LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 76th Regular Session May 14, 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, Office of Public Utility Counsel, and Texas Natural Resource Conservation Commission; providing penalties), Committee Report 2nd House, Substituted ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * SB7, Committee Report 2nd House, Substituted: negative impact of * * $(130,077,052) 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 $(12,538,414) * * 2001 (117,538,638) * * 2002 (161,025,132) * * 2003 (170,824,358) * * 2004 (175,333,354) * **************************************************** All Funds, Five-Year Impact: *********************************************************************** *Fiscal Probable Probable Probable Probable Change in * * Year Savings/ Revenue Revenue Savings/ Number of * * (Cost) from Gain/(Loss) Gain/(Loss) (Cost) from State * * General from from New -System Employees * * Revenue General Foundation Benefit Fundfrom FY 1999 * * Fund Revenue School Fund * * 0001 Fund 0193 * * 0001 * * 2000 $(38,449) 1.0 * * $(9,374,974)$(3,124,991) $(122,552, * * 000) * * 2001 (679,095) 13.0 * * (87,644,657)(29,214,886) (126,228, * * 000) * * 2002 (679,095) 13.0 * * (120,259,(40,086,509) (129,385, * * 528) 000) * * 2003 (679,095) 13.0 * * (127,608,(42,536,316) (132,619, * * 947) 000) * * 2004 (339,547) 7.0 * * (131,245,(43,748,452) (135,933, * * 355) 000) * *********************************************************************** ***************************************************** * Fiscal Year Probable Revenue Gain/(Loss) from * * New - System Benefit Fund * * 2000 $122,552,000 * * 2001 126,228,000 * * 2002 129,385,000 * * 2003 132,619,000 * * 2004 135,933,000 * ***************************************************** Fiscal Analysis The bill would amend the Utilities Code to allow competition in the retail sale of electricity beginning January 1, 2002, in qualifying power regions. The bill would require 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 tax lost as a result of restructuring and would notify the PUC of the loss. The PUC would then transfer from the System Benefit Fund any amounts necessary to compensate the state and local school districts for any reduction due to a change in property values. The PUC would be allowed to set and impose a fee not to exceed 50 cents per megawatt hour on electric usage to finance the System Benefit Fund. The fund could also be used to educate the public about electric utility restructuring and to assist low-income consumers. 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 in provide services at the lowest applicable rate charged for a similar service to other customers. The bill would require all new generating capacity not using a renewable energy technology to use natural gas as fuel. The bill would grant a refund or a tax credit for a tax paid under Section 191.082 of the Tax Code, the Oil Well Service Tax, on a service performed on a gas well drilled after January 1, 2000, if the gas produced from the well was primarily used as a fuel to generate electricity. Similarly, gas produced from a gas well drilled after January 1, 2000, would be exempt from the tax imposed in Section 201.051 of the Tax Code, the Natural Gas tax, if the gas produced from the well was primarily used as a fuel to generate electricity. Methodology The tax exemption for gas wells that produce gas as a fuel to generate electricity is anticipated to result in a loss of revenue to the General Revenue Fund and to the Foundation School Fund. These losses are quantified in the table above. The estimated gain to the System Benefit Fund is calculated based on the maximum rate of 50 cents per megawatt hour of electric usage for all customers except customers of a municipally-owned utility or a cooperative utility. The estimate assumes that collection would begin with passage. It is assumed that all balances of 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 allocated for customer education programs administered by the PUC and for programs to assist low-income customers administered jointly by the PUC and by the Department of Housing and Community Affairs. 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, implementation of a pilot project, and consumer protection and complaint resolution. 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. Costs for public education on electric utility restructuring are assumed to be included in the overall System Benefit Fund costs. Rulemaking and hearings costs are assumed to be offset by savings from a reduction of rate-making responsibilities. Consumer protection and complaint resolution costs are expected to increase over current levels, and are shown in the table above as a cost to General Revenue. Authorizing the GLO to convert in-kind natural gas into electricity to be sold to public retail customers could result in some savings for electricity costs for state entities. There could also be some additional revenue to the state's Permanent School Fund and Permanent University Fund from the sale of electricity by GLO. 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. Any decreases in taxable property values would be offset by transfer 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: 582 Natural Resource Conservation Commission, 304 Comptroller of Public Accounts, 332 Department of Housing and Community Affairs, 473 Public Utility Commission of Texas LBB Staff: JK, BB, RT, CB