(a) Subject to Subsection (c), capital costs incurred by an electric utility to improve air quality before January 1, 2002, are eligible for inclusion as net invested capital under § 39.259, notwithstanding the limitations imposed under Sections 39.259(b) and (c).
(b) Subject to Subsection (c), capital costs incurred by an electric utility or an affiliated power generation company to improve air quality after January 1, 2002, and before May 1, 2003, are eligible for inclusion in the determination of invested capital in the true-up proceeding under § 39.262.

(c) Reasonable costs incurred under Subsections (a) and (b) shall be included as invested capital and considered in an electric utility’s stranded cost determination only to the extent that:
(1) the cost is applied to offset or reduce the emission of airborne contaminants from an electric generating facility, where:
(A) the reduction or offset is determined by the Texas Natural Resource Conservation Commission to be an essential component in achieving compliance with a national ambient air quality standard; or
(B) the reduction or offset is necessary in order for an unpermitted electric generating facility to obtain a permit in the manner provided by § 39.264;
(2) the retrofit decision is determined to be the most cost-effective after consideration of alternative measures, including the retirement of the generating facility; and
(3) the amount and location of resulting emission reductions is consistent with the air quality goals and policies of the Texas Natural Resource Conservation Commission.
(d) If the retirement of a generating facility is the most cost-effective alternative, taking into account the cost of replacement generating capacity, the net book value, including retirement costs and offsetting salvage value, of the affected facility shall be included in the electric utility’s stranded cost determination, notwithstanding § 39.259(c).