Part 2. PUBLIC UTILITY COMMISSION OF TEXAS
Chapter 25. SUBSTANTIVE RULES APPLICABLE TO ELECTRIC SERVICE PROVIDERS
Subchapter O. UNBUNDLING AND MARKET POWER
Division 2. INDEPENDENT ORGANIZATIONS
The Public Utility Commission of Texas (commission) adopts an amendment to §25.365, relating to the Independent Market Monitor (IMM). The amendment limits the liability of the IMM in the performance of its duties in monitoring the Wholesale Electricity Market in the Electric Reliability Council of Texas (ERCOT). The amendment is adopted with changes to the proposed text as published in the December 15, 2006, issue of the Texas Register (31 TexReg 9925).
The commission initially adopted §25.365 to prescribe the terms of the IMM's service, and this amendment addresses the degree to which the IMM would be subject to a lawsuit in connection with its performance of its duties. The amendment provides a public benefit, as it protects the IMM from possible intimidation by parties that are subject to an IMM investigation.
The amendment is necessary to maintain the independence and integrity of the IMM, to ensure that it carries out its market monitoring duties without undue influence from the market participants, and to limit the costs that are incurred in providing market monitoring services. This amendment is adopted under Project Number 33495.
The commission invited public comments on the proposed amendment, and in particular, on the following question:
Is it more appropriate to implement the proposed limitation of liability provisions through a contract provision added to ERCOT's standard form agreements, or through changes to ERCOT's Protocols?
The commission received comments on the proposed amendment from TXU and ERCOT.
Summary of Comments
TXU supported implementing a limitation of liability provision through a change to ERCOT Protocols, and did not think it necessary to include it in the ERCOT standard form agreements because these agreements state that participants shall comply with, and be bound by, all ERCOT Protocols. In addition, TXU expressed the view that a statement in the ERCOT Protocols would appropriately address the IMM's liability concern and should be used in lieu of a rule change.
ERCOT believed that neither revising the standard form agreements nor changing the Protocols was necessary. ERCOT noted that the contract executed by the IMM provides that the PUCT staff would initiate a rulemaking to address the IMM's limitation of liability to third parties. Subsection (n) of the proposed rule stating the limitation of liability of the IMM satisfies the contract language and subsection (o) requiring a modification of the ERCOT agreements is not necessary and could not add to the effectiveness of the rule. If, however, the commission wants a limitation of liability provision outside the PUC rule, then ERCOT recommended placing it in the Protocols and not in the form agreements. Making a change to the Protocols would cause negligible ERCOT administrative impact, whereas re-execution of every agreement to comply with subsection (o) would be administratively daunting and of limited usefulness. ERCOT added that April 1 would be an overly ambitious deadline for effecting changes to the Protocols, and would be even less attainable for modifying the agreements.
The commission's view is that the inclusion of a limitation of liability provision in the contracts between ERCOT and companies that operate in the ERCOT market provides the strongest protection from liability for the IMM and the best notice to companies that operate in the market. The commission recognizes, however, that amending existing contracts requires a significant amount of time and effort on ERCOT's part. Accordingly, the rule will direct ERCOT to include a limitation of liability provision relating to the IMM in all new contracts and all existing contracts being renegotiated, as of July 1, 2007. The rule will further direct ERCOT to amend all other existing contracts within a period of 15 months from the adoption date of the rule as amended. Until the contracts can be amended, the inclusion of the limitation of liability in the commission rule will provide protection to the IMM and notice to market participants.
TXU suggested a language change in the proposed rule. In the proposed rule, the IMM's release of reliability is limited to "acts or omissions that arise from or are related to matters within the scope of the IMM's authority." TXU stated that this language is too broad and proposed to limit it to "acts or omissions consistent with the IMM's performance of its duties as defined by PURA §39.1515 and PUC Substantive Rule §25.365, relating to the IMM."
The commission concludes that the proposed amendment to the phrasing that TXU suggested in its comment is not appropriate. The purpose of the limitation of liability provision is to prevent the market monitor from being intimidated in its review of market events by the threat or reality of a lawsuit from a company that operates in the market. For this reason, a limitation of liability that is as broad in scope as the market monitor's responsibilities is important. The IMM's responsibilities are defined, in part, by the statute and rule that TXU refers to, but its responsibilities are also defined by contractual documents and communications from the commission concerning matters to be investigated. These additional documents may authorize and direct the IMM to evaluate and report on market events. Accordingly, the commission concludes that the scope of the limitation of liability set out in the proposed rule is appropriate, and it declines to make the change suggested by TXU.
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.
The amendment is adopted under Public Utility Regulatory Act, Texas Utilities Code Annotated §14.002 (Vernon 1998, Supplement 2006) (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; and specifically, PURA §39.1515, which requires that the commission select an entity to act as the commission's wholesale electric market monitor to detect and prevent market manipulation strategies and recommend measures to enhance the efficiency of the wholesale market; PURA §35.004, which requires that the commission ensure that ancillary services necessary to facilitate the transmission of electric energy are available at reasonable prices with terms and conditions that are not unreasonably preferential, prejudicial, predatory, or anticompetitive; PURA §39.001, which establishes the Legislative policy to protect the public interest during the transition to and in the establishment of a fully competitive electric power industry; PURA §39.101, which establishes that customers are entitled to protection from unfair, misleading, or deceptive practices and directs the commission to adopt and enforce rules to carry out this provision and to ensure that retail customer protections are established that afford customers safe, reliable, and reasonably priced electricity; PURA §39.151, which requires the commission to oversee and review the procedures established by an independent organization, directs market participants to comply with such procedures, and authorizes the commission to enforce such procedures; and PURA §39.157, which directs the commission to monitor market power associated with the generation, transmission, distribution, and sale of electricity and provides enforcement power to the commission to address any market power abuses.
Cross Reference to Statutes: Public Utility Regulatory Act §§14.002, 39.1515, 35.004, 39.001, 39.101, 39.151, and 39.157.
§25.365.Independent Market Monitor.
(a) Purpose. The purpose of this section is to define the responsibilities and authority of the independent market monitor (IMM) for the ERCOT wholesale markets, establish the standards for funding the IMM, specify the staffing requirements and qualifications for the IMM, and establish ethics standards for the IMM. This section also specifies the relationship of the IMM to the commission, to ERCOT, and to market participants. The IMM shall operate under the commission's supervision and oversight, but the IMM shall offer independent analysis to the commission to assist in making judgments in the public interest.
(b) Definitions. The following words and terms when used in this section shall have the following meaning, unless the context indicates otherwise:
(1) Independent Market Monitor (IMM)--Depending on the context, the office of the IMM or the director of the IMM and its staff.
(2) Market--The course of commercial activity by which the exchange of goods or services is effected. As used in this section, the term may refer to an entire market or a portion of a market.
(3) Market participant--Any person or entity participating in the power region's wholesale markets, or engaging in any activity that is in whole or in part the subject of the ERCOT protocols, regardless of whether the person or entity has executed an agreement with ERCOT. This definition includes, but is not limited to, a load-serving entity (including a municipally-owned utility and an electric cooperative), a retail electric provider, a qualified scheduling entity, a power marketer, a transmission and distribution utility, a power generation company, a qualifying facility, an exempt wholesale generator, a load acting as a resource, and any entity conducting planning, scheduling, or operating activities on behalf of such market participants.
(c) Objectives of market monitoring. The IMM shall monitor wholesale market activities so as to:
(1) Detect and prevent market manipulation strategies and market power abuses; and
(2) Evaluate the operations of the wholesale market and the current market rules and proposed changes to the market rules, and recommend measures to enhance market efficiency.
(d) Responsibilities of the IMM. The IMM shall gather and analyze information and data as needed for its market monitoring activities. The duties and responsibilities of the IMM may include:
(1) Monitoring all markets in the power region for energy, capacity services, and congestion revenue rights, and the ERCOT protocols and related procedures and practices that affect supply, demand, and the efficient functioning of such markets;
(2) Developing and regularly monitoring market screens and indices to identify abnormal events in the power region's wholesale markets;
(3) Analyzing events that fail the screens and other abnormal activities and market events, using computer simulation and advanced quantitative tools as necessary;
(4) Developing and regularly monitoring performance measures to evaluate market participants' and ERCOT's compliance with the ERCOT protocols and operating guides;
(5) Assessing the effectiveness of ERCOT's management of the energy, ancillary capacity services, and congestion rights markets operated by ERCOT, and evaluating the effectiveness of congestion management by ERCOT;
(6) Conducting market power tests and other analyses related to market power determination;
(7) Analyzing the ERCOT protocols and other market rules and proposed changes to those rules to identify opportunities for strategic manipulation and other economic inefficiencies, as well as potential areas of improvement;
(8) Conducting investigations of specific market events;
(9) Providing expert testimony services relating to the IMM's independent analysis, findings, and expertise, as part of the commission staff's case in enforcement proceedings initiated by the executive director in accordance with §22.246 of this title (relating to Administrative Penalties) or other commission proceedings;
(10) Maintaining a market oversight website to share market information with the public;
(11) Preparing market monitoring reports as required under subsection (k) of this section;
(12) Recommending to the commission measures to enhance the efficiency of the wholesale market and methods to correct market design flaws it has identified; and
(13) Performing any additional duties required by the commission within the scope of the Public Utility Regulatory Act §39.1515.
(e) Authority of the IMM.
(1) The IMM has the authority to conduct monitoring, analysis, reporting, and related activities but has no enforcement authority.
(2) The IMM has the authority to question a market participant about activities that may violate commission rules or ERCOT protocols or may be potential market manipulations. The IMM may inform a market participant that its activities may be in violation of commission rules or ERCOT protocols or operating guides, subject to the restrictions established by subsection (j)(2) of this section.
(3) The IMM has the authority to require submission of any information and data it considers necessary to fulfill its monitoring and investigative responsibilities by ERCOT and by market participants. Market participants and ERCOT shall provide complete, accurate, and timely responses to all IMM requests for documents, data, information, and other materials.
(4) The IMM may require that each market participant designate one or more points of contact that can answer questions the IMM may have regarding a market participant's operations or market activities.
(f) Selection of the IMM. ERCOT and the commission shall contract with an entity selected by the commission to act as the commission's wholesale market monitor. The IMM shall be established as an office independent from ERCOT, and is not subject to the supervision of ERCOT with respect to its monitoring and investigative activities.
(g) Funding of the IMM. The budget and expenditures of the IMM are subject to commission supervision and oversight. Financial controls and reporting procedures shall be implemented by the IMM and ERCOT to ensure that expenditures are consistent with the budget that was approved by the commission, and with this section.
(1) ERCOT shall fund the operations of the IMM using money from the rate authorized by PURA §39.151.
(2) The funding of the IMM shall be sufficient to ensure that the IMM has the resources and expertise necessary to monitor the wholesale electric market effectively, as determined by the commission.
(3) ERCOT shall maintain separate accounts of expenditures in support of the IMM.
(4) ERCOT shall directly assign costs arising from the IMM function to the IMM whenever possible. To the extent overhead and shared expenses cannot be directly assigned, ERCOT shall allocate such expenses to the IMM based on appropriate cost causation factors. ERCOT shall maintain all records and work papers necessary to substantiate all direct charges and allocations to the IMM.
(h) Staffing requirements and qualification of IMM director and staff.
(1) The director of the IMM shall have the qualifications necessary to oversee performance of the duties and responsibilities in subsection (c) of this section. The staff of the IMM shall have the qualifications needed to perform the market monitoring functions in subsection (c) of this section. The IMM director and staff shall be subject to background security checks as determined by the commission.
(2) The staff of the IMM shall collectively possess a set of technical skills necessary to perform market monitoring functions, which typically includes economics, with a focus on market analysis and market competitiveness; power engineering; statistics and programming; and modeling, with a focus on optimization modeling.
(i) Ethics standards governing the IMM director and staff.
(1) During the period of a person's service with the IMM, the IMM director and an IMM employee shall not:
(A) have a professional or financial interest in a market participant or an affiliate of a market participant; or own shares in a company that provides consulting services to a market participant;
(B) serve as an officer, director, partner, owner, employee, attorney, or consultant for ERCOT or a market participant or an affiliate of a market participant;
(C) directly or indirectly own or control securities in a market participant, an affiliate of a market participant, or direct competitor of a market participant or affiliate, except that it is not a violation of this rule if the IMM director or an IMM employee indirectly owns an interest in a retirement system, institution or fund that in the normal course of business invests in diverse securities independently of the control of the IMM director or employee; or
(D) accept a gift, gratuity, or entertainment from ERCOT, a market participant, affiliate of a market participant, or an employee or agent of a market participant or affiliate of a market participant.
(2) The IMM director or an IMM employee shall not directly or indirectly solicit, request from, suggest, or recommend to a market participant or affiliate of a market participant, or an employee or agent of a market participant or affiliate of a market participant, the employment of a person by a market participant or affiliate.
(3) The commission may impose post employment restrictions for the IMM and its employees.
(j) Confidentiality standards governing the IMM director and staff.
(1) The IMM shall protect confidential information and data in accordance with the confidentiality standards established in PURA, the ERCOT protocols, commission rules, and other applicable laws. The requirements related to the level of protection to be afforded information protected by these laws and rules are incorporated in this section.
(2) Unless otherwise notified by the commission legal staff, the IMM may not communicate with a market participant or with an ERCOT board member, officer, or employee, or with any other entity concerning a particular subject matter once the commission legal staff notifies the IMM that the subject matter is the subject of an investigation or enforcement proceeding.
(k) Reporting requirement. All reports prepared by the IMM shall reflect the IMM's independent analysis, findings, and expertise. The IMM shall provide periodic updates to market participants regarding the operation of the ERCOT wholesale market. In addition, the IMM shall prepare and submit to the commission the following reports:
(1) Daily, monthly, and quarterly reports on prices and congestion;
(2) An annual report on the state of the market, which will include an assessment of the competitiveness of the market; an assessment of the efficiency of ERCOT's management of the balancing energy, ancillary services, and congestion rights markets; an evaluation of the effectiveness of congestion management by ERCOT; an evaluation of whether there are inappropriate incentives, flaws, inefficiencies, and opportunities for manipulation in the market design; and any recommendations for improving the market design; and
(3) Periodic or special reports on market conditions or specific events as directed by the commission.
(l) Communication between the IMM and the commission.
(1) The personnel of the IMM may communicate with commission staff on any matter without restriction.
(2) The IMM shall:
(A) Immediately report directly to the commission any potential market manipulations, including market power abuse, and any discovered or potential violations of commission rules or ERCOT protocols or operating guides;
(B) Periodically report abnormal bids, offers, operational activities, and market behavior that have not been reported in accordance with paragraph (1) of this subsection or subsection (k) of this section.
(C) Regularly communicate with the commission and commission staff, and keep the commission updated regarding its activities, findings, and observations;
(D) Coordinate with the commission to identify priorities; and
(E) Coordinate with the commission to assess the resources and methods for monitoring the wholesale market effectively, including consulting needs.
(m) ERCOT's responsibilities and support role. ERCOT and the IMM shall jointly develop procedures and interfaces to ensure that the IMM director and staff have full access to ERCOT's operations centers, staff, and records relating to operations, settlement, and reliability. ERCOT shall designate liaisons to facilitate communications with the IMM on ERCOT's operations and information technology.
(1) ERCOT shall develop and operate an information system to collect and to store data required by the ERCOT protocols, and shall provide adequate communication equipment and necessary software packages to enable the IMM to establish electronic access to the information system and to facilitate the development and application of quantitative tools necessary for the market monitoring function. Data from ERCOT's source systems must be capable of being replicated in near real time and available for query by the IMM until data are archived and archived data are accessible for high-speed information searches. When an IT system failure prohibits "near real time" replication of data, ERCOT shall replicate the data as expeditiously as possible. Data archives must be designed to accommodate remote access by the IMM and the commission staff at any time.
(2) On an ongoing basis, ERCOT shall implement necessary procedures for the accurate collection and storage of data in the data archives and accurate communication of those data for use by the commission staff and the IMM.
(3) The IMM may review the catalogs describing information and data, and may review data collection verification criteria developed by ERCOT. The IMM may propose changes, additions, or deletions to the catalogs and criteria to facilitate the market monitoring function. In so doing, the IMM may require database items or evaluation criteria for inclusion in the pertinent catalogs.
(4) ERCOT shall establish procedures to ensure that the IMM may access all data maintained by ERCOT relating to operations, settlements, and reliability.
(5) ERCOT may provide administrative support and goods and services to the IMM, such as office space, payroll, and related services, and information technology support.
(n) Liability of the IMM. The IMM, and its directors, officers, employees and agents, shall not be liable to any person or entity for any act or omission, other than an act or omission constituting gross negligence or intentional misconduct, arising under or relating to this section, including but not limited to liability for any financial loss, loss of economic advantage, opportunity cost, or actual, direct, indirect or consequential damages of any kind resulting from or attributable to any such act or omission of the IMM as long as such act or omission arose from or related to matters within the scope of the IMM's authority.
(o) Contractual Provisions.
(1) Effective July 1, 2007, ERCOT shall include the following provision in any new or re-negotiated agreement it has with an entity that engages in any activity that is in whole or in part the subject of the ERCOT Protocols: The IMM, and its directors, officers, employees, and agents, shall not be liable to any person or entity for any act or omission, other than an act or omission constituting gross negligence or intentional misconduct, including but not limited to liability for any financial loss, loss of economic advantage, opportunity cost, or actual, direct, indirect, or consequential damages of any kind resulting from or attributable to any such act or omission of the IMM, as long as such act or omission arose from or is related to matters within the scope of the IMM's authority arising under or relating to PURA §39.1515 and Public Utility Commission Substantive Rule §25.365, relating to Independent Market Monitor.
(2) Not later than 15 months after this subsection takes effect, ERCOT shall include the provision set out in paragraph (1) of this subsection in every agreement it has with an entity that engages in any activity that is in whole or in part the subject of the ERCOT Protocols.
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 April 9, 2007.
TRD-200701331
Adriana A. Gonzales
Rules Coordinator
Public Utility Commission of Texas
Effective date: April 29, 2007
Proposal publication date: December 15, 2006
For further information, please call: (512) 936-7223
Subchapter D. RECORDS, REPORTS, AND OTHER REQUIRED INFORMATION
The Public Utility Commission of Texas (commission) adopts amendments to §26.73, relating to Financial and Operating Reports, and repeals §26.77, relating to Payments, Compensation, and Other Expenditures, §26.84, relating to Annual Reporting of Affiliate Transactions of DCTUs, and §26.98, relating to Cost Allocation Manual with no changes to the proposed text as published in the December 29, 2006, issue of the Texas Register (31 TexReg 10484). The 79th Legislature, Senate Bill 408 (SB 408), §13, required the commission to perform a comprehensive review of reporting requirements, whether required by statute or commission rules, relating to telecommunications providers. The commission's evaluation, performed in Project Number 32460, pursuant to SB 408, concluded that numerous reporting requirements contained in the sections proposed for repeal and the section proposed for amendment were duplicative, no longer necessary, or required additional review. The repeal of §26.77, §26.84, §26.98, and the amendments of §26.73 are adopted under Project Number 33401.
The commission received written comments on its proposals for repeals and amendments from Southwestern Bell Telephone, L.P., doing business as AT&T Texas (AT&T Texas), on January 26, 2007.
On February 12, 2007, the commission received written replies from Verizon Southwest (Verizon).
AT&T Texas agreed with the commission's proposal to repeal §§26.77, 26.84 and 26.98. AT&T Texas also supported the commission's amendments to §26.73 and noted that the elimination of duplicative reporting was welcome. However, AT&T Texas did offer specific recommendations regarding the continued filing of the annual earning reports in §26.73.
Section 26.73
AT&T Texas reiterated its comments filed in Project Number 32460, Legislative Report Pursuant to SB 408, §13, Evaluation of Telecommunications Carriers' Reports to the Public Utility Commission of Texas, regarding the burden of the earning report's preparation (estimated at over 200 hours) and stated its position that the report is unnecessary in a competitive market. AT&T conceded that many dominant certificated telecommunications utilities (DCTUs) are still subject to rate of return regulation but requested that the commission scrutinize ways to update the commission-prescribed form for the annual earnings report. Specifically, AT&T Texas recommended the commission streamline the earnings report requirements for companies that are not subject to rate of return regulation. To this end, AT&T Texas offered the suggestions of eliminating the need to file separately its regulated and non-regulated earnings or its earnings by interstate and intrastate jurisdiction, and its imputed yellow page revenues. AT&T Texas argued that comparisons of the financial information provided by rate of return companies with those revenues of companies that have elected incentive regulation is not valid and that yellow page revenues distort financial results. AT&T Texas did not offer specific language for the section to accomplish these ends.
Commission response
The commission believes that AT&T Texas' recommendation to streamline the requirements of the earnings report for companies that are no longer subject to rate of return regulation may be addressed in a workshop proceeding conducted by the commission's Financial Review section. Such a proceeding will be undertaken. As a result, the commission will not further amend §26.73 at this time.
Verizon's reply comments reiterated the position taken by the company in its comments for Project Number 32460; that the annual earnings report should be eliminated or limited to the data filed in the Federal Communications Commission's (FCC's) Automated Reporting Management Information System (ARMIS) Report. Verizon recommended this data be obtained from the FCC's website, www.fcc.gov. Verizon supported AT&T Texas' position that companies under PURA Chapter 58 and 59 regulations should not be required to provide the same information as companies under rate of return regulation. Verizon concurred in AT&T Texas' recommendation that the commission eliminate or re-design and simplify the annual earnings report.
Commission response
As noted, the commission will undertake a proceeding to re-evaluate the requirements for the annual earnings report with the purpose of streamlining the processes where appropriate. As a result, the commission will not further amend §26.73 at this time.
This amendment is adopted under the Public Utility Regulatory Act, Texas Utilities Code Annotated §14.002 (Vernon 1998, Supplement 2006) (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; and specifically, pursuant to the general requirements of SB 408 regarding the commission's ability to act upon those conclusions that do not require statutory review.
Cross Reference to Statutes: Public Utility Regulatory Act §14.002 and SB 408 §13.
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 April 13, 2007.
TRD-200701404
Adriana A. Gonzales
Rules Coordinator
Public Utility Commission of Texas
Effective date: May 3, 2007
Proposal publication date: December 29, 2006
For further information, please call: (512) 936-7223
These repeals are adopted under the Public Utility Regulatory Act, Texas Utilities Code Annotated §14.002 (Vernon 1998, Supplement 2006) (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; and specifically, pursuant to the general requirements of SB 408 regarding the commission's ability to act upon those conclusions that do not require statutory review.
Cross Reference to Statutes: Public Utility Regulatory Act §14.002 and SB 408 §13.
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 April 13, 2007.
TRD-200701403
Adriana A. Gonzales
Rules Coordinator
Public Utility Commission of Texas
Effective date: May 3, 2007
Proposal publication date: December 29, 2006
For further information, please call: (512) 936-7223
Chapter 70. INDUSTRIALIZED HOUSING AND BUILDINGS
The Texas Commission of Licensing and Regulation ("Commission" or Department) adopts amendments to an existing rule at Title 16, Texas Administrative Code, Chapter 70, §70.60 regarding the industrialized housing and buildings program to facilitate the use of third parties in the performance of certification inspections as published in the December 29, 2006, issue of the Texas Register (31 TexReg 10485), with changes from the rule as proposed, and is republished.
To ensure that manufacturers construct industrialized housing and buildings in accordance with code requirements, the Department conducts certification inspections of each new manufacturing facility. The adopted rule amendments clarify the Department's authority to make greater use of third parties in these certification inspections. Under the current rule and Department procedures, a Department team conducts the certification inspection. The team may include third party inspectors, but a Department employee typically leads the team. Due to the volume of manufacturers applying to market industrialized housing and buildings in Texas and the Department's limited resources, the Department, the industry, and the public would benefit from having some certification inspections performed entirely by qualified third parties. This would assist the Department in completing certification inspections in a timely manner, while maintaining protection of public safety.
The Department drafted and distributed the proposed rule to persons internal and external to the agency. The public comment period closed on January 29, 2007. One public comment was received in response to the proposal. Below is a summary of the comment and the Department's response.
Amtex Corporation, an industrialized housing and building manufacturer, did not support the proposed rule changes as drafted. The commenter believed that public employees should oversee the certification inspections teams to ensure the quality of the inspections. The Department disagrees with the comment to the extent that the commenter does not support the amended rule. The Department believes that the quality of certification inspections can be maintained under the amended rule. It is important to note that the rule contemplates oversight of certification teams by the Department, even though Department employees may not be actual members of the certification team. The Department will select the individual members of the team, including the team leader, and will make the determination as to whether the manufacturer meets the requirements for certification.
The Industrialized Building Code Council ("Council") met on March 19, 2007 and recommended adoption of this rule with a change from the proposed language. As proposed, subsection (a) stated that the certification team may not include personnel of the third party inspection agency responsible for the regular in-plant inspections of the manufacturer. The change is to specify that the team leader may not be personnel of the third party inspection agency responsible for regular in-plant inspections of the manufacturer or the design review agency responsible for review of the manufacturer's design package.
This provision is intended to prohibit conflicts of interest for the team leader. Under the proposed language, the prohibition would have applied to any member of the team, including third party inspectors. In the Department's judgment, the pool of qualified certification team members is not large enough to have such a broad prohibition on membership. The new language focuses the conflict of interest prohibition on the team leader, who is more critical to the direction and oversight of the inspection. The language concerning design review agencies was added because the team leader may be associated with a design review agency rather than with a third party inspection agency, and there would be a similar conflict of interest issue in either case.
The amendments are adopted under Texas Occupations Code, Chapter 51, which authorizes the Department to adopt rules as necessary to implement that chapter and any other law establishing a program regulated by the Department, and Texas Occupations Code, Chapter 1202. In particular, §1202.101(a) directs the Commission to adopt rules as necessary to ensure compliance with the purposes of Chapter 1202 and provide for uniform enforcement of Chapter 1202.
The statutory provisions affected by the amendments are those set forth in Texas Occupations Code, Chapters 51 and 1202. No other statutes, articles, or codes are affected by the adoption.
§70.60.Responsibilities of the Department--Plant Certification.
(a) Prior to being issued decals or insignia, each manufacturing facility will undergo a certification inspection. The plant certification inspection will be conducted by a certification team designated by the department. The team leader may not be personnel of the third party inspection agency responsible for regular in-plant inspections of the manufacturer or the design review agency responsible for review of the manufacturer's design package. The team shall consist of:
(1) a team leader, who is either a department employee, an engineer, or other qualified person as determined by procedures established by the Texas Industrialized Building Code Council; and
(2) one or more department inspectors or third party inspectors.
(b) The inspection shall be conducted in accordance with the procedures established by the Texas Industrialized Building Code Council. A certification inspection has two primary purposes:
(1) to verify that the manufacturer is capable of producing modules or modular components that comply with the law and the rules, mandatory building codes, and approved design package; and
(2) to verify that the manufacturer's approved compliance control program will ensure compliance now and in the future.
(c) The team will become familiar with all aspects of the manufacturer's approved design package. Structures on the production line will be checked to assure that failures to conform located by the certification team are being located by the plant compliance control program and are being corrected by the plant personnel. The certification team will work closely with the plant compliance control personnel to assure that the approved design package and compliance control manuals for the facility are clearly understood and followed. If deemed necessary by the certification team, a representative of the design review agency must be present during the inspection. At least one module or modular component containing all systems, or a combination of modules or modular components containing all systems, shall be observed during all phases of construction. The team must inspect all modules or modular components in the production line for Texas during the certification. The plant certification inspection will terminate when the certification team has fully evaluated all aspects of the manufacturing facility.
(d) The certification team will issue a plant certification, or facility evaluation, report to the manufacturer when the department has determined that the manufacturer has met the requirements for certification. A copy of the plant certification report will also be forwarded to the third party inspection agency responsible for in-plant inspections. The manufacturer and third party inspection agency will be responsible for ensuring that all conditions of certification as outlined in the certification report are met. The manufacturer must keep a copy of this report in their permanent records. The report will contain, at a minimum, the following information:
(1) the name and address of the manufacturer;
(2) the names and titles of personnel performing the certification inspection;
(3) the serial or identification numbers of the modules or modular components inspected;
(4) a list of nonconformances observed on the modules or modular components inspected (with appropriate design package references) and corrective action taken in each case;
(5) a list of deviations from the approved compliance control procedures (with section or manual references) observed during the certification inspection with the corrective action taken in each case;
(6) a list of conditions of certification with which the manufacturer must comply to maintain the certification;
(7) the date of certification;
(8) the following statement: "This report concludes that (name of agency), after evaluating the facility, certifies that (name of factory) of (city) is capable of producing (industrialized housing and buildings or modular components) in accordance with the approved building system and compliance control manuals on file in the manufacturing facility and in compliance with the requirements of the Texas Industrialized Building Code Council"; and
(9) the signature of the certification team leader.
(e) If the department determines that the manufacturer is not capable of meeting the certification requirements or that the manufacturer is unable to complete the certification inspection requirements, then the certification team will issue a non-compliance report. The non-compliance report will detail the specific areas in which the manufacturer was found to be deficient and may make recommendations for improvement.
(f) If any personnel of a design review agency or third party inspection agency participate as members of a certification team, the agency is considered a participant in the certification team and is responsible for compliance with Texas Occupations Code, Chapter 1202, rules adopted by the commission, and decisions, actions, and interpretations of the council in performing the certification inspection and related activities.
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 April 11, 2007.
TRD-200701380
William H. Kuntz, Jr.
Executive Director
Texas Department of Licensing and Regulation
Effective date: May 1, 2007
Proposal publication date: December 29, 2006
For further information, please call: (512) 463-7348