MISSISSIPPI LEGISLATURE

1997 Regular Session

To: Public Utilities

By: Senator(s) Gunn

Senate Bill 2395

AN ACT TO CREATE THE ELECTRIC INDUSTRY RESTRUCTURING ACT; TO PROVIDE FOR LEGISLATIVE FINDINGS AND DECLARATIONS; TO REQUIRE THE PUBLIC SERVICE COMMISSION TO ADOPT A PLAN FOR RESTRUCTURING THE ELECTRIC UTILITY INDUSTRY; TO REQUIRE ELECTRIC UTILITIES TO FILE WITH THE PUBLIC SERVICE COMMISSION A RESTRUCTURING PLAN PROVIDING FOR CUSTOMER CHOICE; TO PROVIDE THAT ALL RETAIL CUSTOMERS SHALL BE PERMITTED TO CHOOSE THEIR PROVIDERS OF ELECTRIC GENERATION SERVICES BY A CERTAIN DATE; TO PROVIDE THAT LOCAL UTILITIES SHALL BE RELIEVED OF THEIR TRADITIONAL OBLIGATION TO SERVE BUT SHALL HAVE AN OBLIGATION TO CONNECT ALL CUSTOMERS WITHIN THEIR SERVICE TERRITORY ON NON-DISCRIMINATORY TERMS AND CONDITIONS; TO REQUIRE ELECTRIC UTILITIES TO FILE WITH THE PUBLIC SERVICE COMMISSION A PLAN FOR RECOVERING STRANDED COSTS; TO PROVIDE FOR CERTAIN CRITERIA AND METHODOLOGY FOR RECOVERING STRANDED COSTS; TO CREATE A LEGISLATIVE OVERSIGHT COMMITTEE ON ELECTRIC UTILITY RESTRUCTURING; AND FOR RELATED PURPOSES. 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:

SECTION 1. Short Title.

This act shall be referred to as the Electric Industry Restructuring Act.

SECTION 2. Statement of Purpose.

The Legislature finds and declares as follows:

(a) The generation of electricity is not a natural monopoly and should not be regulated as if it were a natural monopoly.

(b) Regulation of the monopoly electric industry has resulted in uncompetitive rates which vary considerably among electric utilities.

(c) High rates and rate disparities hinder the sustained and orderly economic development of Mississippi.

(d) Restructuring the electric generation industry to facilitate retail competition will lower prices, increase customer choice and improve the quality and variety of generation services available, thereby promoting the public interest.

(e) It is technically and administratively practical to restructure the electric industry in Mississippi to promote retail customer choice.

(f) Competition in the retail market for electricity will have long-term benefits for the economy of Mississippi, including lower prices for electrical service to all consumers, more efficient use of resources, innovation in service and supply and a more diverse and decentralized electricity supply system.

(g) A competitive market place is the most efficient way to lower prices, increase value for consumers and reduce the cost of regulatory oversight.

(h) The economy of Mississippi is dependent upon the availability of reliable, low-cost energy which is essential to the economic viability of the state.

(i) Restructuring of electric utilities to provide greater competition and more efficient regulation is a nationwide phenomenon and Mississippi must aggressively pursue restructuring and increased customer choice in order to provide electric service at lower and more competitive rates.

(j) It is in the public interest to permit all retail electric customers to choose their supplier of electric generation services in a competitive market and to continue to regulate electric transmission and distribution in order to provide safe and reliable electricity at the lowest possible prices for all consumers while maintaining the consumer services of customer assistance and reliability.

(k) It is the policy of the Legislature to authorize and permit competition in the supply of electricity to consumers in this state only in accordance with the following principles, and subsequent sections of this act:

(i) Competition. Competitive markets are preferred to regulation. Regulation should serve as a substitute only in those circumstances where competition cannot provide results that serve the best interests of all consumers.

(ii) Customer choice. To realize the full benefits of competition, all customers should be able to choose among and access a wide array of competing, qualified suppliers of electricity. All customers must have the opportunity to benefit from competition, which should be implemented in a fair and equitable manner. Customers should be made aware of their new rights, and the benefits and risks of customer choice.

(iii) Unbundling of services. Generation services should become fully competitive, while the provision of transmission and distribution should accomplish the triple objectives of open access, comparability of service for all users, and nondiscriminatory pricing, while recognizing that federal and state jurisdictional uncertainties over wholesale and retail services should be resolved. Companies which own both transmission and distribution, as well as generation, should not be allowed to use any monopoly position in those services as a barrier to competition in generation. The determinations of corporate structure, excluding market power issues, should be left to the marketplace and not dictated by the government.

(iv) Open access. Customer access to alternative suppliers of electricity requires open access to the transmission grid and distribution system and is critical to creating a fully competitive market structure. Owners, operators and providers of transmission and distribution facilities and services, including all federal, state and local public power agencies, should be required to provide access to those facilities, ancillary services and other services which are not available competitively to any buyer or seller on a nondiscriminatory and comparable basis.

(v) Fair dealing. Competition among electric suppliers and buyers must be fair, nondiscriminatory and consistent. In order to ensure a level playing field, all competitors should be subject to the same legal, regulatory and tax treatments. Subsidies and disparate regulation or legal requirements that favor certain competitors or disadvantage others should be eliminated by the states. No competitor shall be allowed access to a utility's customers unless comparable and reciprocal access is provided to that competitor's customers.

(vi) Reliability and safety. Reliable and safe electric service must be maintained or improved. State and federal regulators should have the necessary authority to assure the reliability and safety of the electric system.

(vii) Recovery of stranded costs. Following the process established herein, the utilities are entitled to recover prudently incurred, net, verifiable stranded costs and investments. The state Legislature should have the responsibility to determine the just and reasonable recovery mechanisms to determine net stranded costs and investments, including mitigation incentives. It should provide for a public process that applies to investments and costs stranded by competition. It should set the time frame involved for an expeditious transition. And, it should employ mechanisms that do not disadvantage one class of customer or supplier over another. The amount of recovery will be determined by the state's public utility regulatory body, or other appropriate agency designated by the Legislature.

(viii) Sanctity of contract. The rights and obligations embodied in contractual arrangements are and will be an indispensable element of an effective competitive power market. Legislation should not interfere with the rights of parties under contract.

(ix) Environmental and social policy. The energy marketplace should not be used as a vehicle for accomplishing government mandated, government sponsored, consumer or taxpayer subsidized, social or environmental programs. These programs should not be incorporated in electric utility rate structures but instead be unbundled from rates. The costs of these social programs, such as maintenance of minimum living standards, or environmental programs should be financed by legislatively enacted separate charges.

(x) Transmission and distribution pricing. To the extent that states have jurisdiction over transmission and distribution pricing, pricing methodologies should be encouraged to enhance reliability, compensate transmission owners fairly, allow for widest possible markets and relieve transmission congestion.

(xi) Transition to competition/date certain. Each state should establish a date certain to accomplish the transition to competition. A specific, limited time frame should be established for the transition from a regulated monopoly to competition during which there should be some certainty in rates, a resolution of outstanding federal and state issues, the securing of appropriate regulatory approvals, and establishment of an appropriate market structure. In addition, sufficient measures to preserve the integrity, safety and reliability of the state's electric system should be established.

(xii) Obligation to connect. In a competitive retail market, local utilities should be relieved of the traditional obligation to serve the public, which should be replaced with an obligation to connect, and distribution should remain a regulated monopoly service for incumbent providers.

(xiii) State tax revenues. Each state electing to adopt electric competition should assess the amount of state and local tax revenues derived from previously regulated electric suppliers that will enter the competitive market and note how revenues to each state or local government entity are changed by restructuring to competition.

(xiv) Federal barriers. The repeal of the Public Utility Holding Company Act (PUHCA) and the Public Utility Regulatory Policy Act (PURPA) and the reform of other federal laws that impede competitive electric markets must be accomplished to complement state plans for the transition to customer choice. The process of restructuring generation services with consumer choice has profound interstate implications. Assured reliability of the grid, consumer and supplier access to sufficiently wide markets, a competitive playing field free of uneven subsidies and anti-competitive advantages, and resolution of existing state/federal jurisdiction over transmission and distribution services are all essential to workable competition. States must cooperate with Congress to remove federal barriers which must be part of the transition to competition.

SECTION 3. Standards for Retail Electric Competition Plans.

(1) Competitive market. No later than July 1, 2000, electric generation shall be deregulated and subject to the competitive market in accordance with the provisions of the industry restructuring plan developed by the Public Service Commission.

(2) Adoption. The Public Service Commission shall adopt and publish a plan no later than July 1, 1998, for restructuring the Mississippi electric industry, consistent with the policies and procedures established under this act, with the objective of having full customer choice no later than July 1, 2000. The plan shall address appropriate steps to achieve an orderly transition to a competitive market.

(3) Contents of plan. The plan shall incorporate the substance of this act and may include other provisions as the Public Service Commission shall deem appropriate and necessary to expedite the transition to full customer choice. Such plan shall, during the period of transition, but no later than July 1, 1998, address transition issues, including:

(a) Rate certainty;

(b) Outstanding federal and state issues;

(c) Appropriate regulatory approvals; and

(d) Legislative intent and public comment.

(4) Consumer education and information. The plan developed by the Public Service Commission shall include a program for making retail customers aware of their new rights and the benefits and risks of customer choice.

SECTION 4. Electric Utility Restructuring Plans.

Not later than January 1, 1997, each electric corporation shall file a utility restructuring plan for review and comment before the Public Service Commission providing for customer choice as set forth herein and establishing a protocol for the disaggregation of services as required by this act. Such plan shall include:

(a) A schedule for the introduction of customer choice for all of the customers currently served by the electric corporation; and

(b) The manner in which it will otherwise comply with each provision of this act.

SECTION 5. Retail Customer Choice.

All retail customers shall be permitted to choose their providers of electric generation services no later than July 1, 2000, through the following means:

(a) Bilateral contract. Retail customers may negotiate a bilateral contract with a generator of electricity, under which contract electricity shall be transmitted and distributed to the retail customer, subject to the restrictions contained in this section.

(b) Market aggregator. Retail customers may choose to receive generation and other energy services from a market aggregator. Market aggregators may generate electricity directly, buy and sell electricity or enter into financial contracts for electric generation resources. Market aggregators may be brokers, cooperatives, buying clubs, municipalities or other entities which buy or arrange for electric generation services through a power pool or through direct contracts.

(c) Default provider. A default provider or providers for any local distribution customer, who has not chosen an alternative source of generation, shall be established by the commission. The commission shall set forth standards to ensure the participation of default providers serving all classes of customers.

SECTION 6. Supplier Registration.

(1) All suppliers of electric supply and power delivery or ancillary services shall register with the Public Service Commission. Registration shall include the following:

(a) Applicant's technical ability to obtain and deliver electricity and provide any other proposed service;

(b) Documentation of financial capability of the applicant to provide the proposed services; and

(c) A description of the form of ownership.

(2) The Public Service Commission shall not limit market entry for economic reasons nor regulate generation prices.

SECTION 7. Unbundling of Services.

(1) General rule. The Public Service Commission plan for restructuring of the electric utilities shall require that all existing electric utilities shall operationally and/or financially separate electric generation, transmission and distribution assets and operations as described in this section.

(2) Comparability of services and non-discriminatory pricing standards.

(a) Both LDU's and other companies which are not LDU's or electric utilities may own transmission facilities.

(b) Affiliates of electric utilities and LDU's may own electric generation assets. Such affiliates may sell generation directly to a customer, provided that generation assets and services be operationally separate from transmission and/or distribution affiliates, if any.

(c) Affiliates of electric utilities and LDU's may offer unbundled generation services as approved by the Public Service Commission. Prices for unbundled generation services shall not be established by the Public Service Commission but shall be determined by competitive market forces.

(d) The Public Service Commission shall adopt a plan designed to permit all providers of generation services to compete equally to supply power to Mississippi and to mitigate concentrations of undue market power.

SECTION 8. Open Access.

(1) Owners, operators and providers of transmission and distribution facilities and ancillary services, including all federal, state and local public power agencies, are required to provide access to those facilities, ancillary services and other services available to any buyer or seller on a nondiscriminatory and comparable basis. The Public Service Commission shall promote non-discriminatory open access to the electric system for wholesale and retail transactions.

(2) Companies providing transmission or distribution services shall file at the Federal Energy Regulatory Commission or with the Public Service Commission, as appropriate, comparable service tariffs that provide open access for all competitors. The commission shall monitor jurisdictional companies providing transmission or distribution services and take necessary measures to ensure that no supplier has an unfair advantage in offering access to and pricing such services.

(3) The Public Service Commission shall establish by regulation, and consistent with federal law, standards and conditions for the exchange of reciprocal rights for transmission and distribution access between corporations located within the state and those located outside the state.

SECTION 9. Reciprocity.

Upon enactment, all intrastate owners and operators of transmission and distribution facilities shall have comparable and reciprocal access to the transmission and distribution customers of other transmission and distribution facility owners and operators, for the purpose of providing generation services to such customers. This section shall in no way impede any transactions involving interstate commerce.

SECTION 10. Obligation to Connect.

(1) The local utility shall be relived of its traditional obligation to serve but shall have an obligation to connect all customers within their service territory on non-discriminatory terms and conditions.

(2) Consumers shall have the right to select their source of power supply and shall have nondiscriminatory access to interconnection with its host electric utility, which utility shall be required to transport the electricity from the point of generation to the host's distribution facilities.

(3) In the case of a residential customer, or a customer in any other class or subclass of customers designated by the Public Service Commission, failure by such customer to make their own alternative arrangements for power supply and delivery shall be deemed to constitute a request to connect to the distribution system of its host electric utility to arrange for such supply or services.

SECTION 11. Eminent Domain.

The right of eminent domain shall not be used to:

(a) Deny physical access or interconnection to transmission or distribution facilities;

(b) Restrict the construction of new transmission or distribution facilities by any qualified party; or

(c) Otherwise limit competition.

SECTION 12. Environmental and Social Policies.

The subsidies for environmental, social and other mandated programs should be unbundled from electric rates. These programs should be financed by general tax revenues or legislatively-enacted separate charges appearing on electric bills. The Public Service Commission shall prepare and submit a report to the Legislature that recommends state legislative action, as appropriate, to remove barriers to fair competition.

SECTION 13. Fair Dealing.

(1) Municipal and state electric providers and electric member cooperatives shall be treated as utilities for purposes of this act.

(2) All distribution service providers shall:

(a) Be subject to the jurisdiction of the Public Service Commission and be regulated on the same basis, including but not limited to regulation of rates, terms and conditions; and

(b) Be subject to uniform tax obligations.

SECTION 14. Recover of Stranded Costs.

(1) General policy.

(a) Following the process established herein, the electric utilities are entitled to recovery prudently incurred, net verifiable stranded costs and investments. The state Legislature should have the responsibility to determine the just and reasonable recovery mechanisms to determine net stranded costs and investments, including mitigation incentives. It should provide for a public process that applies to investments and costs stranded by competition. It should set the time frame involved for an expeditious transition. And, it should employ mechanisms that do not disadvantage one class of customer or supplier over another. The amount of recovery will be determined by the Public Service Commission.

(b) Intent. It is the intent of the Legislature to provide appropriate tools and reasonable guidance to the Public Service Commission in order to assist in addressing claims for stranded cost recovery and fulfilling its responsibility to determine rates which are equitable, appropriate, balanced and in the public interest. In making its determinations, the commission shall balance the interests of the consumers and utility investors during the limited recovery period. Nothing in this section is intended to provide any greater opportunity for stranded cost recovery than is available under applicable regulation or act on the effective date of this act.

(2) Normal course of business. Stranded cost charges shall not be recoverable for changes in usage occurring in the normal course of business, including those resulting from changes in business cycles, termination of operations, weather, reduced production, changes in manufacturing processes, installation or expansion of new self-generation or co-generation equipment, performance of existing self-generation or co-generation equipment, energy conservation efforts or other similar factors.

(3) Duties and responsibilities of public regulatory body,

(a) Duty to mitigate. Electric utilities shall have the duty to prudently, thoroughly and aggressively mitigate stranded costs as of July 1, 1997.

(b) Stranded cost recovery plan.

(i) Each public utility may file a recovery plan within three (3) months after adoption of the electric industry restructuring plan by the Public Service Commission. The recovery plan shall document anticipated stranded costs, mitigation proposals and offsetting increases in the value of other assets.

(ii) The recovery plan shall propose a transition charge, which shall be allocated to all customers pursuant to the most recent rate design approved by the Public Service Commission subject to paragraph (d) of this subsection (3).

(iii) The recovery plan shall permit collection of a transition charge to recover net, unmitigated stranded costs over a period of not less than three (3) or no more than five (5) years.

(iv) The recovery plan shall establish net, un-mitigable stranded costs and a limited recovery period designed to recover such costs expeditiously; provided that the recovery period and the amount of qualified transition costs shall yield a transition charge which shall not cause the total price for electric power, including transmission and distribution services, for any customer to exceed the cost per kilowatt-hour paid on July 1, 1997, during the recovery period.

(v) Recovery mechanisms that impede competition such as entry and exit fees shall not be utilized.

(vi) The Public Service Commission shall approve and publish a recovery plan for each utility submitting a plan not more than twenty-one (21) months after enactment.

(vii) Any stranded costs not recovered under this act and the recovery plan, as modified and approved by the Public Service Commission, within five (5) years shall not be recoverable by the public utility.

(c) Duty to cooperate. Electric utilities shall have a duty to cooperate with the Public Service Commission in the implementation of this act as a precondition for recovery of stranded costs. Approval of a recovery plan and collection of any stranded costs shall be deemed a settlement of all such claims by a public utility. No public utility seeking to establish claims for recovery of stranded costs through any other means shall be eligible for recovery pursuant to a recovery plan or the collection of a transition charge.

(d) Commission responsibility. The Public Service Commission shall be responsible for the final determination of permissible stranded cost recovery charges for each electric corporation and for approval of the recovery plan subject to its determination in a rate case proceeding that such charge and such plan are equitable, appropriate, balanced and promote customer choice.

(4) Recovery criteria and methodology.

(a) Net un-mitigable stranded cost recovery. Electric utilities shall be allowed to recover the net un-mitigable stranded costs associated with required environmental mandates currently approved for cost recovery, and power acquisitions mandated by federal statutes.

(b) Mitigation obligation. Electric utilities have had and continue to have an obligation to take all reasonable measures to prudently, thoroughly and aggressively mitigate stranded costs. Mitigation measures may include, but shall not be limited to:

(i) Reduction of expenses.

(ii) Renegotiation of existing contracts.

(iii) Refinancing of existing debt.

(iv) Sale, write-off or write-down of uneconomic or surplus assets, including regulatory assets not directly related to the provision of electricity service.

(c) Net basis. Stranded costs shall be determined on a net basis, be verifiable (shall not include transmission and distribution assets), and be reconciled to actual electricity market conditions from time to time. Stranded costs shall include an offset for the market value of any assets, domestic or foreign, obtained or controlled by an electric utility by purchase acquisition, merger or other means within three (3) years prior to July 1, 1997.

(d) Power purchase contracts. Power purchase contract obligations shall continue for the duration of the contract. Costs arising pursuant to such contracts or associated with any buy-out, buy-down or renegotiation of the contracts shall be eligible for recovery in stranded cost recovery charges.

(e) Stranded benefits. Stranded benefits, any utility asset whose market value exceeds the book value, shall be used to reduce stranded costs.

(f) Stranded cost recovery. Any recovery of stranded costs shall be through a non-bypassable, non-discriminatory, appropriately structured charge that is fair to all customer classes, lawful, constitutional, limited in duration and consistent with the promotion of fully competitive markets. Recovery mechanisms that impede competition such as entry and exit fees shall not be utilized. Charges to recover stranded costs shall only apply to customers within a utility's retail service territory, except for such costs that have resulted from the provision of wholesale power to another utility. The charges shall not apply to wheeling-through transactions nor should they apply to any competitive alternative which existed prior to the effective date of this act, including but not limited to self-generation and sales of non-firm electricity.

(g) Stranded cost recovery collection. The Public Service Commission is authorized to allow utilities to collect a stranded cost recovery charge, subject to its determination in the context of a rate case proceeding that such charge is equitable, appropriate, balanced, in the public interest and consistent with the intent of this act. The burden of proof for any stranded cost recovery claim shall be borne by the electric utility making such claim.

SECTION 15. Reliability and Safety.

(1) The Public Service Commission shall promulgate appropriate rules and regulations that ensure that reliable and safe electric service, with minimum residential consumer service safeguards, is maintained or improved.

(2) All electric utilities and providers of electric power delivery and/or ancillary services shall have in place sufficient measures to reserve the integrity, safety, reliability and quality of electric service in the state. Market entrants shall have appropriate provisions for capacity reserves, spinning reserves and other ancillary services, while maintaining the integrity of the bulk transmission network.

SECTION 16. Contract Rights.

Nothing in this act shall interfere with the rights of parties under contract.

SECTION 17. Remedies.

No electric transmission or distribution utility shall be liable for any damages to any current or future customer if such customer's chosen generation supplier or provider of unbundled services fails to deliver such service in accordance with the terms of its bilateral contract with such customer. This provision shall not be applied to relieve liability arising from the transmission or distribution utility's own actions or failure to act.

SECTION 18. Federal Barriers.

The repeal of PUHCA and PURPA and the reform of other federal laws that impede competitive electric markets must be accomplished to complement state plans for the transition to customer choice. The process of restructuring generation services with consumer choice has profound interstate implications. Assured reliability of the grid, consumer and supplier access to sufficiently wide markets, a competitive playing field free of uneven subsidies and anti-competitive advantages, and resolution of existing state/federal jurisdiction over transmission and distribution services are all essential to workable competition. States must cooperate with Congress to remove federal barriers which must be part of the transition to competition.

SECTION 19. Jurisdiction and Authority.

Any existing jurisdictional uncertainties shall not delay the implementation of this act.

SECTION 20. Legislative Oversight.

(1) There is established a legislative oversight committee on electric utility restructuring consisting of fourteen (14) members as follows:

(a) Seven (7) members of the House of Representatives to be appointed by the Speaker of the House.

(b) Seven (7) members of the Senate to be appointed by the Lieutenant Governor.

(2) Committee members shall be appointed within sixty (60) days of the effective date of this act to an initial term expiring on January 1, 2000. Subsequent terms shall be for up to two (2) years expiring on January 1 of even-numbered years. Members may succeed themselves.

(3) A chairperson shall be selected by a majority of the committee members.

(4) The legislative oversight committee on electric utility restructuring shall expire when the full transition to retail competition is completed.

(5) The committee shall provide an annual report on or before November 1 to the Governor, the Speaker of the House, the Lieutenant Governor and the Public Service Commission on the status of electric utility restructuring.

(6) The committee shall meet quarterly or as often as is necessary to conduct its business. No committee member may receive per diem, travel or other expenses unless authorized by the Management Committees of the Senate and the House of Representatives. Members of the committee shall be paid from the contingent expense funds of the Senate and the House of Representatives in the same amounts as provided for committee meetings when the Legislature is not in session; however, no per diem or expense for attending meetings of the committee will be paid while the Legislature is in session.

(7) The committee shall be responsible for the following:

(a) Working with the Public Service Commission to assess the transition to a competitive market.

(b) Working with the Public Service Commission and other agencies, where necessary, to implement this act, its legislative intent and its restructuring principles.

(c) Working with the Public Service Commission to develop any new legislation where necessary to promote electric utility restructuring and retail choice of electricity suppliers and to propose changes to or recodification of existing statutes to be more consistent with the restructuring principles established in this act.

(8) State tax revenues. The State Tax Commission shall analyze the amount of state and local tax revenues derived from previously regulated electric suppliers that will enter the competitive market and report to the Legislature annually how revenues to the state or local government are changed by restructuring to competition. The State Tax Commission shall recommend legislative changes to address the establishment of comparable state and local taxation burdens on all market participants in the supply of electric power. Any recommended legislation should place comparable state and local taxation burdens upon all market participants.

SECTION 21. Sunset Provision.

The power of the Public Service Commission to regulate the terms and conditions of electricity service, including the regulation of transmission and distribution service and rates, shall expire ten (10) years after completion plans are adopted by the state. At the time of expiration, the only regulatory authority remaining with the public utility commission shall be to ensure the safety of electricity service.

SECTION 22. Superseded Laws.

All currently effective act or parts of acts are repealed to the extent they are inconsistent with this act.

SECTION 23. Severability.

If any provision of this act or application thereof to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the act which can be given effect without the invalid provision or applications, and to this end the provisions of this are severable.

SECTION 24. This act shall take effect and be in force from and after July 1, 1997.