in the Texas Utilities Code, the Texas Government
Code, Chapter 552, and the commission's substantive and procedural rules.
(g)
Safeguards relating to joint marketing and advertising.
(1)
Utility name or logo. A utility shall not allow the use
of its name or logo by an affiliate in any written or auditory information,
through radio or television, Internet-based, or other electronic format accessible
to the public, unless the affiliate includes a disclaimer with its use of
the utility name or logo. Such disclaimer shall be located at the first instance
of the name or logo in the material distributed, must be written in a bold
and conspicuous manner or clearly audible, as appropriate for the communication
medium, and shall state the following: "{Affiliate name} is not the same company
as {utility name}, and is not regulated by the Public Utility Commission of
Texas. Customers of {utility name} do not have to buy products or services
from {affiliate name} to continue to receive service from the regulated company,
{utility name}. If you have questions about your rights as a consumer, please
contact the Public Utility Commission of Texas by calling toll-free, 1-888-782-8477.
Or, if you are in Austin, please call 936- 7120." This disclaimer applies
only to the affiliate's use of the utility's name or logo within the State
of Texas.
(2)
Joint business development, joint marketing prohibited.
(A)
Unless otherwise provided by these rules, a utility shall
not:
(i)
provide or acquire leads on behalf of its affiliates;
(ii)
solicit business, or acquire information on behalf of
its affiliates; or
(iii)
give the appearance of speaking or acting on behalf of
any of its affiliates.
(B)
A utility shall not engage in joint marketing or advertising
of its products or services with those of an affiliate, and shall not act
or appear to act on behalf of an affiliate in any communications and contacts
with any existing or potential customers. Such joint marketing and communication
includes, but is not limited to, the following activities:
(i)
joint sales calls;
(ii)
joint proposals, either as a request for proposal or a
response to a request for proposal;
(iii)
joint advertising, sales, communications, or correspondence,
except that a utility may allow an affiliate access to customer bill advertising
inserts so long as access to such inserts is made available on the same terms
and conditions to non-affiliates offering similar services as the utility
affiliate that uses bill inserts;
(iv)
joint presentations at trade shows, conferences, or other
marketing- type events within the State of Texas; and
(v)
providing links from a utility's Internet web site to an
affiliate's Internet web site.
(3)
Consumer requests for specific affiliate
information. If a consumer requests information from a utility about any of
its affiliates, the utility shall refer the consumer to the affiliate for
more information only if the consumer request specifically mentions the affiliate's
name. If a consumer does not specifically mention the affiliate's name, the
utility shall follow the procedures set forth in paragraph (4) of this subsection.
Under this paragraph, the only information that a utility may provide to the
consumer is the affiliate's address and telephone number. The utility shall
not transfer the customer directly to the affiliate's customer service office
via telephone or provide any other electronic link whereby the customer could
contact the affiliate through the utility. When providing the consumer information
about the affiliate, the utility shall not promote its affiliate or its affiliate's
products or services.
(4)
Consumer requests for general information about products
or services offered by affiliates and their competitors. If a consumer requests
general information from a utility about products or services provided by
its affiliate or its affiliate's competitors, the utility shall provide to
the consumer a current list of all affiliated and non-affiliated providers
of these products or services, and shall not promote its affiliate or its
affiliate's products or services. The utility shall be responsible for maintaining
this service provider list. All service providers shall be arranged on the
list in a random manner, using a uniform typeface. Any non-affiliated providers
shall be responsible for ensuring that current information regarding their
name and contact information is communicated to the utility maintaining the
list. The utility shall post the current service provider list on its Internet
site or other public electronic bulletin board on an ongoing basis and in
a conspicuous manner, and shall file a current version of the list with the
commission on a quarterly basis. In the event that the number of providers
exceeds 100, the utility may direct the consumer to a telephone directory
instead of providing a list of suppliers. Unless otherwise provided for in
these rules, a utility shall not offer or provide customers advice or assistance
with respect to its affiliates or other service providers.
(h)
Remedies and enforcement.
(1)
Enforcement by the commission. In addition to other methods
that may be available, the commission may enforce the provisions of this rule
by:
(A)
Entering a cease and desist order or other comparable order
directing the utility to discontinue or to correct violations;
(B)
Pursuing administrative penalties under PURA, Chapter 15,
Subchapter B.
(2)
No immunity from antitrust enforcement. Nothing
in these affiliate rules shall confer immunity from state or federal antitrust
laws. Sanctions imposed by the commission for violations of this rule do not
affect or preempt antitrust liability, but rather are in addition to any antitrust
liability that may apply to the anticompetitive activity. Therefore, antitrust
remedies also may be sought in federal or state court to cure anticompetitive
activities by utilities and their affiliates.
(3)
No immunity from civil relief. Nothing in these affiliate
rules shall preclude any form of civil relief that may be available under
federal or state law, including, but not limited to, filing a complaint with
the commission.
§25.273.Corporate Support Service Agreements Between Electric Utilities and Their Affiliates.
(a)
Purpose. This section establishes the requirements for
the implementation of service agreements between regulated utilities and their
affiliates as allowed for the provision of corporate support services pursuant
to §25.272 of this title (relating to Code of Conduct for Electric Utilities
and Their Affiliates).
(b)
Application. This section applies to all electric utilities
operating in the State of Texas as defined in the Public Utility Regulatory
Act (PURA) §31.002 (1), and also to affiliates as defined in PURA §11.003
(2) to the extent specified herein.
(c)
Definitions. Any terms defined in §25.272 of this
title have the same meanings herein.
(d)
Service agreements. A utility shall have a single service
agreement in place for each affiliate with which it has any transactions related
to corporate support services. Such agreements shall be maintained on file
with the commission as specified in these affiliate rules.
(1)
In addition to the standard terms, a service agreement
shall include, at a minimum, the following provisions:
(A)
the effective date of the agreement and identification
of the parties to the agreement;
(B)
the term of the agreement;
(C)
a narrative describing the services provided to or by the
utility, including a list by specific service of all the affiliated companies
that provide or receive these services;
(D)
the obligations of the parties to the agreement;
(E)
method by which costs to the utility will be determined,
to include direct and allocated expenses;
(F)
the billing and payment procedures;
(G)
a process whereby the utility can challenge an expense
billed by the affiliate;
(H)
availability of the affiliate company's accounting records
to the utility; and
(I)
audits of the affiliate by the utility.
(2)
All purchases of corporate support services by
a utility from an affiliate shall be at the lower of actual cost or market
value.
(3)
All sales of corporate support services by a utility
to an affiliate shall be at the higher of actual cost or market value.
(4)
Amended service agreements shall be filed with the
commission whenever there is a change in the scope or nature of affiliate
transactions between a utility and the affiliate; the amended service agreement
shall be filed within 30 days of the change.
(e)
Review and approval. Service agreements are subject to
commission review and approval for compliance with PURA requirements and commission
rules.
§25.274.Contracts Between Electric Utilities and Their Affiliates.
(a)
Purpose. This section establishes the requirements for
the implementation of contracts between regulated utilities and their affiliates
resulting from a fair, competitive bidding process as allowed pursuant to
§25.272 of this title (relating to Code of Conduct for Electric Utilities
and Their Affiliates).
(b)
Application. This section applies to all electric utilities
operating in the State of Texas as defined in the Public Utility Regulatory
Act (PURA) §31.002(1), and also to affiliates as defined in PURA §11.003(2)
to the extent specified herein.
(c)
Definitions. Any terms defined in §25.272 of this
title have the same meanings herein.
(d)
Competitive bidding required. The utility shall conduct
competitive bidding, as required by §25.272 of this title, to procure
products and services that are offered by an affiliate or to sell assets other
than generation or transmission assets. The commission may require competitive
bidding in the context of any proceeding or inquiry. When competitive bidding
is required, the utility shall conduct competitive bidding pursuant to this
section or §25.168 of this title (relating to Solicitation of Resources),
as appropriate.
(1)
Notice. The utility shall provide reasonable notice of
any request for proposals required pursuant to this section. Such notice shall
include:
(A)
notice by publication in trade journals or newspapers as
appropriate; and
(B)
notice by mail to persons who previously requested to be
notified of the request for proposals.
(2)
Independent evaluator. The utility shall use
an independent evaluator when an affiliate bid is included among the bids
to be evaluated. If an independent evaluator is required, the utility shall
maintain a record of communications with the independent evaluator. The independent
evaluator shall in writing identify the bids that are most advantageous and
warrant negotiation and contract execution, in accordance with the criteria
set forth in the request for proposals. The utility retains responsibility
for final selection of products or services subject to the review and approval
of the commission.
(3)
Competitive bidding procedures. The utility shall
make a request for proposals available to interested persons.
(A)
The request for proposals must clearly set forth the eligibility
and selection criteria and shall specify the weight to be given to any non-cost
selection criteria.
(B)
The utility shall strictly enforce the criteria specified
in the request for proposals.
(C)
Requests for proposals shall require that each bidder,
including utility affiliates, submit the prescribed number of copies of its
bid to the utility or independent evaluator as appropriate.
(4)
Evaluation of bids. The utility or independent
evaluator, as appropriate, shall evaluate each bid submitted in accordance
with the criteria specified in the request for proposals. The utility or independent
evaluator may not give preferential treatment or consideration to any bid.
(5)
Rejection of bids. The utility is not required to
accept a bid and may reject any or all bids in accordance with the selection
criteria specified in the request for proposals.
(e)
Contracts. A utility shall file with the commission a signed
copy of any contracts entered into with an affiliate as the result of the
fair, competitive bidding process described in subsection (d) of this section.
A contract shall include, at a minimum, the following provisions:
(1)
the effective date of the agreement and parties to the
agreement;
(2)
the term of the agreement;
(3)
a narrative describing the services provided to the
utility, including a list by specific service of all the affiliated companies
who provide or receive these services, or a narrative describing the assets
(other than generation or transmission assets) being sold by the utility to
the affiliate;
(4)
the obligations of the parties;
(5)
the price for those products, services, or assets
governed by the contract; and
(6)
billing and payment procedures.
(f)
Review and approval. Contracts are subject to commission
review and approval for compliance with PURA requirements and commission rules.
§25.275.Compliance Proceeding to Implement Code of Conduct for Electric Utilities and Their Affiliates.
(a)
Purpose. This section establishes the requirements for
the compliance proceeding necessary for the initial implementation of §25.272
of this title (relating to Code of Conduct for Electric Utilities and Their
Affiliates).
(b)
Application. This section applies to all electric utilities
operating in the State of Texas as defined in the Public Utility Regulatory
Act (PURA) §31.002(1), and also to affiliates as defined in PURA §11.003(2)
to the extent specified herein.
(c)
Definitions. Any terms defined in §25.272 of this
title have the same meanings herein.
(d)
Filing of compliance plans. Within 45 days of the effective
date of this section, each utility shall file a compliance plan explaining
the mechanisms and procedures it proposes to employ to ensure the utility's
full compliance with these affiliate rules.
(1)
Initial compliance plans. The utility shall file its initial
compliance plan with the commission under the project number designated by
the commission for that purpose.
(A)
The utility's initial compliance plan shall become effective
on an interim basis on the day it is filed.
(B)
After the initial plan is reviewed, the commission will
either approve the plan as filed or order necessary revisions.
(C)
If the utility seeks exemption from any portion of the
rule it may list its proposed exemptions under the application provisions
of the initial compliance plan. Upon its review of the plan, the commission
shall rule on the proposed exemptions and, if denied, specify the utility's
schedule for meeting the provisions at issue. Any exemption from these affiliate
rules is subject to review by the commission at any time on its own motion,
to determine whether the exemption is still necessary to protect the public
interest.
(D)
As a part of the utility's initial compliance plan, service
agreements for all corporate support services and copies of existing contracts
between utilities and their affiliates shall be filed with the commission.
(2)
Annual updates of compliance plans. By June 1
of each year, a utility shall review its compliance plan and file a revised
version, if necessary, to indicate any changes in mechanisms and procedures
for complying with the commission's affiliate rules.
(3)
Creation of new affiliates. Upon creation of a new
affiliate, a utility shall immediately notify the commission and shall post
a conspicuously-placed notice on its Internet site or other public electronic
bulletin board for at least 30 consecutive calendar days. No later than 30
days after the creation of an affiliate, the utility shall file an amendment
to its compliance plan with the commission, detailing how the utility will
implement these affiliate rules with respect to the new affiliate.
(e)
Annual audit of utility activity with affiliates. For each
calendar year following the effective date of this section, the utility shall
have an audit prepared by an independent auditor according to generally accepted
accounting principles and generally accepted auditing standards. The audit
shall evaluate the utility's compliance with these affiliate rules on a comprehensive
basis and in a detailed manner. By June 1 of each year, each utility shall
file the independent auditor's report under a control number designated by
the commission. The independent audit shall be at shareholder expense.
(f)
Compliance plan provisions. A utility's compliance plan
shall address each provision of these affiliate rules. A utility shall provide
sufficient detail to show how it will comply with all of the provisions of
these affiliate rules. General statements that policies are in effect and
appropriate personnel have been instructed to abide by them are not sufficient
and are cause for immediate rejection of the compliance plan. The following
provisions identify specific items that shall be included in the compliance
plan; the items identified are not to be construed as exclusive, however.
(1)
Application of the affiliate rules. A utility shall:
(A)
list any approved exemptions from these affiliate rules;
and
(B)
explain its methods for separating accounts and operations
governed by affiliate rules from any utility operations outside the State
of Texas.
(2)
Structural and transactional safeguards.
(A)
Separate entities. A corporate officer from the utility
and parent company shall certify by affidavit the adequacy of specific mechanisms
and procedures, as explained elsewhere in the compliance plan, to ensure that
the utility is not utilizing the holding company or any of its affiliates
as a conduit to circumvent these affiliate rules.
(B)
Separate officers, directors, and employees. To the extent
that there are shared directors and officers as permitted by these affiliate
rules, a corporate officer from the utility and parent company shall certify
by affidavit the procedures and mechanisms in place, and the adequacy thereof,
to ensure that such sharing does not in any way circumvent these affiliate
rules.
(3)
Books and records. A utility shall:
(A)
show that its records are sufficient for commission or
third-party audits, including an annual rules compliance review; and
(B)
describe its internal audit system.
(4)
No credit support to affiliate by utility. A
utility shall:
(A)
certify by affidavit that it is providing no credit support
to any of its affiliates; and
(B)
explain internal systems used to avoid affiliate recourse
to utility assets.
(5)
Arm's length transactions. A utility shall explain
its system for ensuring that all affiliate transactions are at arm's length.
(6)
Employee migration. A utility shall explain its system
for tracking employee transfers between the utility and its affiliates, including
how it will maintain records regarding:
(A)
job titles and job descriptions for positions held by migrating
employees at each entity; and
(B)
effective dates of migration.
(7)
Use of property and equipment.
(A)
A utility shall provide a description of any property held
in common with an affiliate, including a description of the circumstances
under which such shared ownership was approved by the commission.
(B)
A utility shall describe how it accomplishes physical separation
of offices and equipment, including any related security access controls.
For any shared computer systems, the utility shall:
(i)
describe access controls and cost allocation methods; and
(ii)
describe all other safeguard mechanisms used to ensure
that these affiliate rules are not circumvented as a result of using the shared
system.
(8)
Safeguards relating to provision of products
and services.
(A)
Nondiscriminatory provision of products and services. For
all products and services (including discounts, rebates, fee waivers, and
bill inserts), a utility shall explain its procedures for making such products
and services available to all non-affiliates, and for processing all requests
for such products and services, on a non-discriminatory basis.
(B)
Discounts, rebates, and fee waivers. A utility shall explain
its system for prior posting of information regarding discounts, rebates,
fee waivers and any other activity where such is required by these affiliate
rules.
(9)
Information safeguards. A utility shall describe
its procedures for obtaining customer consent for use of proprietary information,
and shall provide a sample customer consent form.
(10)
Joint marketing and advertising.
(A)
Use of name and logo. A utility shall explain its methods
for implementing the use of utility name and logo disclaimer provisions of
this rule and shall provide sample materials demonstrating use of the disclaimer.
(B)
Customer inquiries. A utility shall explain its procedures
for responding to customer requests for product or service information, and
shall provide to the commission sample materials used, such as, but not limited
to, training materials for customer service representatives and sample customer
service scripts.
(C)
List of non-affiliated service providers. A utility shall
describe its procedures for maintaining and distributing a list of non-affiliated
service providers.
(11)
Internal mechanisms for education and enforcement.
A utility shall provide:
(A)
a description of how the utility will educate its employees
regarding their obligations relating to these affiliate rules and the utility's
compliance plan;
(B)
information regarding disciplinary measures that address
any actions by utility employees that are in violation of these affiliate
rules or the utility's compliance plan.
(12)
Other information. A utility shall provide any
other information in its compliance plan that it believes will aid the commission
in determining whether the utility is in full compliance with these affiliate
rules.
This agency hereby certifies that the proposal has been
reviewed by legal counsel and found to be within the agency's legal authority
to adopt.
Filed with the Office of the Secretary of State, on
January 14, 1999.
TRD-9900240
Rhonda Dempsey
Rules Coordinator
Public Utility Commission of Texas
Earliest possible date of adoption: February 28, 1999
For further information, please call: (512) 936-7308