HB 2316--
Session of 1997
By Committee on Utilities

9 AN ACT concerning electric utilities; restructuring the electric utility in- 10 dustry in Kansas and establishing a legislative oversight committee. 11 12 Be it enacted by the Legislature of the State of Kansas: 13 Section 1. This act may be cited as the electric industry restructuring 14 and retail customer choice act. 15 Sec. 2. As used in this act: 16 (a) ``Commission'' means the state corporation commission. 17 (b) ``Electricity supplier or suppliers'' means suppliers of electricity 18 generation services and includes actual electricity generators and brokers, 19 aggregators, marketers and pools that arrange for the supply of electricity 20 generation to meet retail customer demand. 21 (c) ``Electric utility or utilities'' means any investor-owned, munici- 22 pally-owned or cooperatively-owned entity owning or operating facilities 23 for the provision of electric service to end-users in this state. 24 (d) ``Transition costs'' means those costs, liabilities, regulatory assets 25 and investments that electric utilities would reasonably expect to recover 26 if the existing regulatory structure with retail rates for the bundled pro- 27 vision of electric service continued and that may not be recovered as a 28 result of implementation of this act unless a specific mechanism for re- 29 covery is provided. The value of the unrecoverable costs shall be equal 30 to the net difference between the embedded costs of assets currently 31 recovered through the electric utility's base rates and the price recover- 32 able for such assets as a result of the change to a competitive market after 33 the electric utility has taken all reasonable measures to mitigate transition 34 costs. Transition costs shall not include the cost of investments made after 35 the date of enactment of this act. 36 Sec. 3. The commission shall have jurisdiction over all electric utili- 37 ties within this state for purposes of implementing this act. 38 Sec. 4. The legislature declares the following to be the policy prin- 39 ciples of restructuring the electric utility industry in Kansas 40 (a) Competition. Competitive markets are preferred to regulation. 41 Regulation should serve as a substitute only in those circumstances where 42 competition cannot provide results that serve the best interests of all 43 consumers. Utility services which become subject to effective competition HB 2316

 1  shall be provided on a competitive basis.
 2    (b)  Safety and system reliability. Reliable and safe electric service
 3  must be maintained or improved.
 4    (c)  Customer Choice. To realize the full benefits of competition, all
 5  customers shall be able to choose among and access a wide array of com-
 6  peting suppliers of electricity. Existing service territory certification proc-
 7  esses shall be modified to apply only to the electric utility transmission
 8  and distribution function. Customers shall be able to choose among op-
 9  tions such as levels of service reliability, real time pricing and generation
10  sources, including interconnected self-generation. Customers shall be re-
11  sponsible for the consequences of their choices. The commission shall
12  ensure that customer confusion is minimized and customers are well-
13  informed about changes resulting from restructuring and increased cus-
14  tomer choice.
15    (d)  Regulation and unbundling of services and rates. Prior to the time
16  customer choice occurs, cross subsidies among customer classes shall be
17  eliminated and electric utility generation, transmission, distribution and
18  customer services and all rates and charges, including taxes, shall be un-
19  bundled and separately stated on electric utility bills to provide customers
20  clear price information on the cost components of generation, transmis-
21  sion, distribution and customer services.
22    (e)  Electricity generation. Electricity generation and sales shall occur
23  on a competitive basis. All electricity suppliers will be allowed to compete
24  to serve retail customers. Electricity generation shall be functionally sep-
25  arated from the electric utility transmission and distribution services. The
26  transmission and distribution services will remain regulated.
27    (f)  Open access to transmission and distribution facilities. Customer
28  access to alternative suppliers of electricity requires open access to the
29  transmission grid and distribution system and is critical to creating a fully
30  competitive market structure. Electric utilities, including all federal, state
31  and local public power agencies and cooperatives, shall be required to
32  provide access to transmission grid and distribution system facilities and
33  ancillary services on a nondiscriminatory and comparable basis. Electric
34  utilities and other companies providing transmission or distribution serv-
35  ices for which open access tariffs were not required to be filed with the
36  federal energy regulatory commission shall file with the commission tar-
37  iffs covering these services which tariffs provide nondiscriminatory open
38  access transmission and distribution services for all electricity suppliers
39  and users. The commission shall monitor electric utilities and other com-
40  panies providing transmission or distribution services and take necessary
41  measures to ensure that no supplier has an unfair advantage in receiving
42  such services.
43    (g)  Obligation to connect. An electric utility shall be relieved of its
HB 2316

 1  traditional obligation to serve a customer who chooses to receive the
 2  electric commodity from another electricity supplier. When this happens,
 3  the traditional obligation to serve shall be replaced by an obligation to
 4  connect. Reasonable service initiation rules, disconnect rules and facility
 5  extension policies approved by the commission shall apply to electric util-
 6  ities. Customers who no longer purchase the electric commodity from an
 7  electric utility and who subsequently are not adequately supplied by the
 8  market because they are unable to obtain or retain electric service from
 9  nonregulated electricity suppliers will be served by one or more default
10  electricity suppliers chosen by the commission, pursuant to a voluntary,
11  open bid process, to serve this market.
12    (h)  Benefits for all consumers. Restructuring of the electric utility
13  industry shall be implemented in a manner that benefits all consumers.
14  Costs shall not be shifted unfairly among customers.
15    (i)  Full and fair competition. Competition among electric suppliers
16  and buyers must be fair, nondiscriminatory and consistent. In order to
17  ensure a level playing field, all competitors shall be subject to the same
18  legal, financial, regulatory and tax treatments. Subsidies and disparate
19  regulation or legal requirements that favor certain competitors or disad-
20  vantage others shall be eliminated.
21    (j)  Recovery of transition costs. Utilities shall be allowed to recover a
22  reasonable amount of transition costs remaining after mitigation measures
23  are taken, subject to the following:
24    (1)  It is the intent of the legislature to provide appropriate tools and
25  reasonable guidance to the commission in order to assist the commission
26  in addressing claims for stranded cost recovery and fulfilling the com-
27  mission's responsibility to determine rates which are equitable and in the
28  public interest. In making its determinations, the commission shall bal-
29  ance the interests of ratepayers and utilities during and after the restruc-
30  turing process. In determining the amount of transition costs an electric
31  utility may recover, the commission may consider factors such as the
32  extent to which the electric utility has mitigated its transition costs, the
33  degree to which the transition costs are known and measurable, the cer-
34  tainty of recovery of the transition costs, and how the electric utility's
35  rates compare to the rates of other electric utilities in the region.
36    (2)  Utilities have had and continue to have an obligation to take all
37  reasonable measures to mitigate transition costs. Mitigation measures may
38  include, but shall not be limited to:
39    (A)  Reduction of expenses.
40    (B)  Renegotiation of existing contracts.
41    (C)  Refinancing of existing debt.
42    (D)  Sale of uneconomic or surplus assets.
43    (3)  Recovery of transition costs shall be through a collection mecha-
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 1  nism established by the commission that is fair to all customer classes,
 2  limited in duration, and consistent with the promotion of fully competitive
 3  markets and with these principles.
 4    (k)  Sanctity of contract. The rights and obligations embodied in con-
 5  tractual arrangements are and will be an indispensable element of an
 6  effective competitive power market and must be preserved.
 7    (l)  Environmental and social policy. The energy marketplace should
 8  not be used as a vehicle for accomplishing government mandated, con-
 9  sumer or taxpayer subsidized, energy-related social or environmental pro-
10  grams. These programs should not be incorporated in electric utility rate
11  structures but should instead be unbundled from rates. The costs of these
12  social or environmental programs should be financed by legislatively en-
13  acted separate fees assessed on all energy users and collected by all energy
14  providers. All generation providers within the state must take the nec-
15  essary measures to ensure that the emission rates from each of the prov-
16  ider's facilities are at or below the emission rates existing as of the date
17  of the effective date of this act taking into account any changes in fuel
18  sources that may have occurred.
19    (m)  Administrative processes. The commission shall adapt its admin-
20  istrative processes to reduce regulation of the electric industry and make
21  it more efficient and to enable electricity suppliers to adapt to changes
22  in the market in a timely manner. The market framework for competitive
23  electric service should, to the extent possible, reduce reliance on admin-
24  istrative processes. The commission should move deliberately to replace
25  traditional planning mechanisms with market-driven choice as the means
26  for supplying resource needs.
27    (n)  Timetable. Electric utilities shall unbundle rates and services as
28  soon as possible. The commission shall implement full customer choice
29  among electricity suppliers in the most expeditious manner possible, but
30  in no event later than December 15, 2000.
31    Sec. 5.  (a) The commission shall immediately commence implemen-
32  tation of choice of electricity suppliers for all electric utility consumers.
33    (b)(1)  On the effective date of this act, the commission shall under-
34  take a generic proceeding to develop a statewide industry restructuring
35  plan in accordance with the principles stated in section 4 and, after public
36  hearings, shall issue a final order no later than January 1, 1998. The plan
37  shall require that no later than September 1, 1998, the generation service
38  of an electric utility will be functionally separated from its transmission
39  and distribution functions, cross subsidies among customer classes will be
40  eliminated and all electric utility services, rates and charges will be un-
41  bundled. Electric utility services include, but are not limited to, meter
42  reading, billing and debt collection. The plan shall provide that no later
43  than December 15, 2000:
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 1    (A)  All consumers of electricity shall be able to purchase electricity
 2  from any electricity supplier they choose;
 3    (B)  all purchasers and electricity suppliers shall have nondiscrimi-
 4  natory access to electric utility transmission and distribution systems;
 5    (C)  environmental, social and other government-mandated, energy-
 6  related programs shall be financed through the state general fund, or
 7  legislatively-enacted separate fees assessed on all energy users and col-
 8  lected by all energy providers;
 9    (D)  all electricity generation and retail sales shall occur on a com-
10  petitive basis; and
11    (E)  sufficient measures are in place to preserve the integrity, safety,
12  reliability and quality of electric service in the state.
13    (2)  Commission regulation of an electric utility service will end when
14  the commission determines that the service has become subject to effec-
15  tive competition. In determining whether a service is subject to effective
16  competition, the commission will consider whether a comparable service
17  is available from a supplier other than the electric utility and whether
18  market forces are sufficient to ensure just and reasonable rates without
19  regulation. In addition, the commission may consider the following cri-
20  teria:
21    (A)  The ability or inability of a single provider to determine or control
22  prices;
23    (B)  the ease with which other providers may enter the market;
24    (C)  the likelihood that other providers will enter the market;
25    (D)  the substitutability of one service for another; and
26    (E)  other relevant considerations.
27    (3)  The plan also shall include a program for making customers aware
28  of their new supplier options. In its order, the commission shall establish
29  an interim transition cost recovery charge for each electric utility as pro-
30  vided in subsection (e). In addition, the commission will prescribe the
31  range of acceptable alternatives for determining the amount of transition
32  costs and their recovery methodology.
33    (c)  The commission shall require all electric utilities to submit com-
34  pliance filings by July 1, 1998, which shall include tariffs that provide
35  open access for all electricity suppliers, prohibit favored treatment of
36  electric utility affiliates and such other information as the commission
37  may require. The commission shall investigate and approve such compli-
38  ance filings no later than September 1, 1998, subject to modification by
39  the commission if necessary, after public hearing and subject to a finding
40  that the filings are in the public interest and consistent with the principles
41  established in this act.
42    (d)  The commission shall allow electric utilities to collect a portion
43  or all of their transition costs subject to the commission's determination
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 1  in the context of a contested proceeding that such recovery is consistent
 2  with the range of acceptable alternatives contained in the statewide in-
 3  dustry restructuring plan, and is consistent with these interdependent
 4  principles. The burden of proof for any transition cost recovery claim shall
 5  be borne by the electric utility making such claim.
 6    (e)(1)  In order to facilitate the rapid transition to full competition,
 7  the commission is authorized, in its statewide industry restructuring plan
 8  as provided in subsection (b), to set, without a contested proceeding, an
 9  interim transition cost recovery charge for each electric utility. Such in-
10  terim transition cost recovery charges shall be effective for two years from
11  the implementation of electric utility compliance filings and shall be based
12  on the commission's preliminary determination of an equitable measure
13  of transition cost recovery that is in the public interest, and is consistent
14  with these interdependent principles. The commission also shall consider
15  the potential for future rate impacts due to possible differences between
16  interim transition cost recovery charges and charges that may finally be
17  approved for transition cost recovery.
18    (2)  Any electric utility may seek adjustment of the interim transition
19  cost recovery charge at any time based on severe financial hardship, as
20  determined by the commission. The setting of an interim transition cost
21  recovery charge shall establish no legal, factual or policy precedent with
22  respect to the final determination of transition cost recovery by the com-
23  mission in any subsequent administrative or judicial proceeding.
24    (f)  An electric utility shall be relieved of its traditional obligation to
25  serve a customer who chooses to receive the electric commodity from
26  another electricity supplier. When this happens, the traditional obligation
27  to serve shall be replaced by an obligation to connect. Reasonable service
28  initiation rules, disconnect rules and facility extension policies approved
29  by the commission shall apply to electric utilities.
30    (g)  The commission shall arrange for one or more default electricity
31  suppliers for customers who no longer purchase the electric commodity
32  from the electric utility which provided them with a sales service as of
33  the date of this act, and who subsequently are not adequately supplied
34  by the market because they are unable to obtain or retain electric service
35  from nonregulated electricity suppliers. The commission periodically shall
36  solicit bids from electricity suppliers for such service at market prices.
37  The default electricity supplier or suppliers selected shall be able to re-
38  ceive reimbursement from LIHEAP, other government subsidies or the
39  funds collected from a surcharge assessed by the electric utility on the
40  transmission and distribution system. The commission shall promulgate
41  regulations to implement this subsection.
42    Sec. 6.  (a) There is hereby established the joint committee on elec-
43  tric utility restructuring oversight, consisting of nine members. Members
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 1  shall be appointed as follows:
 2    (1)  Four members shall be members of the house of representatives,
 3  two appointed by the speaker of the house of representatives, one ap-
 4  pointed by the majority leader of the house of representatives and one
 5  appointed by the minority leader of the house of representatives.
 6    (2)  Four members shall be senators, two appointed by the president
 7  of the senate, one appointed by the majority leader of the senate and one
 8  appointed by the minority leader of the senate.
 9    (3)  One member shall be a legislator appointed by the legislative co-
10  ordinating council.
11    The appointing authorities shall cooperate to ensure that there are at
12  least two members of the joint committee from each congressional dis-
13  trict.
14    (b)  Members of the joint committee shall serve for terms expiring on
15  the second Monday of January of odd-numbered years. No member of
16  the joint committee shall serve on the joint committee for more than two
17  terms.
18    (c)  The chairperson and vice-chairperson of the joint committee shall
19  be selected by the legislative coordinating council from the members of
20  the joint committee.
21    (d)  On or before November 1 of each year, the joint committee shall
22  submit to the governor, the legislature and the commission a report on
23  the status of electric utility restructuring.
24    (e)  The joint committee may meet at any time and at any place within
25  the state on the call of the chairperson as necessary to conduct the com-
26  mittee's business. A quorum of the joint committee shall be five. All
27  actions of the joint committee shall be taken by a majority of all of the
28  members of the joint committee.
29    (f)  The provisions of the acts contained in article 12 of chapter 46 of
30  the Kansas Statutes Annotated, and amendments thereto, applicable to
31  special committees shall apply to the joint committee to the extent that
32  those provisions do not conflict with the specific provisions of this act.
33    (g)  In accordance with K.S.A. 46-1204 and amendments thereto, the
34  legislative coordinating council may provide for such professional services
35  as may be requested by the joint committee.
36    (h)  The joint committee may introduce such legislation as the com-
37  mittee deems necessary in performing the committee's functions.
38    (i)  The joint committee shall:
39    (1)  Work with the commission to develop any new legislation nec-
40  essary to promote electric utility restructuring and retail choice of elec-
41  tricity suppliers and to propose changes to or recodification of existing
42  statutes to be more consistent with the restructuring principles estab-
43  lished in this act; and
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 1    (2)  work with the commission and other agencies, where necessary,
 2  to implement this act and the restructuring principles stated in section 4.
 3    (j)  The provisions of this section shall expire on July 1, 2003.
 4    Sec. 7.  If any provision of this act or the application thereof to any
 5  person or circumstances is held invalid, the invalidity shall not affect other
 6  provisions or applications of the act that can be given effect without the
 7  invalid provisions or applications. To this end the provisions of this act
 8  are severable.
 9    Sec. 8.  This act shall take effect and be in force from and after its
10  publication in the statute book.