LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 76th Regular Session April 8, 1999 TO: Honorable Steven Wolens, Chair, House Committee on State Affairs FROM: John Keel, Director, Legislative Budget Board IN RE: SB7 by Sibley (relating to electric utility restructuring and to the powers and duties of the Public Utility Commission of Texas; providing civil and administrative penalties; making an appropriation), As Engrossed ************************************************************************** * Estimated Two-Year Net Impact to General Revenue Related Fundsfor * * SB7, As Engrossed: negative impact of $(99,000) through the * * biennium ending August 31, 2001. * ************************************************************************** General Revenue-Related Funds, Five-Year Impact: **************************************************** * Fiscal Year Probable Net Positive/(Negative) * * Impact to General Revenue Related * * Funds * * 2000 $(99,000) * * 2001 0 * * 2002 0 * * 2003 0 * * 2004 0 * **************************************************** All Funds, Five-Year Impact: *************************************************************************** *Fiscal Probable Probable Probable Change in * * Year Savings/(Cost) Revenue Savings/(Cost) Number of State * * from General Gain/(Loss) from New - Employees from * * Revenue Fund from New - System Benefit FY 1999 * * 0001 System Benefit Fund * * Fund * * 2000 $(99,000) $147,653,000 $(147,653,000) 5.0 * * 2001 0 152,082,000 (152,082,000) 21.0 * * 2002 0 155,855,000 (155,855,000) 11.0 * * 2003 0 159,782,000 (159,782,000) 12.0 * * 2004 0 163,775,000 (163,775,000) 5.0 * *************************************************************************** Fiscal Analysis The bill would amend the Public Utility Regulatory Act to allow competition in the retail sale of electricity beginning January 1, 2002. The bill would require all retail electric providers to be certified by the Public Utility Commission of Texas (PUC). It would also establish specific consumer rights and require extensive consumer education programs. The PUC would be required to value stranded costs and to "true-up" the costs two years after the start of competition. The bill would provide for a new System Benefit Fund, whose proceeds could be used as a means to replace any property tax revenues lost to a school district as a result of altered property valuations resulting from utility restructuring. The Texas Education Agency would determine the amount of property taxes that would be lost as a result of the restructuring impact and would notify the PUC of the loss. The PUC would then transfer from the System Benefit Fund to the Foundation School Fund amounts necessary to compensate the state and local school districts for any reduction. The bill would appropriate the dollars transferred in this manner for the support of the Foundation School Fund. The PUC would be allowed to set and impose a charge not to exceed 50 cents per megawatt hour on the electric usage to finance the System Benefit Fund. The fund could also be used to provide customer education services, funding for low-income consumers, and to pay administrative costs incurred by the PUC in implementing electric utility restructuring. The bill would allow the General Land Office (GLO) to sell or convey power directly to a public retail customer, such as a state agency, institution of higher education, public school district, or unit of local government. The bill would provide the state with access to all transmission and distribution system utilities serving public retail customers. These electric utilities would be required to provide services to the state at the lowest applicable rate charged for a similar service to other customers. Methodology No significant impact to the sales tax, the gas, water and utility tax, or the public utility assessment is anticipated. The estimated gain to the System Benefit Fund is calculated based on the maximum rate assessment of 50 cents per megawatt hour. It is assumed that all of the balances in the System Benefit Fund would be distributed. If no transfer to the Foundation School Fund is warranted, it is assumed that all money remaining in the System Benefit Fund would be distributed for customer education, low-income customer assistance, and to offset any administrative costs at the PUC. The PUC estimates that $1.05 per affected customer per year would be needed from the System Benefit Fund to provide a comprehensive public education campaign. The PUC would also bear increased costs for rulemaking, stranded cost hearings, market power determinations and other proceedings, complaint resolution, and implementation of a pilot project. However, the PUC would have decreased costs due to a reduction in traditional rate cases under the rate freeze, and lessened responsibility for rate regulation. Any additional administrative costs to the PUC could be paid from the System Benefit Fund. It is estimated that there would be General Revenue costs for the Comptroller of Public Accounts who will have additional responsibilities in implementing the provisions of the bill. The Comptroller of Public Accounts anticipates a need to implement changes to the state's accounting system. Authorizing the GLO to convert in-kind natural gas into electricity to be sold to public entities could result in some savings for electricity costs for state entities. There could also be some additional revenue to the state from the sale of electricity to the Permanent School Fund and the Permanent University Fund. Similar annual fiscal implications would continue as long as the provisions of the bill are in effect. Local Government Impact No significant fiscal impact to school districts is anticipated, as any decreases in taxable property values would be offset by transfers from the System Benefit Fund. School districts could experience some savings in electricity costs if they are able to purchase electricity at lower rates. Municipal utilities could experience some loss of revenues if previous public customers choose to buy electricity from the GLO. However, no individual utility would be expected to experience a revenue decline greater than 2.5 percent, and some portion of such losses could be offset by a decrease in costs associated with providing service to fewer customers. Source Agencies: LBB Staff: JK, BB, SD, RT, CB