Austin, Texas
                    FISCAL NOTE, 76th Regular Session
                               May 14, 1999
          TO:  Honorable Steven Wolens, Chair, House Committee on State
        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,
*  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

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

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.
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

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
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