LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 76th Regular Session February 1, 1999 TO: The Honorable David Sibley, Chairman, Senate Special Committee on Electric Utility Restructuring 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.), As Introduced ************************************************************************** * Two-year Net Impact to General Revenue Related Funds for SB7, As * * Introduced: negative impact of $(2,686,784) through the biennium * * ending August 31, 2001. * * * * The bill would make no appropriation but could provide the legal * * basis for an appropriation of funds to implement the provisions of * * the bill. * ************************************************************************** General Revenue-Related Funds, Five-Year Impact: **************************************************** * Fiscal Year Probable Net Positive/(Negative) * * Impact to General Revenue Related * * Funds * * 2000 $(712,761) * * 2001 (1,974,023) * * 2002 (6,804,600) * * 2003 (10,938,535) * * 2004 (10,497,046) * **************************************************** All Funds, Five-Year Impact: *********************************************************************** *Fiscal Probable Probable Probable Probable Change in * * Year Revenue Savings/ Revenue Savings/ Number of * * Gain/(Loss) (Cost) from Gain/(Loss) (Cost) from State * * from General from New - New - Employees * * General Revenue System System from FY 1999 * * Revenue Fund Benefit FundBenefit Fund * * Fund 0001 * * 0001 * * 2000 $0 $(712,761) $88,592,000 17.5 * * $(88,592, * * 000) * * 2001 0 (1,974,023) 91,249,000 17.5 * * (91,249,000) * * 2002 (5,907,000) (897,600) 93,531,000 17.5 * * (93,531,000) * * 2003 (918,535) 95,869,000 17.5 * * (10,020,000) (95,869,000) * * 2004 (9,902,000) (595,046) 98,265,000 17.5 * * (98,265,000) * *********************************************************************** ***************************************************** * Fiscal Year Probable Revenue Gain/(Loss) from * * All Local Units of Government * * 2000 $0 * * 2001 0 * * 2002 (1,444,000) * * 2003 (2,816,000) * * 2004 (2,740,000) * ***************************************************** 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 freeze base electric rates from September 1, 1999 through December 1, 2001; after this date, a retail electric provider would be required to reduce the rates charged to residential and small commercial consumers by five percent. 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 protections and require extensive consumer education programs. Utilities would be allowed to recover 100 percent of their stranded costs; the PUC would be required to value stranded costs and to "true-up" the costs two years after the start of competition. Utilities would also be subject to market power limitations; no utility would be allowed to own more than 20 percent of the generating capacity in a participating region. The bill would provide for a new System Benefit Fund and those proceeds could be used to compensate the Foundation School Fund for any losses due to fluctuations in property values in school districts which are subject to recapture of revenue under the provisions of Chapter 41 of the Education Code. The Texas Education Agency would determine the amount of property taxes that would not be recaptured as a result of the impact of restructuring, 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 for any reduction. The System Benefit Fund would also authorize the PUC to set and impose a charge not to exceed 30 cents per megawatt hour on electric usage to finance the fund. The fund could also be used to provide customer education services and to provide funding to assist low-income customers. Methodology Reductions in the sales tax, the gas, electric and water utility tax, and the public utility assessment is estimated to begin in 2002; the Comptroller of Public Accounts estimates that these taxes will decrease by an estimated 2.3 percent due to sales by out-of-state power retailers. The Comptroller estimates a similar reduction in the commercial (and for some cities residential) electricity portion of the local sales tax base. The issue of out-of-state power retailers accounts for the entire revenue loss quantified in this note. The estimated gain to the System Benefit Fund is calculated based on the maximum rate assessment of 30 cents per megawatt hour. It is assumed that 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 and low-income customer assistance. The Public Utility Commission 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 campaign would include paid media advertising, regional town meetings, and expanding the customer call center, as well as developing materials to ensure that low-income consumers and non-English speakers would receive information on retail electric choice. It is estimated there would be a General Revenue cost for several agencies who 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. The Office of Public Utility Counsel would participate in stranded cost and market power determinations as a consumer advocate. The PUC would bear increased costs for rulemaking, stranded cost and market power determinations, 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. It is assumed that the utility rate freeze in fiscal year 2000 and the consequent reduction two years later would have no significant impact on state tax revenues. Similar annual fiscal implications would continue as long as the provisions of the bill are in effect. Local Government Impact As noted above, the Comptroller estimates a reduction in local sales tax revenue. Property values would either increase or decrease in various school districts. An increase in property values would result in an increase in local revenue. A decrease in property values would result in a decrease in local revenue. For school districts subject to Chapter 41, any decrease in recapture revenue to the state resulting from a decrease in local revenue would be made up by the System Benefit Fund authorized by this bill. Restructuring may increase property values for some school districts. Source Agencies: 475 Public Utility Counsel LBB Staff: JK, SD, BB, CB, RT