[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3782 Introduced in House (IH)]







104th CONGRESS
  2d Session
                                H. R. 3782

To modernize the Public Utility Holding Company Act, the Federal Power 
Act, and the Public Utility Regulatory Policies Act of 1978 to promote 
              competition in the electric power industry.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             July 11, 1996

  Mr. Markey introduced the following bill; which was referred to the 
                         Committee on Commerce

_______________________________________________________________________

                                 A BILL


 
To modernize the Public Utility Holding Company Act, the Federal Power 
Act, and the Public Utility Regulatory Policies Act of 1978 to promote 
              competition in the electric power industry.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Electric Power Competition and 
Consumer Choice Act of 1996''.

SEC. 2. FINDINGS.

    The Congress finds that equitable rates for electric consumers and 
increased efficiency in the use of technology and resources for the 
generation of electric power require--
            (1) increased reliance on competition and market forces 
        rather than traditional rate-of-return regulation of utility 
        monopolies to generate the most efficient, low cost, and 
        reliable electricity for ratepayers;
            (2) access to transmission and distribution facilities for 
        all suppliers and marketers of electricity with pricing and 
        terms and conditions on a comparable basis with those who own 
        or control such facilities;
            (3) a program to promote fuel diversity and conservation 
        and environmental protection through the encouragement of 
        renewable technologies and other environmentally benign 
        generation resources;
            (4) the ability of electric utilities to seek to recover 
        legitimate, verifiable, and nonmitigatable stranded costs for 
        which there is a reasonable expectation of recovery;
            (5) appropriate Federal and State regulation of electric 
        utilities to promote development of a competitive electric 
        generation market and protect consumers against excessive 
        charges by electric utility companies who exercise continued 
        monopoly control over electric power transmission and 
        distribution; and
            (6) reform of Federal and State electric utility regulatory 
        laws and regulations, to promote competition and to prevent 
        anticompetitive behavior by entities with market power.

SEC. 3. PUHCA NOT APPLICABLE IN COMPETITIVE MARKETS.

    (a) Application of PUHCA.--The Public Utility Holding Company Act 
of 1935 (15 U.S.C. 79 et seq.) shall not apply to any electric utility 
company and any holding company of such electric utility company if 
such electric utility company and each subsidiary, associate, and 
affiliate of such electric utility company or of such holding company 
has received, in accordance with subtitle F of title I of the Public 
Utility Regulatory Policies Act of 1978, a Certification of Competition 
from each State regulatory authority which has ratemaking authority 
over such company, subsidiary, associate, or affiliate, as the case may 
be. The terms used in this subsection have the same meaning as when 
used in the Public Utility Holding Company Act of 1935.
    (b) Certification of Competition.--Title I of the Public Utility 
Regulatory Policies Act of 1978 is amended by adding the following new 
subtitle at the end thereof:

     ``Subtitle F--Standards of Competition for Electric Utilities

``SEC. 151. CERTIFICATION OF COMPETITION BY STATE REGULATORY 
              AUTHORITIES.

    ``(a) Voluntary State Certification.--A State regulatory authority 
may elect to issue a State certification of compliance with standards 
and requirements of competition under this subtitle to a State 
regulated electric utility for which it has ratemaking authority. Such 
election shall be voluntary. Nothing in this subtitle prohibits any 
State regulatory authority from determining that it is not appropriate 
to issue or deny any such certification in the case of any electric 
utility for which the State regulatory authority has ratemaking 
authority. Nothing in this subtitle prohibits or limits any State 
regulatory authority from implementing any other process regarding 
competition for electric utilities subject to the jurisdiction of such 
State regulatory authority.
    ``(b) Criteria for Certification.--After notice and opportunity for 
hearing, the Commission shall establish, by rule, in accordance with 
standards of competition set forth in section 152 criteria for the 
certification by a State regulatory authority that a State regulated 
electric utility for which it has ratemaking authority has met--
            ``(1) the minimum certification requirements of section 
        153,
            ``(2) either--
                    ``(A) the Federal retail competition standard set 
                forth in section 152(a), or
                    ``(B) the Federal divestiture standard set forth in 
                section 152(b); and
            ``(3) such other requirements as the Commission shall 
        prescribe consistent with the public interest and the purposes 
        of this subtitle.

``SEC. 152. FEDERAL STANDARDS OF COMPETITION.

    ``(a) Retail Competition Standard.--(1) A State regulated electric 
utility meets the retail competition standard if the State regulatory 
authority which has ratemaking authority over such utility determines, 
in accordance with criteria established by the Commission under section 
151(b), and after notice and opportunity for hearing, that--
            ``(A) the utility permits competition in retail sales of 
        electric energy to all consumers within its service territory;
            ``(B) the opportunity to build, own, and operate all new 
        generating capacity is open to competition by all sources, and
            ``(C) the electric utility does not gain any advantage over 
        other competitors by virtue of its status as a regulated buyer 
        and seller of electricity in its service territory.
    ``(2) Certification under paragraph (1) of this subsection shall be 
withdrawn if the State regulatory authority finds that--
            ``(A) an electric utility affiliate is competing unfairly 
        by using assets, goods, or services obtained from the electric 
        utility at a price below the market value; or
            ``(B) the electric utility or its affiliate has 
        discriminatory access to any asset, service, or information 
        which would be helpful to a competitor where the access is 
        attributable to the electric utility's status as a regulated 
        integrated monopoly or the asset or information is an essential 
        facility that is not economically duplicable by a competitor.
    ``(b) Divestiture Standard.--A State regulated electric utility 
that is an integrated electric utility that owns or controls a monopoly 
distribution franchise, monopoly transmission facilities, or both, 
meets the divestiture standard of competition if the State regulatory 
authority which has ratemaking authority over such utility determines, 
in accordance with criteria established by the Commission under section 
151(b), and after notice and opportunity for hearing, that the utility 
has--
            ``(1) divested itself of all existing generation facilities 
        and is prohibited under State law from directly or indirectly 
        acquiring ownership or control of any generation facilities for 
        so long as it owns or controls a monopoly distribution 
        franchise or transmission facilities, and
            ``(2) in the case of a utility that owns or controls 
        transmission facilities, adopted open access transmission 
        tariffs that have been approved as just, reasonable, and not 
        unduly preferential.

``SEC. 153. MINIMUM CERTIFICATION REQUIREMENTS.

    ``A State regulatory authority may not issue a certification of 
competition under this subtitle to any electric utility unless the 
authority has made each of the following determinations:
            ``(1) A determination that all suppliers of energy services 
        to the utility or to electricity consumers in the service 
        territory of the utility have both the incentive and 
        opportunity to provide energy-efficiency and renewable energy 
        resources that are less costly on a life-cycle basis than 
        displaced generation.
            ``(2) A determination that nonbypassable charges on use of, 
        or access to, the local distribution services or facilities of 
        the utility are in effect and adequate to ensure sustained and 
        equitable allocation of costs associated with low-income 
        services and other investments, including those in fuel 
        diversity and energy efficiency, that deliver system wide 
        benefits in the form of equity among, or reduced life-cycle 
        costs of service to, electricity consumers in the service 
        territory of the utility: Provided, That the fuel diversity 
        objective may also be met by minimum portfolio standards that 
        ensure maintenance or improvement of current levels of reliance 
        on renewable energy resources.
            ``(3) A determination that any systems of retail 
        competition among electric-service suppliers are structured to 
        protect customers from price discrimination or undue price 
        increases and to ensure that no customer class can avoid its 
        equitable share of the electric utility's legitimate, 
        verifiable, nonmitigatable stranded costs for which there is a 
        reasonable expectation of recovery.
            ``(4) A determination that under applicable State laws and 
        regulations, any recovery of stranded costs associated with 
        existing generation assets, is not contingent on continued 
        operation of the generation assets for which recovery is 
        approved.''.
    (c) Consideration and Determination Regarding Retail Competition 
Standards.--(1) Section 111 (d) of such Act is amended by adding the 
following new paragraph at the end thereof:
            ``(11) Retail competition standards.--Each electric utility 
        shall meet
                    ``(A) the minimum certification requirements of 
                section 153,
                    ``(B) either--
                            ``(i) the Federal retail competition 
                        standard set forth in section 152(a), or
                            ``(ii) the Federal divestiture standard set 
                        forth in section 152(b); and
                            ``(C) such other requirements as the 
                        Commission shall prescribe consistent with the 
                        public interest and the purposes of subtitle 
                        F.''.
    (2) Section 112(b) of such Act is amended by inserting after ``of 
section 111(d)'' in paragraphs (1) and (2) the following ``or after the 
enactment of the Electric Power Competition and Consumer Choice Act of 
1996 in the case of the standards under paragraph (11) of section 
111(d)''.
    (3) Section 112(c) of such Act is amended by inserting ``(or after 
the enactment of the Electric Power Competition and Consumer Choice Act 
of 1996 in the case of the standards under paragraph (11) of section 
111(d))'' after ``enactment of this Act''.
    (4) Section 124 of such Act is amended as follows:
            (A) In the first and second sentences after ``For purposes 
        of'' insert ``any provision of''.
            (B) In the first and second sentences, strike out 
        ``enactment of this Act'' and insert ``enactment of such 
        provision''.
    (d) Transitional Provisions.--(1) Upon passage of this Act, no 
provision of law shall be construed to preempt otherwise applicable 
State authority to review the prudence of any wholesale or retail cost 
incurred by a utility.
    (2) Upon passage of this Act, no Federal statute shall be construed 
to preempt the authority of the Commission to examine existing 
affiliate contracts or transactions.
    (3) Nothing in this Act shall be construed to preempt, void, or 
nullify any existing settlement in part or whole between any currently 
registered or exempt utility holding company and any State authority or 
third party.
    (e) Existing Agreements.--This Act shall have no effect on any 
agreement in existence on the date of enactment of this Act where such 
agreement is in settlement of a proceeding arising under the Public 
Utility Holding Company Act.

SEC. 4. MERGERS AND ACQUISITIONS.

    Section 203 of the Federal Power Act is amended by inserting ``and 
any applicable requirements of subsection (c)'' before ``, it shall 
approve the same'' and by adding the following at the end thereof:
    ``(c) Mergers and Acquisitions.--No person shall acquire an 
interest in a public utility that results in effective control or 
ownership of such utility unless there is an arms-length relationship 
between all parties to such acquisition and--
            ``(1) the Commission first makes the findings set forth in 
        subsection (d); and
            ``(2) such person has transmitted to the Commission the 
        certifications set forth in subsection (e).
    ``(d) Required Commission Findings.--The acquisition described in 
subsection (c)--
            ``(1) shall not create or maintain a situation inconsistent 
        with effective competition in any market in which competition 
        would benefit consumers; and
            ``(2) shall result in substantial cost reductions in the 
        provision of electric service, which cost reductions cannot be 
        achieved at lower cost without the acquisition.
    ``(e) Public Utility Certification.--Each public utility which is 
an affiliate of a person referred to in subsection (c) shall certify to 
the Commission both of the following:
            ``(1) Where the merger involves an acquisition premium, it 
        will not seek to recover such premium, either directly or 
        indirectly (such as by failing to reduce rates by an amount 
        equal to the full amount by which costs have been reduced as a 
        result of the merger), in rates charged for any service for 
        which there is not effective competition, to the extent such 
        premium exceeds the amount which the Commission has determined 
        is necessary to minimize the cost of providing such service.
            ``(2) Each State commission with jurisdiction over any 
        public utility which is an affiliate of any party to the 
        acquisition has found that it has the authority and resources 
        to prevent the acquisition from having an adverse effect on the 
        rates charged to any retail customer of any public utility 
        which is an affiliate of any party to the acquisition, 
        including but not limited to the authority to order the public 
        utility to cease being an affiliate of such party.
    ``(f) Conditions.--The Commission may establish conditions on any 
transaction described in subsection (c) as appropriate or necessary to 
ensure the continuing accuracy of all findings made under subsection 
(d) and certifications made under subsection (e).
    ``(g) Regulations.--The Commission shall promulgate regulations 
concerning the form of certification required by subsection (e), the 
criteria for establishing an arm's-length relationship, the definition 
of ``effective competition'' and any other matter necessary to 
implement its duties under this section.
    ``(h) Defintions.--For purposes of this section:
            ``(1) The term `acquire a substantial interest' means 
        acquire, merge with, or be a recipient of a merger.
            ``(2) The term `substantial interest in a public utility' 
        means any interest, whether in voting stock, nonvoting stock, 
        securities, partnership share, or any evidence of indebtedness, 
        where the value of the interest equals 10 percent or more of 
        the book value of the public utility.''.

SEC. 5. MARKET CONCENTRATION AND AFFILIATE RELATIONSHIPS.

    Section 318 of the Federal Power Act is amended to read as follows:

``SEC. 318. MARKET CONCENTRATION AND AFFILIATE RELATIONSHIPS.

    ``(a) In General.--No public utility, or any affiliate thereof, 
shall use its ownership or control of any resource to create or 
maintain a situation inconsistent with effective competition in any 
market in which competition would benefit consumers.
    ``(b) Commission Actions.--Upon a finding that a public utility, or 
any affiliate thereof, has violated or is capable of violating 
subsection (a), the Commission shall order such public utility to take 
that action, authorized by subsection (c), necessary to eliminate such 
violation.
    ``(c) Authorized Actions.--The Commission may order a public 
utility to take any or all of the following actions:
            ``(1) Sell assets to a nonaffiliated company.
            ``(2) Sell assets to an affiliated company, coupled with 
        establishment of arm's-length relations.
            ``(3) Share access to assets on a nondiscriminatory basis 
        at rates which are just and reasonable, and not unduly 
        discriminatory or preferential.
    ``(d) In General.--The Commission shall establish regulations which 
ensure that with respect to diversification by any public utility or 
affiliate thereof--
            ``(1) the diversification has no adverse impact on electric 
        consumers of any utility;
            ``(2) there is an arm's-length relationship between--
                    ``(A) the transmission service activities, 
                distribution service activities, and retail sales 
                activities of the public utility; and
                    ``(B) any other business activities of the public 
                utility or any affiliate thereof,
            ``(3) such diversification is prohibited unless each State 
        commission that has ratemaking authority over such utility or 
        any affiliate thereof has certified to the Federal Energy 
        Regulatory Commission that it has the authority and resources 
        to prevent such diversification from having an adverse effect 
        on retail customers of such public utility or any affiliate 
        thereof; and
            ``(4) the Commission and all affected State commissions 
        have such access to books and records of the public utility and 
        all affiliates thereof as is necessary to ensure that the 
        foregoing conditions are met and continue to be met.
    ``(e) Violations.--Upon a finding that any of the conditions listed 
in subsection (e) have been violated, the Commission shall take any 
action listed in subsection (g) that it finds necessary or appropriate 
to remedy such violation and prevent future violations.
    ``(f) Contracts With Affiliates.--No contract between any public 
utility and an affiliate, having a total value of $1,000,000 or more, 
shall be valid unless each State commission having authority over 
retail sales of electricity by such public utility has found that--
            ``(1) such contract will have no adverse effect on 
        consumers; and
            ``(2) such State commission has the authority and resources 
        to prevent any such adverse effect.
    ``(g) Costs and Revenues.--No Federal law shall be interpreted to 
prevent a State commission or the Commission, when establishing rates 
for any type of electric service subject to the jurisdiction of such 
State commission or the Commission, from disallowing any costs 
unreasonably incurred, or imputing any revenues unreasonably foregone, 
including costs incurred or revenues foregone as a result of an 
interaffiliate transaction. The previous sentence shall not apply to 
any cost incurred or revenues foregone prior to July 11, 1996, whether 
or not subject to refund or adjustment.
    ``(h) Regulations.--The Commission shall promulgate regulations 
concerning the criteria for establishing an arm's-length relationship, 
the definition of `effective competition' and any other matter 
necessary to implement its duties under this section.''.

SEC. 6. TRANSMISSION ACCESS.

    Section 211 of the Federal Power Act is amended by adding the 
following at the end thereof:
    ``(f) Transmission Access.--The Commission shall promulgate rules 
establish tariffs applicable in the largest feasible regions within 
which a single schedule of transmission rates is available for use by 
buyers or sellers of generation, where such buyers and sellers are 
located within such region. Such tariffs shall be designed to--
            ``(1) ensure the economical use of existing generating 
        facilities, and the economical location and use of future 
        generating facilities;
            ``(2) ensure the full recovery by owners of transmission 
        facilities of all prudent transmission costs; and
            ``(3) prevent multiple charges for transmission service 
        based on the number of transmission owners rather than the 
        actual transmission cost.''.

SEC. 7. ACCESS TO BOOKS AND RECORDS.

    (a) State Commissions.--Section 201(g)(1) of the Federal Power Act 
is amended by adding the following at the end thereof: ``A public 
utility, and each affiliate or associate thereof, shall produce for 
examination such personnel, books, accounts, memoranda, contracts, 
records, and any other materials upon an order of any State commission 
finding that production of such materials will assist the State 
commission in carrying out its responsibilities. The cost of any audit 
ordered by a State commission under either this section or under State 
law, shall be borne by the public utility and its affiliates.''.
    (b) FERC.--Section 301 is amended by adding the following at the 
end thereof:
    ``(d) A public utility, and each affiliate or associate thereof, 
shall produce for examination such personnel, books, accounts, 
memoranda, contracts, records, and any other materials upon an order of 
the Commission finding that production of such materials will assist 
the Commission in carrying out its responsibilities. The cost of any 
audit ordered by the Commission under this section, shall be borne by 
the public utility and its affiliates.''.

SEC. 8. DEFINITIONS.

    Section 3 of the Federal Power Act is amended by adding the 
following at the end thereof:
            ``(26) Except as otherwise specifically provided in this 
        Act, the term `affiliate' means a person that (directly or 
        indirectly) owns or controls, is owned or controlled by, or is 
        under common ownership or control with, another person. For 
        purposes of this paragraph, the term `own' means to own an 
        equity interest (or the equivalent thereof) of more than 10 
        percent.
            ``(27) The term `arm's-length relationship' means a 
        relationship between--
                    ``(A) those business activities conducted by a 
                public utility for its transmission service customers, 
                distribution service customers, or retail electric 
                customers; and
                    ``(B) any other business activities conducted by 
                the same corporation or any affiliate or associate 
                company, where--
                            ``(i) such business activities are 
                        conducted in compliance with Commission rules 
                        ensuring that--
                                    ``(I) no business activity has any 
                                advantage over its competitors due to 
                                its affiliation with a business which 
                                serves transmission service customers, 
                                distribution service customers, or 
                                retail electric customers who do not 
                                have the right to choose their own 
                                electric supplier; and
                                    ``(II) no transmission service 
                                customer, distribution service customer 
                                or retail electric customer who do not 
                                have the right to choose his own 
                                electric supplier is made worse off due 
                                to its affiliation with a competitive 
                                enterprise; and
                            ``(ii) the public utility has certified 
                        that with respect to any resource (whether 
                        tangible or intangible) owned, or employees 
                        employed, by a public utility which is an 
                        affiliate or associate of such person, any cost 
                        of which has been recovered from the captive 
                        customers of such public utility (or, in the 
                        case of a registered holding company, from the 
                        captive customers of a public utility which is 
                        an affiliate or associate of such public 
                        utility), no use of such resources or employees 
                        shall be made by such public utility or any 
                        affiliate or associate thereof for any purpose 
                        other than serving such native load customers, 
                        nor shall such resources or employees be sold 
                        or transferred to any affiliate or associate 
                        therefore, unless such public utility remits to 
                        such captive customers, through a procedure 
                        found satisfactory by each affected State 
                        commission responsible for setting the rates 
                        for such customers, the higher of the cost 
                        attributable to such use or the market value of 
                        such use.
            ``(27) The term `diversification' refers to the conduct of 
        any business activity other than the generation, transmission, 
        distribution or sale of electric energy.
            ``(28) The term `economic risk' includes the risk, in any 
        form, that the cost of a resource borne by the consumer at any 
        time in the life of the resource will be below the market value 
        of the resource.
            ``(29) The term `effective competition' refers to a market 
        in which no profit-maximizing seller could impose a significant 
        and nontransitory increase in price. In determining whether an 
        action is inconsistent with effective competition, the 
        Commission shall take into account the size of market share and 
        the extent of any barriers to entry. For purposes of this 
        definition, behavior which is mandated by State law is not 
        inconsistent with effective competition.
            ``(30) The term `captive customers' means the group of 
        customers of a pubic utility who do not have the right to 
        choose their own supplier of electricity.''.
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