TITLE 16.ECONOMIC REGULATION

Part 2. PUBLIC UTILITY COMMISSION OF TEXAS

Chapter 22. PRACTICE AND PROCEDURE

Subchapter M. PROCEDURES AND FILING REQUIREMENTS IN PARTICULAR COMMISSION PROCEEDINGS

The Public Utility Commission of Texas (commission) adopts new §22.251, relating to Review of Electric Reliability Council of Texas (ERCOT) Conduct, with changes to the proposed text as published in the October 11, 2002 Texas Register (27 TexReg 9521). The new section is necessary to establish procedures for affected entities to make written complaints to the commission regarding decisions or acts, committed or omitted, by ERCOT. The scope of permitted complaints includes ERCOT's performance as an independent organization under the Public Utility Regulatory Act (PURA) and ERCOT's promulgation and enforcement of protocols and procedures relating to reliability, transmission access, customer registration, and settlement. The new section is adopted under Project Number 25959.

In addition to this new section, the commission is also adopting under Project Number 25959 the following substantive rules in Chapter 25 of this title (relating to Substantive Rules Applicable to Electric Service Providers): an amendment to §25.361, relating to Electric Reliability Council of Texas (ERCOT), and new §25.362, relating to Electric Reliability Council of Texas (ERCOT) Governance.

The commission staff conducted a public hearing on the proposed new section on December 3, 2002, at which an ERCOT representative offered oral comments. These comments have been summarized herein, together with ERCOT's written comments.

The commission received comments on the proposed amendments on November 12, 2002 from the Alliance for Retail Marketers, an association consisting of the retail electric providers Constellation New Energy, Inc., Green Mountain Energy Co., and Strategic Energy Co. (ARM); American Electric Power (AEP); the City of Austin, doing business as Austin Energy, and the City of San Antonio, acting by and through the San Antonio City Public Service Board (City Utilities); CenterPoint Energy, Inc. (CenterPoint); a coalition of consumer organizations consisting of Texas Ratepayers' Organization to Save Energy, Texas Legal Services Center, Consumers Union Southwest Regional Office, and Public Citizen Texas Office (Consumers); ERCOT; and TXU Energy Trading Company L.P., TXU Energy Retail Company L.P., and Oncor Electric Delivery Co. (collectively, TXU). Reply comments were submitted by ERCOT, TXU and the Center for Public Policy Dispute Resolution (CPPDR). All comments have been fully considered by the commission.

The commission specifically requested comments on the following questions:

1. Does the requirement in the Administrative Procedure Act, Texas Government Code §2003.049(b), that the utility division of the State Office of Administrative Hearings "conduct hearings related to contested cases" bar a commission administrative law judge (ALJ) from conducting a hearing to determine whether to grant a request for suspension of enforcement, as contemplated by proposed §22.251(i) (relating to Suspension of Enforcement)? (Note that the proposed rule contained a mistaken reference in this question to §22.251(f), but correctly identified the title and substance of the referenced subsection.)

2. Does the requirement in the Administrative Procedure Act, Texas Government Code §2003.049(b), that the utility division of the State Office of Administrative Hearings "conduct hearings related to contested cases" bar a commission ALJ from conducting binding mini-trials and moderated settlement conferences by agreement of the parties as contemplated by proposed §22.251(n) (relating to Availability of Alternative Dispute Resolution)? (Note that the proposed rule contained a mistaken reference in this question to §22.251(m), but correctly identified the title and substance of the referenced subsection.)

3. Should proposed §22.251(b) be modified to clarify that all appeals and complaints of ERCOT decisions shall be heard by the commission pursuant to this section prior to an appeal to any court of competent jurisdiction?

4. Should §22.251(c)(1)(E) be deleted because it is duplicative of the flexibility contained in the good cause exception provision, §22.251(c)(2)?

Because each of the questions relates to a specific subsection of the new rule, the comments submitted in response to these questions are summarized together with the comments on the subsection to which they pertain.

ARM, in written comments, and ERCOT, in oral comments at the public hearing, generally supported the adoption of this rule.

§22.251(a) Purpose

City Utilities commented that the term "entity" should be employed where the new rule identifies those who may avail themselves of the procedures established by the rule. City Utilities represented that municipally owned utilities are not included within the definitions of persons, or affected persons contained in PURA, the Texas Government Code, and the commission's rules, or the definition of public utilities contained in PURA. CenterPoint, by contrast, commented the use of the term "party" is too broad, and should be changed to "Market Participant directly subject to the ERCOT Protocols and directly affected by ERCOT's decisions." Centerpoint also commented that commission Staff and the Office of Public Counsel (OPC) can represent the public interest and interests of residential and small business customers.

In response to CenterPoint's comments, the commission declines to make non-market participants dependent on others to safeguard their rights. Instead, the new rule is intended to ensure that those who are or would be harmed by ERCOT actions have recourse to the commission for relief. Foreclosing an interested person from challenging an ERCOT action before the commission is likely to result in challenges in other forums, such as the courts, that are less well equipped to resolve them. The commission adopts the change proposed by City Utilities, that the word "entity" be substituted for "party" in the new rule, except where the term is used to refer to a participant in a proceeding at the commission.

§22.251(b) Scope of complaints

AEP, TXU, and ERCOT commented that, based on both the commission's statutory duty under PURA and the commission's substantive expertise, the commission should hear initial appeals of ERCOT issues, to the extent the appeal involves issues over which the commission has jurisdiction. Both AEP and Consumers commented that the commission could not determine the scope of its jurisdiction through this rulemaking. CenterPoint commented that the procedural path for review of ERCOT decisions should be made clearer.

The commission acknowledges that it is not empowered to carve out for itself areas of exclusive jurisdiction. The question posed in connection with this subsection of the proposed rule was intended to solicit input regarding whether the commission should make express the requirement that issues over which the commission has jurisdiction be brought first to the commission. The benefits that the commission envisioned of including such a requirement included limiting the exercise of concurrent jurisdiction and the inefficiencies attendant to cases pending simultaneously on an administrative and judicial level, helping to limit the cases in which courts are called upon to rule on areas involving technical issues without the benefit of the commission's expertise, and reducing confusion. Based on the comments and its own legal analysis, the commission is not including in the new rule a requirement that complaints about, and appeals of, ERCOT actions that are subject to commission jurisdiction must be made to the commission before the complaining or appealing entity seeks relief from Texas state courts. Nevertheless, the commission has an interest in court cases that construe ERCOT's protocols and ERCOT's obligations in the electricity market. In order that the commission gets prompt notice of any such lawsuits, it is adding a new subsection (p) that requires ERCOT to provide prompt notice that a lawsuit has been filed against it or that a proceeding against it has been initiated at the Federal Energy Regulatory Commission.

ERCOT suggested that the rule should refer to ERCOT "procedures" instead of ERCOT "rules," so as to avoid possible confusion with commission rules. ERCOT also commented that the term "settlement" in the proposed rule is a term of art and suggested the use instead of the statutory language that encompasses settlement issues: "accounting for the production and delivery of electricity among generators and all other market participants."

The commission agrees with ERCOT's suggestion and changes the references to ERCOT rules throughout the new rule to refer to ERCOT protocols and procedures, instead of rules. The commission also agrees with ERCOT's comment regarding the use of the term settlement, and the new rule therefore includes ERCOT's proposed language, instead of the term "settlement" that was included in the proposed rule.

§22.251(c) Requirement of compliance with ERCOT Protocols

ERCOT commented that language should be added to provide that the commission will dismiss complaints or appeals if the complainant has failed to comply with applicable ERCOT processes, including timely submittal to ERCOT of written comments on proposed protocols or protocol revisions, unless the commission finds good cause for the failure to comply with such procedures. ERCOT commented that language should be added to subsection (c)(1) and (c)(1)(B) of the new rule to expressly include the requirement that a complainant comply with the ERCOT protocol revision process or other applicable ERCOT prerequisites.

The commission agrees that complaints filed by entities that have not used the relevant ERCOT procedures are subject to dismissal or abatement, absent a showing of satisfaction of one of the conditions established by the rule for avoiding the necessity of complying with ERCOT procedures, and the rule has been clarified to that effect. The commission believes that an entity should participate in ERCOT processes prior to appealing to the commission the board's decision on that matter, unless there is good cause for not so participating. Of course, the rule also provides that the commission staff and OPC are excused from this requirement.

CenterPoint commented that subsection (c)(1) and (c)(1)(B) should be deleted. According to CenterPoint, only a market participant, Staff, or OPC should be allowed to bring a complaint.

The commission declines to exclude non-market participants from the procedures established by the new rule. As explained in connection with §22.251(a), the new rule is intended to ensure that those who are or would be harmed by ERCOT actions have recourse to the commission for relief.

ERCOT also commented that the language "bound to engage in" included in subsection (c)(1)(B) is subject to interpretation and proposed substituting "required to comply with."

The commission agrees that the proposed language was not very clear. The commission is revising §22.251(c)(1)(B) as suggested by ERCOT.

ERCOT commented on one of the exceptions to the requirement that an entity first attempt to resolve an issue in the ERCOT deliberative processes: the use of the standard of whether compliance with ERCOT procedures would inhibit the ability of the affected entity to provide continuous and adequate service, as included in subsection (c)(1)(C) of the proposed rule. ERCOT argued that this standard is vague and should be replaced by the more concrete and exacting standard of whether compliance with ERCOT procedures would prevent the ability of the affected entity to provide continuous and adequate service.

The commission believes that the use of the term "prevent" creates a standard that is too difficult to meet. Moreover, the commission's use of the term "inhibit" is based on the ERCOT's protocols. Section 20.1(3)(c) of the ERCOT Protocols reads: "Nothing in this ADR Procedure is intended to limit or restrict . . .. The right of a Market Participant or ERCOT to file a petition seeking direct relief from the PUCT or any other Governmental Authority without first utilizing this ADR Procedure where an action by ERCOT or a Market Participant might inhibit the ability of the affected party to provide continuous and adequate electric service ." (Emphasis supplied.) For all of these reasons, the commission declines to incorporate ERCOT's proposed change.

TXU commented that §22.251(c)(1)(D) should be deleted. According to TXU, ERCOT protocol processes are adequate, and it would be detrimental to allow complaints regarding the protocol adoption or revision process directly to the commission. ERCOT commented that §22.251(c)(1)(D) should be modified to better reflect what ERCOT understood to be Staff's interest in ensuring that a complainant not be required to engage in additional ERCOT processes prior to complaining to the commission.

Generally, the commission supports the use of ERCOT's protocol processes, except where the complaining entity can show good cause for not complying with those processes. Therefore, the commission has not included proposed subsection (c)(1)(D) in the new rule.

TXU and ERCOT commented generally that the new rule appropriately acknowledges the ERCOT ADR and Protocol Revision processes. However, both TXU and ERCOT commented that §22.251(c)(1)(E) could be used to avoid the employment of those ERCOT processes, and therefore suggested that §22.251(c)(1)(E) be deleted. CenterPoint and Consumers commented that inclusion of the futility exception in subsection (c)(1)(E) of the proposed rule is both duplicative of the not appropriate/good cause exception in subsection (c)(2), and creates an inconsistent, second standard for bypassing ERCOT's processes.

The commission agrees with the commenters that §22.251(c)(1)(E) of the proposed rule is unnecessary. A complainant contending that compliance with ERCOT processes would be futile can make such a claim pursuant to §22.251(c)(2), arguing that good cause exists for excusing compliance with ERCOT ADR or other applicable processes. Therefore, the commission has not included proposed subsection (c)(1)(E) in the new rule.

§22.251(d) Formal complaint

ERCOT commented that the timelines in the new rule should be shortened. ERCOT noted that most complaints would have already been subject to some process and that prompt resolution of the issues is desirable. ERCOT also commented that it appreciated the commission's adoption of the 35-day appeal period for complaints related to protocol revisions, but suggested more general language to embrace other ERCOT processes with specific timelines. Finally, ERCOT commented that issues for which a docket has already been established be excluded from the timeline established by subsection (d).

The deadlines in the proposed rule were intended to provide for prompt but orderly resolution of disputes, recognizing that interested parties must have an opportunity to prepare information to present their position to the commission and for the commission to consider it. The commission is adopting a uniform deadline of 35 days for filing appeals of ERCOT actions. Having more than one deadline for appeal might engender confusion, in some cases, about what the applicable deadline is. This confusion can be avoided by a uniform deadline for filing complaints. The commission is not shortening the other procedural deadlines in the rules. The commission does not believe that it is realistic to shorten the other procedural deadlines, if it is to afford parties a fair opportunity to present their position. The commission also declines to adopt ERCOT's proposed language to accommodate cases in which a deadline is established by ERCOT protocols. ERCOT's proposed language would allow ERCOT to unilaterally change the applicable timelines and might allow ERCOT to establish unreasonably short deadlines for filing a complaint.

With respect to ERCOT's comment that issues for which a docket has already been established should be excluded from the timeline established by subsection (d), ERCOT did not explain how such a docket might have already been established. Regardless, §22.251(d) of the new rule affords the presiding officer the flexibility to extend the deadline upon a showing of good cause. In addition, §22.251(k) allows the presiding officer to extend or shorten the time periods established by the new rule. The commission concludes that this flexibility is sufficient to accommodate the situations apparently contemplated by ERCOT and that the proposed change is therefore unnecessary.

Consumers commented that complainants may not be able to identify all persons who would be directly affected by the commission's decision, as required by proposed §22.251(d)(1)(B)(ii). Consumers suggested that the language therefore be modified to require the identification of all classes of persons who would be directly affected, to the extent those classes of persons can be identified.

The commission agrees that it may not always be possible for a complainant to name all persons who will be directly affected as a result of the commission's decision. Therefore, the new rule includes language requiring a complainant to identify all entities or classes of entities who will be affected, to the extent those entities or classes of entities can reasonably be identified.

ERCOT commented that §22.251(d)(1)(B)(iv) should have language added to clarify the applicable ERCOT protocols referred to, and to make clearer that the complainant must specify the provision of subsection (c) upon which the complainant relies to excuse its compliance with applicable ERCOT procedures.

The commission notes that the proposed rule contained a mistaken reference to subsection (b) and the new rule corrects that reference. The commission also agrees with the sentiment of ERCOT's comment and has added language clarifying the reference to ERCOT protocols and the statement required of complainants who contended that they are not required to use the ERCOT procedures pursuant to §22.251(c).

ERCOT commented that §22.251(d)(1)(C) should be modified to require complainants to provide a detailed and specific statement of the issues presented for commission review.

The commission agrees with ERCOT's proposed change and the new rule includes ERCOT's proposed language.

ERCOT commented that §22.251(d)(2) should make explicit reference to review of requests for suspension of enforcement under §22.251(i).

The commission agrees that the reference proposed by ERCOT might make the new rule clearer. The new rule is therefore modified to include a reference to §22.251(i).

ERCOT recommended that the rule require service of a copy of a complaint on ERCOT's General Counsel.

ERCOT's comment was unopposed and does not appear to impose any undue hardship on an entity. Therefore, ERCOT's proposed language is included in the new rule.

§22.251(e) Notice

ERCOT commented that it is standard practice, and the new rule should therefore expressly allow notice to be provided to Qualified Scheduling Entities (QSEs) and ERCOT committees and subcommittees through electronic and website posting. ERCOT also suggested that the rule allow it to use electronic email attachments to serve a copy of the complaint on interested entities, as ERCOT is required to do. ERCOT also proposed that the requirement that the docket number be included in the notice be modified to apply only if a docket number has been assigned to the complaint.

The commission agrees that notice to QSEs and ERCOT committees and subcommittees through electronic and website posting is standard practice for ERCOT market participants. The language of the proposed rule was intended to authorize this practice. ERCOT's proposed change to more explicitly authorize such notice does not seem necessary. Regarding ERCOT's proposed clarification that the copy of the complaint ERCOT is required to provide may be an electronic copy, the commission had contemplated that the copy would be an attached electronic copy, and ERCOT's proposed clarification is consistent with the commission's intent and is therefore adopted. Finally, the requirement that the docket number be provided is retained in the rule. This is an important piece of information for entities who wish to participate in a proceeding and is normally available shortly after a complaint is filed.

§22.251(f) Response to complaint

ERCOT proposed that the response to a complaint be due in 20 days, instead of the 28 days allowed for in the proposed rule.

As is noted above, the rule retains essentially the same procedural timeline as was included in the proposed rule, to allow entities adequate time to prepare information to present their position to the commission.

§22.251(g) Comments by commission staff and motions to intervene

ERCOT proposed that comments by commission staff representing the public interest and motions to intervene be due in 30 days, instead of the 42 days allowed for in the proposed rule.

§22.251(h) Reply

ERCOT commented that the new rule should require that a reply, if any, be filed within 40 days, instead of the 52 days allowed for in the proposed rule.

§22.251(i) Suspension of enforcement

AEP, TXU, CenterPoint, and Consumers commented that the Administrative Procedure Act (APA), Texas Government Code Annotated §2003.049(b), requires that the utility division of the State Office of Administrative Hearings (SOAH) conduct hearings related to contested cases before the commission, unless a hearing is conducted by one or more commissioners. These commenters quoted §2001.003(1) of the APA for the proposition that a "contested case" is "a proceeding . . . in which the legal rights, duties, or privileges of a party are to be determined by a state agency after an opportunity for adjudicative hearing." Therefore, according to these commenters, a commission administrative law judge (ALJ) cannot conduct a hearing to determine whether to grant a request for suspension of enforcement. AEP commented that a determination cannot be made regarding a request for suspension of enforcement until after a hearing is held by either a SOAH ALJ or one or more of the commissioners.

ERCOT commented that the commission should favor prospective relief unless the commissioners find good cause exists for suspending enforcement. ERCOT commented that good cause should be found only in the most extraordinary of instances, such as where an entity's financial stability is threatened. ERCOT also commented that the APA does not prohibit, and ERCOT does not oppose, a commission ALJ conducting an evidentiary proceeding for the limited purpose of developing an evidentiary record to aid the commissioners in deciding whether to grant a requested suspension of enforcement.

The commission agrees with AEP, TXU, CenterPoint, and Consumers that the commission ALJ may not conduct a hearing in a contested case proceeding. Therefore, the new rule omits proposed §22.251(i)(1) that would have allowed a commission ALJ to convene a hearing to adduce evidence as to whether to suspend enforcement of the ERCOT action or decision that is the source of a complaint. The commission does not agree with AEP, however, that a hearing must always be held before a decision can made as to whether to grant a request to suspend enforcement. The new rule establishes a good cause standard for granting a request for suspension of enforcement and places the burden of proof on the complainant. The description of the good cause standard has been modified to correspond more closely to the standard that courts apply in deciding whether to grant an injunction. The commission also agrees that relief should generally be prospective.

§22.251(l) Standard for review

ERCOT commented that the commission should avoid directly ordering specific changes to the ERCOT protocols and ERCOT systems and proposed instead that, when the commission finds merit to a complaint, the commission instead issue only orders providing guidance to ERCOT for further action, including developing and implementing protocol revisions. CenterPoint commented that, because §22.251(l) would give deference only to ERCOT decisions made under procedures equivalent to those required under the APA, and because ERCOT does not employ such procedures, the commission would review virtually all complaints on a de novo basis. CenterPoint commented that this would be a cumbersome process that would cause uncertainty as to the effect and enforceability of ERCOT decisions and delay implementation of market corrections.

The commission agrees that it will generally be preferable for the commission to direct ERCOT to make necessary changes. However, there may be instances in which other relief is more appropriate. Consequently, the new rule includes language similar to that proposed by ERCOT, but reserves to the commission the discretion to order such relief as the commission deems appropriate. The provision concerning the granting of relief has been moved from subsection (l), which establishes the standard for review, to new subsection (o).

The commission disagrees with CenterPoint's characterization of the new rule, ERCOT's current processes, and the likely effect of the new rule. First, the new rule does not contemplate a de novo review of virtually all ERCOT actions or decisions. Indeed, §22.251(l) specifically refers to ERCOT ADR procedures that include processes in which a neutral arbiter makes findings of fact and due process guarantees are observed. The use of such a procedure in the ERCOT ADR proceeding would result in the application of a substantial evidence, arbitrary and capricious standard at the commission. Complaints requiring de novo resolution by the commission will be limited to those in which parties have not been afforded adequate process, or necessary factual determinations have not yet been made.

§22.251(n) Availability of alternative dispute resolution

In response to question number 2 posed by the commission, AEP commented that the APA does not prohibit a commission ALJ from conducting mini-trials and moderated settlement conferences, provided such proceedings are either non-binding or by agreement of the parties. TXU and ERCOT commented that the proceedings described in §22.251(n) may be conducted by a commission ALJ, provided the parties participate voluntarily. City Utilities, Consumers, and CPPDR commented that the language of §22.251(n) varies slightly from the language of Civil Remedies and Practices Code Chapter 154 (which authorizes the use of ADR procedures), particularly with respect to the proposed use of binding mini-trials.

The Texas Government Code provides that "it is the policy of this state that disputes before governmental bodies be resolved as fairly and expeditiously as possible and that each governmental body support this policy by developing and using alternative dispute resolution (ADR) procedures in appropriate aspects of the governmental body's operations and programs." Texas Government Code Annotated §2009.002. ADR processes include both the procedures described by Chapter 154, Civil Practice and Remedies Code, and combinations of the procedures described by Chapter 154. Texas Government Code Annotated §2009.003(1).

Chapter 154 of the Civil Practices and Remedies Code lists the following ADR procedures: mediations, mini-trials, moderated settlement conferences, summary jury trials, and arbitrations. Texas Civil Practices and Remedies Code Annotated §§154.023-154.027. Parties may agree in advance that an award issued in an arbitration will be binding and enforceable. Texas Civil Practices and Remedies Code Annotated §154.027(b). Therefore, the commission concludes that a binding mini- trial, if agreed to by the parties in advance, is a combination of procedures described by Chapter 154 of the Texas Civil Practices and Remedies Code. Moreover, the use of a binding mini-trial, where agreed to by the parties, may provide expeditious resolution of certain disputes and is therefore appropriate under Texas Government Code Annotated §2009.002.

However, the commission agrees that the rule can adequately embrace the range of permitted ADR processes by referring to the relevant statutes and omitting examples of available ADR processes and combinations. Accordingly, the new rule omits the list of examples included in the proposed rule.

All comments, including any not specifically discussed herein, were fully considered by the commission. In adopting this section, the commission makes other minor modifications for the purpose of clarifying the rule.

This new section is adopted under the Public Utility Regulatory Act, Texas Utilities Code Annotated §14.002 and §14.052 (Vernon 1998, Supplement 2003) (PURA), which provide the Public Utility Commission with the authority to make and enforce rules reasonably required in the exercise of its powers and jurisdiction, including rules of practice and procedure; and specifically, PURA §39.151, which grants the commission authority to establish the terms and conditions for the exercise of ERCOT's authority.

Cross Reference to Statutes: Public Utility Regulatory Act §§14.002, 14.052 and 39.151.

§22.251.Review of Electric Reliability Council of Texas (ERCOT) Conduct.

(a) Purpose. This section prescribes the procedure by which an entity, including the commission staff and the Office of Public Utility Counsel, may appeal a decision made by ERCOT or any successor in interest to ERCOT.

(b) Scope of complaints. Any affected entity may complain to the commission in writing, setting forth any conduct that is in violation or claimed violation of any law that the commission has jurisdiction to administer, of any order or rule of the commission, or of any protocol or procedure adopted by ERCOT pursuant to any law that the commission has jurisdiction to administer. For the purpose of this section, the term "conduct" includes a decision or an act done or omitted to be done. The scope of permitted complaints includes ERCOT's performance as an independent organization under the PURA including, but not limited to, ERCOT's promulgation and enforcement of procedures relating to reliability, transmission access, customer registration, and accounting for the production and delivery of electricity among generators and other market participants.

(c) Requirement of compliance with ERCOT Protocols. An entity must use Section 20 of the ERCOT Protocols (Alternative Dispute Resolution Procedures, or ADR), or Section 21 of the Protocols (Process for Protocol Revision), or other Applicable ERCOT Procedures, before presenting a complaint to the commission. For the purpose of this section, the term "Applicable ERCOT Procedures" refers to Sections 20 and 21 of the ERCOT Protocols and other applicable sections of the ERCOT protocols that are available to challenge or modify ERCOT conduct, including participation in the protocol revision process. If a complainant fails to use the Applicable ERCOT Procedures, the presiding official may dismiss the complaint or abate it to give the complainant an opportunity to use the Applicable ERCOT Procedures.

(1) A complainant may present a formal complaint to the commission, without first using the Applicable ERCOT Procedures, if:

(A) the complainant is the commission staff or the Office of Public Utility Counsel;

(B) the complainant is not required to comply with the Applicable ERCOT Procedures; or

(C) the complainant seeks emergency relief necessary to resolve health or safety issues or where compliance with the Applicable ERCOT Procedures would inhibit the ability of the affected entity to provide continuous and adequate service.

(2) For any complaint that is not addressed by paragraph (1) of this subsection, the complainant may submit to the commission a written request for waiver of the requirement for using the Applicable ERCOT Procedures. The complainant shall clearly state the reasons why the Applicable ERCOT Procedures are not appropriate. The commission may grant the request for good cause.

(3) For complaints for which ADR proceedings have not been conducted at ERCOT, the presiding officer may require informal dispute resolution.

(d) Formal complaint. A formal complaint shall be filed within 35 days of the ERCOT conduct complained of, except as otherwise provided in this subsection. When an ERCOT ADR procedure has been timely commenced, a complaint concerning the conduct or decision that is the subject of the ADR procedure shall be filed no later than 35 days after the completion of the ERCOT ADR procedure. The presiding officer may extend the deadline, upon a showing of good cause, including the parties' agreement to extend the deadline to accommodate ongoing efforts to resolve the matter informally, and the complainant's failure to timely discover through reasonable efforts the injury giving rise to the complaint.

(1) The complaint shall include the following information:

(A) a complete list of all complainants and the entities against whom the complainant seeks relief and the addresses, and facsimile transmission numbers and e-mail addresses, if available, of the parties' counsel or other representatives;

(B) a statement of the case that ordinarily should not exceed two pages and should not discuss the facts. The statement must contain the following:

(i) a concise description of any underlying proceeding or any prior or pending related proceedings;

(ii) the identity of all entities or classes of entities who would be directly affected by the commission's decision, to the extent such entities or classes of entities can reasonably be identified;

(iii) a concise description of the conduct from which the complainant seeks relief;

(iv) a statement of the ERCOT procedures, protocols, by-laws, articles of incorporation, or law applicable to resolution of the dispute and whether the complainant has used the Applicable ERCOT Procedures for challenging or modifying the complained of ERCOT conduct or decision (as described in subsection (c) of this section) and, if not, the provision of subsection (c) of this section upon which the complainant relies to excuse its failure to use the Applicable ERCOT Procedures;

(v) a statement of whether the complainant seeks a suspension of the conduct or implementation of the decision complained of; and

(vi) a statement without argument of the basis of the commission's jurisdiction.

(D) a concise statement without argument of the pertinent facts. Each fact shall be supported by references to the record, if any;

(E) a clear and concise argument for the contentions made, with appropriate citation to authorities and to the record, if any;

(F) a statement of all questions of fact, if any, that the complainant contends require an evidentiary hearing;

(G) a short conclusion that states the nature of the relief sought; and

(H) a record consisting of a certified or sworn copy of any document constituting or evidencing the matter complained of. The record may also contain any other item pertinent to the issues or points presented for review, including affidavits or other evidence on which the complainant relies.

(2) If the complainant seeks to suspend the conduct or the implementation of the decision complained of while the complaint is pending and all entities against whom the complainant seeks relief do not agree to the suspension, the complaint shall include a statement of the harm that is likely to result to the complainant if enforcement is not suspended. Harm may include deprivation of an entity's ability to obtain meaningful or timely relief if a suspension is not entered. A request for suspension of the conduct or enforcement of a decision shall be reviewed in accordance with subsection (i) of this section.

(3) All factual statements in the complaint shall be verified by affidavit made on personal knowledge by an affiant who is competent to testify to the matters stated.

(4) A complainant shall file the required number of copies of the formal complaint, pursuant to §22.71 of this title (relating to Filing of Pleadings, Documents, and Other Materials). A complainant shall serve copies of the complaint and other documents, in accordance with §22.74 of this title (relating to Service of Pleadings and Documents), and in particular shall serve a copy of the complaint on ERCOT's General Counsel, every other entity from whom relief is sought, the Office of Public Utility Counsel, and any other party.

(e) Notice. Within 14 days of receipt of the complaint, ERCOT shall provide notice of the complaint by email to all qualified scheduling entities and, at ERCOT's discretion, all relevant ERCOT committees and subcommittees. Notice shall consist of an attached electronic copy of the complaint, including the docket number, but may exclude the record required by subsection (d)(1)(H) of this section.

(f) Response to complaint. A response to a complaint shall be due within 28 days after receipt of the complaint and shall conform to the requirements for the complaint set forth in subsection (d) of this section except that:

(1) the list of parties and counsel is not required unless necessary to supplement or correct the list contained in the complaint;

(2) the response need not include a statement of the case, a statement of the issues or points presented for commission review, or a statement of the facts, unless the respondent contests that portion of the complaint;

(3) a statement of jurisdiction should be omitted unless the complaint fails to assert valid grounds for jurisdiction, in which case the reasons why the commission lacks jurisdiction shall be concisely stated;

(4) the argument shall be confined to the issues or points raised in the complaint;

(5) the record need not include any item already contained in a record filed by another party; and

(6) if the complainant seeks a suspension of the conduct or implementation of the decision complained of, the response shall state whether the respondent opposes the suspension and, if so, the basis for the opposition, specifically stating the harm likely to result if a suspension is ordered.

(g) Comments by commission staff and motions to intervene. Commission staff representing the public interest shall file comments within 45 days after the date on which the complaint was filed. In addition, any party desiring to intervene pursuant to §22.103 of this title (relating to Standing to Intervene) shall file a motion to intervene within 45 days after the date on which the complaint was filed. A motion to intervene shall be accompanied by a response to the complaint.

(h) Reply. The complainant may file a reply addressing any matter in a party's response or commission staff's comments. A reply, if any, must be filed within 55 days after the date on which the complaint was filed. However, the commission may consider and decide the matter before a reply is filed.

(i) Suspension of enforcement. The ERCOT conduct complained of shall remain in effect until and unless the presiding officer or the commission issues an order suspending the conduct or decision. If the complainant seeks to suspend the conduct or implementation of the decision complained of while the complaint is pending and all entities against whom the complainant seeks relief do not agree to the suspension, the complainant must demonstrate that there is good cause for suspension. The good cause determination required by this subsection shall be based on an assessment of the harm that is likely to result to the complainant if a suspension is not ordered, the harm that is likely to result to others if a suspension is ordered, the likelihood of the complainant's success on the merits of the complaint, and any other relevant factors as determined by the commission or the presiding officer.

(1) The presiding officer may issue an order, for good cause, on such terms as may be reasonable to preserve the rights and protect the interests of the parties during the processing of the complaint, including requiring the complainant to provide reasonable security, assurances, or to take certain actions, as a condition for granting the requested suspension.

(2) A party may appeal a decision of a presiding officer granting or denying a request for a suspension, pursuant to §22.123 of this title (relating to Appeal of an Interim Order and Motions for Reconsideration of Interim Orders Issued by the Commission).

(j) Oral argument. If the facts are such that the commission may decide the matter without an evidentiary hearing on the merits, a party desiring oral argument shall comply with the procedures set forth in §22.262(d) of this title (relating to Commission Action After a Proposal for Decision). In its discretion, the commission may decide a case without oral argument if the argument would not significantly aid the commission in determining the legal and factual issues presented in the complaint.

(k) Extension or shortening of time limits. The time limits established by this section are intended to facilitate the expeditious resolution of complaints brought pursuant to this section.

(1) The presiding officer may grant a request to extend or shorten the time periods established by this rule for good cause shown. Any request or motion to extend or shorten the schedule must be filed prior to the date on which any affected filing would otherwise be due. A request to modify the schedule shall include a representation of whether all other parties agree with the request, and a proposed schedule.

(2) For cases to be determined after the making of factual determinations or through commission ADR as provided for in subsection (n) of this section, the presiding officer shall issue a procedural schedule.

(l) Standard for review. If the factual determinations supporting the conduct complained of have not been made in a manner that meets the procedural standards specified in this subsection, or if factual determinations necessary to the resolution of the matter have not been made, the commission will resolve any factual issues on a de novo basis. If the factual determinations supporting the conduct complained have been made in a manner that meets the procedural standards specified in this subsection, the commission will reverse a factual finding only if it is not supported by substantial evidence or is arbitrary and capricious. The procedural standards in this subsection require that facts be determined:

(1) In a proceeding to which the parties have voluntarily agreed to participate; and

(2) By an impartial third party under circumstances that are consistent with the guarantees of due process inherent in the procedures described in the Texas Government Code Chapter 2001 (Administrative Procedure Act).

(m) Referral to the State Office of Administrative Hearings. If resolution of a complaint does not require determination of any factual issues, the commission may decide the issues raised by the complaint on the basis of the complaint and the comments and responses. If factual determinations must be made to resolve a complaint brought under this section, and the parties do not agree to the making of all such determinations pursuant to a procedure described in subsection (n) of this section, the matter may be referred to the State Office of Administrative Hearings for the making of all necessary factual determinations and the preparation of a proposal for decision, including findings of fact and conclusions of law, unless the commission or a commissioner serves as the finder of facts.

(n) Availability of alternative dispute resolution. Pursuant to Texas Government Code Chapter 2009 (Governmental Dispute Resolution Act), the commission shall make available to the parties alternative dispute resolution procedures described by Civil Practices and Remedies Code Chapter 154, as well as combinations of those procedures. The use of these procedures before the commission for complaints brought under this section shall be by agreement of the parties only.

(o) Granting of relief. Where the commission finds merit in a complaint and that corrective action is required by ERCOT, the commission shall issue an order granting the relief the commission deems appropriate, including, but not limited to:

(1) Entering an order suspending the conduct or implementation of the decision complained of;

(2) Ordering that appropriate protocol revisions be developed;

(3) Providing guidance to ERCOT for further action, including guidance on the development and implementation of protocol revisions; and

(4) Ordering ERCOT to promptly develop protocols revisions for commission approval.

(p) Notice of proceedings affecting ERCOT. Within seven days of ERCOT receiving a pleading instituting a lawsuit against it concerning ERCOT's conduct as described in subsection (b) of this section, ERCOT shall notify the commission of the lawsuit by filing with the commission, in the commission project number designated by the commission for such filings, a copy of the pleading instituting the lawsuit. In addition, within seven days of receiving notice of a proceeding at the Federal Energy Regulatory Commission in which relief is sought against ERCOT, ERCOT shall notify the commission by filing with the commission, in the commission project number designated by the commission for such filings, a copy of the notice received by ERCOT.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on March 10, 2003.

TRD-200301647

Rhonda G. Dempsey

Rules Coordinator

Public Utility Commission of Texas

Effective date: March 30, 2003

Proposal publication date: October 11, 2002

For further information, please call: (512) 936-7308

Chapter 25. SUBSTANTIVE RULES APPLICABLE TO ELECTRIC SERVICE PROVIDERS

Subchapter O. UNBUNDLING AND MARKET POWER

2. INDEPENDENT ORGANIZATIONS

16 TAC §25.361, §25.362

The Public Utility Commission of Texas (commission) adopts an amendment to §25.361, relating to Electric Reliability Council of Texas (ERCOT), and new §25.362, relating to Electric Reliability Council of Texas (ERCOT) Governance, with changes to the proposed text as published in the October 11, 2002 Texas Register (27 TexReg 9528). The amendment and new rule establish standards for the operation of an independent organization in the competitive electric market in Texas.

An independent organization performs special functions in the market that are prescribed by statute, involving the development and implementation of rules and operating systems to manage the reliability of the electric network and facilitate retail competition in the sale of electricity. It operates in an environment in which many companies may buy and sell electricity at wholesale, schedule electricity for transmission to customers, and deliver electricity to serve the needs of retail customers, and in which retail customers have the ability to switch retail providers. The new rules establish standards for the governance of the independent organization operating in Texas to ensure that, in carrying out its duties, it considers the interests and solicits the views of persons who are interested in the electric market, to further the efficient operation of the wholesale and retail markets and the reliable operation of the electric network. The rules also require that an independent organization allow access to meetings and information concerning its operations. Finally, the rules establish requirements related to reporting to the commission and compliance with commission rules. A companion rule, new §22.251 of this title (relating to Review of Electric Reliability Council of Texas (ERCOT) Conduct), was proposed at the same time as this amendment and new rule and is being adopted in a companion order. These rules are adopted under Project Number 25959.

A public hearing on the amendment and new rule was held at commission offices on December 3, 2002, at 9:30 a.m. A representative from the Electric Reliability Council of Texas (ERCOT) attended the hearing and provided comments. To the extent that these oral comments differ from the written comments, such comments are summarized herein.

The commission received comments on the proposed amendment on November 12, 2002 from Constellation New Energy, Inc., Green Mountain Energy Co., and Strategic Energy Co., through the Alliance for Retail Marketers (ARM); American Electric Power (AEP); the City of Austin, doing business as Austin Energy, and the City of San Antonio, acting by and through the San Antonio City Public Service Board (City Utilities); CenterPoint Energy, Inc. (CenterPoint); a coalition of consumer groups consisting of Texas Ratepayers' Organization to Save Energy, Texas Legal Services Center, Consumers Union Southwest Regional Office, and Public Citizen Texas Office (Consumers); ERCOT, the Lower Colorado River Authority (LCRA); Reliant Resources, Inc. (Reliant); and TXU Energy Trading Company, TXU Energy Retail Company, L.P, and Oncor Electric Delivery Co. ( collectively, TXU). Reply comments were received from ERCOT and TXU on November 25, 2002.

The commission posed three questions in the preamble to the proposed rule. Because the questions relate to specific subsections of the proposed new rule, the comments filed in response to these questions are summarized together with the comments on the relevant subsections.

1. How should proposed §25.362(g) be changed to accommodate ERCOT's transition from a stakeholder board to a hybrid stakeholder/independent board?

2. Is the requirement in proposed §25.362(i)(3) for a third-party auditor consistent with the Non-unanimous Settlement in Docket Number 23320, Petition of the Electric Reliability Council of Texas for Approval of the ERCOT Administrative Fee , Item No. 10, which requires ERCOT to retain an internal auditor?

3. Should proposed §25.362 include a requirement that ERCOT adopt a mechanism for allocating administrative penalty liabilities, such as applying it to line-items in the ERCOT budget or assessing it to members? If "yes," to whom, and/or to what ERCOT budget items, should such a mechanism apply? Do other ISO's have such mechanisms?

§25.361, Electric Reliability Council of Texas (ERCOT)

TXU commented that assessing creditworthiness and ensuring necessary and adequate security for market participants relative to their role and responsibility in the market, and administering settlement and billing functions and systems, should be added to §25.361(c), as they are key functions of ERCOT.

The commission agrees with TXU that ensuring necessary and adequate security and administering settlement and billing functions and systems are key functions of ERCOT and has inserted a new §25.361(c)(2) to include the recommended functions. The responsibility for assessing creditworthiness would apply to obligations in markets operated by ERCOT.

Consumers recommended that §25.361(c)(9) be amended to better describe the process for registration of market participants, and specifically to include a requirement that ERCOT test the systems of every company in the Texas market to assure that they are able to fully communicate with the ERCOT system. In reply comments, TXU stated that while it agrees that the testing of certain systems should be and is an ERCOT function, ERCOT does not test the systems of every company it registers, and not all registered market participants are required to fully communicate with the ERCOT system. TXU argued that the requirements for system communication between ERCOT and market participants vary with the type of market participant. TXU recommended that the commission not adopt Consumers' recommendation relating to testing of market participant communication systems.

ERCOT filed reply comments stating that the Consumers' recommendations in §25.361(c) would add unnecessary detail to the list of ERCOT functions set forth in the commission rules. ERCOT stated that it supports the more general language used by the commission in the proposed rules, as they allow the commission greater flexibility in its oversight of ERCOT.

The proposed rule requires ERCOT to "administer procedures for the registration of market participants" and "administer the customer registration system." The commission concludes that the additional detail suggested by Consumers is not necessary, because administering these systems implies that ERCOT will conduct testing to ensure that they operate properly. Consumers' recommendation has not been incorporated into the rule.

Consumers noted that proposed §25.361(c)(10) would direct ERCOT to "administer the customer registration system." Consumers stated that ERCOT's responsibilities are broader than "administering" and therefore recommended that the rule be amended to require that ERCOT "design, develop, manage, and operate the customer registration system."

The commission agrees with Consumers that ERCOT's responsibilities in regard to the registration system are broader than simple administration. The relevant provision is now §25.361(c)(11) and has been modified to reflect ERCOT's broader responsibility.

ERCOT noted that proposed §25.361(c)(13) would require ERCOT to "disseminate information … in accordance with the ERCOT protocols." ERCOT then noted that §25.361(c)(15) would require ERCOT to "perform any additional duties required under the ERCOT protocols." ERCOT expressed the view that these provisions are redundant and recommended that (c)(13) be deleted.

The commission declines to make the change recommended by ERCOT. While technically, proposed §25.361(c)(15) encompassed proposed §25.361(c)(13), the same can be said for other listed functions as well. The commission sees no harm in separately listing the requirement for ERCOT to disseminate information, as it is a specific function of particular importance. In addition, the protocols could be changed at some time in the future to eliminate or modify this duty, while §25.361 is intended to be a broader, but more durable statement of ERCOT's responsibilities. The third sentence of §25.361(g) also refers to the provision of information and is largely duplicative of the requirement in §25.362(e). Accordingly, this sentence is being modified to refer to §25.362(e).

Consumers recommended that Critical Transmission Projects be defined in the context of §25.361(c)(14), as ERCOT is required to submit a report to the commission identifying existing and potential transmission and distribution constraints and system needs within ERCOT with emphasis on critical transmission projects. Currently, however, critical transmission projects are not defined within §25.361. Consumers proposed that critical transmission projects be defined as projects needed to meet areas of growth in demand or potential areas where generation is concentrated. They also proposed that the commission annually review ERCOT's report, develop a five year plan for transmission updates, and pre-approve needed construction.

The commission agrees that there are important issues relating to the transmission planning process that warrant commission attention. It does not believe that these issues have been adequately explored in this rulemaking project, so as to amend this rule now. Rather, it is the commission's intention to consider changes in the transmission planning process and possible changes in the rules relating to transmission planning and licensing later in 2003. No changes have been made to the language of the rule to reflect this recommendation.

CenterPoint proposed to modify a portion of §25.361(g) to require ERCOT to maintain the confidentiality of Critical Infrastructure Information, as specified in §25.362 of this title (relating to Electric Reliability Council of Texas (ERCOT) Governance).

The commission agrees with CenterPoint's concern. The confidentiality protection in §25.362 is broader than the protection in §25.361, which relates only to competitively sensitive information. Section 25.361(g) has been modified to refer to the confidentiality provision in §25.362. Changes to §25.362(e) are discussed below.

§25.362, Electric Reliability Council of Texas (ERCOT) Governance

§25.362(c), Adoption of rules by ERCOT and commission review

CenterPoint contended that the proposed rule's efforts at creating an "open government" approach at ERCOT will impede ERCOT's ability to act quickly and decisively when market conditions warrant. Specifically, CenterPoint noted that the provisions of §25.362(c), in effect, subject ERCOT to the same rules and restrictions as a government administrative agency. The unintended result would be a slow-down in ERCOT's decision-making process. TXU expressed a similar view that the requirement for ERCOT to evaluate the cost and benefits to the organization, market participants, and retail customers as part of the process for revising protocols and procedures would impede timely action by ERCOT. TXU noted that the cost/benefit requirement could be interpreted to apply to practically every statement that ERCOT makes.

ERCOT suggested that references to ERCOT "rules" could lead to confusion about whether the matter referred to was a commission rule or an ERCOT protocol or procedure, noting that the commission rules are different and are a higher source of authority than ERCOT protocols or procedures. ERCOT stated that to eliminate this potential for confusion, this rule should consistently refer to "Commission Rules" and "ERCOT procedures."

The proposed rule was based on the recognition that ERCOT has an important function in developing market and reliability rules, which are set forth in ERCOT protocols and procedures. Prior to the publication of the proposed rule, a number of parties expressed frustration with the process by which the protocols and procedures are developed. They said that it was difficult to learn about proposed changes in the protocols and difficult to present information and argument concerning proposed protocol changes that would have impact on their development. The provisions on public notice and analysis of the cost and benefits when ERCOT intends to change a protocol would ensure that interested persons have the opportunity to participate in this process and that ERCOT evaluates the changes adequately. In addition, in §22.251, which is being adopted in a companion order, the commission sets out how it will review ERCOT actions, including protocol revisions. These rules should facilitate participation in the protocol development process by interested persons and clarify how the commission will conduct its oversight of ERCOT. The commission believes that they will not unduly impede ERCOT's decision-making process. The commission recognizes that not all ERCOT pronouncements should require a cost/benefit analysis, and has revised the rule to narrow the scope of this requirement. The commission agrees with ERCOT that commission rules are not the same as ERCOT protocols or procedures. In order to eliminate any potential confusion, changes have been made to the language of the rule to consistently refer to ERCOT "protocols" or "procedures." These are the terms commonly used to refer to the ERCOT market and reliability rules.

§25.362(d), Access to meetings

Similar to its comments concerning §25.362(c), CenterPoint argued that the "open government" approach at ERCOT would impede ERCOT's ability to act quickly and decisively when market conditions warrant. Specifically, CenterPoint noted that the provisions of §25.362(d), in effect, would subject ERCOT to the same rules and restrictions as a government administrative agency. The unintended result would be a slow-down in ERCOT's decision-making process. TXU recommended that access to meetings be more narrowly defined to those meetings wherein a formal vote would be taken. TXU argued that under the proposed rule, as written, any meeting or discussion at ERCOT by two or more staff members would be subject to this provision.

ERCOT recommended that the rule allow notice of meetings to be posted on the website and by email. ERCOT also recommended that permanent retention of meeting records be limited to the Board of Directors, and that the records for other meetings (such as standing committees and subcommittees) be limited to a five-year retention period.

The commission recognizes the concern expressed by CenterPoint and TXU relating to the provision in the proposed rule on open meetings. The rule directs ERCOT to establish a policy on opening meetings to the public. If there are categories of meetings that are not appropriate for opening to the public, the policy adopted by ERCOT can specify which meetings those are. The commission does not believe that a modification of the proposed rule is needed to address these concerns and believes that the rule gives ERCOT discretion to address this matter. The commission concurs that website and email posting of meetings are appropriate and believes that the rule gives ERCOT discretion to address appropriate notice mechanisms. Additionally, the commission agrees with ERCOT that the provision on record keeping should be modified; it is appropriate that board records be retained permanently and that ERCOT establish reasonable retention periods of not less than five years for all other meeting records.

§25.362(e), Access to information

ARM recommended that the rule be modified to require ERCOT to provide non-confidential information on a timely basis, because much of the information that is of interest is time- sensitive. ARM identified the ten-day requirement of the Texas Public Information Act (TPIA) as a standard to use. In reply, ERCOT argued that a ten-day delivery requirement is not appropriate, because of the large volume of information processed by ERCOT.

The commission agrees with ARM that non-confidential materials should be provided on a timely basis and believes that the ten-day standard is appropriate. While ERCOT processes a large volume of information, it is not clear that the volume of requests for information would present significant problems for it. In addition, as ARM has pointed out, much of the information that is likely to be requested is time-sensitive, so that prompt delivery is important to the person requesting the information. The commission has also modified the provisions of subsection (e) concerning the provision of information to the commission to require that this information be provided promptly.

Confidentiality

ERCOT, Consumers, and ARM generally agreed with the approach taken in the proposed rule with respect to the treatment of confidential information. ARM noted that the Public Utility Regulatory Act (PURA) requires the commission to maintain the confidentiality of competitively sensitive information, and said that the rule appears to do so.

LCRA, Reliant and TXU commented that subsection (e) impermissibly places the commission in the role of determining what information is or is not subject to an exception to the TPIA, a responsibility that the TPIA reserves to the attorney general. TXU said that absent an agreement concerning the disclosure of protected information, the commission should commit to seeking an Attorney General opinion. LCRA added that the process and timetable set forth in subsection (e)(8) would allow the commission to substitute its judgment about whether information may be withheld for that of the Attorney General, under a process that differs from that in the TPIA and which irrevocably prejudices the owner of the information. Specifically, LCRA noted that while the proposed rule requires commission notification to parties within ten days of the receipt of a request for release, the TPIA requires the commission to request an Attorney General opinion within ten days of the request. LCRA said that if the commission were to agree that the information is protected, it would be too late to follow the procedures set forth in the TPIA and the ability to withhold the information would be lost. TXU suggested extending the proposed rule's 72-hour notice of the commission's intention to disclose protected information so that weekends would be excluded.

Reliant argued that the rule contained no indication of what standard the commission would employ in determining whether information designated as confidential or "protected" would be disclosed. The company said further that information deemed confidential under the protocols will have already been reviewed and approved by the commission, and that there is no basis for the commission to revisit decisions related to confidentiality. According to Reliant, if the commission were to establish a procedure to second-guess ERCOT's determination of confidentiality, ERCOT would be hampered in performing its job.

The City Utilities argued the proposed rule also conflicts with portions of the TPIA that apply to municipally owned utilities. They said that under §552.133 of the TPIA, with respect to "competitive matter" information designated by a municipally owned utility, only the governing body of the utility and the attorney general are authorized to make determinations regarding protection and release of information. The two cities said the rule should expressly recognize the presumption that Protected Information is confidential information under the TPIA. They also called for reversing the meaning of subsection (e)(3) so that the commission would have discretion to disclose information only if the ERCOT protocols do not designate the information as protected.

ERCOT, however, supported the commission's approach regarding public access to information. The proposed rule would require ERCOT to develop procedures to provide information, and ERCOT noted that it has already adopted such procedures.

Centerpoint said that critical infrastructure information, including maps, should also be withheld from public disclosure, in the interest of guarding against terrorist attacks or other threats to the physical security of the electric grid.

The commission has extensively reorganized subsection (e) to make it clearer. In particular, the subsection has been divided into two paragraphs, the first of which deals with information in ERCOT's possession and the second of which deals with information in the commission's possession.

The commission agrees with Reliant that there is no need to revisit decisions on confidentiality as a routine matter, and the commission does not believe that the adoption of this rule would result in routine re-examination of decisions made by ERCOT. The purpose of the provision concerning commission review of ERCOT's decisions on confidentiality, now subsection (e)(1)(B), is to provide the commission with flexibility to deal with extraordinary situations in which there is a significant public interest in disclosing information that otherwise would be protected. As a part of its oversight responsibility, the commission should resolve whether disclosure of information is in the public interest. There are a number of instances in which the broad availability of information fosters the development of competitive markets. The commission has, for example, conducted a customer education campaign to provide customers basic information concerning the opportunities they have to shop for power in a competitive retail electric market. It has also helped distribute information about the prices that retail electric providers are offering in the market. These efforts are based on the idea that better-informed consumers will result in a more vibrant competitive market and, hence, greater benefits from competition.

Dissemination of information about the operation of the wholesale market might also foster more vibrant competition. For example, if the commission were to learn that market participants were gaming market rules under a cloak of confidentiality, thereby artificially driving power prices higher (as was done in California), the commission would have a procedure by which it could determine whether the information is in fact competitively sensitive or should instead be made public. Conversely, the commission needs the tools in extraordinary circumstances to protect information that would ordinarily be disclosed under the protocols. It is equally necessary that a market participant have a procedure by which it can demonstrate to the commission that the release of certain information would cause it substantial competitive harm. Moreover, unforeseen events relating to the security of essential electric facilities may also require confidentiality measures not anticipated in the protocols. Accordingly, the new rule provides a mechanism by which the commission can make a determination as to whether information that is deemed confidential under the ERCOT protocols should be released and whether information that is not protected from disclosure should be protected. In all cases where this provision would be applied, affected parties would have reasonable notice and opportunity to present their positions prior to commission action.

With respect to the contention that the commission is required to refer all questions of confidentiality to the attorney general, the commission has modified the rule to make it clear that should a TPIA request be made and not resolved through informal dispute resolution efforts, the matter would be referred to the Attorney General in accordance with the TPIA. See §25.362(e)(2)(B). The commission concludes that the commenters are correct that where a third party has requested information that is in the commission's possession or available to it and the commission concludes that the information should not be released, the TPIA requires the commission to refer the matter to the Attorney General to resolve the question of whether the information must be released. Under the TPIA and Attorney General opinions interpreting this Act, a governmental body may, but is not required to, resolve disputed issues of fact regarding whether information that has been requested comes within an exception to public disclosure when a third party's property or privacy rights are at issue. The rule as adopted preserves the commission's ability to exercise this option.

The rule would, however, allow the commission to remove the protected status of information in ERCOT's or the commission's possession in the absence of a request under the TPIA. PURA gives the commission the power to collect information from market participants and the responsibility to determine whether the information should be protected from disclosure to third parties, in certain circumstances. For example, PURA §39.155 requires persons who own electric generation facilities in the state to report information concerning the capacity of such facilities and the volume of sales. This section also directs the commission to prescribe reporting requirements that ensure the confidentiality of competitively sensitive information. This statute provides the commission, rather than the Attorney General, authority to determine whether information provided under §39.155 should be disclosed to the public. In the event that the commission seeks to remove the protected status of information that any party deems confidential, that party would have an opportunity to present information concerning the nature of the information and whether it is entitled to continued protection. Furthermore, the subsection is intended to provide adequate time for an affected party to seek a court injunction if it disagrees with the commission's determination.

LCRA's concern about the timing of notice has been addressed by establishing a three-day notice requirement. If the commission receives a request for access to protected information it would make a good faith effort, within three business days of receipt of the request, to notify the person who has provided the information that a request has been received. See §25.362(e)(2)(B). Thus, the person who has provided the information would receive notice of the request, before or at the same time that the commission submits the matter to the Attorney General for a determination on whether the information is excepted from disclosure under the TPIA. The TPIA requires the agency to notify the information owner of its intent to request an attorney general opinion (TPIA §552.305) " within a reasonable time but not later than the tenth business day after the date of receiving the written request." (Emphasis added.) The modifications to the proposed rule are consistent with the TPIA and should provide parties adequate notice in order that they may protect their interests by presenting arguments and evidence concerning a request for information to the Attorney General.

The commission does not believe that the rule, as modified, is inconsistent with the City Utilities' rights under TPIA §552.133. To the extent that the commission receives a request for the disclosure of information owned by a municipal utility, the utility will have an opportunity to present information to the Attorney General supporting its contention that the information is protected from disclosure under that provision. If the Attorney General decides that the information is not protected under the TPIA, the commission would be required to give advance notice to the utility of the decision to release the information. If the utility disagrees with the determination, it should have time to seek an injunction to prevent the release of the information. If the commission seeks to release information that is owned by a governmental body in the absence of a request for the information, the governmental body will have an opportunity to present evidence to the commission on the issue of the statutory exception to public disclosure created by TPIA §552.133.

The commission agrees with TXU's suggestion that the 72-hour notice discussed in proposed subsection (e)(7) should exclude weekends. The notice period has been changed to three business days. See §25.362(e)(2)(B), (E).

Finally, under the new rule ERCOT is required to protect information that it has designated as protected from disclosure. This subsection gives ERCOT latitude in determining the information that should be protected, and it would have the discretion to adopt protocols or procedures to protect information if its release might imperil the security of critical electric facilities. In the commission's view, this accommodates CenterPoint's concern, and it is not necessary that the rule require ERCOT to withhold critical infrastructure information from public disclosure.

Preamble question 1 and §25.362(g), Qualifications for membership on governing board

Preamble question 1 asked how proposed §25.362(g) should be changed to accommodate ERCOT's transition from a stakeholder board to a hybrid stakeholder/independent board. AEP recommended that ERCOT not reserve seats on the board for individuals with experience in specific disciplines. AEP stated that the members should have a background in finance, accounting or law or, preferably, a combination of these disciplines. ARM recommended that the rule be changed to provide separate membership requirements for the independent board members. Specifically, independent board members should have absolutely no connection to market participants or to any other ERCOT non-commercial member (such as the commission or a consumer group). ARM further stated that the criteria should not rule out individuals with experience in the electric industry or a similar field, such as a former electric industry employee or a former commissioner or commission employee.

ARM also recommended that the rule establish restrictions on the board members similar to those applicable to sitting commissioners, including a one-year post-employment prohibition. ARM recommended that the board qualifications not include a requirement for level of activity in the ERCOT market, as this would make it difficult for smaller and newer market participants to gain board representation. Consumers recommended adding a subsection establishing a revolving door policy, disqualifying for a seat as an independent board member a person who has recently been employed by a market participant. Consumers supported standards for "good standing" for ERCOT board members. TXU agreed with the need for a revolving door policy, but expressed the view that this is an area that should be addressed by an ERCOT policy rather than in a commission rule. In reply comments, ERCOT asserted that Consumers' recommendations in this regard are overly proscriptive and punitive.

Reliant did not believe that any changes were necessary in the proposed rule. TXU stated that a revision to the proposed rule is not necessary to address a hybrid board consisting of stakeholder and independent directors, because ERCOT's by-laws, which are subject to review and approval by the commission, contain the details of the board structure. TXU also stated that the proposed rule, as written, provides adequate qualification requirements for board membership. Additionally, TXU pointed out that Docket 26861, Petition of the Electric Reliability Council of Texas (ERCOT) for Approval of Governance Changes , has been initiated to consider the proposed ERCOT by-law changes that implement a blended board. CenterPoint expressed the view that proposed §25.362(g) is not necessary, because ERCOT's by-laws provide sufficient detail and are subject to commission review and approval.

The commission concurs with Reliant and TXU that a change to proposed §25.362(g) is not necessary. The Final Order in Docket Number 26861 (Dec. 9, 2002) approved the hybrid board and its structure. The ERCOT by-laws (Article 34) provide a sufficient definition and independence criteria for the independent directors. ARM's suggestion of changing the rule is not necessary, because changes in the by-laws relating to the membership of the board require commission review, to determine that the resulting board structure will ensure the organization's independence.

The commission agrees with ERCOT that the guidelines for board membership, as set out in the proposed rule, §25.362(g)(1), are adequate and appropriate. The approach that was taken in this rule was to establish a number of policies that ERCOT must adhere to, but give it broad discretion in how to implement these policies. Among the broad policies addressed in the proposed rule are conflicts of interest. This provision would require ERCOT to consider whether it is appropriate to address such matters as qualifications and post-employment restrictions for independent board members. The commission also concludes that the "levels of participation" requirement is appropriate. This requirement is intended to ensure that board members that represent a sector of the market have some specific connection with the ERCOT market and the sector they would represent; it is not intended to preclude new market entrants or small market participants from serving on the board of directors.

§25.362(i), Compliance with rules or orders, and Preamble questions 2 and 3

Preamble question 2 asked whether the requirement in proposed §25.362(i)(3) for a third- party auditor was consistent with the non-unanimous Settlement in Docket Number 23320, Petition of the Electric Reliability Council of Texas for Approval of the ERCOT Administrative Fee , Item No. 10, which requires ERCOT to retain an internal auditor. AEP and Reliant commented that the proposed rule requirement is not consistent with the settlement. AEP noted that the non-unanimous Settlement in Docket Number 23220 states, "The ERCOT Board agrees to employ an internal auditor to independently review fiscal matters, staffing, and expenses for ERCOT activities beginning no later than July 31, 2003. The internal auditor will report through quarterly written reports to the ERCOT Board." AEP argued that the requirement in the proposed rule should not be adopted. Reliant commented that the settlement identified specific circumstances in which ERCOT would hire an independent auditor, and to the extent that the proposed rule creates an additional situation in which ERCOT would be required to employ a third-party auditor, it is inconsistent with that settlement.

ARM, CenterPoint, and Consumers commented that the rule requirement is consistent with the settlement. ARM noted that the commission's authority to require ERCOT to submit to an audit stems from PURA and not from the parties' settlement. ARM argued that PURA grants the commission authority to oversee and review an independent organization's procedures relating to the reliability of the regional electric network and accounting for the production and delivery of electricity. In ARM's view, ERCOT's accounting for the costs incurred in rendering such services would constitute procedures related to reliability and accounting for production and delivery of electricity. ARM contended that the commission's rules should not defer to a settlement of parties, primarily because those same parties could by agreement modify their settlement or choose not to seek its enforcement. ARM also pointed to prior instances when the commission ruled on issues initially in a contested case and subsequently revisited those issues in a rulemaking of general applicability. CenterPoint commented that the audit requirement in the settlement exists to assure ERCOT fee-payers that ERCOT's expenses and fees are reasonable and verifiable on an ongoing basis, while the audit requirement in the proposed rule exists as a remedy or enforcement tool after ERCOT has failed to comply with PURA, the commission's substantive rules, or a commission order. CenterPoint argued that the two requirements serve different purposes, and are not necessarily inconsistent. Consumers commented that the rule provision would allow greater scrutiny by a truly independent third party (not an ERCOT employee) in instances of rule violations. Consumers noted that the commission may need to require audits of a specialized nature depending on the circumstances, and the draft rule would provide greater flexibility but would not substitute for the existing requirement that ERCOT hire an individual to perform routine internal audit functions.

The commission agrees with ARM, CenterPoint, and Consumers. PURA authorizes the commission to oversee an independent organization, which implies that the commission has the power to adopt special investigative and reporting requirements to ensure compliance with its rules. The flexibility of the requirement for a third-party auditor in the proposed rule is an appropriate enforcement tool for the commission's oversight of ERCOT. This auditor also has a different purpose, and the rule provisions relating to it are separate and independent from, the auditor addressed in the settlement. Therefore, the commission retains the requirement for a third-party auditor in §25.361(i)(3).

Preamble question 3 asked whether proposed §25.362 should include a requirement that ERCOT adopt a mechanism for allocating administrative penalty liabilities, such as applying it to line-items in the ERCOT budget or assessing it to members. It also asked how such a mechanism should be applied and whether other ISOs have such mechanisms. AEP, Reliant, CenterPoint, and TXU stated that monetary penalties are inappropriate, because penalties fail to provide an incentive for good performance, and, in addition, such fines could ultimately be paid by market participants who are undeserving of the penalty. ERCOT and Reliant observed that penalties do not work well as an incentive for ERCOT, because ERCOT does not have shareholders and must pass on the penalties either in the form of fees or reduced services. Reliant recommended that if the commission does adopt a rule that allows for administrative penalties applicable to ERCOT, it should avoid a "one-size-fits-all" approach by adopting an allocation method as well.

TXU agreed that the commission's oversight authority should include a mechanism to ensure ERCOT compliance. Remedies such as revocation of the independent organization certificate, as well as reporting and auditing requirements, are appropriate methods of enforcement. However, TXU strongly disagreed with the provisions of the proposed rule that authorize administrative penalties against ERCOT as an enforcement tool. TXU recommended the deletion of proposed subsection §25.362(i)(4).

ARM commented that the rationale for assessing a penalty to market participants, through the administrative fee or otherwise, is that the market participants ultimately supervise ERCOT through the board structure. However, the introduction of independent board members dilutes this rationale. ARM recommended that the rule require that any market participant harmed by the conduct for which the penalty is being imposed be exempt from the assessment of the penalty. ARM further proposed that the rule prohibit ERCOT from passing on to market participants penalties for conduct outside the authorized parameters for ERCOT operations (e.g., an individual staff member violates the protocols). Such penalties should be paid from the ERCOT personnel and training budget.

ERCOT recommended that the commission focus its enforcement efforts on compliance reporting and the suspension or revocation of ERCOT's Independent Organization certification. ERCOT noted, however, that if the commission does deem penalties appropriate, it should consider whether it has the authority to require all market participants to become ERCOT members so that ERCOT can pass through penalties to members rather than through its fees, which are charged to market participants. Further, ERCOT noted that it may need to address the possibility of penalties in its member agreements.

Consumers recommended that mandatory fines be imposed upon ERCOT and its members for non-compliance, provided that such fines are not passed on to consumers in any way. Consumers recommended that the commission require the ERCOT board to assess administrative penalties and legal fees associated with those penalties directly to all for-profit members of ERCOT. Consumers asserted that since the retail market opened on January 1, 2002, complaints filed by residential consumers against electric companies have increased, because oversight and enforcement are inadequate. Consumers expressed the view that complaints will continue to increase because there are no adverse consequences for rule violations. Consumers recommended setting uniform penalties for failure of ERCOT, REPs, and TDUs to comply with commission rules and orders. Consumers proposed that penalties should be payable to the retail customer as a credit on the next electric bill. They added that residential consumers should have access to the performance measures of individual REPs. TXU disagreed with the Consumers' recommendation to remove the commission's enforcement discretion concerning the administrative penalties listed in §25.362(i). TXU asserted that this recommendation is unreasonable and would likely result in many cases of unwarranted enforcement.

While the commission agrees that administrative penalties are not the first step that should be taken in an instance of non-compliance by ERCOT, there may, in fact, be times at which such penalties are appropriate. Further, PURA §15.023 authorizes the commission to impose administrative penalties. The commission could assess a penalty under §15.023, regardless of whether this authorization is reiterated in the rule. The commission certainly views imposition of administrative penalties as less severe than the suspension or revocation of ERCOT's Independent Organization certification. The commission recognizes that there may be a degree of unfairness in assessing penalties against ERCOT that are then passed on to its members or to market participants through its administrative fee, as a number of commenters pointed out. The commission would consider the impact of a penalty in deciding whether to assess it and how to do so. It believes that in assessing a penalty, it would have to consider all of the circumstances and tailor the penalty to the fact situation. The preamble to the proposed rule posed the question whether the commission could assess a penalty directly against specific line items in ERCOT's budget. While this remedy is not explicitly included in the rule, the commission concludes that penalties may appropriately be assessed against line items in the ERCOT budget, if the facts and circumstances warrant.

Many of the Consumers' recommendations merit further discussion, but are beyond the scope of this rule and did not receive adequate discussion in this rulemaking. The commission has reorganized its enforcement organization and is devoting more resources to the enforcement of rules than in the past. The commission also opened a rulemaking proceeding to review the customer protection rules, Project Number 27084, Rulemaking to Revise Customer Protection Rules . That project is a more appropriate forum for the discussion of these ideas. Therefore, no changes to the proposed rule are required. The other issues raised by ARM need not be addressed in this rule, but could be resolved in connection with a future proceeding in which an administrative penalty is proposed.

All comments, including any not specifically referenced herein, were fully considered by the commission. In adopting these sections, the commission makes other minor modifications for the purpose of clarifying the rules.

This amendment and new section are adopted under the Public Utility Regulatory Act, Texas Utilities Code Annotated §14.002 (Vernon 1998, Supplement 2003) (PURA), which provides the commission with the authority to make and enforce rules reasonably required in the exercise of its powers and jurisdiction; and specifically, §39.151, which authorizes the commission to certify an independent organization or organizations to perform prescribed functions, to oversee the procedures adopted by an independent organization relating to the reliability of the regional electrical network and accounting for the production and delivery of electricity among market participants, to establish and oversee transaction settlement procedures, and to establish terms and conditions for the ERCOT independent system operator's oversight of utility dispatch functions.

Cross Reference to Statutes: Public Utility Regulatory Act §§14.002, 39.151 and 39.155.

§25.361.Electric Reliability Council of Texas (ERCOT).

(a) Applicability. This section applies to the Electric Reliability Council of Texas (ERCOT). It also applies to transmission service providers (TSPs) and transmission service customers, as defined in §25.5 of this title (relating to Definitions), with respect to interactions with ERCOT.

(b) Purpose. ERCOT shall perform the functions of an independent organization under the Public Utility Regulatory Act (PURA) §39.151 to ensure access to the transmission and distribution systems for all buyers and sellers of electricity on nondiscriminatory terms; ensure the reliability and adequacy of the regional electrical network; ensure that information relating to a customer's choice of retail electric provider is conveyed in a timely manner to the persons who need that information; and ensure that electricity production and delivery are accurately accounted for among the generators and wholesale buyers and sellers in the region. In addition, ERCOT may, on the introduction of customer choice in the ERCOT power region, acquire generation-related ancillary services on a nondiscriminatory basis on behalf of entities selling electricity at retail in accordance with PURA §35.004(e).

(c) Functions. ERCOT shall operate an integrated electronic transmission information network and carry out the other functions prescribed by this section. ERCOT shall:

(1) administer, on a daily basis, the operational and market functions of the ERCOT system, including scheduling of resources and loads, and transmission congestion management, as set forth in the ERCOT protocols;

(2) administer settlement and billing for services provided by ERCOT, including assessing creditworthiness of market participants and establishing and enforcing reasonable security requirements in relation to their responsibilities in ERCOT- operated markets;

(3) serve as the single point of contact for the initiation of transmission transactions;

(4) maintain the reliability and security of the ERCOT region's electrical network, including the instantaneous balancing of ERCOT generation and load and monitoring the adequacy of resources to meet demand;

(5) direct the curtailment and redispatch of ERCOT generation and transmission transactions on a non-discriminatory basis, consistent with ERCOT protocols;

(6) accept and supervise the processing of all requests for interconnection to the ERCOT transmission system from owners of new generating facilities;

(7) coordinate and schedule planned transmission facility outages;

(8) perform system screening security studies, with the assistance of affected TSPs;

(9) plan the ERCOT transmission system, in accordance with subsection (f) of this section;

(10) administer procedures for the registration of market participants;

(11) develop, manage, and operate the customer registration system;

(12) administer the renewable energy program;

(13) monitor generation planned outages;

(14) disseminate information relating to market operations, market prices, and the availability of services, in accordance with the ERCOT protocols;

(15) submit an annual report to the commission identifying existing and potential transmission and distribution constraints and system needs within ERCOT, with emphasis on critical transmission projects, alternatives for meeting system needs, and recommendations for meeting system needs, pursuant to PURA §39.155 (relating to Commission Assessment of Market Power); and

(16) perform any additional duties required under the ERCOT protocols.

(d) Commercial functions. ERCOT shall dispatch generation facilities only in accordance with the provisions of the ERCOT protocols. This responsibility includes authority to redispatch generation resources, in accordance with §25.200 of this title (relating to Load Shedding, Curtailments, and Redispatch) and the ERCOT protocols, and to determine and purchase the amount of ancillary services required to maintain and ensure the reliability of the network. All commercial functions required to ensure reliability and adequacy of the transmission network are to be conducted in accordance with the ERCOT protocols.

(e) Liability. ERCOT shall not be liable in damages for any act or event that is beyond its control and which could not be reasonably anticipated and prevented through the use of reasonable measures, including, but not limited to, an act of God, act of the public enemy, war, insurrection, riot, fire, explosion, labor disturbance or strike, wildlife, unavoidable accident, equipment or material shortage, breakdown or accident to machinery or equipment, or good faith compliance with a then valid curtailment, order, regulation or restriction imposed by governmental, military, or lawfully established civilian authorities.

(f) Planning. ERCOT shall conduct transmission system planning and exercise comprehensive authority over the planning of bulk transmission projects that affect the transfer capability of the ERCOT transmission system. ERCOT shall supervise and coordinate the other planning activities of TSPs.

(1) ERCOT shall evaluate and make a recommendation to the commission as to the need for any transmission facility over which it has comprehensive transmission planning authority.

(2) A TSP shall coordinate its transmission planning efforts with those of other TSPs, insofar as its transmission plans affect other TSPs.

(3) ERCOT shall submit to the commission any revisions or additions to the planning guidelines and procedures prior to adoption. ERCOT may seek input from the commission as to the content and implementation of its guidelines and procedures as it deems necessary.

(g) Information and coordination. Transmission service providers and transmission service customers shall provide such information as may be required by ERCOT to carry out the functions prescribed by this section and the ERCOT protocols. ERCOT shall maintain the confidentiality of competitively sensitive information and other protected information, as specified in §25.362 of this title (relating to Electric Reliability Council of Texas (ERCOT) Governance). Providers of transmission and ancillary services shall also maintain the confidentiality of competitively sensitive information entrusted to them by ERCOT or a transmission service customer.

(h) Interconnection standards. In performing its functions related to the reliability and security of the ERCOT electrical network, ERCOT may prescribe reliability and security standards for the interconnection of generating facilities that use the ERCOT transmission network. Such standards shall not adversely affect or impede manufacturing or other internal process operations associated with such generating facilities, except to the minimum extent necessary to assure reliability of the ERCOT transmission network.

(i) ERCOT administrative fee. ERCOT shall charge an administrative fee for transmission service in accordance with ERCOT protocols. Changes in the fee or application of new fees are subject to commission approval.

(j) Reports. Each TSP and transmission service customer in the ERCOT region shall on an annual basis provide historical information concerning peak loads and resources connected to the TSP's system. ERCOT shall periodically file with the commission reports concerning its governance, operations and budget, the reliability region of the ERCOT electrical network, and ERCOT's transmission planning efforts, including a list of any transmission projects that it recommends.

(k) Anti-trust laws. The existence of ERCOT is not intended to affect the application of any state or federal anti-trust laws.

§25.362.Electric Reliability Council of Texas (ERCOT) Governance.

(a) Purpose. This section provides standards for the operation of an independent organization within the ERCOT region.

(b) Application. This section applies to ERCOT or any other organization within the ERCOT region that qualifies as an independent organization under the Public Utility Regulatory Act (PURA) §39.151.

(c) Adoption of rules by ERCOT and commission review. ERCOT shall adopt and comply with procedures concerning the adoption and revision of protocols and procedures that constitute statements of general policy and that have an impact on the governance of the organization or on reliability, settlement, customer registration, or access to the transmission system.

(1) The procedures shall provide for advance notice to interested persons, an opportunity to file written comments or participate in public discussions, and, in the case of new protocols or revisions to protocols, an evaluation by ERCOT of the costs and benefits to the organization and the operation of electricity markets.

(2) The commission shall process requests for review of ERCOT protocols, procedures, and decisions in accordance with §22.251 of this title (relating to Review of Electric Reliability Council of Texas (ERCOT) Conduct).

(d) Access to meetings. ERCOT shall adopt and comply with procedures for providing access to its meetings to market participants and the general public. These procedures shall include provisions on advance notice of the time, place, and topics to be discussed during open and closed portions of the meetings, and making and retaining a record of the meetings. Records of meetings of the board of directors shall be retained permanently, and ERCOT shall establish reasonable retention periods, but not less than five years, for records of other meetings.

(e) Access to information. This subsection governs access to information held by ERCOT and access to information held by the commission that it receives from ERCOT.

(1) ERCOT shall adopt and comply with procedures that allow persons to request and obtain access to records that ERCOT has or has access to relating to the governance and budget of the organization, market operation, reliability, settlement, customer registration, and access to the transmission system. ERCOT shall make these procedures publicly available. Information that is available for public disclosure pursuant to ERCOT procedures shall normally be provided within ten business days of the receipt of a request for the information. If a response requires more than ten business days, ERCOT will notify the requester of the expected delay and the anticipated date that the documents may be available. ERCOT's procedures regarding access to records shall be consistent with this section.

(A) Information submitted to or collected by ERCOT pursuant to requirements of the protocols or operating guides shall be protected from public disclosure only if it is designated as Protected Information pursuant to the Protocols, except as otherwise provided in this subsection.

(B) On its own motion or the petition of an affected party, including commission staff, the commission may, after providing reasonable notice to affected parties and an opportunity to be heard, amend the definition of "Protected Information" or the designation of "Items Not Considered Protected Information" under the ERCOT Protocols. In considering such an amendment, the commission may review the specific information under consideration or a general description of such information.

(C) The procedures adopted by ERCOT under this subsection shall include provisions for promptly responding to a request from the commission or commission staff for information that ERCOT collects, creates or maintains in order to provide the commission access to information that the commission or commission staff determines is necessary to assess market power and the development and operation of competitive wholesale and retail markets; to evaluate possible violations of laws, rules, protocols, or codes of conduct; or to carry out the commission's responsibilities for oversight of ERCOT.

(2) Commission employees, consultants, agents, and attorneys who have access to Protected Information pursuant to this section shall not disclose such information except as provided in this subsection and in accordance with the provisions of the Texas Public Information Act (TPIA).

(A) If the commission receives from a member of the Texas Legislature a request for information that the commission has or has access to that is designated as "Protected Information" under the ERCOT Protocols, the commission shall provide the information to the requestor pursuant to the provisions of Texas Government Code Annotated §552.008. If permitted by the requesting member of the Texas Legislature the commission shall notify ERCOT, and, if applicable, the entity that provided the information to ERCOT, of the existence of the request, the identity of the requestor, and the substance of the request.

(B) If the commission receives a request for information that the commission has or has access to that has been designated as Protected Information under the Protocols the commission shall make a good faith effort to provide notice of the request to the affected market participant and ERCOT within three business days of receipt of the request. If the third-party provider of the information objects to the release of the information, the commission shall offer to facilitate an informal resolution between the requestor and the third party. If informal resolution of an information request is not possible, the commission will process the request in accordance with the TPIA.

(C) In the absence of a request for information, if the commission staff seeks to release information that the commission has or has access to that has been designated as Protected Information under the Protocols, the commission may determine the validity of the asserted claim of confidentiality through a contested-case proceeding. In a contested case proceeding conducted by the commission pursuant to this subsection, the staff, the entity that provided the information to the commission, and ERCOT will have an opportunity to present information or comment to the commission on whether the information is subject to protection from disclosure under the TPIA.

(D) In connection with any challenge to the confidentiality of information under subparagraph (C) of this paragraph, any person who asserts a claim of confidentiality with respect to the information must, at a minimum, state in writing the specific reasons why the information is subject to protection from public disclosure and provide legal authority in support of such assertion.

(E) Except as otherwise provided in subparagraph (A) of this paragraph, if either the commission or the attorney general determines that the disclosure of information designated as Protected Information under the ERCOT Protocols is appropriate, the commission shall provide notice to the entity that provided the information and to ERCOT at least three business days prior to the disclosure of the Protected Information (or, in the case of a valid and enforceable order of a state or federal court of competent jurisdiction specifically requiring disclosure of Protected Information earlier than within three business days, prior to such disclosure).

(f) Conflicts of interest. ERCOT shall adopt policies to ensure that its operations are not affected by conflicts of interests relating to its employees' outside employment and financial interests and its contractors' relationships with other businesses. These policies shall include an obligation to protect confidential information obtained by virtue of employment or a business relationship with ERCOT.

(g) Qualifications for membership on governing board. ERCOT shall establish and implement criteria for an individual to serve as a member of its governing board, procedures to determine whether an individual meets these criteria, and procedures for removal of an individual from service if the individual ceases to meet the criteria.

(1) The qualification criteria shall include:

(A) Definitions of the market sectors;

(B) Levels of activity in the electricity business in the ERCOT region that an organization in a market sector must meet, in order for a representative of the organization to serve as a member of the governing board;

(C) Standards of good standing that an organization must meet, in order for a representative of the organization to serve as a member of the governing board; and

(D) Standards of good standing that an individual must meet, in order for the individual to serve as a member of the governing board.

(2) The procedures for removal of a member from service on the governing board shall include:

(A) Procedures for determining whether an organization or individual meets the criteria adopted under paragraph (1) of this subsection; and

(B) Procedures for the removal of an individual from the governing board if the individual or the organization that the individual represents no longer meets the criteria adopted under paragraph (1) of this subsection.

(3) The procedures adopted under paragraph (2) of this subsection shall:

(A) Permit any interested party to present information that relates to whether an individual or organization meets the criteria specified in paragraph (1) of this subsection; and

(B) Specify how decisions concerning the qualification of an individual will be made.

(4) A decision concerning an individual or organization's qualification is subject to review by the commission.

(h) Required reports. Beginning with the 2002 calendar year, ERCOT shall file an annual report with the commission, not later than 120 days after the end of the year.

(1) The annual report shall include:

(A) An independent audit of ERCOT's financial statements for the report year;

(B) A schedule comparing actual revenues and costs to budgeted revenues and costs for the report year and a schedule showing the variance between actual and budgeted revenues and costs;

(D) The annual board-approved budget.

(2) ERCOT shall file quarterly reports no later than 45 days after the end of each quarter, which shall include:

(A) All internal audit reports that were produced during the reporting quarter; and

(B) A report on performance measures, as prescribed by the commission.

(i) Compliance with rules or orders. ERCOT shall inform the commission with as much advance notice as is practical if ERCOT realizes that it will not be able to comply with PURA, the commission's substantive rules, or a commission order. If ERCOT fails to comply with PURA, the commission's substantive rules, or a commission order, the commission may, after notice and opportunity for hearing, adopt the measures specified in this subsection or such other measures as it determines are appropriate.

(1) The commission may require ERCOT to submit, for commission approval, a proposal that details the actions ERCOT will undertake to remedy the non-compliance.

(2) The commission may require ERCOT to begin submitting reports, in a form and at a frequency determined by the commission, that demonstrate ERCOT's current performance in the areas of non-compliance.

(3) The commission may require ERCOT to undergo an audit performed by an appropriate independent third party.

(4) The commission may assess administrative penalties under PURA Chapter 15, Subchapter B.

(5) The commission may suspend or revoke ERCOT's certification under PURA §39.151(c) or deny a request for change in the terms associated with such certification.

(6) The imposition of one penalty under this section does not preclude the imposition of other penalties as appropriate for the instance of non-compliance or related instances of non-compliance.

(7) In assessing penalties, the commission shall consider the following factors:

(A) Any prior history of non-compliance;

(B) Any efforts to comply with and to enforce the commission's rules;

(D) The damages or potential damages resulting from the instance of non- compliance or related instances of non-compliance;

(E) The likelihood that the penalty will deter future non-compliance; and

(F) Such other factors deemed appropriate and material to the particular circumstances of the instance of non-compliance or related instances of non-compliance.

(8) The commission may initiate a compliance proceeding or other enforcement proceeding upon its own initiative or after a complaint has been filed with the commission that alleges that the ERCOT has failed to comply with PURA, the commission's substantive rules, or a commission order.

(9) Nothing in this section shall preclude any form of civil relief that may be available under federal or state law.

(j) Priority of commission rules. This section supersedes any protocols or procedures adopted by ERCOT that conflict with the provisions of this section. The adoption of this section does not affect the validity of any rule or procedure adopted or any action taken by ERCOT prior to the adoption of this section.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on March 10, 2003.

TRD-200301648

Rhonda G. Dempsey

Rules Coordinator

Public Utility Commission of Texas

Effective date: March 30, 2003

Proposal publication date: October 11, 2002

For further information, please call: (512) 936-7308

Chapter 26. SUBSTANTIVE RULES APPLICABLE TO TELECOMMUNICATIONS SERVICE PROVIDERS

Subchapter R. PROVISIONS RELATING TO MUNICIPAL REGULATION AND RIGHTS-OF-WAY MANAGEMENT

16 TAC §26.465

The Public Utility Commission of Texas (commission) adopts an amendment to §26.465, relating to Methodology for Counting Access Lines and Reporting Requirements for Certificated Telecommunications Providers with changes to the proposed text as published in the September 27, 2002 Texas Register (27 TexReg 9069). The amendment clarifies the definition of "transmission path," eliminates the reference to the Tel-Assistance program, and deletes certain reporting requirements in this section. The reporting requirements are consolidated with the reporting requirements in §26.467 of this title (relating to Rates, Allocation, Compensation, Adjustments and Reporting). This amendment is adopted under Project Number 26412.

A public hearing on the amendment was held at commission offices on December 4, 2002. Representatives from Allegiance Telecom, Inc., Global Crossing Telemanagement, Inc., Qwest Communications Corp., and Time Warner Telecom of Texas, L.P. (CLEC Coalition of Cities), the Cities of Addison, Austin, Bedford, Colleyville, Denton, El Paso, Farmers Branch, Grapevine, Hurst, Keller, Missouri City, North Richland Hills, Pasadena, Round Rock, Tyler, Westlake, West University Place, and Wharton (Coalition of Cities), the City of Houston (Houston), the City of Dallas (Dallas), Texas Statewide Telephone Cooperative, Inc. (TSTCI), John Staurulakis, Inc. (JSI), the City of Plano (Plano), AT&T Communications of Texas, L.P., TCG Dallas, and Teleport Communications Houston, Inc. (AT&T), GTE Southwest Incorporated, doing business as Verizon Southwest (Verizon), Southwestern Bell Telephone, L.P., doing business as Southwestern Bell Telephone Company (SWBT), Valor Telecommunications, LLC (Valor), the Texas Telephone Association (TTA), and Fox, Smollen, and Associates (FSA) attended the hearing and provided comments. To the extent that these comments differ from the submitted written comments, such comments are summarized herein.

The commission received written comments on the proposed amendment by October 28, 2002 from the City of Garland (Garland), Coalition of Cities, the Texas Coalition of Cities for Utility Issues (TCCFUI), Plano, Houston, Dallas, and Verizon. Reply comments were received by November 12, 2002 from Houston, AT&T, Coalition of Cities, SWBT, Verizon, and the State of Texas (State).

Transmission Path

The State asserted that an access line has been defined by statute in Texas Local Government Code (LGC), §283.002(1) in such a way as to exclude Digital Subscriber Line (DSL) services, and that no change should be made to §26.465(c)(2) which could be interpreted to include DSL services as access lines.

SWBT argued that definitions in the Public Utility Regulatory Act (PURA) and Texas Local Government Code, Chapter 283 (Chapter 283) explicitly exclude DSL data services from access lines. SWBT contended that counting DSL data services as access lines would cause significant harm to all certificated telecommunications providers (CTPs) that provide DSL services in competition with, among others, cable modem services that are excluded from the definition. SWBT argued that the current statutory and commission definitions of "access line" and the categories established thereunder do not encompass DSL, and no changes were made as a result of Project Number 25450, Rulemaking to Address the Redefinition of Access Line and Other Related Outstanding Access Line Implementation Issues, that would permit such a conclusion.

SWBT argued that DSL is not an access line, as it fits none of the three definitions in LGC §283.002(1). SWBT contended that DSL services are not PBX-type services. SWBT asserted that point-to-point lines provide private access only between points established and designated by a customer, but that DSL services are typically interstate, broadband Internet access products, and therefore do not terminate at end points selected by the customer. SWBT further maintained that a transmission path must allow the delivery of local exchange telephone services, and the PURA definition expressly excludes DSL services from a categorization of "local exchange telephone service." SWBT maintained that the definitions in PURA of "local exchange telephone services" and "basic local telecommunications service" clearly exclude DSL services from the definition of an "access line" because DSL service is non-voice data transmission that is offered as a separate service over a physical facility on which an access line fee is typically already assessed.

SWBT maintained that if a virtual switched service does not provide local exchange telephone services, then it is not an access line, but if a virtual switched service does provide local exchange telephone services, then it is already included as an access line. SWBT contended that DSL services compete directly with cable modem service for the provision of high-speed Internet connections. SWBT argued that the Federal Communications Commission (FCC) recently reclassified cable modem service as an "information service" with a telecommunications component. SWBT asserted that cable modem service is not a telecommunications service subject to municipal fees or a cable service subject to franchise fees, and if the commission imposes municipal fees on typical DSL services, the result would be discriminatory against CTPs and DSL providers in direct contravention of the statutory purpose of Chapter 283 that the scheme be competitively neutral. SWBT contended that the revenue generated by CTPs on any particular service is not relevant, in any way, to an analysis of whether DSL services should be considered separate access lines.

Verizon stated that a basic tenet of LGC §283.002(1)(B) is to assure there are no duplicate or multiple assessments of the municipal fee on a single access line. Verizon added that in both line splitting and line sharing there is still just one line within the public right-of-way (ROW). Verizon asserted that in both line splitting and line sharing, the entity providing the voice services should be accountable for reporting this access line to the commission and compensating the appropriate municipalities the municipal fee. Verizon pointed out that the commission, in Project Number 25450, addressed whether changes in the definition of access line, including DSL service, were needed and that the commission concluded that no amendment was justified. Verizon argued that another duplicative review of this same matter so soon after a comprehensive review is unwarranted.

Verizon added that assessing multiple fees on a single line would also increase the cost of DSL and would discourage new competition and investment by the telecommunications industry, deter a citizen's ability to afford high speed access, and unduly and discriminatorily penalize CTPs when other providers of broadband service, such as cable providers, will not be required to pay multiple municipal fees when they serve the same customer.

Verizon argued that Chapter 283 did not use access lines as a proxy for the former gross receipts franchise fees, and that fees should not grow as new services are provided to customers. Verizon stated that many cities, during the 1980s and 1990s entered into flat fee or fee per access line agreements for ROW use, and that these agreements were not designed to be the equivalent of gross receipts. Verizon added that even under the old percentage of revenue agreements, interstate services, such as DSL, would have been excluded. Verizon concluded that the argument that municipal fees should grow as services that do not generate additional access lines grow is not an accurate picture of city fee agreements prior to Chapter 283, and such an argument should not be given merit.

AT&T argued that there must be more work on the concept of "voice grade equivalents," which some cities have proposed for reporting and payment purposes where voice service is provided in a packet-switched environment. AT&T stated that it currently does not provide local exchange service through Voice over Internet Protocol (VoIP) or packet switching technology and cannot say it is possible to apply the rule's channelization requirements for "switched" services to VoIP or other packet switched voice services. AT&T asserted that it would be premature to expand the definition of a "transmission path" to include all "switching" technologies, other than circuit switching, used for voice until it is clear how such other "switched" transmission paths can and should be counted. AT&T also stated that it continues to oppose any further expansion of the channelization concept.

AT&T agreed that the switching technology used to route local exchange service should not be the deciding factor in whether such basic voice service is included as an access line for ROW compensation purposes. AT&T argued, however, that there are still too many discrepancies between the Texas statutory and regulatory approach towards compensation for use of ROW and the compensation requirements of the Federal Telecommunications Act (FTA) to justify modifying the current definitions of "access line" so as to expand the fee-base for ROW compensation in a way that further deviates from the concept of cost-causation.

AT&T argued that both the Coalition of Cities and Plano ignore the basic requirement in LGC §283.003(1)(A) and §26.465(c)(2) that the new access line regime was intended to assess switched lines used for local exchange service. AT&T stated that the commission recognized this when it originally rejected inclusion of DSL lines from access line counts in Project Number 20935, Implementation of HB 1777, and the commission also observed in its Order Adopting §26.465, Project Number 20935 (December 20, 1999) (20935 Order) that the Plain Old Telephone Service (POTS) line over which DSL is provided is clearly distinguishable from the other principle statutorily defined access line, the point-to-point line. AT&T asserted that in that regard, DSL seems more like a vertical service, and therefore should not be counted as a separate access line. AT&T asserted that the commission may need to clarify what it means by "DSL service", though it would probably be agreed that a DSL-capable line permits high-speed data transmission over the same analog line that can provide basic voice service, and it would therefore be appropriate for the voice service over the DSL-capable POTS line to be counted, but not the data service. Otherwise, AT&T argued, the logical extension of the cities' arguments would be that dial-up Internet access provided by a POTS line would constitute a separate service that should also be counted as a separate access line.

AT&T argued that the commission adopted the concept of services as a proxy for facilities or access lines because of the difficulty of counting actual transmission facilities. AT&T further contended that, while the commission has stated that the fee-per-access line compensation methodology and the fees paid are a proxy for the compensation formerly received by a city under the franchise regime, the new regime was not intended to continually raise the compensation for cities as the number of services grows. AT&T disagreed with the argument that growth in services should mean growth in ROW fees because under the previous gross receipts scheme, increases in services meant increases in fees. AT&T argued that new services do not automatically translate into additional revenues and if the access line approach was meant to be a complete proxy for the previous gross receipts approach, there would have been little sense in the Legislature adopting the access line approach in the first place.

The Coalition of Cities asserted that VoIP is virtually the same as a conventional switched line and should count virtually the same. Coalition of Cities added that if the packet switched VoIP telephonic lines are deemed no more than private lines with individual termination points, the revenues to cities would dramatically decrease while the revenues generated over those lines to CTPs will stay the same and perhaps increase, which was not the intent of Chapter 283. Coalition of Cities asserted this does not allow consistent compensation to cities, as required by Chapter 283 and that this decrease in city revenue is the opposite of what would have occurred under a gross receipts franchise fee base.

The Coalition of Cities supported the deletion of "circuit" switch, but added that the definition should refer to a "virtual" switch or to any other technology which is effectively and functionally the equivalent to a switched service. Coalition of Cities stated that it agrees with the commission's analogy that services are a proxy for access line. Coalition of Cities stated access lines were used in Chapter 283 as a proxy for the former gross receipts franchise fee, and that to ensure consistent compensation to municipalities as required by LGC §283.003(b), as services grow, access line fee payments to cities should also grow, and that the only way to address this in a comprehensive manner is to include new services as proxies for access lines.

The Coalition of Cities disagreed with the 20935 Order by asserting that DSL service is being used for the purpose of providing point-to-point access, and should be counted as access lines. Coalition of Cities stated that in the Revised Arbitration Award for P.U.C. Docket Number 22469, Petition of Rhythms Lengths, Inc. against Southwestern Bell Telephone Company for Post-Interconnection Dispute Resolution and Arbitration under the Telecommunication Act of 1996 regarding rates, Terms, Conditions and Related Arrangements for Line Sharing (September 21, 2001) (Line Sharing Order), the commission suggested that DSL may count as an access line in a line sharing situation, because the splitter provides access to the same functionality of the loop in both line-splitting and line-sharing contexts. Coalition of Cities argued that when there are separate services being provided over the same line by the same or different CTPs, be it by line sharing or by line splitting, each service provided should count as an access line. Coalition of Cities argued that this is consistent with the proxy notion that services equate to access lines which the commission previously articulated.

The Coalition of Cities stated that the appropriate compensation would depend on the service provided, as voice grade switched service would be a category 1 or 2 access line, while a data service would be a category 3 access line. Coalition of Cities argued that DSL would have been part of the gross receipts franchise fee base. Coalition of Cities contended that, because DSL as a service is a proxy for access lines, DSL should now be included as an access line either as a point-to-point service or a category 1 or 2 access line.

The Coalition of Cities argued that the statute refers to no duplication of fees on a single service rather than on a single access line. Coalition of Cities asserted that a single access line would be equivalent to a single service, rather than a single physical line. Coalition of Cities argued that to ensure consistent compensation to cities as required by LGC §283.003(b), as services grow, access line fee payments should also grow. Coalition of Cities added that otherwise, as new services are provided over the same physical facilities, access line fee compensation will diminish. Coalition of Cities argued that, in a line-sharing or splitting situation, all entities provided services should compensate the city.

Houston stated that every service must be recognized as a switched transmission path, consistent with the agreed premise that services are a proxy for access lines under the uniform compensation scheme of Chapter 283, and asserted that the "Virtual Switched Service" definition proposed by the Coalition of Cities achieves this goal. Houston stated that applying the "functionally equivalent" test, VoIP and DSL would be counted as access lines, and added that the same reasoning applies in both line splitting and line sharing situations. Houston added that counting all services as access lines avoids treating either reselling or underlying CTPs and municipalities differently based on the technology used and therefore implements Chapter 283 on a technologically neutral basis.

Plano stated that the commission's proposed revisions to subsection (c)(2)(A) clearly concur with Plano's assertion that DSL service delivered over the same physical path as switched, voice-grade, local exchange service constitutes a separate transmission path, and thus a separate access line. Plano argued that the compensation scheme established in Chapter 283 is a blend of physical facilities and telecommunications services; the definition of access line in §283.002(1) supports this contention because it refers to transmission path and transmission media -- clearly relating to both services and facilities. Plano remarked that the commission clearly understood that transmission paths were associated with services and that transmission media were associated with physical facilities when it adopted the original §26.465(c)(2). Plano asserted that the commission should never have originally excluded DSL service, and that DSL does and always has fallen within the original definition of transmission path in §26.465(c)(2).

Plano argued that DSL is a circuit-switched service which requires the use of a DSL circuit, where the service is provisioned by a CTP and a Digital Subscriber line Access Multiplexer (DSLAM), which serves as the switch, in order to provide the service over a voice-grade line. Therefore, Plano contended that, under the original §26.465, DSL service should have been counted as an access line. Plano stated that proposed subsection (c)(2)(A) would provide that each individual switched service would constitute a single, and therefore separate transmission path. Plano and Garland asserted that since DSL is a switched service, it would still constitute a separate transmission path and therefore a separate access line separate from the switched voice-grade local exchange service that should be counted by CTPs.

Garland stated that once the proposed amendments to §26.465(c)(2)(A) are adopted, the revision will implicitly capture DSL as a separate transmission path, as there would be no reason not to consider DSL as a separate transmission path and therefore a separate access line. Garland asserted that if the commission determines that the revision is not sufficiently clear on this point, it could revise the section to specifically include DSL as a separate service and path.

Dallas expressed support for the commission's efforts to move away from technology-based distinctions and towards distinctions based on the function of services to determine what is and is not an access line, which will allow the market to make the technology choices rather than artificially influencing choices through regulation. Dallas asserted that DSL service delivered over the same path as switched voice-grade local exchange service constitutes a separate transmission path, and therefore a separate access line, and that this is evident from the commission's proposed revision to §26.465(c)(2)(A).

Commission response

The commission's amendment to the definition of transmission path does not alter the requirement that an access line must be switched, but rather removes the limitation that the switch used must be a circuit-switch. In practice, a switch is a relatively simple concept. A switch creates a pathway between end-users. This pathway is not necessarily a dedicated circuit, but routes information between these end-users. Functionality, rather than technology, is the threshold.

By eliminating the requirement that a switched access line must be circuit-based, the commission lifts the restraint on technologies used in switching, thus allowing for the recognition of existing and future switching technologies, such as packet switches. The commission's amendment to the definition of transmission path does not alter the requirement delineated in the definition of access line in LGC §283.002(1) that the switched access line must allow the delivery of local exchange telephone service (LETS).

According to PURA §51.002(5), LETS is telecommunications service provided within an exchange to establish connections between customer premises within the exchange, including connections between a customer premise and a long distance provider serving the exchange. LETS includes tone dialing service, service connection charges, and directory assistance services offered in connection with basic local telecommunications service (BLTS) and interconnection with other service providers. LETS specifically does not include non-voice data transmission service offered as a separate service and not as a component of basic local telecommunications service, whether offered on an intraexchange or interexchange basis.

According to PURA §51.002(1), BLTS consists of eight components, which are: (A) flat rate residential and business local exchange telephone service; (B) tone dialing service; (C) access to operator services; (D) access to directory assistance services; (E) access to 911 service provided by a local authority or dual party relay service; (F) the ability to report service problems seven days a week; (G) lifeline services; (H) and any other service determined by the commission after due process to be BLTS.

In order to qualify as LETS, the switched voice service, whether circuit-switched, packet-switched, or switched by other means, must have the capability to meet all eight requirements of BLTS offered in connection with tone dialing service, service connection charges, directory assistance services, and interconnection with other service providers.

The definition of "access line" in LGC §283.002(1) holds that a switched service must "allow the delivery of LETS" to be an access line. "Allow" is the operative word in the phrase "allow the delivery of LETS." The commission interprets the phrase "allows the delivery of LETS" in this context to mean that, using the most current technology as deployed in the network at any given time, the switched service would enable the possibility of provisioning LETS.

With circuit-switched lines, the equipment as currently deployed would allow the provisioning of LETS. PURA §51.002(5) states that non-voice data transmission service, when offered as a separate service and not as a component of BLTS, is not LETS. However, to the extent that such lines allow the delivery of LETS, i.e. enable the possibility of provisioning LETS as deployed in the network at any given time, they would be classified as access lines under Chapter 283.

On the other hand, however, lines switched by packet switches may need to be modified in the way they are deployed in the network at any given time in order for the facility to allow the delivery of LETS. A packet-switched line that connects directly to the Asynchronous Transfer Mode (ATM) network will not meet all of the requirements for BLTS without some special equipment or process in place to ensure that, for instance, access to 911 service provided by a local authority is available. Therefore, voice-based packet-switched services, such as Voice over Internet Protocol (VoIP), may be access lines, but only if they include all eight components of BLTS offered in connection with tone dialing service, service connection charges, directory assistance services, and interconnection with other service providers. This means that those VoIP offerings that do not meet the eight requirements of BLTS in attempting to allow the delivery of LETS are not truly LETS offerings and, therefore, not access lines in the context of Chapter 283. The technology used by the CTP to offer the packet-switched line is irrelevant to its designation as an access line. Once again, functionality, rather than technology, is the threshold. Any concern about compliance with this rule should not be an issue because CTPs involved in making the packet-switched line LETS-compliant should have no difficulty in classifying the packet-switched service as an access line and counting it appropriately.

Several parties proposed to include voice-grade equivalence into the definition of transmission path. However, the commission finds that the concept of voice-grade equivalence has not been sufficiently explored in this context and appears to add little, if anything, to the definition as proposed. Therefore, the commission declines to add such language.

The commission specifically requested comments regarding the delivery of DSL service over the same physical path as switched voice-grade local exchange service. Some parties commented on stand-alone DSL, as well. In the 20935 Order, the commission refrained from a premature determination on whether and how DSL service should be classified in the access line count. The commission found at that time that DSL, by bypassing the circuit-switch and by potentially being classified as non-voice data transmission service, could not be a switched transmission path, but was also not a point-to-point line.

In the above discussion regarding which circuit-switched and packet-switched services are access lines, the commission addresses many of the concerns about DSL that arose in the 1999 Order. The commission finds that, unless the DSL service has been modified to allow the delivery of LETS, DSL is non-voice data transmission service offered as a separate service, whether provisioned on a stand-alone basis or through a line-splitting or line-sharing arrangement in conjunction with POTS. Only when DSL service is being provisioned to allow LETS-compliant voice service would it qualify as an access line for the purposes of Chapter 283.

So, to clarify its previous decisions, the commission finds that POTS lines are access lines, because regulation ensures that POTS meets the eight requirements of BLTS offered in connection with tone dialing service, service connection charges, directory assistance services, and interconnection with other service providers. Therefore, POTS lines allow the delivery of LETS and meet all of the requirements of access lines under Chapter 283.

The commission also finds that any voice or data services switched by a circuit-switch may be access lines if the equipment enables the possibility of meeting the eight requirements of BLTS offered in connection with tone dialing service, service connection charges, directory assistance services, and interconnection with other service providers. Therefore, even circuit-switched non-voice data transmission paths of the transmission media may qualify as access lines in LGC §283.002(1), provided that they allow the delivery of LETS. An example of a data transmission service that would meet this definition is ISDN service, while an example of a data transmission service that would not meet this definition is switched 56 kbps service. The former may allow the delivery of LETS because it allows the provisioning of 911 service, whereas the latter would not allow the delivery of 911 service without modification of the equipment or lines as deployed in the network at any given time.

Further, the commission finds that only those packet-switched voice services that have been modified to meet the eight requirements of BLTS offered in connection with tone dialing service, service connection charges, directory assistance services, and interconnection with other service providers can be found to allow the delivery of LETS. Thus, only such packet-switched voice services are access lines under Chapter 283. This assessment includes DSL service. When DSL service is being offered in conjunction with POTS through a line-splitting or line-sharing arrangement, the POTS line is the only access line unless the DSL service has been modified to allow LETS-compliant voice service, in which case it would be a separate category one or category two access line, as applicable. Similarly, when DSL service is being offered on a stand-alone basis, it is only an access line if it has been modified to allow LETS-compliant voice service, in which case it would be classified as a category one or category two access line, as applicable.

Amendments to Reporting Requirements

Plano and Garland suggested the reference to "Subsection (g)(2)(B) of this section" be changed to "Rule 26.467(k)(3)." Plano and Garland suggested that since the commission intends to remove all reporting requirements to §26.467, that subsections §26.465(i), (k), and (l) be likewise moved to §26.467.

Commission response

The commission agrees with parties that any specific references to the language in subsection §26.465(g) should be changed to refer to §26.467 of this title, and modifies the language in subsections §26.465(h) and (l) accordingly. The commission declines to move subsections §26.465(i), (k), and (l) at this time, as they are not specific reporting requirements.

Reporting procedures and requirements

The commission declines at this time to delete the initial reporting procedures as proposed because leaving the language intact provides a historical record for CTPs and the commission. All other language regarding subsequent reporting requirements is deleted from §26.465 and moved, as relevant, to §26.467, as proposed in Project Number 25433, Rulemaking to Address Municipal Authorized Review of Access Line Reporting. The commission may choose to revisit this language in the future.

No comments were received regarding the elimination of the reference to the Tel-Assistance program.

All comments, including any not specifically referenced herein, were fully considered by the commission. In adopting this section, the commission makes other minor modifications for the purpose of clarifying its intent.

This amendment is adopted under the Public Utility Regulatory Act, Texas Utilities Code Annotated §14.002 (Vernon 1998, Supplement 2003) (PURA), which provides the Public Utility commission with the authority to make and enforce rules reasonably required in the exercise of its powers and jurisdiction, House Bill 2156, 77th Legislature, which repealed the Tel-Assistance program, and Texas Local Government Code, §283.058, which grants the commission the jurisdiction over municipalities and CTPs necessary to enforce the whole of Chapter 283 and to ensure that all other legal requirements are enforced in a competitively neutral, non-discriminatory, and reasonable manner.

Cross Reference to Statutes: Public Utility Regulatory Act §14.002 and §55.015 and Texas Local Government Code, §283.058.

§26.465.Methodology for Counting Access Lines and Reporting Requirements for Certificated Telecommunications Providers.

(a) Purpose. This section establishes a uniform method for counting access lines within a municipality by category as provided by §26.461 of this title (relating to Access Line Categories), sets forth relevant reporting requirements, and sets forth certain reseller obligations under the Local Government Code, Chapter 283.

(b) Application. This section applies to all certificated telecommunications providers (CTPs) in the State of Texas.

(c) Definitions. The following words and terms when used in this section, shall have the following meaning, unless the context clearly indicates otherwise.

(1) Customer--The retail end-use customer.

(2) Transmission path--A path within the transmission media that allows the delivery of switched local exchange service.

(A) Each individual switched service shall constitute a single transmission path.

(B) Where services are offered as part of a bundled group of services, each switched service in that bundled group of services shall constitute a single transmission path.

(C) Services that constitute vertical features of a switched service, such as call waiting, caller-ID, etc., that do not require a separate switched path, do not constitute a transmission path.

(D) Where a service or technology is channelized by the CTP and results in a separate switched path for each channel, each such channel shall constitute a single transmission path.

(3) Wireless provider--A provider of commercial mobile service as defined by §332(d), Communications Act of 1934 (47 U.S.C. §151 et seq.), Federal Communications Commission rules, and the Omnibus Budget Reconciliation Act of 1993 (Public Law 103-66).

(d) Methodology for counting access lines. A CTP's access line count shall be the sum of all lines counted pursuant to paragraphs (1), (2), and (3) of this subsection, and shall be consistent with subsections (e), (f) and (g) of this section.

(1) Switched transmission paths and services.

(A) The CTP shall determine the total number of switched transmission paths, and shall take into account the number of switched services provided and the number of channels used where a service or technology is channelized.

(B) All switched services shall be counted in the same manner regardless of the type of transmission media used to provide the service.

(C) If the transmission path crosses more than one municipality, the line shall be counted in, and attributed to, the municipality where the end-use customer is located. Pursuant to Local Government Code §283.056(f), the per-access-line franchise fee paid by CTPs constitutes full compensation to a municipality for all of a CTP's facilities located within a public right-of-way, including interoffice transport and other transmission media that do not terminate at an end-use customer's premises, even though those types of lines are not used in the calculation of the compensation.

(2) Nonswitched telecommunications services or private lines.

(A) Each circuit used to provide nonswitched telecommunications services or private lines to an end-use customer, shall be considered to have two termination points, one on each customer location identified by the customer and served by the circuit.

(B) The CTP shall count nonswitched telecommunications services or private lines by totaling the number of terminating points within a municipality.

(C) A nonswitched telecommunications service shall be counted in the same manner regardless of the type of transmission media used to provide that service.

(D) A terminating point shall be counted in, and attributed to, the municipality where that point is located. In the event a CTP is not able to identify the physical location of the terminating point, that point shall be attributed to the municipality identified by the CTP's billing systems.

(E) Where dark (unlit) fiber is provided to an end-use customer who then lights it, the line shall be counted as a private line, by default, unless it is evident that it is used for providing switched services.

(3) Central office based PBX-type services. The CTP shall count one access line for every ten stations served.

(e) Lines to be counted. A CTP shall count the following access lines:

(1) all access lines provided to a retail end-use customer;

(2) all access lines provided as a retail service to other CTPs and resellers for their own end-use;

(3) all access lines provided as a retail service to wireless telecommunication providers and interexchange carriers (IXCs) for their own end-use;

(4) all access lines a CTP provides as employee concession lines and other similar types of lines;

(5) all access lines provided as a retail service to a CTP's wireless and IXC affiliates for their own end-use, and all access lines provided as a retail service to any other affiliate for their own end-use;

(6) dark fiber, to the extent it is provided as a service or is resold by a CTP and shall exclude lines sold and resold by non-CTPs;

(7) any other lines meeting the definition of access line as set forth in §26.461 of this title; and

(8) Lifeline lines.

(f) Lines not to be counted. A CTP shall not count the following lines:

(1) all lines that do not terminate at an end-use customer's premises;

(2) lines used by providers who are not end-use customers such as CTP, wireless provider, or IXC for interoffice transport, or back-haul facilities used to connect such providers' telecommunications equipment;

(3) lines used by a CTP's wireless and IXC affiliates who are not end-use customers, for interoffice transport, or back-haul facilities used to connect such affiliates' telecommunications equipment;

(4) lines used by any other affiliate of a CTP for interoffice transport; and

(5) any other lines that do not meet the definition of access line as set forth in §26.461 of this title.

(g) Reporting procedures and requirements.

(1) Who shall file. The record keeping, reporting and filing requirements listed in this section or in §26.467 of this title (relating to Rates, Allocation, Compensation, Adjustments and Reporting) shall apply to all CTPs in the State of Texas.

(2) Initial reporting requirements.

(A) No later than January 24, 2000, a CTP shall file its access line count using the commission-approved Form for Counting Access Line or Program for Counting Access Lines with the commission. The CTP shall report the access line count as of December 31, 1998, except as provided in subparagraph (C) of this paragraph.

(B) A CTP shall not include in its initial report any access lines that are resold, leased, or otherwise provided to a CTP, unless it has agreed to a request from another CTP to include resold or leased lines as part of its access line report.

(C) A CTP that cannot file access line count as of December 31, 1998 shall file request for good cause exemption and shall file the most recent access line count available for December, 1999.

(D) A CTP shall not make a distinction between facilities and capacity leased or resold in reporting its access line count.

(h) Exemption. Any CTP that does not terminate a franchise agreement or obligation under an existing ordinance shall be exempted from subsequent reporting pursuant to §26.467 of this title unless and until the franchise agreement is terminated or expires on its own terms. Any CTP that fails to provide notice to the commission and the affected municipality by December 1, 1999 that it elects to terminate its franchise agreement or obligation under an existing ordinance, shall be deemed to continue under the terms of the existing ordinance. Upon expiration or termination of the existing franchise agreement or ordinance by its own terms, a CTP is subject to the terms of this section.

(i) Maintenance and location of records. A CTP shall maintain all records, books, accounts, or memoranda relating to access lines deployed in a municipality in a manner which allows for easy identification and review by the commission and, as appropriate, by the relevant municipality. The books and records for each access line count shall be maintained for a period of no less than three years.

(j) Proprietary or confidential information.

(1) The CTP shall file with the commission the information required by this section regardless of whether this information is confidential. For information that the CTP alleges is confidential and/or proprietary under law, the CTP shall file a complete list of the information that the CTP alleges is confidential. For each document or portion thereof claimed to be confidential, the CTP shall cite the specific provision(s) of the Texas Government Code, Chapter 552, that the CTP relies to assert that the information is exempt from public disclosure. The commission shall treat as confidential the specific information identified by the CTP as confidential until such time as a determination is made by the commission, the Attorney General, or a court of competent jurisdiction that the information is not entitled to confidential treatment.

(2) The commission shall maintain the confidentiality of the information provided by CTPs, in accordance with the Public Utility Regulatory Act (PURA) §52.207.

(3) If the CTP does not claim confidential treatment for a document or portions thereof, then the information will be treated as public information. A claim of confidentiality by a CTP does not bind the commission to find that any information is proprietary and/or confidential under law, or alter the burden of proof on that issue.

(4) Information provided to municipalities under the Local Government Code, Chapter 283, shall be governed by existing confidentiality procedures which have been established by the commission in compliance with PURA §52.207.

(5) The commission shall notify a CTP that claims its filing as confidential of any request for such information.

(k) Report attestation. All filings with the commission pursuant to this section shall be in accordance with §22.71 of this title (relating to Filing of Pleadings, Documents and Other Materials) and §22.72 of this title (relating to Formal Requisites of Pleadings and Documents to Be Filed With the Commission). The filings shall be attested to by an officer or authorized representative of the CTP under whose direction the report is prepared or other official in responsible charge of the entity in accordance with §26.71(d) of this title (relating to General Procedures, Requirements and Penalties). The filings shall include a certified statement from an authorized officer or duly authorized representative of the CTP stating that the information contained in the report is true and correct to the best of the officer's or representative's knowledge and belief after inquiry.

(l) Reporting of access lines that have been provided by means of resold services or unbundled facilities to another CTP. This subsection applies only to a CTP reporting access lines under §26.467 of this title, that are provided by means of resold services or unbundled facilities to another CTP who is not an end-use customer. Nothing in this subsection shall prevent a CTP reporting another CTP's access line count from charging an appropriate, tariffed administrative fee for such service.

(m) Commission review of the definition of access line.

(1) Pursuant to the Local Government Code §283.003, not later than September 1, 2002, the commission shall determine whether changes in technology, facilities, or competitive or market conditions justify a modification of the adoption of the definition of "access line" provided by §26.461 of this title. The commission may not begin a review authorized by this subsection before March 1, 2002.

(2) As part of the proceeding described by paragraph (1) of this subsection, and as necessary after that proceeding, the commission by rule may modify the definition of "access line" as necessary to ensure competitive neutrality and nondiscriminatory application and to maintain consistent levels of compensation, as annually increased by growth in access lines within the municipalities.

(3) After September 1, 2002, the commission, on its own motion, shall make the determination required by this subsection at least once every three years.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on March 6, 2003.

TRD-200301585

Rhonda G. Dempsey

Rules Coordinator

Public Utility Commission of Texas

Effective date: March 26, 2003

Proposal publication date: September 27, 2002

For further information, please call: (512) 936-7308

16 TAC §26.467

The Public Utility Commission of Texas (commission) adopts an amendment to §26.467, relating to Rates, Allocation, Compensation, Adjustments and Reporting, with changes to the proposed text as published in the September 27, 2002 Texas Register (27 TexReg 9071). The proposed amendment clarifies some of the procedures related to the quarterly reporting of municipal access lines and consolidates the reporting requirements from §26.465 of this title (relating to Methodology for Counting Access Lines and Reporting Requirements for Certificated Telecommunications Providers) into one section. This amendment is adopted under Project Number 25433.

The commission does not adopt new §26.469, as proposed in the September 27, 2002 Texas Register (27 TexReg 9071), at this time. Based on written comments and comments from the public hearing, the commission concludes that the rule would need to undergo extensive changes. Therefore, the commission withdraws this section. The commission will hold further workshops before making a decision to republish this section in the future.

A public hearing was held at commission offices on December 4, 2002, at 10:00 a.m. Representatives from Allegiance Telecom, Inc., Global Crossing Telemanagement, Inc., Qwest Communications Corp., and Time Warner Telecom of Texas, L.P. (CLEC Coalition), the Cities of Addison, Austin, Bedford, Colleyville, Denton, El Paso, Farmers Branch, Grapevine, Hurst, Keller, Missouri City, North Richland Hills, Pasadena, Round Rock, Tyler, Westlake, West University Place, and Wharton (Coalition of Cities), the City of Houston (Houston), the City of Dallas (Dallas), Texas Statewide Telephone Cooperative, Inc. (TSTCI), John Staurulakis, Inc. (JSI), the City of Plano (Plano), AT&T Communications of Texas, L.P., TCG Dallas, and Teleport Communications Houston, Inc. (AT&T), GTE Southwest Incorporated, doing business as Verizon Southwest (Verizon), Southwestern Bell Telephone, L.P., doing business as Southwestern Bell Telephone Company (SWBT), Valor Telecommunications, LLC (Valor), the Texas Telephone Association (TTA), and Fox, Smollen, and Associates (FSA) attended the hearing and provided comments. To the extent that these comments differ from the submitted written comments, such comments are summarized herein.

On October 28, 2002, the commission received written comments on the proposed new section §26.469 and amendment to §26.467 from the City of Garland (Garland), Coalition of Cities, the Texas Coalition of Cities for Utility Issues (TCCFUI), Houston, Plano, Dallas, AT&T, Verizon, TTA, SWBT, and CLEC Coalition. The commission received reply comments by November 12, 2002 from Dallas, Verizon, SWBT, TTA, and AT&T.

§26.467(k)(2) - Development of billing systems

Plano and Houston asserted that the commission should set a time period within which certificated telecommunications providers (CTPs) must have their billing systems in compliance with Texas Local Government Code, Chapter 283 (Chapter 283), and suggested that it be no longer than 90 days after obtaining certification from the commission.

SWBT and TTA contended that an arbitrary deadline for CTPs to revise their billing systems is unreasonable because of the time required to develop, implement and test the mechanisms involved. SWBT argued that any deadline should follow agreement from all parties regarding how to correctly classify all access lines.

Commission Response

The commission adds language to §26.467(k)(2) to clarify that a CTP's records must be sufficient to show compliance with the reporting requirements of this section, and that the CTP has an ongoing obligation to maintain a compliant billing system. The commission finds that no additional deadline is necessary for implementation of the billing system. The commission previously established a deadline for the reporting of access lines in subsection (k)(3). Arguably, this deadline would already apply to the billing system because the billing system is necessary to properly implement access line rates, by category, as established by the commission. The billing system is merely a tool to provide the records necessary to meet the quarterly access line reporting deadline.

§26.467(k)(3) - Quarterly compensation and reporting (excluding §26.467(k)(3)(A)(iii))

Plano suggested the reference to §26.465 be removed since all substantive reporting requirements are slated for removal in the amendment to §26.465 proposed under Project Number 26412, Rulemaking to Amend P.U.C. Substantive Rule 26.465 .

AT&T argued that the 30-day deadline to respond for request for information from the commission in subsection (k)(3)(A)(vi) is not unreasonable on its face, but the scope of the data request can affect the reasonableness of the 30-day deadline. AT&T contended that while it is probably not necessary to codify in this rule the ability of a party to seek an exception to the 30- day deadline for good cause, such ability should be recognized by the commission, with exceptions granted on a case by case basis.

Garland argued that the commission should require every CTP to file a quarterly report with every municipality whether or not the municipality requests this data. Verizon, on the other hand, recommended deleting the section requiring CTPs to make a copy of the report available to municipalities as a redundant administrative burden because the MARS makes the same information already available to the municipalities. Verizon further recommended changing the MARS to disallow any changes after the deadline without filing an amended type report.

Houston suggested that the commission add a statement to the Municipal Access Line Reporting System (MARS) to remind CTPs that submission constitutes certification under §26.467(k)(3)(A)(iv). SWBT proposed changing the rule language to reflect current filing requirements through the MARS.

Houston recommended that the issue of wire transfers for payments be addressed in the rule. Houston proposed that payments received later than 50 days following the close of the preceding quarter should be considered delinquent. Houston argued that each amended report should stand on its own and be treated as a new quarterly report. Houston recommended that CTPs should notify each affected municipality when an access line report is filed or amended.

Verizon argued that wire transfers should not be a mandated process, and contended that while a normal quarterly filing should not require notification to each and every city, a CTP should do so when a CTP amends a previous filing. TTA contended that Houston's suggestion regarding allowing review of amended reports is unnecessary because the language would trigger a new review period for each municipality and could open all previous reporting periods for municipal review. TTA further argued that ILECs acting in good faith to accurately reflect access line counts should not be penalized in the form of an authorized review.

Commission response

The commission keeps the reference to §26.465 in subsection (k) because some subsections of §26.465 affect the reporting requirements in §26.467.

The commission sees no need to include a good-cause exception to the 30-day deadline for a CTP to respond to a request for information from the commission in new subsection (k)(3)(A)(vi) because the commission will address requests for good-cause exceptions on a case- by-case basis, as needed.

The commission declines to delete subsection (k)(3)(A)(viii) mandating that each CTP shall provide copies of the access line reports to municipalities. The MARS, for the most part, satisfies this requirement for CTPs by providing a copy of the access line count report to all municipalities that can access the system. The provision should remain intact to ensure that those municipalities unable to access the MARS may obtain a copy of the report. The commission will consider other expansions and updates to the MARS when necessary.

The method of payment between CTPs and municipalities is beyond the scope of this project. Parties are free to negotiate methods of payment among themselves. Therefore, the commission declines to address the issue of method of payment in rule language.

The commission maintains that any amendment to an access line count report filing is tantamount to re-filing the entire access line count report. The amendment could be only a single line or every count in every category. Any change to an access line report past the deadline creates an entirely new access line count report, and is therefore subject to enforcement action pursuant to §26.468, relating to Procedures for Standardized Access Line Reports and Enforcement Relating to Quarterly Reporting. In keeping with this position, any amendment to an access line count report filing would re-start the window for any requests for data, whether from the commission or a municipality.

In the interest of clarity and simplicity, the commission, on its own initiative, modifies and adopts §26.467(k)(3)(A)(v) to identify a specific witness who has personal knowledge of the facts contained in a legally sufficient affidavit. A legally sufficient affidavit must positively, and without qualifications, represent the facts as disclosed in it to be true and within the affiant's personal knowledge. An affidavit that states that it is based on "personal knowledge and/or knowledge acquired upon inquiry" does not unequivocally show that it is based on personal knowledge. Despite this, the language, "to the best of my knowledge and belief" does not necessarily deprive an affidavit of evidentiary value. Whether or not acknowledged, any witness who testifies that facts are true and correct can do so only to "the best of his knowledge and belief." The language is simply superfluous, and the commission duly removes it.

§26.467 (k)(3)(A)(iii) (proposed as §26.467(k)(4) - Reconciliation Report)

Verizon proposed modifying the MARS to incorporate write-off information. Verizon recommended including an option of only requiring "net" uncollectible information, with detail of deductions and add back recoveries pursuant to authorized municipal reviews. Verizon stated that its billing system already produces the "net" amount and the rule should not require anything other than this type of system. Verizon noted that this type of information should provide the cities with all necessary information. Verizon further suggested an update for the MARS to allow providers to upload data into the system instead of rekeying information, which could increase errors.

Plano asserted that the reconciliation report should also include the number of access lines, by category and month, to which the deducted amounts are linked. Plano argued that such information would allow cities to determine if the documentation provided during a review supports the original summary totals for the line counts and dollars provided in the reconciliation report. Plano noted that it does not seek to deny CTPs the ability to deduct amounts related to uncollectible accounts, but contended that the burden of proof should lie with the CTPs to provide supporting documentation that such amounts relate back to access lines. Plano supported Verizon's suggestion that uncollectible data be incorporated into the MARS. However, Plano opposed Verizon's suggestion that CTPs be given an option of providing "net uncollectible information" with further detail regarding the add-backs and deduction detail to be provided within the boundaries of an authorized review. Plano opined that if CTPs provided this information from the start, authorized reviews would not be needed.

SWBT argued that the commission should be the central point of information for all required reports, and that the MARS could be expanded to permit entry of uncollectibles information, both in the aggregate, as currently provided, and, to the extent technology allows, in a separated format, showing the total deduction and total payments received each month. SWBT contended that storing this information with the commission is the only way to ensure the requirement is applied in a non-discriminatory, competitively neutral manner. SWBT contended that Plano's request for specific numbers of lines by category and month is not possible because uncollectibles are credited back to accounts in the aggregate, and that municipal rights to review under Texas Local Government Code (LGC) §283.056(c)(3) do not constitute a right to demand new design and creation of new reports. SWBT argued that the law did not require CTPs to establish particular types of billing systems or to otherwise dictate business practices of CTPs.

Verizon supported a requirement to provide detail of amount deducted from the payments on an account-by-account basis, but disagreed with the proposal that reconciliation reports include the number of access lines, by category and month to which amounts were originally billed. Verizon commented the amount of the uncollectible should be included in the MARS.

Houston agreed with the comments filed by SWBT making write-off information readily accessible to municipalities via the MARS. Houston argued that a timely uniform reporting schedule reconciling this action with the previous reports and remittance to cities is also important.

The Coalition of Cities argued that because the City of Grapevine (Grapevine) is subject to Texas Transportation Code, Chapter 22, §22.089, which provides that Grapevine remit a portion of revenue generated in the Dallas-Fort Worth airport terminal (DFW) to other municipalities, a separate access line report and/or reconciliation report for that specific geographic area should be provided to Grapevine with each quarterly payment. Coalition of Cities stated that Verizon is the principle provider of access lines in the DFW airport revenue sharing area, and that Verizon has informally indicated that it would not oppose such a provision in the rule. Coalition of Cities also held that a competitive local exchange carrier (CLEC) representative has also indicated that it would not oppose this filing requirement. Coalition of Cities stated that it did not oppose filing of the report with the commission as long as the cities could obtain a copy.

Verizon concurred with comments filed on behalf of Grapevine that recommended a separate designation for DFW for access line reporting and municipal fee compensation purposes.

AT&T opposed the Coalition of Cities' proposal requiring CTPs to provide additional access line reports specific to a designated geographic area within a city when that city has some statutory obligation to report revenue for that geographic area. AT&T contended that Chapter 283 has no provision supporting such a regulatory requirement and that such reporting is unnecessary to implement the purposes of Chapter 283. AT&T further argued that the commission has no authority under the Texas Transportation Code, §22.089 which is applicable to Grapevine in this situation, or any other statute outside of Chapter 283 and perhaps the Public Utility Regulatory Act (PURA) that would permit the commission to impose such a regulation. AT&T opined that CTPs, including itself, may be willing, if they are able, to accommodate a city's need for specific right-of-way (ROW) compensation data, but there is no legal basis to require reporting of such data.

Commission response

For the sake of clarity, the commission modifies and moves this section, which was proposed as §26.467(k)(4) to §26.467(k)(3)(A)(iii). The modifications show that the reconciliation report is to be filed with the commission as part of the quarterly access line count report.

The commission finds that information about CTP uncollectibles should be readily accessible to municipalities via the MARS. The commission finds that Verizon's proposal to provide net uncollectible information is unlikely to provide useful information to municipalities. The commission further finds that Plano's proposal to delineate uncollectible information by category and month would be unduly burdensome on CTPs. The most reasonable solution would be to have CTPs provide current-period uncollectibles and prior-period write-offs as separate line items in the report, which would allow municipalities to monitor this figure and permit CTPs to collect reasonable supporting documentation. The commission will consider other expansions and updates to the MARS when necessary.

The commission declines to address specific geographic areas that are outside the scope of Chapter 283. However, if parties agree to a separate access line report and/or reconciliation report for a specific geographic area, then the CTP may certainly provide additional reports to the municipality with each quarterly payment. However, nothing in this rule changes the requirements that CTPs report access lines to the commission by municipality.

Report of reselling CTP by underlying CTP (proposed as §26.467(k)(5))

SWBT asserted that the proposed requirement that an underlying CTP report the identities of reselling CTPs was problematic as proposed. SWBT argued that if the proposed rule applies when reselling CTPs are the end-use customers, the underlying CTP is prohibited from providing this information under 47 U.S.C. §222, relating to Privacy of Customer Information, (Federal Telecommunications Act) (FTA). SWBT further argued that if the proposed rule applies when reselling CTPs use the access lines or facilities to provide telecommunications services to other end-use customers, then the exchange in which the reselling CTP obtains the facilities may not be related to the location of the end-use customer. Therefore, SWBT contended, the information provided would not necessarily result in useful information for the municipalities and would be unreasonable. SWBT emphasized that placing underlying CTPs in charge of reselling CTPs is unwieldy, ineffective, improper, and unworkable. SWBT maintained that the combination of a reselling CTP report and commission enforcement authority should be sufficient to address municipal concerns.

SWBT expressed concerns about the commission's legal authority to require the disclosure of the identity of reselling CTPs in light of FTA §222(b) and stated that incumbent owners of facilities are not the only underlying providers of access lines to reselling providers. SWBT contended that if any CTP must provide the identity of reselling CTPs, all CTPs should provide this information, thus placing all CTPs on equal footing.

SWBT and AT&T asserted that, for underlying CTPs to provide reports showing reselling CTPs that may be providing access lines in each municipality, it would take time, uniform commission orders to all CTPs, and record support concerning the inapplicability of FTA §222(b). SWBT and AT&T indicated that such "record support" should come in the form of a commission order directing all CTPs to provide such reports. SWBT and AT&T contended that such an order would be advisable in light of its concerns about and interpretations of the confidentiality requirements under FTA §222(b). SWBT and AT&T further indicated that such reports should be directed to the commission pursuant to its order and not at the request of a city or municipality.

SWBT further asserted that CTPs should be compensated for the effort, arguing that such reports would serve no business purpose for the CTPs. SWBT stated that the only information that is relevant or reasonably possible to provide on the reports is the identification of reselling CTPs that may be providing access lines in a city. SWBT, AT&T, and CLEC Coalition argued that it is theoretically possible to list the number of lines that are the product of "resale" under FTA §251(b)(1) or (c)(4), but it is impossible to provide similar information for services provided via unbundled network element (UNE) loops under FTA §251(c)(3).

Verizon contended that the proposed language is in conflict with LGC §283.055(k). According to Verizon, only the commission should request information regarding reselling CTPs, and a CTP is only required to present available information to the commission. Verizon and AT&T stated each CTP should be responsible for reporting its access lines, and an additional administrative burden on behalf of providers that actually provide service to end users should not be unfairly placed on underlying providers.

AT&T and Verizon contended that any report submitted by an underlying carrier could not definitely certify that a reselling carrier was operating within a particular city or municipality or that it was even a CTP. AT&T and Verizon expressed that a disclaimer for each report would be a necessary component in order to reduce claims from the Cities that the information was insufficient or not in compliance with state law and/or commission rules.

CLEC Coalition stated that it does not object to the imposition of the requirement that CTPs report the identities of reselling CTPs in a given municipality and that it believes the provision should greatly assist municipalities in identifying reselling CTPs that are not in compliance with Chapter 283. CLEC Coalition asserted some concerns that the report may identify some companies as CTPs when they are not CTPs.

TTA contended that the identities of reselling CTPs to which the underlying carrier has provided access lines within a municipality's boundaries is proprietary to the reselling CTP. TTA argued that if municipalities have questions related to CTPs providing service within their boundaries, they should contact the CTPs directly rather than placing an unreasonable reporting burden on the underlying CTPs. TTA asserted that forcing an underlying provider to report access lines on proprietary information of the reselling CTP will result in inaccurate access line counts which will unreasonably impact the compensation to municipalities. TTA proposed that all CTPs should provide the commission with an affidavit attesting that they will directly report their access lines to the commission or that they have entered into and filed with the commission a written agreement with either the underlying CTP or a third party to report access lines on their behalf.

Plano urged that additions should be made to this reporting provision to require a 15-day response deadline and argued that the underlying CTP's report should include the total number of access lines sold to each reselling CTP. Plano stated that a disclaimer as to the accuracy of the information would be acceptable. Plano noted that its main concern was the identification of those reselling CTPs that may be operating within its boundaries. Once the identity is known, Plano stated that it could contact the reselling CTP directly. Moreover, Plano indicated that it would be advantageous to place such information on the MARS for easier access and downloading.

Dallas expressed some problem with a disclaimer as to the accuracy of the information. Dallas noted that if an underlying CTP does not know whether or not the company to which it is providing lines is a CTP, the lines should be reported as the underlying CTPs lines. Dallas further stated that an underlying CTP should not be providing lines to a company without knowing that the reselling CTP is a CTP. Dallas argued that it may not receive ROW fees due to the fact that the underlying CTP is providing access lines to a carrier under the impression that the reselling carrier is a CTP and, thus, paying its own municipal fees. Dallas acknowledged that it was not seeking an exact count of the reselling CTPs to which the underlying CTP has provided lines, but that the underlying CTP should know who the reselling CTPs are and their areas of operation.

Houston argued that the cost should rightfully be borne by the "cost causer."

Commission response

The commission finds that information regarding the identities of CTPs operating in a particular municipality is available to that municipality through the MARS. Municipalities requested this report of reselling CTPs by underlying CTPs to alleviate some concerns they have about accurate reporting. The commission finds that municipalities have recourse to the commission's complaint process and to LGC §283.056(c)(3), which references a municipal authorized review of the provider to ensure compliance with the access line reporting requirements of Chapter 283. Therefore, the commission withdraws proposed subsection (k)(5) and thus declines to establish a requirement for underlying CTPs to report the identities of reselling CTPs by municipality.

The commission disagrees with those commenters contending that such a reporting requirement is counter to federal confidentiality limitations as expressed in FTA §222. The commission finds that requiring underlying CTPs to identify reselling CTPs by a suitable geographic unit that can be correlated to a given municipality is consistent with its directives from Chapter 283 to ensure compliance with access line reporting requirements. The commission concludes that FTA §222(c)(1), which relates to the privacy requirements for telecommunication carriers, allows for the disclosure to the commission of otherwise proprietary information for limited purposes when "required by law." Chapter 283, specifically §§283.001(a), 283.055(j) and (k), 283.056(c)(3), and 283.058, provide the commission sufficient authority to require disclosure to the commission of the identities of reselling CTPs by the underlying CTPs.

However, the commission does not resolve the issue of confidentiality concerns between municipalities and CTPs or the issue of suitable geographic units that can be correlated to a given municipality. In the light of these concerns, the ongoing commission processes to address accurate access line count reporting, and the other avenues available to municipalities, the commission declines to require the underlying CTPs to report the identities of the reselling CTPs by municipality at this time.

§26.467(k)(4) - Adequate proof of reporting and compensation responsibilities (proposed as §26.467(k)(6))

SWBT contended that its interconnection agreements include "municipal fees" in a list of taxes that a reselling CTP must pay, which addresses the reselling CTP's obligations under Chapter 283. SWBT argued that, the commission's approval of these interconnection agreements, along with the CLEC's signature on the agreement, should constitute "adequate proof."

SWBT asserted that the commission has tools available to ensure compliance that are unquestionably more effective than whatever notice might be given through a separate adequate proof document or any action for breach of the adequate proof agreement or the underlying interconnection agreement. SWBT argued that, if a reselling CTP is not willing to enter an adequate proof agreement, it is questionable whether the reselling CTP would be willing to adequately compensate the underlying CTP for this activity. SWBT further argued that the proposed rule would also greatly benefit the position of a municipality, and adversely affect an underlying CTP who made payments on behalf of a reselling CTP, when each are creditors in the bankruptcy of a reselling CTP.

As an alternative, SWBT proposed that the commission require all CTPs to file affidavits indicating their knowledge of the existence of Chapter 283 of the Texas Local Government Code, and commission rules promulgated thereunder, and stating one of the following intentions: (1) the CTP will directly report its access lines to the commission and remit payment to the municipalities; or (2) the CTP has entered a written agreement with an underlying CTP or other third party (as identified in the affidavit) to report and remit on behalf of the CTP. SWBT provided alternative language for the subsection, including a conversion of the requirement that the underlying CTP obtain adequate proof in the form of a written agreement to a provision for reselling CTPs to fulfill their reporting and compensation requirements through their underlying CTPs with a written agreement in accordance with subsection (l).

The CLEC Coalition stated that its only objection to the proposed rules is with the adequate proof provision. The CLEC Coalition asserted that this proposed paragraph constitutes a shift in reporting and payment burdens from reselling CTPs to underlying CTPs and, therefore, departs significantly from current rule and conflicts with proposed §26.467(k)(3)(A)(iii) (renumbered as (k)(3)(A)(iv)). The CLEC Coalition argued that reselling CTPs are not required to enter into a written agreement with an underlying CTP, and that an underlying CTP has no leverage to require that reselling CTPs sign such agreements. Further, the CLEC Coalition argued that underlying CTPs have no means to ensure that a reselling CTP will comply with the reporting and payment requirements imposed by Chapter 283. The CLEC Coalition contended that leaving the underlying CTP on the hook for remitting access line fees for a reselling CTP who will not sign the written agreement is contrary to the anti-discrimination and competitive neutrality provisions of Chapter 283 and is inconsistent with the compensation scheme contemplated by current rules. The CLEC Coalition contended that the proposed subsection (k)(6) (renumbered as (k)(4)), dealing with adequate proof provisions, is not a viable solution. CLEC Coalition suggested that the proposed subsection (k)(5), requiring identification of reselling CTPs, should significantly alleviate the problems the adequate proof subsection addresses and, if not, the issues should be revisited at a later date.

AT&T argued that the proposed rule unreasonably and unfairly shifts the burden of compliance from the reselling CTP to the underlying CTP. AT&T contended that the proposed rule should provide for prompt repayment by a reselling CTP to the underlying CTP, reimbursement by cities for double payments and the right to charge an administrative fee. AT&T asserted that the current rule should remain in effect with, perhaps, an affirmative obligation for the reselling CTP to provide the underlying CTP with adequate proof. AT&T maintained that the underlying CTP has no leverage to require agreement from the reselling CTP to ensure compliance, other than enforcement by the commission. AT&T asserted that the proposed rule creates a "black hole" by requiring first that an underlying CTP needs an agreement from a reselling CTP when the reselling CTP will do its own reporting and remittance, and secondly governs any agreement between a CTP and a third party who will do the reporting and remitting for the CTP, but, third, makes no provisions governing that third party relationship when there is no agreement. AT&T argued that current billing systems do not have the operational capabilities to selectively exempt one reselling CTP from a single surcharge, and that such a change would cost millions of dollars to implement. AT&T opposed the proposal by Coalition of Cities and Plano that would require a reselling CTP to provide a sworn affidavit.

Verizon complained that this rule is unduly burdensome. Verizon argued that the underlying CTP cannot accurately count lines without the reselling CTP cooperation because it is not privy to information from a reselling CTP regarding which jurisdiction the end-use customer resides or the number of access lines ultimately being provided. Moreover, Verizon contended that existing law, LGC §283.055(k), and commission rules place the responsibility of reporting access lines on each CTP. Verizon proposed alternative language that, while recognizing the responsibility of each CTP to report its access lines, allows for agreements between the underlying carrier and a reselling CTP that provides for reporting and payment of municipal fees for the reselling CTP by the underlying carrier.

Verizon proposed that if a written agreement is used, the reselling CTP should be required to file a copy of the agreement with the commission to enhance credibility of the process. Verizon agreed with SWBT that commission oversight, using its enforcement authority to assure compliance by CTPs, would be the most efficient and practicable approach for all parties.

The Coalition of Cities requested that the "adequate proof" written agreement include a sworn affirmation, be filed at the commission, and provided to municipalities upon request. Disagreeing with SWBT, Coalition of Cities supported separate "adequate proof" documentation. Coalition of Cities cited previous failures of CTPs to file reports for many reselling CTPs as basis for drawing attention to CTP responsibility for access line reports and payments. Further, Coalition of Cities argued that the interconnection agreements between the underlying carrier and the reselling CTP are inadequate for enforcement purposes by third parties. Coalition of Cities opined that the multiple use of the "adequate proof" term in Chapter 283 requires specificity beyond a general requirement in interconnection agreements to obey all laws and rules.

Plano cited the report attestation requirements found in existing §26.465(g)(2)(B)(iv) and argued that notarization of the written agreements provides only a minimum amount of accountability to ensure that the agreement is understood by both the underlying and reselling CTPs. Plano requested that the commission adopt the §26.467(k)(6)(B) language offered by Coalition of Cities or, alternatively, to require that the written agreement be notarized as required by existing §26.465(g)(2)(B)(iv). Plano requested that the commission require underlying CTPs to file with the commission any written agreements with reselling CTPs, and that cities be allowed to request copies of such agreements, as proposed by the Coalition of Cities. Plano argued that, if no filing is required of the agreements, then there would be no way to ensure compliance.

Plano noted that LGC §283.055(k) places the responsibility for reporting reselling CTP counts on the underlying CTPs until the underlying CTP received "adequate proof" that the reselling CTP would be filing its own reports and payments to the cities. Plano supported Verizon's proposed revised language to this provision but provided additional changes to address a time frame within which the affidavit should be filed, whether a municipality may have access to that affidavit, and the identification of the names of the municipalities to which the reselling CTP would report access line counts.

Houston contended that the underlying CTP must provide the executed written agreement to the affected municipality. Houston argued that the written agreement should state that the reselling CTP will directly report all leased or resold access lines and remit related payments to the affected municipality. Houston agreed in concept with the language proposed by SWBT for proposed subsection (k)(6)(A) and (B) but with Houston's suggested modifications.

In its reply comments, SWBT stated that it agreed with other CTPs that the commission should not delegate to underlying CTPs the policing of access line reporting for reselling CTPs. SWBT said the comments of some municipalities express a lack of confidence in the integrity of any CTP and, therefore, there is a need for commission oversight throughout the process of an authorized review. SWBT urged the commission to be actively involved in the enforcement of CTP reporting by using its ability to revoke the certificates of CTPs that fail to comply with Chapter 283 and related rules. SWBT suggested that, if CTPs provide written confirmation to the commission that they will file their own reports, and underlying CTPs provide lists of potential reselling CTPs to the commission, then municipalities will have access to the information needed to pursue non-complying CTPs.

Prompted by staff questions at the public hearing, parties discussed varying interpretations of LGC §283.055 with regard to the obligations it places on all CTPs, the exceptions carved out for those CTPs with "adequate proof" in place, and the extent to which a default burden is imposed on underlying CTPs when no "adequate proof" is in place. The CLEC Coalition proposed that when "CTP" is used in LGC §283.055(i) it references reselling CTPs, rather than all CTPs, based on the history prompting the legislation.

Dallas and Coalition of Cities disagreed that the proposed rule constituted any shift in burden. Dallas argued that it was merely a positive rewording of a statutory requirement that is written in the negative; and that the statute clearly puts the burden on underlying carriers because it says they have to report it unless they have adequate proof. Coalition of Cities noted that this interpretation was supported by the fact that each statutory mention of adequate proof is stated in the direction of it flowing from the reselling CTP to the underlying carrier, and inferred that an informational letter from an underlying carrier is not sufficient.

Dallas and Coalition of Cities emphasized that the underlying CTP should be obligated to know that the reselling CTP has acknowledged its responsibility to report, and articulated a need for an executed agreement or some signed acknowledgement that the reselling CTP understands its obligations. Coalition of Cities observed that the legislature, like municipalities, did not know where the access lines terminate, so they appropriately put the burden on underlying CTPs to get the CLEC to acknowledge that it will report and pay the fees.

Coalition of Cities said it should be a matter of good business practice for an underlying carrier to obtain a reselling CTP's certificate number, and that if interconnection agreements contained the certificate numbers of the parties involved, the difficulty in locating the reselling CTPs would be reduced. CLEC Coalition explained that an arrangement between an underlying CTP and a reselling CTP does not necessarily entail an interconnection agreement, such as when a CLEC sells capacity to another CLEC, and said it is common in such agreements to articulate that the CLEC providing capacity will not undertake any obligation to comply with Chapter 283.

Coalition of Cities agreed that it would be a very difficult task for underlying carriers to count access lines without cooperation from the reselling CTP, but said that fact was known when the statute was written and likely was part of the reason the statute provided for the use of an adequate proof agreement, given the phrasing of the statute.

JSI expressed concern about the potential burdens of adequate proof requirements, explaining that the agreements it enters into with reselling CTPs are binding contracts, leaving both sides with obligations. JSI emphasized that enforcement should reside with the commission since its resale agreements specify that both parties will abide by commission rules.

SWBT stressed that it cannot accurately count the reselling CTPs' lines if the reselling CTP refuses to cooperate by entering into an adequate proof agreement. SWBT emphasized that it also wants to hold reselling CTPs accountable, like cities do, because it is in a less competitive position in the market for a given service when it covers the payments of reselling CTP competitors that escape costs when they escape their Chapter 283 obligations. SWBT argued that a sufficient and practical solution would be that underlying CTPs provide simple notification to reselling CTPs of Chapter 283 obligations, backed by adequate filings from reselling CTPs with the commission and the commission's enforcement abilities. SWBT concluded that the main point of contention here is whether an agreement between underlying CTP and reselling CTP is necessary to effectuate adequate proof.

SWBT and Coalition of Cities deliberated during the hearing and jointly proposed that concerns surrounding adequate proof would be best and most conveniently addressed on a going forward basis by incorporating into the certificate application process a sworn statement of intentions regarding the reporting of access lines and payment of municipal fees. They proposed that the applicant would select from one of three commitments: (1) directly make its own reports; (2) show evidence of a written agreement with an underlying carrier to meet its obligations; or (3) provide evidence of an agreement with a third party to meet its responsibilities. They also stressed that the commission will post all certifications on its website.

Commission response

Pursuant to the commission's decision regarding the report of reselling CTPs by underlying CTPs, as proposed in subsection (k)(5), the commission finds that it is unnecessary to add language to new subsection (k)(4) requiring information on reselling CTPs to a municipality and deletes such language, as originally proposed. The commission carries forward the definition of "underlying CTP" and "reselling CTP" from proposed subsection (k)(5).

In new subsection (k)(4), the commission establishes the minimum elements that comprise "adequate proof," requires that the business relationship between underlying and reselling CTPs must include an agreement containing the adequate proof elements, allows adequate proof provisions to be part of interconnection or other business agreements among the parties, and adds an explicit requirement that reselling CTPs must provide adequate proof to operate in conjunction with the statutory obligation that underlying CTP's must obtain adequate proof.

The commission finds that the overall reporting and compensation process and results would be enhanced if the "adequate proof" referenced in Chapter 283 were a written, rather than oral, agreement. These concepts are incorporated into new §26.467(k)(4)(B), which defines "adequate proof" as a written agreement that specifically cites, and assigns responsibility for compliance with, Chapter 283.

Similarly, the commission agrees that the reporting process must specifically designate the CTP that will bear the responsibility for meeting the reporting and compensation requirements of Chapter 283. It should be noted that a general provision in an agreement that the reselling CTP will "obey all applicable laws and rules" is insufficient. However, the commission finds that "adequate proof" can be part of a more comprehensive business agreement between the underlying and reselling CTPs. The commission acknowledges such in new subsection (k)(4)(F), which holds that the underlying CTP must acquire this adequate proof within 90 days of the effective date of this section, at the time of the signing of an initial interconnection agreement, or at the time of signing its agreement for the provision of services if the parties do not have an interconnection agreement.

Likewise, since "adequate proof" is a fundamental mechanism for holding CTPs responsible for their reporting obligations, the commission finds the "adequate proof" agreements should be available to the commission and municipalities. The commission assigns that responsibility to all CTPs in the new subsection (k)(4)(H), which holds that a CTP, whether an underlying CTP or reselling CTP, shall make its adequate proof agreements available for review by municipalities and the commission upon request.

The commission disagrees with parties that contended that proposed new subsection (k)(6)(C) shifts a burden from the reselling CTP to the underlying CTP. Proposed new subsection (k)(6)(C) holds that underlying CTPs and their reselling CTPs shall, as part of their business relationship, enter into an agreement that meets the adequate proof standard to ensure that each CTP reports and compensates municipalities for those lines that it uses to serve end-use customers. With regard to this issue, the commission interprets the provisions of LGC §283.055 as follows. LGC §286.055(j) requires all CTPs to file a quarterly report of access line counts. LGC §283.055(k) excepts some CTPs from the requirements of LGC §286.055(j), namely those underlying CTPs that obtain "adequate proof" from a reselling CTP that the reselling CTP will separately and directly report the access lines it provides to end-use customers. Similarly, LGC §283.055(f) requires that all CTPs must make payments to municipalities based on the calculations reported pursuant to LGC §286.055(j). In parallel fashion, LGC §283.055(i) then excepts one group of CTPs from making those payments. Again, this group would be the underlying CTPs that have been furnished with "adequate proof" from the reselling CTP that the reselling CTP will be directly remitting the fees based on the access lines reported pursuant to LGC §286.055(j).

The commission agrees that reselling CTPs have a direct statutory obligation under LGC §283.055(f) and (j), to ensure that access lines are reported and the appropriate fees are paid to the municipalities. Therefore, the commission makes several revisions to specify the reselling CTP's responsibility to provide adequate proof. First, in the new subsection (k)(4)(C), the commission requires both underlying and reselling CTPs to enter into an agreement containing adequate proof provisions. Secondly, new subsection (k)(4)(D) states the underlying CTP's responsibility to obtain adequate proof. New subsection (k)(4)(E) then requires the reselling CTP to supply the adequate proof upon request. New subsection (k)(4)(G) requires the underlying CTP, in the event of its failure to obtain adequate proof from the reselling CTP, to include the reselling CTP's lines in its access line count report and to likewise compensate municipalities.

The commission understands that underlying CTPs who fail to obtain adequate proof from a reselling CTP may be unable to provide accurate access line count reports and related remittances without the cooperation of the reselling CTP. However, the commission does not see that the statute allows any latitude on this matter. Further, because underlying CTPs provide reselling CTPs with services essential to the reselling CTP conducting business, the commission disagrees with the argument that underlying CTPs do not have sufficient leverage to obtain adequate proof.

The commission acknowledges that it may take some time to get adequate proof agreements in place for CTPs that already have interconnection agreements or other business agreements in place but do not have any provisions therein or separately that meet the adequate proof requirements in this section. Therefore, in new subsection (k)(4)(F), the commission allows 90 days to make such arrangements.

The commission notes that some parties were confused about the distinction between the adequate proof agreement and the written agreement arranging for the underlying CTP to serve as the designated reporting party reporting on behalf of a reselling CTP in new §26.467(l). The adequate proof agreement is a required agreement between all underlying and reselling CTPs that shows that the underlying CTP informed the reselling CTPs of their obligations under Chapter 283. However, the designated reporting arrangement is an optional arrangement in which the designated reporting party agrees to file quarterly access line count reports on a disaggregated basis as directly related to the CTP for which it is reporting . If that designated reporting party is the underlying CTP, then the underlying CTP would be reporting the lines of the reselling CTP on the reselling CTP's behalf only with its express permission. Therefore, while these written agreements may serve the same function and, indeed, may be the same document, the commission does not require that they be the same document.

§26.467(l) - Alternate reporting and compensation arrangements

Coalition of Cities, Plano, and Verizon opposed deletion of the existing §26.467(l)(1)-(3), on the ground that these provisions clarify that all CTPs are to report and compensate municipalities. Coalition of Cities, Plano, and Verizon argued that these subsections clarify that CTPs that "own" facilities in the rights-of-way compensate cities directly and that CTPs that "do not own" facilities in the rights-of-way have an option of either compensating cities directly or compensating cities indirectly through the underlying CTP, so long as they have reached a written agreement with the underlying CTP. Coalition of Cities, Plano, and Verizon held that this written agreement is the same as referred to in proposed subsection (k)(6) (renumbered as (k)(4)), addressing adequate proof. Coalition of Cities, Plano, and Verizon asserted that the paragraphs proposed for deletion explain the necessity of a written agreement as evidence of adequate proof of the CTP responsible for access line reporting and compensation. Coalition of Cities, Plano, and Verizon contended that existing §26.467(l)(1)-(3) should either be re- designated as subsection (k)(6)(A) or included in new proposed §26.469.

Houston proposed a minor change to clarify that the designated party may charge a reasonable administrative fee to the CTP for reporting and compensating a municipality on its behalf. Garland argued that the administrative fee should be charged to the CTP, and should not reduce the fee paid to the municipality.

While agreeing with permitting CTPs to file access line counts on behalf of affiliates on an aggregated basis, SWBT argued that the rule should specifically provide that payments may also be made on an aggregated basis, and that the commission should maintain the affiliate information. SWBT asserted that CTPs should be permitted to voluntarily enter alternate reporting and compensation agreements, as proposed by §26.467(l), but that reporting access line counts and remitting payments on behalf of another CTP should only arise out of an agreement between providers to do so, not by default, as proposed in subsection (k)(6) (renumbered as (k)(4)). SWBT maintained that to do otherwise would allow the reselling CTP to shift to the underlying CTP the burden of reporting and remitting accurate access line reports and fees by refusing to sign adequate proof agreements. SWBT further argued that in many instances, the underlying CTP has no way to determine the number of access lines a reselling CTP is providing to end-use customers.

Verizon recommended modification of the MARS to allow a CTP to include all certificate numbers in its filings.

Commission response

The commission notes that it did not carry its definitions of "underlying CTP" and "reselling CTP" forward from subsection (k). The commission modifies subsection (l) to include defining language by adding new subsection (1)(1) to reference subsection (k).

The commission finds that §26.467(l)(1) and (2), as proposed for deletion, merely repeat the provisions of subsection (k) of this section, related to the need for all CTPs to report their own quarterly access line count report and to compensate municipalities accordingly. These provisions are clearly extraneous, and the commission declines to retain them. Existing §26.467(l)(3), as proposed for deletion, held that reselling CTPs may seek to have the underlying CTP report for them with a written agreement. Proposed §26.467(l)(1) allows for the same arrangement. Therefore, the commission declines to retain existing §26.467(l)(1) - (3) , as proposed for deletion.

The commission declines to adopt language regarding the fee that the designated reporting party may charge a CTP, but stipulates that any such fee may not affect the municipal compensation. The commission finds that in affiliate relationships, payments, like reports, may be made on an aggregate basis. Verizon suggested modifying the MARS to include all certificate numbers in an aggregate filing. The commission notes that the "Consolidated CTP" function allows CTPs to inform the commission when filing for more than one CTP on an aggregated basis, and orders CTPs to use this function when necessary, but only when necessary. Therefore, the commission adopts proposed §26.467(l)(2) as §26.467(l)(3) with minor clarifying changes.

This amendment is adopted under the Public Utility Regulatory Act, Texas Utilities Code Annotated §14.002 (Vernon 1998, Supplement 2003) (PURA), which provides the Public Utility Commission with the authority to make and enforce rules reasonably required in the exercise of its powers and jurisdiction. This amendment is also adopted under the Texas Local Government Code, §283.056(c)(3) and §283.058, which grant the commission the jurisdiction over municipalities and certificated telecommunications providers necessary to enforce the whole of Chapter 283 and to ensure that all other legal requirements are enforced in a competitively neutral, non-discriminatory, and reasonable manner.

Cross Reference to Statutes: Public Utility Regulatory Act §14.002 and Texas Local Government Code §283.056 and §283.058.

§26.467.Rates, Allocation, Compensation, Adjustments and Reporting.

(a) Purpose. This section establishes the following:

(1) rates for categories of access lines;

(2) default allocation for municipalities;

(3) adjustments to the base amount and allocation;

(4) municipal compensation; and

(5) associated reporting requirements.

(b) Application. The provisions of this section apply to certificated telecommunication providers (CTPs) and municipalities in the State of Texas, unless specified otherwise in this section.

(c) Rate determination. The sum of the amounts derived from multiplying the rate for each category of access line by the total number of access lines in that category in a municipality shall be equal to the base amount. The rate for each of the access line categories established pursuant to §26.461 of this title (relating to Access Line Categories) shall be calculated using a 1998 access line count in general accordance with the following formula:

Figure: 16 TAC §26.467(c) (No change.)

(d) Estimating a 1998 access line count. If a CTP does not provide an actual 1998 access line count, the commission shall use the CTP's 1999 access line count, reported pursuant to §26.465 of this title (relating to Methodology for Counting Access Lines and Reporting Requirements for Certificated Telecommunications Providers), to derive an estimated 1998 access line count.

(1) Estimating access line count for category 1 (residential) access lines. The estimated statewide growth rate for category 1 access lines in 1999 is 4.5%. This percentage is determined using the statewide growth rate for residential access lines as reported to the Texas Legislature in the 1997 and 1999 reports entitled "Scope of Competition in Telecommunications Markets." The commission shall estimate a municipality's 1998 access line count for category 1 by discounting 4.5% from the 1999 line count for category 1 lines reported by a CTP.

(2) Estimating access line count for category 2 (non-residential) and category 3 (point-to-point) access lines. The estimated statewide growth rate for category 2 and category 3 access lines in 1999 is 7.0%. This percentage is determined using the statewide growth rate for business access lines as reported to the Texas Legislature in the 1997 and 1999 reports entitled "Scope of Competition in Telecommunications Markets." The commission shall estimate a municipality's 1998 access line count for category 2 and category 3 by discounting 7.0% from the 1999 line count for category 2 and category 3 lines reported by a CTP.

(3) Municipal request for exception.

(A) No later than March 15, 2000, a municipality may request the use of a municipality-specific growth rate(s), by category, for estimating its 1998 access line count, instead of using the estimated statewide growth rates determined under paragraphs (1) and (2) of this subsection. The municipality's request shall include its proposed growth rates(s), along with proof and methodology for deriving the growth rate(s), from public and verifiable sources.

(B) No later than March 15, 2000, a municipality that requests to use a municipality-specific growth rate(s) shall provide a copy of its filing to all CTPs that have filed access line counts for the municipality.

(C) No later than March 31, 2000, any CTP that has filed access line counts for that municipality may file objections to the municipality's proposed growth rate(s), if any. In order to be considered, an objection must include actual 1998 line count data for that municipality.

(D) Until resolution of the request approval process, the estimated statewide growth rate(s) determined under paragraphs (1) and (2) of this subsection shall be used to determine the municipality's 1998 access line count. Upon resolution of any objections to the request approval process, the commission shall develop a new access line count for 1998 incorporating the new growth rate(s), by category, as appropriate.

(e) Default allocation. The commission's default allocation shall be a ratio of 1:2.3:3.5 for access line categories 1, 2, and 3 respectively. This default allocation represents an average of all allocation ratios filed by municipalities with the commission pursuant to §26.463 of this title (relating to Calculation and Reporting of a Municipality's Base Amount).

(1) The commission shall establish access line rates for municipalities using the default allocation unless a municipality has filed its own allocation pursuant to §26.463 of this title.

(2) The access line rates established by the commission for municipalities using the default allocation shall remain in effect until a municipality updates its initial allocation pursuant to subsection (g) of this section or revises its allocation pursuant to subsection (h) of this section.

(f) Initial rates. No later than March 1, 2000, the commission shall establish rates for each category of access line in a municipality. These rates shall be considered to be initial rates. The initial rates shall be implemented no later than 90 days from the date the commission establishes the rates. These initial rates shall remain in effect until the rates are updated pursuant to subsection (g) of this section or revised pursuant to subsection (h) of this section.

(g) Updated rates. No later than April 14, 2000, the commission shall establish updated rates for each category of access line in a requesting municipality. The initial rates established under subsection (f) of this section shall be updated to incorporate municipal filings pursuant to paragraph (1) of this subsection and/or CTP filings pursuant to paragraph (2) of this subsection, as appropriate. Subject to approval by the commission, the updated municipal and CTP information shall be used to establish updated access line rates. The updated rates shall be in effect until revised pursuant to subsection (h) of this subsection.

(1) Updates to municipal base amount filings. No later than March 31, 2000, a municipality may update its base amount and allocation filed with the commission pursuant to §26.463 of this title. No later than March 31, 2000, a municipality that filed a request to update its base amount and/or allocation shall forward a copy of its filing to all CTPs who have filed access line counts for the municipality.

(A) Updates to base amount. A municipal filing for updates to base amount shall use a methodology for calculating the base amount that is consistent with §26.463 of this title, and shall include appropriate justification for the update. Appropriate justification may include:

(i) receipt of late payments from CTPs attributable to 1998 usage of rights- of-way;

(ii) reduction to judgment of disputed payments attributable to 1998 usage of rights-of-way;

(iii) settlement of disputed payments attributable to 1998 usage of rights- of-way;

(iv) eligibility under effective agreements or ordinances to receive a known and measurable amount due to specifically prescribed fee rate escalations provisions for the period between January 1, 2000 and March 1, 2000; and

(v) an inadvertent base amount computational error.

(B) Updates to allocation. A municipality that has filed with the commission its own allocation pursuant to §26.463 of this title may file an updated allocation no later than March 31, 2000.

(2) Updates to CTP access line counts. No later than March 15, 2000, a CTP may request to update its access line count filed with the commission pursuant to §26.465 of this title. A CTP's request for updates to access line count shall use a methodology for counting access lines that is consistent with §26.465 of this title, and shall include appropriate justification for the update. Appropriate justification may include, but is not limited to:

(A) an inadvertent access line count computational error;

(B) reconciliation of reported retail and resold access line lines; and

(3) Choosing lower than maximum rate(s). The rates obtained by applying the allocation to the base amount and dividing the amounts allocated to each category by the appropriate number of access lines in that category in a municipality shall be considered to be maximum rates for a municipality. No later than March 31, 2000, a municipality that wishes to choose lower access line rate(s) than the maximum initial rates established under subsection (f) of this section, shall notify the commission and all CTPs that filed access line counts for that municipality of the lower access line rate(s) it chooses. If a municipality's request to choose lower initial rate(s) is higher than its updated rates, the updated rates shall remain in effect until revised pursuant to subsection (h) of this section.

(h) Revised rates. No later than October 15 of each calendar year, upon request from a municipality pursuant to paragraphs (l) and (2) of this subsection, the commission shall establish revised access line rates for each category of access line in a municipality, as applicable. A CTP shall apply the revised rates to access lines in a municipality in January of the next calendar year and compensate a municipality pursuant to the revised rates.

(1) Adjustments within established rates. No later than September 1 of each calendar year, a municipality may change its rates within the maximum rates by notifying the commission and all CTPs in that municipality that its wishes to revise its access line rate for the next calendar year. In its notification to the commission and the CTPs, the municipality shall indicate the rates that it wishes to have the commission apply in the next calendar year. Upon such notification, the commission shall revise the rates accordingly.

(2) Revising allocation formula. No later than September 1 of each calendar year, and not more than once every 24 months, a municipality may petition a modification of the default allocation or its own allocation by notifying the commission and all affected CTPs in the municipality. In its notification to the commission and the CTPs, the municipality shall designate the allocation that it wishes to have the commission apply in the next calendar year.

(i) Resolution of municipal allocations.

(1) The commission shall implement a municipality's allocation unless, the commission determines that the allocation is not just and reasonable, is not competitively neutral, or is discriminatory.

(2) No later than March 15, 2000 any affected CTP may complain regarding a municipality's initial allocation filed pursuant to §26.463 of this title. No later than April 7, 2000 any affected CTP may complain regarding a municipality's updated allocation filed pursuant to subsection (g)(1)(B) of this section. No later than September 15 of any calendar year any affected CTP may complain regarding a municipality's revised allocation filed pursuant to subsection (h)(2) of this section.

(3) Where the market price of a telecommunications service is less than or equal to the amount derived from multiplying the access line rates with the number of access lines used to provide that service, the allocation used to develop the access line rate shall be presumed to be discriminatory, not just and reasonable and not competitively neutral.

(j) Consumer price index (CPI) adjustment to commission-established rates. Beginning 24 months after the commission establishes access line rates, the commission shall annually adjust the rates per access line by category for each municipality by an amount equal to one-half the annual change, if any, in the most recent consumer price index (CPI), as determined by the Federal Bureau of Labor Statistics.

(k) CTP implementation of commission-established rates. The requirements listed in this subsection shall apply to all CTPs in the State of Texas, except those exempted pursuant to §26.465 of this title.

(1) Interim compensation. CTPs shall continue to compensate municipalities at the rates required under the terms of the expired or terminated agreements or ordinances until the CTP implements the commission-established rates. A CTP not subject to an existing franchise agreement or ordinance that wants to construct facilities to offer telecommunications services in the municipality shall pay fees that are competitively neutral and non-discriminatory, consistent with the charges of the most recent agreement or ordinance between the municipality and the CTP serving the largest number of access lines within the municipality until the right- of-way fees established by the commission take effect.

(2) Billing systems. A CTP shall develop and maintain billing systems as necessary to implement access line rates, by category, as established by the commission. These systems must be sufficient to substantiate compliance with the access line reporting requirements in this section.

(3) Quarterly compensation and reporting. All CTPs are responsible for reporting to the commission their own quarterly access line count report and compensating each municipality, absent a reporting arrangement as described in subsection (l) of this section. All CTPs shall implement commission-established rates for each quarter. Unless otherwise specified, periodic reporting shall be consistent with this subsection and §26.465 of this title.

(A) Quarterly access line count report.

(i) No later than 45 days from the end of the preceding calendar quarter, a CTP shall file a quarterly access line count report for the preceding calendar quarter with the commission.

(ii) The quarterly access line count report shall include a count of the number of access lines, by category, by municipality, for the end of each month of the preceding quarter.

(iii) If a CTP deducts or includes a direct write-off pursuant to subsection (m)(2) of this section, the CTP shall complete a reconciliation report, showing a monthly delineation of the amount added to the total payment due to previously uncollectible direct write-offs, and the amount deducted from the total payment due to direct write- offs. This report shall be part of the quarterly access line count report filing.

(iv) The report shall exclude lines that are resold, leased or otherwise provided to other CTPs unless the CTP is reporting on behalf of another CTP pursuant to subsection (l) of this section.

(v) The CTP contact person listed in the Municipal Access Line Reporting System (MARS) at the time that the quarterly access line counts are entered for each quarter shall be the duly authorized representative of the CTP who certifies that the information contained in the report is based upon personal knowledge and is true and correct.

(vi) The CTP shall respond to any request for additional information from the commission within 30 days from receipt of the request.

(vii) Reports required under this subsection may be used by the commission only to verify the number of access lines that serve customer premises within a municipality.

(viii) On request and subject to the confidentiality protections of the Local Government Code, §283.005, each CTP shall provide each affected municipality with a copy of the report required by this subsection.

(B) Compensation.

(i) All CTPs shall apply the most recent commission-established rates to access lines in a municipality.

(ii) The municipal compensation shall be an amount equal to the rate per category of access line multiplied by the number of access lines in that category in that municipality at the end of each month in a calendar quarter as reflected in reports filed pursuant to subparagraph (A) of this paragraph.

(iii) All payments for calendar quarters shall be made no later than 45 days from the end of that quarter.

(4) Adequate proof of reporting and compensation responsibilities.

(A) Definition of "underlying CTP" and "reselling CTP."

(i) An underlying CTP is a CTP that owns facilities or provides facilities or capacity to another CTP in the rights-of-way of municipalities.

(ii) A reselling CTP is a CTP to whom an underlying CTP resold, leased or otherwise provided access lines that extend to the end-use customer's premises.

(B) For the purposes of this paragraph, "adequate proof" shall consist of a written agreement that specifically cites, and assigns responsibility for compliance with, the Texas Local Government Code, Chapter 283, and the reporting and compensation requirements of this subchapter.

(C) To ensure that each CTP reports and compensates municipalities for those lines that it uses to serve end-use customers, underlying CTPs and their reselling CTPs shall, as part of their business relationship, enter into an agreement that meets the adequate proof standard of this paragraph.

(D) An underlying CTP shall obtain adequate proof that the reselling CTP will directly report its lines and remit the related payments to municipalities.

(E) A reselling CTP must provide adequate proof to the underlying CTP upon request.

(F) The underlying CTP must acquire this adequate proof within 90 days of the effective date of this section, at the time of the signing of an initial interconnection agreement, or at the time of signing its agreement for the provision of services if the parties do not have an interconnection agreement

(G) If the underlying CTP fails to obtain adequate proof that the reselling CTP will include the access line in its monthly count and remit payment on those access lines to the municipality, the underlying CTP must include such lines in its monthly count of access lines and remit a right-of-way fee to the municipality.

(H) A CTP, whether an underlying CTP or reselling CTP, shall make its adequate proof agreements available for review by municipalities and the commission upon request.

(l) Alternate reporting and compensation arrangements. Notwithstanding any other subsection, a CTP shall be subject to the following terms when making alternate reporting and compensation arrangements.

(1) For the purposes of this subsection, "underlying CTP" and "reselling CTP" shall have the same meanings as assigned in subsection (k) of this section.

(2) Designated reporting party. A CTP may reach a written agreement separate from any other agreement, including the adequate proof agreement, to have a designated reporting party fulfill the reporting and compensation requirements of this section on its behalf. If the CTP is a reselling CTP, the designated reporting party may be the underlying CTP.

(A) If such an agreement is reached, the designated reporting party shall file the quarterly access line count report in each municipality, by category, on behalf of the CTP, and also compensate the municipality for those lines.

(B) The designated reporting party shall file the quarterly access line count report for each municipality, by category, with the commission on a disaggregated basis by CTP.

(C) Nothing in this subsection shall prevent a designated reporting party from charging a reasonable administrative fee for reporting and compensating a municipality on behalf of a CTP.

(D) Nothing in this subsection shifts the liability from a CTP, reselling or otherwise, for non-payment of municipal compensation and failure to report pursuant to this section.

(3) Affiliates. A CTP may file access line reports and remit payments for itself and its affiliates that are CTPs on an aggregated basis. If the CTP does so, the CTP shall include a list of the affiliates and their certification numbers in its quarterly access line count report.

(m) Pass-through. A CTP recovering its municipal compensation from its customers within the boundaries of a municipality shall not recover a total amount greater than the sum of the amounts derived from the multiplication of access line rates by the number of lines, per category, for that municipality. Pass-through of the commission's rates established under this chapter shall be considered to be a pro rata charge to customers.

(1) Where a CTP chooses to pass through the municipal fee to its customers such CTP shall not pass through any costs associated with its administration of municipal fees. The pass-through amount shall not exceed the access line rate, by category, established by the commission for that municipality.

(2) A CTP shall be allowed to deduct from its current payment any amounts that are direct write-offs as a result of its collection efforts. Any amounts subsequently recovered from the customer after the direct write-offs shall be included in the amounts payable to each affected municipality in the month(s) received. There shall be no reduction in payment for any estimated uncollectible allowances reported for financial purposes by the CTP.

(3) Beginning January 1, 2001, on request from the commission, a CTP shall report the amounts collected in municipal fees from customers and the municipal fees paid to municipalities for a period determined by the commission. This report shall be filed with the commission by the CTP no later than 60 days from the date the CTP receives this request.

(n) Compensation from customers of lifeline or other low-income assistance programs. A municipality may choose to forgo municipal compensation from access lines serving Lifeline customers or customers of other similar low-income assistance programs. A municipality electing this option shall notify all CTPs in the municipality of this decision before September 1 on any given year. Upon receipt of such notification, CTPs shall exclude such end-use customers from their quarterly access line count, not pass through a municipal fee to such end-use customers for the next calendar year, and shall be relieved of any obligation to pay fees on such access lines to the municipality.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on March 6, 2003.

TRD-200301586

Rhonda G. Dempsey

Rules Coordinator

Public Utility Commission of Texas

Effective date: March 26, 2003

Proposal publication date: September 27, 2002

For further information, please call: (512) 936-7308