_________ Bill No. _______

Introduced By _______________________________________________________________________________

A Bill for an Act entitled: "An Act generally restructuring Montana's electric utility industry and providing customer protection; generally revising the territorial integrity laws; removing certain rural electric cooperative properties from class seven property; including certain rural electric cooperative properties in class nine property; amending sections 15-6-137, 15-6-141, 69-5-101, 69-5-102, 69-5-104, 69-5-105, 69-5-106, 69-5-107, 69-5-108, 69-5-109, 69-5-110, and 69-5-111, MCA; repealing section 69-5-103, MCA; and providing an immediate effective date."

STATEMENT OF INTENT

A statement of intent is required because this bill provides the public service commission with rulemaking authority.

Be it enacted by the Legislature of the State of Montana:

NEW SECTION. Section 1.  Short title. [Sections 1 through 28] may be cited as the "Electric Utility Industry Restructuring and Customer Protection Act".

NEW SECTION. Section 2.  Legislative findings and policy. The legislature finds and declares the following:

(1) The generation and sale of electricity is becoming a competitive industry.

(2) It is unclear whether it will serve the public interest to enable all Montana customers to have the freedom to choose their supplier of electricity and related services in a competitive market.

(3) The development and maintenance of a diverse set of clean, affordable resources may not be jeopardized by deregulation.

(4) The public interest requires the continued protection of consumers through:

(a) licensure of electricity suppliers;

(b) provision of information to consumers regarding electricity supply service;

(c) provision of a process for investigating and resolving complaints;

(d) continued funding for public purpose programs for:

(i) cost-effective energy conservation;

(ii) low-income customer weatherization;

(iii) renewable resource applications;

(iv) research and development programs related to energy conservation and renewables;

(v) market transformation; and

(vi) low-income energy bill assistance;

(e) assurance of service reliability and quality; and

(f) prevention of anticompetitive and abusive activities.

NEW SECTION. Section 3.  Definitions. As used in [sections 1 through 28], unless the context requires otherwise, the following definitions apply:

(1) "Aggregator" or "market aggregator" means an entity, licensed by the commission, that aggregates retail customers and purchases electric energy and takes title to electric energy as an intermediary for sale to retail customers.

(2) "Broker" or "marketer" means an entity, licensed by the commission, that acts as an agent or intermediary in the sale and purchase of electric energy but that does not take title to electric energy.

(3) "Cooperative utility" means:

(a) a utility qualifying as an electric cooperative pursuant to Title 35, chapter 18;

(b) an existing municipal utility as of [the effective date of this act]; or

(c) a federally owned and locally managed electric utility in the state of Montana that is operated under contract between a federally recognized Indian tribe and the United States.

(4) "Customer" or "consumer" means a retail electric customer or consumer.

(5) "Distribution facilities" means those facilities by and through which electricity is received from a transmission services provider and distributed to the customer and that are controlled or operated by a distribution services provider.

(6) "Distribution services provider" means a person controlling or operating distribution facilities for distribution of electricity to the public.

(7) "Electricity supplier" means any person, including aggregators, market aggregators, brokers, and marketers, offering to sell electricity to retail customers in the state of Montana.

(8) "Functionally separate" means a utility's separation of the utility's electricity supply, transmission, distribution, and unregulated retail energy services assets and operations.

(9) "Local governing body" means a local board of trustees of a rural electric cooperative.

(10) "Low-income customer" means those energy consumer households and families with incomes at or below industry-recognized levels that qualify those consumers for low-income energy-related assistance.

(11) "Pilot program" means a program using a representative sample of residential and small commercial customers to assist in developing and offering customer choice of electric supply for all residential and commercial customers and in determining whether customer choice will benefit all Montanans.

(12) "Public utility" means any electric utility regulated by the commission pursuant to Title 69, chapter 3, on [the effective date of this act], including the public utility's successors or assignees.

(13) "Transition cost recovery period" means the period beginning on July 1, 1998, and ending when a utility customer does not have any liability for payment of transition costs.

(14) "Transition costs" means a public utility's net verifiable generation-related and power supply costs, including costs of capital, that become unrecoverable as a result of the implementation of [sections 1 through 28] or of federal law requiring retail open access or customer choice.

(15) "Transition period" means the period beginning on July 1, 1998, and ending on July 1, 2002, unless otherwise extended pursuant to [sections 1 through 28], during which utilities may phase in customer choice of electricity supplier.

(16) "Transmission facilities" means those facilities that are used to provide transmission services as determined by the federal energy regulatory commission and the commission.

(17) "Transmission services provider" means a person controlling or operating transmission facilities.

(18) "Universal system benefits programs" means public purpose programs for:

(a) cost-effective energy conservation;

(b) low-income customer weatherization;

(c) renewable resource applications, including those that capture unique social and energy system benefits or provide transmission and distribution system benefits;

(d) research and development programs related to energy conservation and renewables;

(e) market transformation designed to encourage competitive markets for public purpose programs; and

(f) low-income energy bill assistance as approved by the commission.

(19) "Utility" means any public utility or cooperative utility.

NEW SECTION. Section 4.  Pilot programs. (1) Utilities shall conduct pilot programs using a representative sample of their residential and small commercial customers. A report describing and analyzing the results of the pilot programs must be submitted to the commission on or before July 1, 2000.

(2) Utilities shall use pilot programs to gather necessary information to determine whether a viable electricity supply market exists for residential and commercial customers. Necessary information includes but is not limited to:

(a) the level of demand for electricity supply choice, the level of bargaining power of smaller customers, and the availability of market prices for smaller customers;

(b) the best means to encourage and support the development of sufficient markets and bargaining power for the benefit of smaller customers;

(c) the electricity suppliers' interest in serving smaller customers and the opportunities in providing service to smaller customers;

(d) experience in the broad range of technical and administrative support matters involved in designing and delivering unbundled retail services to smaller customers;

(e) diversity of fuel sources being developed in the market to meet demand; and

(f) an analysis of growth and demand on each system to determine how deregulation affects customer use patterns, specifically addressing whether deregulation increases or decreases consumption.

NEW SECTION. Section 5.  Public utility -- transition plans. (1) All public utilities, pursuant to [sections 1 through 28], shall submit a transition plan to the commission. Plans must be filed with the commission not later than July 1, 1999. The commission may develop a schedule for public utilities that are required to file plans. The transition plan must demonstrate that the public utility meets all the requirements of [sections 1 through 28]. Plans must contain a transition period ending not later than July 1, 2002.

(2) At the end of the transition period, except as provided in subsection (6), the commission may order that all customers, regardless of customer class, must have the opportunity to choose an electricity supplier.

(3) Unless waived by the public utility, the commission shall issue a final order approving or denying the transition plan before 9 months after the date on which a public utility files a plan. All parties are afforded an opportunity for hearing before issuance of the final order.

(4) The commission shall process a request for approval of a transition plan pursuant to the contested case procedures of the Montana Administrative Procedure Act, Title 2, chapter 4, part 6.

(5) On approval of the plan, the commission shall enforce the public utility obligations as incorporated in the plan and in the commission's final order.

(6) If the commission finds that markets have not developed that provide choice to all customers, that Montana customers or electricity suppliers would be disadvantaged because of lack of a competitive electricity supply market, or that choice would materially affect the reliability of the electric system, it may extend the transition period or return the utility to the regulatory regime in effect before [the effective date of this act].

NEW SECTION. Section 6.  Public utility -- customer choice -- continued service -- education of customers. (1) Public utilities shall propose a method for customers to choose an electricity supplier.

(2) If a customer does not choose an electricity supplier by the end of the transition period, then the electricity supplier is the public utility that filed the plan or an electricity supplier designated by the commission. The customer must be offered a price that is the lower of the market or production cost of the electricity supplied.

(3) A public utility may phase in customer choice to promote the orderly transition to a competitive market environment if sections of all customer classes are allowed to choose at the same time.

(4) Public utilities shall educate their customers about customer choice so that customers may make an informed choice of an electricity supplier. This education process must give special emphasis to education efforts during the transition period. The commission shall promulgate rules governing this education process.

NEW SECTION. Section 7. Public utility -- functional separation, divestiture, and nondiscrimination. (1) To the extent that a public utility is vertically integrated, a public utility shall functionally separate the public utility's electricity supply, retail transmission and distribution, and regulated and unregulated retail energy services operations in the state of Montana upon application to and approval from the commission.

(2) The commission may order a public utility to divest itself of any generation assets if the commission determines that the divestiture is necessary to avoid anticompetitive behavior.

(3) Public utilities shall:

(a) prevent undue discrimination in favor of their own power supply, other services, divisions, or affiliates, if any;

(b) prevent any other forms of self-dealing that could result in noncompetitive electricity prices to customers; and

(c) grant customers and their electricity suppliers access to the public utility's retail transmission and distribution system on a nondiscriminatory basis at rates, terms, and conditions of service comparable to the use of the retail transmission and distribution system by the public utility and the public utility's affiliates.

(4) The commission shall promulgate rules relating to the codes of conduct.

NEW SECTION. Section 8.  Public utility -- distribution services. (1) A public utility's distribution services provider shall:

(a) file tariffs that make distribution facilities available to all electricity suppliers, transmission services providers, and customers on a nondiscriminatory and comparable basis;

(b) build and maintain distribution facilities; and

(c) be an emergency supplier of electricity and related services.

(2) When a distribution services provider acts as an emergency supplier of electricity and related services to customers, the electricity supplier that should have provided the electricity shall reimburse the distribution services provider at the higher of a multiple, not less than 10, of the cost or a multiple, not less than 10, of the then existing market rate for that electricity. The commission shall determine and authorize the exact multiple used. The market rate is the highest published rate for electricity purchased within the local load control area at the time that the distribution services provider provided the emergency supply. A distribution services provider is not required to purchase any reserve supply of electricity to fulfill this obligation.

NEW SECTION. Section 9. Public utilities -- transmission services. For transmission services regulated by the commission, public utilities, through filed tariffs, shall make transmission services available for nondiscriminatory and comparable use by all electricity suppliers, by distribution services providers, and by customers.

NEW SECTION. Section 10. Public utilities -- electricity supply. (1) On the effective date of a commission order implementing a public utility's transition plan pursuant to [section 5], the public utility shall remove its generation assets from the rate base and electricity supply costs from the cost of service.

(2) During the transition period, the commission may establish cost-based prices for electricity supply service for customers that do not have a choice of electricity supply service or that have not chosen an electricity supplier.

(3) If the transition period is extended, then the distribution services provider shall:

(a) extend any cost-based contract with the distribution services provider's affiliate supplier for a term not more than 3 years; or

(b) purchase electricity from the market.

(4) If a public utility intends to be an electricity supplier through an unregulated division, then the public utility must be licensed as an electricity supplier pursuant to [section 23].

NEW SECTION. Section 11.  Public utilities -- transition costs and charges. (1) Subject to the provisions of this section, the commission may allow recovery of the following categories of transition costs:

(a) the unmitigable costs of qualifying facility contracts, including any buyout or buydown costs, for which the contract price of generation is above the market price for generation;

(b) the unmitigable costs of energy supply-related regulatory assets and deferred charges that exist because of current regulatory practices and that can be accounted for up to the effective date of the commission's final order regarding a public utility's transition plan, including costs, expenses, and reasonable fees related to issuing of transition bonds;

(c) the unmitigable transition costs related to public utility-owned generation and other power purchase contracts, except that recovery of those costs is limited to the amount accruing during the first 4 years after the commission enters an order pursuant to [section 5(3)]; and

(d) other transition costs as may qualify for recovery under this section.

(2) Public utilities may not collect costs, including costs reallocated to transition costs, at a level that increases existing rates.

(3) Transition costs as determined by the commission upon an affirmative showing by a public utility must meet the following requirements:

(a) Transition costs must reflect all reasonable mitigation by the public utility, including but not limited to good faith efforts to renegotiate contracts, buying out or buying down contracts, and refinancing through transition bonds.

(b) The value of all generation-related assets and liabilities and electricity supply costs must be reasonably demonstrable and must be considered on a net basis, and methods for determining value must include but are not limited to:

(i) estimating future market values of electricity and ancillary services provided by the assets;

(ii) appraisal by independent third-party professions; and

(iii) a competitive bid sale.

(c) Investments and power purchase contracts must have been previously allowed in rates or, if not previously in rates, must be determined to be prudent or used and useful to ratepayers in connection with the commission's approval of the utility's transition plan.

(d) Unless otherwise provided for in [sections 1 through 28], only costs related to existing investments and power purchase contracts identified in subsection (3)(c) and costs arising from those investments and power purchase contracts may be included as transition costs.

(4) (a) Subject to the provisions of this section, the commission shall determine the amounts of transition costs that a utility may collect.

(b) If the commission's calculation of net verifiable transition costs results in a finding of transition benefits, those benefits must be allocated to ratepayers.

(c) A transition charge may not be collected from customers generating electricity for their own use.

(5) (a) On commission approval of the amount of a public utility's transition costs, the commission shall determine the portion of the transition costs that the utility may collect from customers. The portion must be recovered through the imposition of a nonbypassable transition charge to be collected from customers, as approved by the commission.

(b) A transition charge may not be collected from customers generating electricity for their own use.

(6) Nonbypassable transition charges must be imposed within a transition cost recovery period approved by the commission on a case-by-case basis. Except for transition costs recovered under subsection (1)(c), categories of transition costs may have varying transition cost recovery periods.

(7) Approval of transition costs and collection of those transition costs through transition charges is a settlement of all transition costs claims by a public utility. A public utility seeking to recover transition costs through any means not authorized by [sections 1 through 28] may not collect transition charges with respect to these transition costs.

(8) Public utilities may not charge rates or collect costs, which include costs reallocated to transition costs, at a level higher than the public utility would reasonably expect to recover in rates had the current regulatory system remained intact, with the exception of increased costs related to universal system benefits charges greater than those currently included in rates.

(9) If transition bonds are issued, cost savings associated with and resulting from the bonds must benefit all customers.

NEW SECTION. Section 12.  Cooperative utility -- transition plan for customer choice. (1) Except as provided in [section 19], on or before July 1, 2001, the local governing body of a cooperative utility shall adopt a transition plan.

(2) (a) Except as provided in subsection (2)(b), transition plans must contain a transition period that may not end later than July 1, 2002. At the conclusion of the transition period, all customers must have the opportunity to choose an electricity supplier.

(b) If after a pilot program a competitive market, technology, or other conditions precedent to full customer choice have not developed, then the transition plan may be altered by the cooperative utility's governing body for those customers.

(3) [Sections 1 through 28] do not require the cooperative utility to divest itself of any generation, transmission, or distribution assets or prohibit a cooperative utility from divesting itself voluntarily of those assets.

(4) A cooperative utility's local governing body shall certify to the commission that the local governing body has adopted a transition plan. In the cooperative utility's certification filing, the cooperative utility shall provide to the commission documentation that the cooperative utility's transition plan is consistent with [sections 1 through 28].

NEW SECTION. Section 13.  Cooperative utility -- customer choice -- education of customers -- continued service. (1) Except as provided in [section 19], cooperative utilities shall propose a method for cooperative utility customers to choose an electricity supplier.

(2) Customer choice may be phased in to promote the orderly transition to a competitive market environment.

(3) Cooperative utilities shall educate their customers about customer choice so that customers may make an informed choice of an electricity supplier. This education process must give special emphasis to education efforts during the transition period.

(4) If a cooperative utility customer has not chosen an electricity supplier by the end of the transition period, then the electricity supplier is the cooperative utility that filed the plan or an electricity supplier designated by the cooperative utility.

NEW SECTION. Section 14.  Cooperative utility -- functional separation. (1) To the extent that a cooperative utility is vertically integrated, the cooperative utility has the option to functionally separate the cooperative utility's electricity supply, transmission, distribution, and unregulated energy services assets and operations in the state of Montana. If the cooperative utility intends to exercise this option, the cooperative utility's transition plan must explain the cooperative utility's proposed separation process.

(2) A cooperative utility shall describe in the transition plan measures taken by the cooperative utility to prevent undue discrimination in favor of the cooperative utility's own electricity supply, if any, and in favor of the cooperative utility's affiliates, if any.

(3) Cooperative utilities may establish a code of conduct similar to the federal energy regulatory commission's code of conduct established in 18 CFR, part 37.

NEW SECTION. Section 15.  Cooperative utility -- distribution services. (1) A cooperative utility transition plan must include distribution facility tariffs that must be established by the cooperative utility's local governing body and must include the obligation for the cooperative utility to:

(a) make distribution services available to all electricity suppliers, transmission services providers, and customers on a nondiscriminatory and comparable basis;

(b) build and maintain distribution facilities; and

(c) be an emergency supplier of electricity and related services.

(2) If a distribution services provider acts as an emergency supplier of electricity and related services to a customer of an electricity supplier, then the electricity supplier failing to meet contractual obligations shall reimburse the distribution services provider at an amount to be set by the local governing body but may not exceed the higher of a multiple of the cost or a multiple of the then-existing market rate for that electricity. The market rate is the highest published rate for electricity purchased within the local load control area at the time that the distribution services provider provided the emergency supply. A distribution services provider is not required to purchase any reserve supply of electricity to fulfill this obligation.

(3) Recoverable costs for cooperative utilities must be based upon standard financial reporting statements and may reflect comparable rates of return of other utilities.

NEW SECTION. Section 16.  Cooperative utility -- transmission services. Transition plans must state whether the cooperative utility's transmission services, if any, are regulated by the federal energy regulatory commission. If those services are not regulated by the federal energy regulatory commission, the plan must provide the basis for comparable and nondiscriminatory use by all electricity suppliers, distribution services providers, and customers. A cooperative utility's local governing body shall establish the cooperative utility's transmission tariffs.

NEW SECTION. Section 17.  Cooperative utility -- electricity supply. (1) A transition plan may provide for a cooperative utility to own electric generation assets and for a cooperative utility to offer electricity supply service. The local governing body shall establish the price for electricity supply service offered by a cooperative utility.

(2) Cooperative utilities intending to offer electricity supply service shall comply with the provisions of [section 23].

(3) If a cooperative utility offers electricity supply service competitively to customers using a public utility's distribution facilities, the cooperative utility shall create an affiliated for-profit entity or similar structure to serve those customers that allows the entity to be taxed at the same level as other for-profit electricity suppliers.

NEW SECTION. Section 18.  Cooperative utility -- transition costs and charges. (1) For the purposes of this section, "transition costs" means those costs, liabilities, and investments that cooperative utilities would reasonably expect to recover if fully bundled ratemaking conditions continued and that may not be recoverable as a result of the transition to a competitive market for electricity supply service.

(2) Transition costs eligible for treatment include but are not limited to:

(a) regulatory assets and deferred charges typically recoverable in rates;

(b) nonutility and utility power purchase contracts;

(c) existing commitments or obligations incurred before [the effective date of this act] and other cooperative utility investments rendered uneconomic as a result of the implementation of [sections 1 through 28] or the introduction of retail wheeling through federal legislation or regulation;

(d) costs associated with any renegotiation or buyout of the existing nonutility and utility power purchase contracts; and

(e) revenue that appears as a portion of a facility charge necessary to meet debt service requirements.

(3) For a cooperative utility's transition costs to be fully recoverable, the cooperative utility shall make reasonable efforts to mitigate those transition costs.

(4) Cooperative utilities may not collect any more costs, including costs reallocated to transition costs, at a level higher than would otherwise be anticipated had the current regulatory system remained intact, with the exception of:

(a) increased costs related to universal system benefits charges; and

(b) increased costs of metering, billing, and technology necessary to facilitate full customer choice.

(5) Subject to the obligation to mitigate transition costs, a cooperative utility shall fully recover transition costs as approved by its local governing body. Unmitigable transition costs are nonbypassable and collected on a nondiscriminatory basis from consumers using the cooperative utility's distribution facilities in the receipt of electricity supply service.

(6) A cooperative utility may not collect transition costs from a customer for which the cooperative utility does not have and never has had an obligation to incur costs to provide electricity supply service unless the unmitigated transition costs were incurred solely on behalf of the customer.

(7) Approval of and collection of transition costs through a transition charge is a settlement of all transition claims by a cooperative utility. A cooperative utility seeking to recover transition costs through any other means may not collect transition charges.

NEW SECTION. Section 19.  Cooperative utility -- exemption. (1) Within 1 year after [the effective date of this act], a cooperative utility may file a notice with the commission that the cooperative utility does not intend to open the cooperative utility's distribution facilities to electricity suppliers and does not intend to adopt a transition plan. Except as otherwise provided in the universal system benefits programs pursuant to [section 21], a cooperative utility filing notice under this section is exempt from the provisions and requirements of [sections 1 through 28].

(2) A cooperative utility filing a notice under this section:

(a) may elect later to adopt a transition plan in accordance with [sections 1 through 28]; and

(b) may not use a public utility's distribution facilities.

NEW SECTION. Section 20.  Maintaining safety and reliability. Utilities shall maintain standards of safety and reliability of the electric delivery system and existing customer service requirements.

NEW SECTION. Section 21.  Universal system benefits programs. (1) Universal system benefits programs are established for the state of Montana to ensure continued funding of energy conservation, renewable resource applications, and low-income energy bill assistance during the transition period and into the future.

(2) On or after July 1, 1997, 4% of each utility's and each electricity supplier's annually calculated total revenue is the annual funding level for universal system benefits programs.

(3) The recovery of all universal system benefits programs costs imposed pursuant to this section is authorized through the imposition of a nonbypassable universal system benefits charge assessed at the meter for each local utility system customer as provided in this section.

(4) In instances in which the nonbypassable universal systems benefits charge has already been assessed on electricity produced in the state of Montana, the utility that provides that electricity to Montana customers may credit that amount toward its annual funding requirement.

(5) Utilities must receive credit toward annual funding requirements for a utility's internal programs or activities that qualify as universal system benefits programs and for customers' programs or activities.

(6) If a utility's or a customer's credit for internal activities does not satisfy the annual funding provisions of subsection (2), then the utility shall make a payment for any difference.

(7) A utility's transition plan must describe how the utility proposes to provide for universal system benefits programs, including the methodologies, such as cost-effectiveness and need determination, used to measure the utility's level of contribution to each program.

(8) A utility's annual funding requirement for low-income energy bill assistance is established at 17% of the utility's annual universal system benefits funding level and is inclusive within the overall universal system benefits funding level.

(9) A utility must receive credit toward the utility's low-income energy bill assistance annual funding requirement for the utility's internal low-income energy bill assistance programs or activities.

(10) If a utility's credit for internal activities does not satisfy its annual funding requirement, then the utility shall make a payment for any difference.

(11) A public utility shall prepare and submit an annual summary report of the public utility's activities relating to all universal system benefits programs to the commission. A cooperative utility shall prepare and submit annual summary reports of activities to the cooperative utility's respective local governing body and the statewide cooperative utility office. The annual report must include but is not limited to:

(a) the types of internal utility and customer programs being used to satisfy the provisions of [sections 1 through 28];

(b) the level of funding for those programs relative to the annual funding requirements prescribed in subsection (2); and

(c) any payments made to the statewide funds in the event that internal funding was below the prescribed annual funding requirements.

NEW SECTION. Section 22.  Commission authority -- rulemaking authority. (1) Beginning on the effective date of a commission order regarding a public utility's transition plan, the commission shall regulate the public utility's retail transmission and distribution services within the state of Montana, as provided in [sections 1 through 28], and may not regulate the price of electricity supply except as electricity supply may be procured during the transition period by the distribution function of a public utility for those customers that do not have a choice of electricity supplier or for those customers that have not yet been assigned an electricity supplier. During the transition period, those procurements may include a cost-based contract from a supply affiliate or an unregulated division.

(2) If the transition period is extended because workable competition in the electricity supply market does not exist, then the commission shall regulate distribution services providers in accordance with [section 8].

(3) The commission shall decide if there is workable competition in the electricity supply market.

(4) The commission shall license electricity suppliers and enforce licensing provisions pursuant to [section 23].

(5) The commission shall promulgate rules that identify the licensees and ensure that the offered electricity supply is provided as offered and is adequate in terms of quality, safety, and reliability.

(6) The commission shall establish just and reasonable rates through established ratemaking principles for public utility distribution and transmission services and shall regulate these services. The commission may approve rates and charges for electricity distribution and transmission services based on alternative forms of ratemaking, such as performance-based ratemaking, on a demonstration by the public utility that the alternative method complies with [sections 1 through 28], and on the public utility's transition plan.

(7) The commission shall certify that a cooperative utility has adopted a transition plan that complies with [sections 1 through 28]. A cooperative utility's transition plan is considered certified 60 days after the cooperative utility files for certification.

(8) The commission shall promulgate rules that protect consumers, distribution services providers, and electricity suppliers from anticompetitive and abusive practices.

(9) In addition to promulgating rules expressly provided for in [sections 1 through 28], the commission may promulgate any other rules necessary to carry out the provision of [sections 1 through 28].

(10) [Sections 1 through 28] do not give the commission the authority to:

(a) regulate cooperative utilities in any manner other than reviewing certification filings for compliance with [sections 1 through 28]; or

(b) compel any change to a cooperative utility's certification filing made pursuant to [sections 1 through 28].

(11) The commission shall analyze and report on the transition to effective competition in the competitive electricity supply market. The annual report produced in the year 2000 must evaluate specifically the pilot programs and must include legislative recommendations, if it appears appropriate, about the best means to further encourage the development of customer choice and meaningful market access for the benefit of smaller customers. The annual report for the year 2000 must also address the need, if any, for additional consumer protection, including protection from abusive or anticompetitive practices.

(12) The criteria that the commission shall use to evaluate effective competition in the electricity supply market include but are not limited to the following:

(a) the level of demand for electricity supply choice and the availability of market prices for smaller customers;

(b) the existence of sufficient markets and bargaining power to the benefit of smaller customers and the best means to encourage and support the development of sufficient markets;

(c) the level of interest among electricity suppliers and the opportunity for electricity suppliers to serve smaller customers; and

(d) the existence and encouragement of the requisite technical and administrative support that enables smaller customers to have choice of electricity supply.

(13) The commission shall recommend legislation if necessary to promote electric utility restructuring and retail choice of electricity suppliers, while maintaining or strengthening customer protections.

(14) The commission shall make recommendations to the governor regarding the implementation of statewide universal system benefits and universal energy bill assistance funds in time to allow for those funds to be created on or before July 1, 1998. This may include recommendations regarding the assignment of an existing government agency or private, nonprofit entity as the fund administrator and administration guidelines for the funds, including the means by which funds may be made available for use.

(15) On or before November 1, 2001, the commission shall collect information to determine whether Montana utilities or their affiliates have an opportunity to sell electricity to customers outside the state of Montana comparable to the opportunity provided pursuant to [sections 1 through 28] to utilities or their affiliates located outside the state of Montana. That information must be included in a report to the legislature.

NEW SECTION. Section 23.  Licensing. (1) Except as provided in [section 19], an electricity supplier shall file an application with and obtain a license from the commission before offering electricity for sale to retail customers in the state of Montana.

(2) (a) As a condition of licensing, an electricity supplier shall identify and describe its activities and purposes and the purposes of each of the electricity supplier's affiliates, including whether an affiliate that owns or operates distribution facilities offers customer choice through open, fair, and nondiscriminatory access to the electricity supplier or the electricity supplier's affiliate's distribution facilities.

(b) An electricity supplier must have at least 5% of its portfolio composed of renewable sources of energy as a condition of licensing.

(c) An electricity supplier shall establish a net metering program for customer-owned renewable energy generators or qualifying facilities producing less than 100 kilowatts. Utilities are not required to pay for any excess energy produced by the customer generator or qualifying facility.

(3) The commission may require electricity suppliers that provide electricity supply service to small customers to make a standard service offer that ensures that those customers have access to affordable electricity.

(4) The commission may require:

(a) proof of financial integrity and a demonstration of adequate reserve margins or the ability to obtain those reserves; and

(b) a licensee to post a bond if an electricity supplier fails to supply electricity or is not operating.

(5) An electricity supplier shall provide the commission and all distribution services providers with copies of all license applications pursuant to subsection (2). Licensees shall update information and file annual reports with the commission and all distribution services providers.

(6) License applications are effective 30 days after filing with the commission unless the commission rejects the application during that period. If the commission rejects a license application, the commission shall specify the reasons in writing and, if practical, identify alternative ways to overcome deficiencies.

(7) Notwithstanding [sections 1 through 28], a cooperative utility is not required to apply for a license from the commission to be an electricity supplier to customers normally served by that cooperative utility in its traditional service territory or to any customers normally served by another cooperative utility subject to the consent of the other cooperative utility's local governing body.

NEW SECTION. Section 24.  Penalties -- license revocation. (1) The commission may begin a proceeding to either impose a penalty or revoke or suspend a license of an electricity supplier for just cause on the commission's own investigation or upon the complaint of an affected party if it is established that the supplier:

(a) intentionally provided false information to the commission;

(b) switched, or cause to be switched, the electricity supply for a customer without first obtaining the customer's written permission; or

(c) failed to provide a reasonably adequate supply of electricity for its customers in Montana.

(2) Any person selling or offering to sell electricity in this state in violation of [section 23, 26,] and this section is subject to a fine of not less than $1,000 for the violation or a license revocation or suspension.

(3) The fine must be recovered in a civil action upon the complaint by the commission in any court of competent jurisdiction.

(4) A license revocation proceeding under this section is a contested case proceeding pursuant to the Montana Administrative Procedure Act, Title 2, chapter 4, part 6.

NEW SECTION. Section 25.  Bill information -- customer nonpayment -- commission rulemaking. (1) Electrical bills to consumers must disclose each component of the electrical bill in accordance with rules promulgated by the commission. The electrical bill must disclose but is not limited to the following:

(a) distribution and transmission charges;

(b) electricity supply charges;

(c) competitive transition charges; and

(d) universal system benefits charges.

(2) The commission shall promulgate rules establishing the procedures relating to how and when an electricity supplier may discontinue service to a customer because of the customer's nonpayment and the procedures relating to reconnection except that those rules may not apply to electricity suppliers that are cooperative utilities.

(3) Local governing boards of a cooperative utility shall retain authority for cooperative utilities regarding:

(a) customer nonpayment and reconnection; and

(b) information contained in electrical bills to consumers.

NEW SECTION. Section 26.  Unauthorized switching -- commission rulemaking -- penalties. (1) An electricity supplier or any person, firm, corporation, or governmental entity may not make any change in the electricity supplier for a customer without first obtaining the customer's written permission.

(2) The commission shall promulgate rules establishing procedures to prevent unauthorized switching.

(3) A person violating this section is subject to a fine of not less than $1,000.

(4) The fine must be recovered in a civil action upon the complaint by the commission in any court of competent jurisdiction.

NEW SECTION. Section 27.  Tax revenue analysis. (1) The revenue oversight committee, as provided for in 5-18-102, shall analyze the amount of state and local tax revenue derived from previously regulated electric suppliers that will enter the competitive market and shall report to the legislature annually on how revenue to the state or local government is changed by restructuring and competition.

(2) On or before November 30, 1998, the revenue oversight committee shall recommend legislative changes, if any, to address the establishment of comparable state and local taxation burdens on all market participants in the supply of electricity. Any legislation recommended by the revenue oversight committee should place comparable state and local taxation burdens upon all market participants.

NEW SECTION. Section 28.  Transition costs financing. A utility may, after July 1, 1997, apply to the commission for a determination that certain transition costs may be recovered through the issuance of transition bonds. The commission shall promulgate rules governing the issuance of transition bonds that include but are not limited to:

(1) a segmented bonding process;

(2) prioritization of transition costs to be bonded; and

(3) governmental oversight of the bonding process.

Section 29.  Section 15-6-137, MCA, is amended to read:

"15-6-137.   Class seven property -- description -- taxable percentage. (1) Class seven property includes:

(a) all property used and owned by persons, firms, corporations, or other organizations that are engaged in the business of furnishing telephone communications exclusively to rural areas or to rural areas and cities and towns of 800 persons or less;

(b) all property owned by cooperative rural electrical and cooperative rural telephone associations that serve less than 95% of the electricity consumers or telephone users within the incorporated limits of a city or town, except rural electric cooperative properties described in 15-6-141(1)(a);

(c) electric transformers and meters; electric light and power substation machinery; natural gas measuring and regulating station equipment, meters, and compressor station machinery owned by noncentrally assessed public utilities; and tools used in the repair and maintenance of this property.

(2) To qualify for this classification, the average circuit miles for each station on the telephone communication system described in subsection (1)(b) must be more than 1 mile.

(3) Class seven property is taxed at 8% of its market value."

Section 30.  Section 15-6-141, MCA, is amended to read:

"15-6-141.   Class nine property -- description -- taxable percentage. (1) Class nine property includes:

(a) centrally assessed electric power companies' allocations, including, if congress passes legislation that allows the state to tax property owned by an agency created by congress to transmit or distribute electrical energy, allocations of properties constructed, owned, or operated by a public agency created by the congress to transmit or distribute electric energy produced at privately owned generating facilities, (not including rural electric cooperatives. However, properties of rural electric cooperatives serving less than 95% of the electric consumers located within the incorporated limits of a city or town of more than 3,500 persons in which a centrally assessed electric power company also owns property are included.);

(b) allocations for centrally assessed natural gas companies having a major distribution system in this state; and

(c) centrally assessed companies' allocations except:

(i) electric power and natural gas companies' property;

(ii) property owned by cooperative rural electric and cooperative rural telephone associations and classified in class five;

(iii) property owned by organizations providing telephone communications to rural areas and classified in class seven;

(iv) railroad transportation property included in class twelve; and

(v) airline transportation property included in class twelve.

(2) Class nine property is taxed at 12% of market value."

Section 31.  Section 69-5-101, MCA, is amended to read:

"69-5-101.   Short title. This part shall be is known and may be cited as the "Territorial Integrity Act of 1971"."

Section 32.  Section 69-5-102, MCA, is amended to read:

"69-5-102.   Definitions. When used in this part, the following definitions apply:

(1)  "Commercial premises" means the premises where the business of selling, warehousing, or distributing a commodity or other business activity is carried on or professional or other services are rendered. "Agreement" means a written agreement between two or more electric facilities providers that identifies the geographical area to be served exclusively by each electric facilities provider that is a party to the agreement and any terms and conditions pertinent to the agreement.

(2) "Electric cooperative" means a rural electric cooperative organized under Title 35, chapter 18, or a foreign corporation admitted thereunder to do business in Montana.

(3)  "Electric supplier facilities provider" means any electrical utility and any electric cooperative that provides electric service facilities to the public.

(4) "Electric service facilities" means any distribution or transmission system or related facility necessary to provide electricity to the premises, including lines.

(4)(5)  "Electric utility" means a person, firm, or corporation other than an electric cooperative which furnishes electrical that provides electric service facilities to the public.

(5)  "Industrial premises" means the premises where an industrial activity is carried on, including but not limited to the operation of factories, mills, machine shops, mines, oil wells, refineries, pumping, cleaning and dyeing works, creameries, canneries, stockyards, feedlots, military installations, or other extractive, fabricating, or processing activities.

(6)  "Line" means any electric supply conductor operating at a nominal voltage level of 34,500 volts or less, measured phase-to-phase.

(7)  "Premises" means a building, residence, structure, or facility to which electricity is being electric service facilities are provided or is are to be furnished; provided, that installed; however, two or more buildings, structures, or facilities which that are located on one tract or contiguous tracts of land and that are utilized used by one electric consumer for farming, business, commercial, industrial, institutional, governmental, or trailer court purposes shall must together constitute one premises, except that any such building, structure, or facility, other than a trailer court, shall may not, together with any other building, structure, or facility, constitute one premises if the electric service to it is separately metered and the charges for such that service are calculated independently of charges for service to any other building, structure, or facility.

(8) "Utility" means a public utility regulated by the commission pursuant to Title 69, chapter 3, or a utility qualifying as an electric cooperative pursuant to Title 35, chapter 18."

Section 33.  Section 69-5-104, MCA, is amended to read:

"69-5-104.   Continuation of service electric service facilities to existing consumers. Every Each electric supplier facilities provider shall have has the right to serve provide electric service facilities to all premises being served by it or to which any of its facilities are attached on February 1, 1971 [the effective date of this act]."

Section 34.  Section 69-5-105, MCA, is amended to read:

"69-5-105.   Service to new consumers. (1) Subject to 69-5-106 this part, the electric supplier facilities provider having a line nearest the premises, as measured in accordance with subsection (2), shall serve provide electric service facilities to the premises initially requiring service after February 1, 1971 [the effective date of this act], which creates a rebuttable presumption that the nearest line is the least-cost electric service facility to the new customer. However, a customer or another electric facilities provider may rebut the presumption and another electric facilities provider may provide the electric service facilities if it can do so at less cost.

(2)  All measurements under this part shall must be made on the shortest straight line which that can be drawn from the conductor nearest the premises to the nearest permanent portion of the premises. Construction power for premises to be constructed shall be supplied by the electric supplier having the right to serve the completed premises.

(3) If the electric facilities providers are unable to reach agreement as to which electric facilities provider can provide electric service facilities at least cost, an independent consultant engineer agreeable to both electric facilities providers or, in the event of failure of the electric facilities providers to agree on a consultant engineer, an independent consultant engineer selected by the district court having jurisdiction, as provided in 69-5-110, shall determine which electric facilities provider can extend its lines to the consumer at the least cost. The cost of those engineering services must be paid equally by the electric facilities providers involved."

Section 35.  Section 69-5-106, MCA, is amended to read:

"69-5-106.   Service Electric service facilities to industrial or commercial premises large customers. (1) An electric utility has the right to furnish electric service facilities to any industrial or commercial premises if the estimated connected load for full plant operation at such industrial or commercial the premises will be 400 kilowatts or larger within 2 years from the date of initial service provided such and if the electric utility can extend its lines facilities to such industrial or commercial the premises at less cost to the electric utility or the industrial or commercial customer than the electric cooperative cost. The estimated connected load shall must be determined from the plans and specifications prepared for construction of the premises or, if such an estimate is not available, shall must be determined by agreement of the electric supplier facilities provider and the customer. The fact that the actual connected load after 2 years from the date of initial service is less than 400 kilowatts does not affect the right of the electric supplier facilities provider initially providing electric service facilities to continue to provide electric service facilities to such the premises.

(2) An independent consultant engineer agreeable to both electric suppliers facilities providers or, in the event of failure of the electric suppliers facilities providers to agree on a consultant engineer, an independent consultant engineer selected by the district court having jurisdiction, as provided in 69-5-110, shall determine which electric supplier facilities provider can extend its lines to the consumer facilities at the least cost to the utility. The cost of such those engineering services shall must be paid equally by the electric suppliers facilities providers involved.

(3)  No premises other than another such commercial or industrial premises shall be served from a line constructed under this section."

Section 36.  Section 69-5-107, MCA, is amended to read:

"69-5-107.   Service to property owned by electric supplier Customer-owned facilities. Nothing in 69-5-103 through 69-5-106 shall restrict the right of an electric supplier to furnish electric service to any property owned by the electric supplier. This part may not limit a customer's right to construct, own, or operate electric service facilities for the customer's own use, and construction, ownership, or use may not cause the customer to be considered a utility. A customer may not duplicate existing electric service facilities."

Section 37.  Section 69-5-108, MCA, is amended to read:

"69-5-108.   Agreements between electric suppliers as to service areas facilities providers. Notwithstanding the provisions of 69-5-103 through 69-5-109, an electric supplier may furnish electric service to any consumer at any premises being served by another electric supplier upon written agreement of the affected electric suppliers or at premises that another electric supplier has the right to serve pursuant to this part, upon written agreement of the affected electric suppliers. Utilities may enter into agreements that identify the geographical area to be exclusively served by each electric facilities provider that is party to the agreement, overriding the provisions of 69-5-105 and 69-5-107. If an agreement is approved by the commission pursuant to this part, the agreement is valid and binding on all electric facilities providers and all customers, except those provided for in 69-5-106."

Section 38.  Section 69-5-109, MCA, is amended to read:

"69-5-109.   Special provisions for annexed areas. With respect to service in areas which are annexed to incorporated municipalities having a population in excess of 3,500 persons, electric suppliers have rights and are subject to restrictions as follows:

(1)  Every electric supplier has the right to serve all premises being served by it on the date of annexation.

(2)  An electric cooperative does not have the right to serve any premises initially requiring service on or after the date of annexation. The restriction stated in this subsection does not apply to incorporated municipalities in which 95% or more of the premises were served by an electric cooperative on February 1, 1971. (1) Electric facilities providers providing electric service facilities in or near areas that are incorporated municipalities having a population in excess of 3,500 persons and having annexed areas since 1985 or having existing municipal planning zones on [the effective date of this act] shall enter into agreements dividing the annexed and planning zone areas into exclusive service territories and shall submit the agreements to the commission for approval, pursuant to this part.

(2) The agreements do not apply to electric service facilities with loads of 400 kilowatts or greater. Agreements must be based on the location of facilities in place on [the effective date of this act].

(3) If electric facilities providers have failed to negotiate agreements within 1 year from the [effective date of this act], the commission shall divide the annexed and planning zone areas into exclusive service territories, using the considerations pursuant to [section 41].

(4) Until agreements are final, electric service facilities to new customers will be provided pursuant to 69-5-105."

Section 39.  Section 69-5-110, MCA, is amended to read:

"69-5-110.   Jurisdiction of district courts over disputes. The district courts of the county or counties within which the premises or lines involved in any dispute are located shall have have jurisdiction under this part over all electric suppliers facilities providers subject to the provisions thereof this part."

Section 40.  Section 69-5-111, MCA, is amended to read:

"69-5-111.   Judicial remedies. (1) Whenever it shall appear that any an electric supplier facilities provider is failing or omitting or about to fail or omit to do anything required of it by this part or is doing or is about to do anything or to permit anything to be done contrary to or in violation of this part, any the electric supplier facilities provider affected thereby shall have the right to may file a complaint in the district court briefly setting forth the acts or omissions complained of and requesting an injunction.

(2)  If an affidavit showing that grounds exist therefor that an electric facilities provider is in violation of this part is filed with the complaint, a temporary restraining order shall must be issued without notice. A copy of the temporary restraining order, complaint, and affidavit shall must be served upon the defendant, together with an order to show cause why the temporary restraining order should not be made permanent, within 5 days after issuance of the temporary restraining order. The hearing on the order to show cause must be held at a date specified therein in the order, which shall and may not be more than 10 days after service thereof of the order and shall must take precedence over all matters pending before the district court. A judgment making the injunction permanent or dissolving the temporary restraining order theretofore that was issued and dismissing the complaint must be made not later than before 10 days after the hearing on the order to show cause.

(3)  Any party aggrieved by the order may appeal to the supreme court of Montana by filing a notice of appeal in the district court within 20 days from entry of the order. The appeal must be perfected within 20 days thereafter after filing the notice of appeal and shall must take precedence over all matters pending before the supreme court of Montana."

NEW SECTION. Section 41.  Commission jurisdiction over agreements. (1) All agreements between electric facilities providers must be submitted to the commission for approval. Each agreement must clearly identify the geographical area to be served by each electric facilities provider. The submission must include:

(a) a map and a written description of the area;

(b) the terms and conditions pertaining to the implementation of the agreement;

(c) the number and class of customers to be transferred;

(d) assurance that the affected customers have been contacted and have received a written explanation of the difference in rates; and

(e) information with respect to the degree of acceptance by affected customers, such as the number in favor of and those opposed to the transfer.

(2) In approving agreements, the commission shall consider but not be limited to consideration of:

(a) the reasonable likelihood that the agreement, in and of itself, will not cause a decrease in the reliability of electric service to the existing or future ratepayers of any electric facilities provider party of the agreement; and

(b) the reasonable likelihood that the agreement will eliminate existing or potentially uneconomic duplication of electric service facilities.

(3) An agreement approved by the commission is valid and enforceable, and except as provided in 69-5-106, an electric facilities provider may not offer, construct, or extend electric service facilities into an exclusive territory.

(4) The commission shall state its findings and conclusions for approving or disapproving an agreement and shall render a decision within 90 days of receipt of the agreement. The electric facilities providers submitting the agreement to the commission shall act according to the agreement until a decision is rendered.

(5) Upon approval of the agreement, any modification, changes, or corrections to this agreement must be approved by the commission.

(6) The commission may promulgate rules to administer this part consistent with the requirements of this part.

NEW SECTION. Section 42.  Repealer. Section 69-5-103, MCA, is repealed.

NEW SECTION. Section 43.  Saving clause. [This act] does not affect rights and duties that matured, penalties that were incurred, or proceedings that were begun before [the effective date of this act].

NEW SECTION. Section 44.  Severability. If a part of [this act] is invalid, all valid parts that are severable from the invalid part remain in effect. If a part of [this act] is invalid in one or more of its applications, the part remains in effect in all valid applications that are severable from the invalid applications.

NEW SECTION. Section 45.  Codification instructions. (1) [Sections 1 through 28] are intended to be codified as an integral part of Title 69, and the provisions of Title 69 apply to [sections 1 through 28].

(2) [Section 41] is intended to be codified as an integral part of Title 69, chapter 5, part 1, and the provisions of Title 69, chapter 5, part 1, apply to [section 41].

NEW SECTION. Section 46.  Effective date. [This act] is effective on passage and approval.

-END-