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

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.
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

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

Source Agencies:   475   Public Utility Counsel
LBB Staff:         JK, SD, BB, CB, RT