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S.B.�No.�1668

AN ACT

relating
to affiliates of public utilities and regulation of electric utilities
with regard to payments to affiliates and unbundling requirements.

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

SECTION�1.��Section 36.058, Utilities Code, is amended by amending Subsection
(c) and adding Subsection (f) to read as follows:

(c)��A finding under Subsection (b) must include:

(1)��a specific finding of the reasonableness and necessity of each
item or class of items allowed; and

(2)��a finding that the price to the electric utility is not higher
than the prices charged by the supplying affiliate [to its other affiliates or divisions or to a nonaffiliated person]
for the same item or class of items to:

(A)��its
other affiliates or divisions; or

(B)��a
nonaffiliated person within the same market area or having the same
market conditions.

(f)��If
the regulatory authority finds that an affiliate expense for the test
period is unreasonable, the regulatory authority shall:

(1)��determine
the reasonable level of the expense; and

(2)��include
that expense in determining the electric utility's cost of service.

SECTION�2.��Chapter 11, Utilities Code, is amended by adding Section
11.0042 to read as follows:

Sec.
11.0042.� DEFINITION OF AFFILIATE.� (a)��The term "person"
or "corporation" as used in the definition of "affiliate"
provided by Section 11.003(2) does not include:

(1)��a
broker or dealer registered under the Securities Exchange Act of 1934
(15 U.S.C. Section 78a et seq.), as amended;

(2)��a
bank or insurance company as defined under the Securities Exchange Act
of 1934 (15 U.S.C. Section 78a et seq.), as amended;

(3)��an
investment adviser registered under state law or the Investment Advisers
Act of 1940 (15 U.S.C. Section 80b-1 et seq.); or

(4)��an
investment company registered under the Investment Company Act of 1940
(15 U.S.C. Section 80a-1 et seq.); or

(5)��an
employee benefit plan, pension fund, endowment fund, or other similar
entity that may, directly or indirectly, own, hold, or control five
percent or more of the voting securities of a public utility or the
parent corporation of a public utility if the entity did not acquire
the voting securities:

(A)��for
the purpose of or with the effect of changing or influencing the control
of the issuer of the securities; or

(B)��in
connection with or as a participant in any transaction that changes
or influences the control of the issuer of the securities.

(b)��For
the purpose of determining whether a person is an affiliate under Section
11.006(a)(3), the term "person" does not include an entity
that may, directly or indirectly, own, hold, or control the voting securities
of a public utility or the parent corporation of a public utility if
the entity did not acquire the voting securities:

(1)��for
the purpose of or with the effect of changing or influencing the control
of the issuer of the securities; or

(2)��in
connection with or as a participant in any transaction that changes
or influences the control of the issuer of the securities.

(c)��A
report filed by an entity described by Subsection (a)(5) or (b) with
the Securities and Exchange Commission is conclusive evidence of the
entity's intent if the report confirms that the voting securities were
not acquired:

(1)��for
the purpose of or with the effect of changing or influencing the control
of the issuer of the securities; or

(2)��in
connection with or as a participant in any transaction that changes
or influences the control of the issuer of the securities.

SECTION�3.��Section 39.051, Utilities Code, is amended by amending Subsection
(c) and adding Subsection (c-1) to read as follows:

(c)��An electric utility may accomplish the separation required by Subsection
(b) either through the creation of separate nonaffiliated companies
or separate affiliated companies owned by a common holding company or
through the sale of assets to a third party.� An electric utility
may create separate transmission and distribution utilities.� Notwithstanding
any other provision of this chapter, an electric utility that does not
have stranded costs described by Section 39.254 and that on September
1, 2005, has not finalized unbundling pursuant to a commission order
approving an unbundling plan may also meet the requirements of Subsection
(b) for generation facilities existing on September 1, 2005, in the
Electric Reliability Council of Texas if it meets and maintains compliance
with the following requirements:

(1)��the
electric utility has no more than 400 megawatts of Texas jurisdictional
capacity from generating units within the Electric Reliability Council
of Texas that have not been mothballed or retired;

(2)��the
electric utility has a contract or contracts with separate nonaffiliated
companies or separate affiliated companies for the sale of all of the
output from its generating units that have not been mothballed or retired
with a contract term that is no shorter than 20 years or the life of
the generating units, whichever is shorter; and

(3)��the
electric utility has a separate division within the electric utility
for its generation business activities.

(c-1)��A
separate division described by Subsection (c)(3) is subject to Subsection
(d) and, for the purposes of this chapter, is considered a separate
affiliated power generation company and a competitive affiliate.

SECTION�4.��This Act takes effect immediately if it receives a vote of
two-thirds of all the members elected to each house, as provided by
Section 39, Article III, Texas Constitution.� If this Act does
not receive the vote necessary for immediate effect, this Act takes
effe