I

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.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Electric Power Com5 petition and Consumer Choice Act of 1996’’.

6 SEC. 2. FINDINGS.

7 The Congress finds that equitable rates for electric

8 consumers and increased efficiency in the use of tech-
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1 nology and resources for the generation of electric power

2 require—

3 (1) increased reliance on competition and mar4 ket forces rather than traditional rate-of-return reg5 ulation of utility monopolies to generate the most ef6 ficient, low cost, and reliable electricity for rate7 payers;

8 (2) access to transmission and distribution fa9 cilities for all suppliers and marketers of electricity

10 with pricing and terms and conditions on a com11 parable basis with those who own or control such fa12 cilities;

13 (3) a program to promote fuel diversity and

14 conservation and environmental protection through

15 the encouragement of renewable technologies and

16 other environmentally benign generation resources;

17 (4) the ability of electric utilities to seek to re18 cover legitimate, verifiable, and nonmitigatable

19 stranded costs for which there is a reasonable expec20 tation of recovery;

21 (5) appropriate Federal and State regulation of

22 electric utilities to promote development of a com23 petitive electric generation market and protect con24 sumers against excessive charges by electric utility

25 companies who exercise continued monopoly control
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1 over electric power transmission and distribution;

2 and

3 (6) reform of Federal and State electric utility

4 regulatory laws and regulations, to promote competi5 tion and to prevent anticompetitive behavior by enti6 ties with market power.

7 SEC. 3. PUHCA NOT APPLICABLE IN COMPETITIVE MAR8 KETS.

9 (a) APPLICATION OF PUHCA.—The Public Utility

10 Holding Company Act of 1935 (15 U.S.C. 79 et seq.) shall

11 not apply to any electric utility company and any holding

12 company of such electric utility company if such electric

13 utility company and each subsidiary, associate, and affili14 ate of such electric utility company or of such holding

15 company has received, in accordance with subtitle F of

16 title I of the Public Utility Regulatory Policies Act of

17 1978, a Certification of Competition from each State regu18 latory authority which has ratemaking authority over such

19 company, subsidiary, associate, or affiliate, as the case

20 may be. The terms used in this subsection have the same

21 meaning as when used in the Public Utility Holding Com22 pany Act of 1935.

23 (b) CERTIFICATION OF COMPETITION.—Title I of the

24 Public Utility Regulatory Policies Act of 1978 is amended

25 by adding the following new subtitle at the end thereof:
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1 ‘‘Subtitle F—Standards of

2 Competition for Electric Utilities

3 ‘‘SEC. 151. CERTIFICATION OF COMPETITION BY STATE

4 REGULATORY AUTHORITIES.

5 ‘‘(a) VOLUNTARY STATE CERTIFICATION.—A State

6 regulatory authority may elect to issue a State certifi7 cation of compliance with standards and requirements of

8 competition under this subtitle to a State regulated elec9 tric utility for which it has ratemaking authority. Such

10 election shall be voluntary. Nothing in this subtitle pro11 hibits any State regulatory authority from determining

12 that it is not appropriate to issue or deny any such certifi13 cation in the case of any electric utility for which the State

14 regulatory authority has ratemaking authority. Nothing in

15 this subtitle prohibits or limits any State regulatory au16 thority from implementing any other process regarding

17 competition for electric utilities subject to the jurisdiction

18 of such State regulatory authority.

19 ‘‘(b) CRITERIA FOR CERTIFICATION.—After notice

20 and opportunity for hearing, the Commission shall estab21 lish, by rule, in accordance with standards of competition

22 set forth in section 152 criteria for the certification by

23 a State regulatory authority that a State regulated electric

24 utility for which it has ratemaking authority has met—
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1 ‘‘(1) the minimum certification requirements of

2 section 153,

3 ‘‘(2) either—

4 ‘‘(A) the Federal retail competition stand5 ard set forth in section 152(a), or

6 ‘‘(B) the Federal divestiture standard set

7 forth in section 152(b); and

8 ‘‘(3) such other requirements as the Commis9 sion shall prescribe consistent with the public inter10 est and the purposes of this subtitle.

11 ‘‘SEC. 152. FEDERAL STANDARDS OF COMPETITION.

12 ‘‘(a) RETAIL COMPETITION STANDARD.—(1) A State

13 regulated electric utility meets the retail competition

14 standard if the State regulatory authority which has rate15 making authority over such utility determines, in accord16 ance with criteria established by the Commission under

17 section 151(b), and after notice and opportunity for hear18 ing, that—

19 ‘‘(A) the utility permits competition in retail

20 sales of electric energy to all consumers within its

21 service territory;

22 ‘‘(B) the opportunity to build, own, and operate

23 all new generating capacity is open to competition by

24 all sources, and
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1 ‘‘(C) the electric utility does not gain any ad2 vantage over other competitors by virtue of its status

3 as a regulated buyer and seller of electricity in its

4 service territory.

5 ‘‘(2) Certification under paragraph (1) of this sub6 section shall be withdrawn if the State regulatory author7 ity finds that—

8 ‘‘(A) an electric utility affiliate is competing un9 fairly by using assets, goods, or services obtained

10 from the electric utility at a price below the market

11 value; or

12 ‘‘(B) the electric utility or its affiliate has dis13 criminatory access to any asset, service, or informa14 tion which would be helpful to a competitor where

15 the access is attributable to the electric utility’s sta16 tus as a regulated integrated monopoly or the asset

17 or information is an essential facility that is not eco18 nomically duplicable by a competitor.

19 ‘‘(b) DIVESTITURE STANDARD.—A State regulated

20 electric utility that is an integrated electric utility that

21 owns or controls a monopoly distribution franchise, mo22 nopoly transmission facilities, or both, meets the divesti23 ture standard of competition if the State regulatory au24 thority which has ratemaking authority over such utility

25 determines, in accordance with criteria established by the
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1 Commission under section 151(b), and after notice and

2 opportunity for hearing, that the utility has—

3 ‘‘(1) divested itself of all existing generation fa4 cilities and is prohibited under State law from di5 rectly or indirectly acquiring ownership or control of

6 any generation facilities for so long as it owns or

7 controls a monopoly distribution franchise or trans8 mission facilities, and

9 ‘‘(2) in the case of a utility that owns or con10 trols transmission facilities, adopted open access

11 transmission tariffs that have been approved as just,

12 reasonable, and not unduly preferential.

13 ‘‘SEC. 153. MINIMUM CERTIFICATION REQUIREMENTS.

14 ‘‘A State regulatory authority may not issue a certifi15 cation of competition under this subtitle to any electric

16 utility unless the authority has made each of the following

17 determinations:

18 ‘‘(1) A determination that all suppliers of en19 ergy services to the utility or to electricity consumers

20 in the service territory of the utility have both the

21 incentive and opportunity to provide energy-effi22 ciency and renewable energy resources that are less

23 costly on a life-cycle basis than displaced generation.

24 ‘‘(2) A determination that nonbypassable

25 charges on use of, or access to, the local distribution
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1 services or facilities of the utility are in effect and

2 adequate to ensure sustained and equitable alloca3 tion of costs associated with low-income services and

4 other investments, including those in fuel diversity

5 and energy efficiency, that deliver system wide bene6 fits in the form of equity among, or reduced life7 cycle costs of service to, electricity consumers in the

8 service territory of the utility: Provided, That the

9 fuel diversity objective may also be met by minimum

10 portfolio standards that ensure maintenance or im11 provement of current levels of reliance on renewable

12 energy resources.

13 ‘‘(3) A determination that any systems of retail

14 competition among electric-service suppliers are

15 structured to protect customers from price discrimi16 nation or undue price increases and to ensure that

17 no customer class can avoid its equitable share of

18 the electric utility’s legitimate, verifiable,

19 nonmitigatable stranded costs for which there is a

20 reasonable expectation of recovery.

21 ‘‘(4) A determination that under applicable

22 State laws and regulations, any recovery of stranded

23 costs associated with existing generation assets, is

24 not contingent on continued operation of the genera25 tion assets for which recovery is approved.’’.
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1 (c) CONSIDERATION AND DETERMINATION REGARD2 ING RETAIL COMPETITION STANDARDS.—(1) Section 111

3 (d) of such Act is amended by adding the following new

4 paragraph at the end thereof:

5 ‘‘(11) RETAIL COMPETITION STANDARDS.—

6 Each electric utility shall meet

7 ‘‘(A) the minimum certification require8 ments of section 153,

9 ‘‘(B) either—

10 ‘‘(i) the Federal retail competition

11 standard set forth in section 152(a), or

12 ‘‘(ii) the Federal divestiture standard

13 set forth in section 152(b); and

14 ‘‘(C) such other requirements as the

15 Commission shall prescribe consistent with

16 the public interest and the purposes of

17 subtitle F.’’.

18 (2) Section 112(b) of such Act is amended by insert19 ing after ‘‘of section 111(d)’’ in paragraphs (1) and (2)

20 the following ‘‘or after the enactment of the Electric

21 Power Competition and Consumer Choice Act of 1996 in

22 the case of the standards under paragraph (11) of section

23 111(d)’’.

24 (3) Section 112(c) of such Act is amended by insert25 ing ‘‘(or after the enactment of the Electric Power Com-
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1 petition and Consumer Choice Act of 1996 in the case of

2 the standards under paragraph (11) of section 111(d))’’

3 after ‘‘enactment of this Act’’.

4 (4) Section 124 of such Act is amended as follows:

5 (A) In the first and second sentences after

6 ‘‘For purposes of’’ insert ‘‘any provision of’’.

7 (B) In the first and second sentences, strike out

8 ‘‘enactment of this Act’’ and insert ‘‘enactment of

9 such provision’’.

10 (d) TRANSITIONAL PROVISIONS.—(1) Upon passage

11 of this Act, no provision of law shall be construed to pre12 empt otherwise applicable State authority to review the

13 prudence of any wholesale or retail cost incurred by a util14 ity.

15 (2) Upon passage of this Act, no Federal statute shall

16 be construed to preempt the authority of the Commission

17 to examine existing affiliate contracts or transactions.

18 (3) Nothing in this Act shall be construed to preempt,

19 void, or nullify any existing settlement in part or whole

20 between any currently registered or exempt utility holding

21 company and any State authority or third party.

22 (e) EXISTING AGREEMENTS.—This Act shall have no

23 effect on any agreement in existence on the date of enact24 ment of this Act where such agreement is in settlement
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1 of a proceeding arising under the Public Utility Holding

2 Company Act.

3 SEC. 4. MERGERS AND ACQUISITIONS.

4 Section 203 of the Federal Power Act is amended by

5 inserting ‘‘and any applicable requirements of subsection

6 (c)’’ before ‘‘, it shall approve the same’’ and by adding

7 the following at the end thereof:

8 ‘‘(c) MERGERS AND ACQUISITIONS.—No person shall

9 acquire an interest in a public utility that results in effec10 tive control or ownership of such utility unless there is

11 an arms-length relationship between all parties to such ac12 quisition and—

13 ‘‘(1) the Commission first makes the findings

14 set forth in subsection (d); and

15 ‘‘(2) such person has transmitted to the Com16 mission the certifications set forth in subsection (e).

17 ‘‘(d) REQUIRED COMMISSION FINDINGS.—The acqui18 sition described in subsection (c)—

19 ‘‘(1) shall not create or maintain a situation in20 consistent with effective competition in any market

21 in which competition would benefit consumers; and

22 ‘‘(2) shall result in substantial cost reductions

23 in the provision of electric service, which cost reduc24 tions cannot be achieved at lower cost without the

25 acquisition.
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1 ‘‘(e) PUBLIC UTILITY CERTIFICATION.—Each public

2 utility which is an affiliate of a person referred to in sub3 section (c) shall certify to the Commission both of the fol4 lowing:

5 ‘‘(1) Where the merger involves an acquisition

6 premium, it will not seek to recover such premium,

7 either directly or indirectly (such as by failing to re8 duce rates by an amount equal to the full amount

9 by which costs have been reduced as a result of the

10 merger), in rates charged for any service for which

11 there is not effective competition, to the extent such

12 premium exceeds the amount which the Commission

13 has determined is necessary to minimize the cost of

14 providing such service.

15 ‘‘(2) Each State commission with jurisdiction

16 over any public utility which is an affiliate of any

17 party to the acquisition has found that it has the au18 thority and resources to prevent the acquisition from

19 having an adverse effect on the rates charged to any

20 retail customer of any public utility which is an affil21 iate of any party to the acquisition, including but

22 not limited to the authority to order the public util23 ity to cease being an affiliate of such party.

24 ‘‘(f) CONDITIONS.—The Commission may establish

25 conditions on any transaction described in subsection (c)
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1 as appropriate or necessary to ensure the continuing accu2 racy of all findings made under subsection (d) and certifi3 cations made under subsection (e).

4 ‘‘(g) REGULATIONS.—The Commission shall promul5 gate regulations concerning the form of certification re6 quired by subsection (e), the criteria for establishing an

7 arm’s-length relationship, the definition of ‘‘effective com8 petition’’ and any other matter necessary to implement its

9 duties under this section.

10 ‘‘(h) DEFINTIONS.—For purposes of this section:

11 ‘‘(1) The term ‘acquire a substantial interest’

12 means acquire, merge with, or be a recipient of a

13 merger.

14 ‘‘(2) The term ‘substantial interest in a public

15 utility’ means any interest, whether in voting stock,

16 nonvoting stock, securities, partnership share, or any

17 evidence of indebtedness, where the value of the in18 terest equals 10 percent or more of the book value

19 of the public utility.’’.

20 SEC. 5. MARKET CONCENTRATION AND AFFILIATE RELA21 TIONSHIPS.

22 Section 318 of the Federal Power Act is amended to

23 read as follows:
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1 ‘‘SEC. 318. MARKET CONCENTRATION AND AFFILIATE RELA2 TIONSHIPS.

3 ‘‘(a) IN GENERAL.—No public utility, or any affiliate

4 thereof, shall use its ownership or control of any resource

5 to create or maintain a situation inconsistent with effec6 tive competition in any market in which competition would

7 benefit consumers.

8 ‘‘(b) COMMISSION ACTIONS.—Upon a finding that a

9 public utility, or any affiliate thereof, has violated or is

10 capable of violating subsection (a), the Commission shall

11 order such public utility to take that action, authorized

12 by subsection (c), necessary to eliminate such violation.

13 ‘‘(c) AUTHORIZED ACTIONS.—The Commission may

14 order a public utility to take any or all of the following

15 actions:

16 ‘‘(1) Sell assets to a nonaffiliated company.

17 ‘‘(2) Sell assets to an affiliated company, cou18 pled with establishment of arm’s-length relations.

19 ‘‘(3) Share access to assets on a nondiscrim20 inatory basis at rates which are just and reasonable,

21 and not unduly discriminatory or preferential.

22 ‘‘(d) IN GENERAL.—The Commission shall establish

23 regulations which ensure that with respect to diversifica24 tion by any public utility or affiliate thereof—

25 ‘‘(1) the diversification has no adverse impact

26 on electric consumers of any utility;
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1 ‘‘(2) there is an arm’s-length relationship be2 tween—

3 ‘‘(A) the transmission service activities,

4 distribution service activities, and retail sales

5 activities of the public utility; and

6 ‘‘(B) any other business activities of the

7 public utility or any affiliate thereof,

8 ‘‘(3) such diversification is prohibited unless

9 each State commission that has ratemaking author10 ity over such utility or any affiliate thereof has cer11 tified to the Federal Energy Regulatory Commission

12 that it has the authority and resources to prevent

13 such diversification from having an adverse effect on

14 retail customers of such public utility or any affiliate

15 thereof; and

16 ‘‘(4) the Commission and all affected State

17 commissions have such access to books and records

18 of the public utility and all affiliates thereof as is

19 necessary to ensure that the foregoing conditions are

20 met and continue to be met.

21 ‘‘(e) VIOLATIONS.—Upon a finding that any of the

22 conditions listed in subsection (e) have been violated, the

23 Commission shall take any action listed in subsection (g)

24 that it finds necessary or appropriate to remedy such vio25 lation and prevent future violations.
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1 ‘‘(f) CONTRACTS WITH AFFILIATES.—No contract

2 between any public utility and an affiliate, having a total

3 value of $1,000,000 or more, shall be valid unless each

4 State commission having authority over retail sales of elec5 tricity by such public utility has found that—

6 ‘‘(1) such contract will have no adverse effect

7 on consumers; and

8 ‘‘(2) such State commission has the authority

9 and resources to prevent any such adverse effect.

10 ‘‘(g) COSTS AND REVENUES.—No Federal law shall

11 be interpreted to prevent a State commission or the Com12 mission, when establishing rates for any type of electric

13 service subject to the jurisdiction of such State commis14 sion or the Commission, from disallowing any costs unrea15 sonably incurred, or imputing any revenues unreasonably

16 foregone, including costs incurred or revenues foregone as

17 a result of an interaffiliate transaction. The previous sen18 tence shall not apply to any cost incurred or revenues fore19 gone prior to July 11, 1996, whether or not subject to

20 refund or adjustment.

21 ‘‘(h) REGULATIONS.—The Commission shall promul22 gate regulations concerning the criteria for establishing an

23 arm’s-length relationship, the definition of ‘effective com24 petition’ and any other matter necessary to implement its

25 duties under this section.’’.
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1 SEC. 6. TRANSMISSION ACCESS.

2 Section 211 of the Federal Power Act is amended by

3 adding the following at the end thereof:

4 ‘‘(f) TRANSMISSION ACCESS.—The Commission shall

5 promulgate rules establish tariffs applicable in the largest

6 feasible regions within which a single schedule of trans7 mission rates is available for use by buyers or sellers of

8 generation, where such buyers and sellers are located with9 in such region. Such tariffs shall be designed to—

10 ‘‘(1) ensure the economical use of existing gen11 erating facilities, and the economical location and

12 use of future generating facilities;

13 ‘‘(2) ensure the full recovery by owners of

14 transmission facilities of all prudent transmission

15 costs; and

16 ‘‘(3) prevent multiple charges for transmission

17 service based on the number of transmission owners

18 rather than the actual transmission cost.’’.

19 SEC. 7. ACCESS TO BOOKS AND RECORDS.

20 (a) STATE COMMISSIONS.—Section 201(g)(1) of the

21 Federal Power Act is amended by adding the following at

22 the end thereof: ‘‘A public utility, and each affiliate or as23 sociate thereof, shall produce for examination such person24 nel, books, accounts, memoranda, contracts, records, and

25 any other materials upon an order of any State commis26 sion finding that production of such materials will assist
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1 the State commission in carrying out its responsibilities.

2 The cost of any audit ordered by a State commission

3 under either this section or under State law, shall be borne

4 by the public utility and its affiliates.’’.

5 (b) FERC.—Section 301 is amended by adding the

6 following at the end thereof:

7 ‘‘(d) A public utility, and each affiliate or associate

8 thereof, shall produce for examination such personnel,

9 books, accounts, memoranda, contracts, records, and any

10 other materials upon an order of the Commission finding

11 that production of such materials will assist the Commis12 sion in carrying out its responsibilities. The cost of any

13 audit ordered by the Commission under this section, shall

14 be borne by the public utility and its affiliates.’’.

15 SEC. 8. DEFINITIONS.

16 Section 3 of the Federal Power Act is amended by

17 adding the following at the end thereof:

18 ‘‘(26) Except as otherwise specifically provided

19 in this Act, the term ‘affiliate’ means a person that

20 (directly or indirectly) owns or controls, is owned or

21 controlled by, or is under common ownership or con22 trol with, another person. For purposes of this para23 graph, the term ‘own’ means to own an equity inter24 est (or the equivalent thereof) of more than 10 per25 cent.
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1 ‘‘(27) The term ‘arm’s-length relationship’

2 means a relationship between—

3 ‘‘(A) those business activities conducted by

4 a public utility for its transmission service cus5 tomers, distribution service customers, or retail

6 electric customers; and

7 ‘‘(B) any other business activities con8 ducted by the same corporation or any affiliate

9 or associate company, where—

10 ‘‘(i) such business activities are con11 ducted in compliance with Commission

12 rules ensuring that—

13 ‘‘(I) no business activity has any

14 advantage over its competitors due to

15 its affiliation with a business which

16 serves transmission service customers,

17 distribution service customers, or re18 tail electric customers who do not

19 have the right to choose their own

20 electric supplier; and

21 ‘‘(II) no transmission service cus22 tomer, distribution service customer

23 or retail electric customer who do not

24 have the right to choose his own elec25 tric supplier is made worse off due to
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1 its affiliation with a competitive enter2 prise; and

3 ‘‘(ii) the public utility has certified

4 that with respect to any resource (whether

5 tangible or intangible) owned, or employees

6 employed, by a public utility which is an

7 affiliate or associate of such person, any

8 cost of which has been recovered from the

9 captive customers of such public utility (or,

10 in the case of a registered holding com11 pany, from the captive customers of a pub12 lic utility which is an affiliate or associate

13 of such public utility), no use of such re14 sources or employees shall be made by

15 such public utility or any affiliate or asso16 ciate thereof for any purpose other than

17 serving such native load customers, nor

18 shall such resources or employees be sold

19 or transferred to any affiliate or associate

20 therefore, unless such public utility remits

21 to such captive customers, through a pro22 cedure found satisfactory by each affected

23 State commission responsible for setting

24 the rates for such customers, the higher of
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1 the cost attributable to such use or the

2 market value of such use.

3 ‘‘(27) The term ‘diversification’ refers to the

4 conduct of any business activity other than the gen5 eration, transmission, distribution or sale of electric

6 energy.

7 ‘‘(28) The term ‘economic risk’ includes the

8 risk, in any form, that the cost of a resource borne

9 by the consumer at any time in the life of the re10 source will be below the market value of the re11 source.

12 ‘‘(29) The term ‘effective competition’ refers to

13 a market in which no profit-maximizing seller could

14 impose a significant and nontransitory increase in

15 price. In determining whether an action is inconsist16 ent with effective competition, the Commission shall

17 take into account the size of market share and the

18 extent of any barriers to entry. For purposes of this

19 definition, behavior which is mandated by State law

20 is not inconsistent with effective competition.

21 ‘‘(30) The term ‘captive customers’ means the

22 group of customers of a pubic utility who do not

23 have the right to choose their own supplier of elec24 tricity.’’.

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