SB 0923 - Fiscal Note

Fiscal Note - SB 0923 - Provides for the deregulation of the transmission and distribution of electricity

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO. 3878-01

BILL NO. SB 923

SUBJECT: Utilities

TYPE: Original

DATE: February 23, 1998

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
General Revenue	($205,376)	($218,087)	($121,402)
Total Estimated Net Effect on All State Funds	($205,376)	($218,087)	($121,402)

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
None
Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
Local Government	(Unknown)	(Unknown)	(Unknown)

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 8 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials of the Office of Administration, Divisions of Design and Construction and Data Processing and Telecommunications and the Department of Revenue assume this proposal would not fiscally impact their agencies.

The Department of Natural Resources (DNR) assumes existing environmental regulations will remain the same, and any increase in air emissions, wastewater emissions and additional ash generated for disposal will continue to require appropriate permits. In addition, DNR states that this proposal requires each member of the electric power exchange to continue to assist low-income retail customers needing financial assistance by supporting state and federal programs established to provide such assistance. DNR assumes it will have a role in the administration of state level programs that provide energy efficiency services that are developed pursuant to this proposal. Because the size and nature of the low-income services cannot yet be determined, DNR is unable to provide a specific estimate of the size of the financial assistance program that may result and cannot estimate the additional costs and staffing required, if any.

The Department of Economic Development, Office of Public Counsel (DPC) states that this proposal would create many additional duties and would require 3 FTE, including a Clerk Typist ($18,384), a Consumer Services Specialist ($23,976), and a Consumer Education/Outreach Specialist ($33,636).

DPC states that under this proposal, consumers would be faced with the complexity of an unbundling of the charges that heretofore have been bundled into a single charge. DPC expects a dramatic increase in customer confusion, and as a result, will require a Consumer Education/Outreach Specialist to educate consumers on different bill components and to publish educational materials. In addition, DPC believes it will be necessary to establish a toll-free number to handle the increased call volume expected from confused consumers seeking additional information. DPC assumes this would require a Consumer Services Specialist to handle the expected call volume.

Oversight assumes this proposal does not require DPC to establish a toll-free complaint line, and therefore, DPC would not have a need for the Consumer Services Specialist.

DPC further states that their agency already has a low support staff/professional ratio of 1/6, and the addition of these full-time positions would require the addition of a Clerk Typist. Oversight assumes this proposal would result in the necessity for 1 FTE, and would not require additional support staff for this employee. Additional support staff, as well as the establishment of a toll-

ASSUMPTION (continued)

free complaint line, may be requested through the normal budgetary process. Oversight further assumes the additional FTE could be located using existing space and that this proposal would not result in additional rental space.

In addition, DPC assumes this proposal would require a one-time increase of $100,000 in its consultant budget for each of the first two years this proposal is in effect. DPC states that this legislation requires an extensive cost allocation study for each investor owned utility. DPC does not currently perform these cost allocation studies. Because this work is so specialized and the expertise is needed for only two years, DPC believes the use of a consultant to prepare these studies would be cheaper than training several full-time employees. DPC estimates the cost of the cost allocation studies for each of the five investor owned utilities to be $40,000. DPC assumes the utilities would not all be unbundling in the first year, and for purposes of the fiscal note, assumes the costs will be split evenly over the first two years.

DPC also assumes it would need an annual increase of $70,000 in its consulting budget to allow consultants to become involved in monitoring and participating in the governance of regional transmission groups or independent system operators. It would also allow DPC to formulate and present evidence in proceedings concerning alternatives to rate of return regulation and to monitor power exchange bidding and pricing to ensure market power does not exist and that effective competition is developing. If problems are found in these areas, these consultants would be used to determine appropriate remedial or mitigation measures. DPC also notes that this proposal does not appear to require them to be involved in defining stranded costs and determining recovery methods. If DPC were required to become involved in these activities, there would be additional significant fiscal impact.

The Department of Economic Development, Public Service Commission (PSC) states that the essential objective of this proposal is to establish an independent, nonprofit statewide electric power exchange that when fully operational will make the generation of electricity for Missouri citizens and businesses competition through an open and efficient generation marketplace. The proposal requires that each electric utility owning, controlling, or providing transmission facilities in Missouri join an independent system operator which will ensure independent management and control of transmission facilities in Missouri. PSC assumes this proposal would not fiscally impact their agency. However, PSC further assumes it may have an impact on local government as there may be a potential loss of franchise tax revenue.

The Office of Secretary of State (SOS) states that this proposal gives the Public Service Commission the authority to promulgate rules regarding several aspects of utilities deregulation and distribution, requiring the promulgation of rules, regulations, and forms. SOS anticipates

ASSUMPTION (continued)

that these rules would require approximately 45 pages in the Missouri Register and 30 pages in the Code of State Regulations. SOS estimates the costs for publishing and distributing these rules at $1,665 in FY99 only. Oversight assumes SOS could increase fees to cover additional costs, per Section 536.033 RSMo, and therefore, will not include any publication costs in the fiscal impact for the proposal.

The Missouri Association of Municipal Utilities, Springfield City Utilities, Columbia Water and Light, Independence Power and Light, Stone County, Jackson County, St. Louis County, Cole County, Marion County, Boone County, and the cities of Springfield, Independence, and Columbia did not respond to our fiscal impact request. Oversight assumes the fiscal impact is unknown.

FISCAL IMPACT - State Government	FY 1999	FY 2000	FY 2001
	(10 Mo.)
GENERAL REVENUE
Costs - Department of Economic Development
Office of the Public Counsel (DPC)
Personal Service (1 FTE)	($28,719)	($35,339)	($36,222)
Fringe Benefits	($8,050)	($9,906)	($10,153)
Expense and Equipment	($168,607)	($172,842)	($75,027)
Total Costs - DPC	($205,376)	($218,087)	($121,402)
ESTIMATED NET EFFECT
ON GENERAL REVENUE	($205,376)	($218,087)	($121,402)
FISCAL IMPACT - Local Government	FY 1999	FY 2000	FY 2001
	(10 Mo.)
POLITICAL SUBDIVISIONS
Loss of tax revenue	$0 to	$0 to	$0 to
	(Unknown)	(Unknown)	(Unknown)
ESTIMATED NET EFFECT ON	$0 to	$0 to	$0 to
POLITICAL SUBDIVISIONS	(Unknown)	(Unknown)	(Unknown)
FISCAL IMPACT - Small Business

This proposal would have a fiscal impact on small businesses as the change of retail electric services and the related rates will impact all customers.

DESCRIPTION

This proposal provides the means for the deregulation of the transmission and distribution of

electricity in the state. Five or more individuals who represent electric utilities, whether privately held, municipal, or rural electric cooperatives, may form a nonprofit corporation to provide a competitive marketplace for the sale of electric services. This electric power exchange may purchase and sell electric power, acquire real and personal property, and incur debt.

Persons who own an electric power system may become members of the electric power exchange if they agree to purchase all generation services from the exchange and pay a fee to the exchange

equal to one dollar per every one hundred customers up to a maximum of ten thousand dollars.

Members are required to meet annually or on the call of the board or ten percent of the members.

The proposal creates a board of directors for a power exchange of at least twelve individuals. Of those initially appointed, at least one-half must be independent and one-third of those are to be appointed by the Governor, the Speaker of the House, and the President Pro Tem, respectively. Independent directors are those not employed by any member of the power exchange but may represent power marketers, independent power producers, public interest groups, the Public Service Commission and non-market participants. All directors identified in the articles of incorporation will hold office until the next meeting. Subsequently, directors will be divided into three classes and one-third of the terms will expire each year. Directors are to be elected at each annual meeting.

DESCRIPTION (continued)

The electric power exchange must be operational by December 31, 2003, and when operational,

electric generation services are to be considered competitive. After services are available,

members may not generate, purchase, or acquire generation services for sale at retail, with certain

exceptions.

The board is required to adopt procedures for establishing, modifying and abolishing rates, determine billing practices; establish bidding procedures, set minimum generation reserves, permit electrical purchases from only approved sources, determine conditions under which members may sell power to non-members, and set the price to be paid by the exchange for services provided to the exchange and services sold by the exchange.

An electric generation service supplier must obtain a certificate of authority from the exchange before it may provide services to the exchange. The certificate is valid for up to three years. The

exchange may issue cease and desist orders to any supplier who fails to comply with its rules, or

may revoke or suspend a certificate of authority, impose financial penalties of up to $50,000 per

occurrence or $500,000 per day for violation of a cease and desist order.

The exchange will decide whether to grant a certificate within 45 days of application. Applications will be granted based upon a finding that the applicant has the requisite resources; will comply with requirements designed to protect the integrity and reliability of the transmission system; will sell to the exchange and not to any retail customers; will provide such data as the exchange may require; and will allow Missouri entities with generating facilities to provide power to either the exchange or directly to retail customers.

A member of the exchange that is a regulated public utility must continue to provide retail services and to maintain and modernize its transmission and distribution systems, provide access to its transmission and distribution systems to any supplier providing services to the exchange, and file tariffs based upon costs of electric power purchased from the exchange and not based upon the utility's own generating plant costs.

No member of an exchange is liable for the debts of the exchange. The Missouri securities law will not apply to any mortgage executed to secure indebtedness, or any indebtedness issued by an

exchange or membership certificates. The supplier of electrical services to an electric power exchange and the exchange are exempt from regulation by the Public Service Commission. The Public Service Commission may order electrical corporations to report major costs by customer class by January 1, 2000. After July 2, 2000, the Public Service Commission may order electrical corporations to become members of the exchange by December 31, 2003.

DESCRIPTION (continued)

Any electric cooperative, municipal utility, or rural electric cooperative that owns transmission

facilities or provides transmission services must submit an application to the Federal Energy

Regulatory Commission to establish or join an independent system operator. These operators will manage the power transmission system.

This legislation creates an oversight board for entities owning transmission facilities that have failed to apply to the Federal Energy Regulatory Commission by January 1, 2000, or have not been approved by June 30, 2001. The board will consist of three members appointed by the Governor with advice and consent of the Senate, one member appointed by the Speaker of the House of Representatives, and one member appointed by the President Pro Tem of the Senate. The board is to incorporate and serve as the Missouri independent system operator until an independent system operator is otherwise created.

The Missouri independent system operator may combine or merge its operations with others

authorized to provide transmission services including another independent system operator, may

purchase or lease transmission assets, and may operate as a transmission public facility under federal law. The Public Service Commission may authorize regulated electric utilities to adopt alternatives to rate of return regulation under conditions specified in the act. The Commission must act on a request to adopt modifications within 270 days and if it fails to approve it shall specify the reasons for its actions and identify specific modifications that it would approve. Any alternatives approved by the Commission must be reviewed in two years.

Municipal utilities and rural electric cooperatives may become members of the exchange and they have rights and obligations as any other member. After an election to become a member, the utility or cooperative must continue to provide service within its area and it cannot withdraw from the exchange.

This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space.

SOURCES OF INFORMATION

Department of Economic Development

Public Service Commission

Office of the Public Counsel

Department of Natural Resources

Secretary of State's Office

Office of Administration

Department of Revenue

NOT RESPONDING: Missouri Association of Municipal Utilities, Springfield City Utilities, Columbia Water and Light, Independence Power and Light, Cole County, Marion County, Boone County, Stone County, Jackson County, St. Louis County, Cities of St. Louis, Springfield, Independence, and Columbia

Jeanne Jarrett, CPA

Director

February 23, 1998