SB 0476 - Fiscal Note

Fiscal Note - SB 0476 - Establishes retail electric customer choice

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO. 1942-04

BILL NO. SB 476

SUBJECT: Utilities; Consumer Protection

TYPE: Original

DATE: March 1, 1999

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
General Revenue	($621,565)	($243,158)	($249,610)
Public Service Commission Fund*	$0	$0	$0
Total Estimated Net Effect on All State Funds	($621,565)	($243,158)	($249,610)

* Assumes costs of $427,986, $453,523 and $311,290 in FY 00, FY 01 and FY 02 respectively, and an increase in the PCS assessment and appropriation, resulting in a net effect of $0.

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
None
Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
Local Government	$0 to (Unknown)	$0 to (Unknown)	$0 to (Unknown)

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 11 pages.

FISCAL ANALYSIS

ASSUMPTION

In a similar proposal, officials from the Office of Administration - Division of Design and Construction and Facilities Management assume this proposal would not fiscally impact their agencies.

In a similar previous proposal, 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. Increases in air emissions will require additional controls for water contaminants such as SO2 (Sulfur Dioxide), NOX (Nitrogen Oxide) and mercury. 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 (OPC) states that this proposal would create many additional duties and would require 5 FTE, including a Public Utility Engineer ($46,080), a Public Utility Economist ($40,536), a Clerk Typist III ($19,452), a Consumer Services Specialist I ($24,456), and an Education/Outreach Specialist ($36,468)..

OPC states that this proposal would create new entrants in the business of providing electricity to end users, and these entrants would be required to register with the Public Service Commission. In order to protect the interests of consumers, OPC feels the fitness of each of these new entrants must be carefully investigated and examined. Both the additional Economist and Engineer would be necessary for OPC to effectively participate in these cases. OPC assumes there will also be an increased number of contractual agreements, and a much larger and more diverse group of entities involved in delivering power to the end user. The contractual paths, as well as the actual physical paths of power flow, must be analyzed and monitored to ensure continued reliability and adequacy of electric service. The Economist and Engineer would both be involved in this analysis and monitoring, as the Economist would monitor transactions among regulated entities and their affiliates to ensure they take place at market value and do not provide an unfair competitive advantage, while the Engineer would determine whether proposed contractual arrangements would have the effect of overloading transmission or distribution lines.

OPC further states the Engineer will be necessary to evaluate the necessity for, as well as the cost

ASSUMPTION (continued)

estimates for, any transmission and distribution system upgrades or additions. OPC anticipates

the need for capacity upgrades since the transmission system was not built to handle the level of interchange transactions likely to accompany retail competition. The Engineer would also be responsible for evaluating new metering and billing technology, and any new technology in general.

Under this proposal, consumers would be faced with making choices as to who provides their power and with the complexity of an unbundling of the charges that heretofore have been bundled into a single charge. OPC expects a dramatic increase in customer confusion, and as a result, will require a Consumer Education/Outreach Specialist to educate consumers on how to compare offers from different providers, evaluate the reliability of different providers, and publish educational materials. In addition, OPC believes it will be necessary to establish a toll-free number to handle the increased call volume expected from confused consumers seeking additional information. OPC assumes this would require a Consumer Services Specialist to handle the expected call volume.

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

OPC states that their agency already has a low support staff/professional ratio of 1/6, and the addition of 5 full-time positions would require the addition of a Clerk Typist. Oversight assumes this proposal would require a Public Utility Engineer, a Public Utility Economist, and a Consumer Education/Outreach Specialist, and would not require additional support staff for these employees. Additional support staff, as well as the establishment of a toll-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 to the 5 FTE, OPC assumes this proposal would require a one-time increase of $200,000 in its consultant budget for the first year this proposal is in effect. OPC states that this legislation requires an extensive cost allocation study for each investor owned utility, as well as for each municipal and cooperative that opts in. It also requires a complex contested case for each electric utility to determine net transition costs. OPC does not currently perform these duties. Because this work is so specialized and the expertise is needed, OPC believes the use of a consultant to prepare these studies and analyze and testify in these cases would be cheaper than training several full-time employees. OPC estimates the cost of the cost allocation studies for each of the five investor owned utilities to be $40,000 each, resulting in costs of $200,000. OPC also assumes the cost to participate in the transition cost cases to be $40,000 each for each of the five investor owned utilities, also resulting in costs of $200,00. OPC assumes the unbundling of

ASSUMPTION (continued)

utilities and the cases determining the level of transition cost for each utility will be completed in

the first year.

NOTE: There is a change in the amount that OPC requested for the cost allocation study and transition costs. In a similar proposal this session, OPC noted a total of $200,000, but has updated that amount to $400,000, to provide for $200,000 each for the cost allocation study and the transition costs. Since OPC plans to accomplish both of these tasks in FY 00, the cost is included in FY 00.

OPC further 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 OPC to formulate and present evidence in proceedings to true-up any transition cost estimates and to monitor market transactions 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.

The Department of Economic Development, Public Service Commission (PSC) assumes this proposal would create many additional duties and would require 6 FTE, including a Utility Regulatory Economist III ($40,956), a Utility Regulatory Engineer I ($40,956), two Consumer Services Specialist Is ($23,280), a Legal Counsel ($33,288), and a Regulatory Law Judge ($33,288), and related fringe, expense, equipment, and rental space. Oversight assumes the additional FTE could be located using existing space and therefore, has not included rental costs in the fiscal impact specifications below.

The Regulatory Economist III would be responsible for implementing electric company rate unbundling, developing initial Retail Electric Provider (REP) access rates and conditions of service, participating in the development of a market power data collection and monitoring system, developing terms and conditions for Local Distribution Utility (LDU) access rates, developing and maintaining an assignment and procedure plan for customers who do not choose a REP, handling inquiries and complaints related to the assignment plan, and participating in the development of criteria and guidelines to quantify transition costs and benefits.

The Utility Regulatory Engineer I would develop criteria for the assessment of the technical ability of REPs and ancillary services providers that register in the state, assess whether such applicants meet established criteria and render opinions as to the adequacy of their technical ability to provide electric service in Missouri, establish criteria for the assessment of whether affiliate REPs are operationally separate from LDUs, perform compliance reviews, investigate inquiries and complaints, assist in the development of rules and regulations that establish and

ASSUMPTION (continued)

monitor the business relationship for electric industry participants, and perform reviews to ensure compliance.

The Legal Counsel would handle legal issues related to implementation of electric unbundling and enforcement of new rules and regulations, as well as other legal issues; while the Regulatory Law Judge would conduct hearings and draft decisions for Commission review and approval. The two Consumer Services Specialists would review and respond to inquiries and complaints in regard to competitive transition charges, receive and handle complaints of unauthorized switching of retail customers' generation service, receive and handle complaints regarding solicitation by or operations of unregistered electric service providers and receive and handle complaints regarding improper billing practices and customer service.

In addition to the 6 FTE, PSC assumes it would be necessary to contract with an outside consultant at an estimated cost of $150,000 in FY00 and FY01. This consultant would be responsible for developing market power analyses and the design of a market power monitoring system, suggesting market power criteria and indices, recommending rules and regulations for electric industry participants, recommending criteria and guidelines needed to verify and monitor that retail electric companies are functionally disaggregated, recommending criteria and guidelines needed to verify affiliate Retail Electric Providers (REPs) are operationally and financially separate, recommending criteria for development of an assignment plan for customers who do not choose a REP, and recommending criteria and guidelines for quantifications of transition costs and benefits.

PSC assumes there may be a loss of revenue to local government due to a loss in franchise taxes; however, the amount of this loss is impossible to determine.

Oversight assumes the PSC would increase the assessment to utilities and that appropriation would be made, resulting in a net effect of $0.

In a similar previous proposal, officials from the City Utilities of Springfield assume this proposal would result in massive changes in the electric industry, and that the fiscal impact would be impossible to determine.

In a similar proposal, officials from the Office of the Secretary of State (SOS) assume the proposed legislation would require the printing of additional pages in the Missouri Register and the Code of State Regulations and have estimated a publishing cost of $2,892 for FY 00. Additionally, future costs are unknown and depends upon the frequency and length of rules filed, amended, rescinded or withdrawn.

ASSUMPTION (continued)

While this bill alone would not require SOS to acquire additional staff, SOS assumes the

cumulative effect of additional Register and Code publishing duties could, at some point, require additional staff. However, Oversight assumes SOS could increase fees to cover any additional

costs, per Section 536.033, RSMo and therefore, has not included associated costs in the fiscal impact specifications below.

In a similar proposal, officials from the Missouri Municipal League assume the bill would allow consumers to purchase electricity from sources other than the local utility company. Municipalities receive over $130 million per year in gross receipts taxes from local utilities. Most of this revenue would be lost as consumers selected other suppliers. Additional, undeterminable revenue would be lost in state and local sales taxes. It is questionable whether out of state suppliers could be required to pay local gross receipts taxes and state and local sales taxes.

In a similar previous proposal, officials from Columbia Water and Light stated the restructuring of the electric utility industry would make profound changes in the way they operate and in the revenues of their utility. It would be almost impossible to estimate how changes might occur, since others would be allowed to enter the business. Estimates of the numbers of customers who might change suppliers, either voluntarily or by order, range as high as 60%. On the other hand, the utility would continue to operate and would receive revenue from the transmission and distribution systems. The actual impact would depend upon the final rules and regulations. The effects, however, would be major.

FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
	(10 Mo.)
GENERAL REVENUE
Costs - Department of Economic Development
Office of the Public Counsel (OPC)
Personal Service (3 FTE)	($105,135)	($129,315)	($132,548)
Fringe Benefits	(32,129)	($39,519)	($40,507)
Expense and Equipment	(484,301)	($74,324)	($76,555)
Total Costs - OPC	($621,565)	($243,158)	($249,610)
ESTIMATED NET EFFECT
ON GENERAL REVENUE	($621,565)	($243,158)	($249,610)
FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
(continued)	(10 Mo.)
PUBLIC SERVICE COMMISSION FUND
Costs - Public Service Commission (PSC)
Personal Service (6 FTE)	($166,604)	($204,921)	($210,044)
Fringe Benefits	(50,914)	(62,624)	(64,189)
Expense and Equipment	(210,468)	(185,978)	(37,057)
Total Costs - PSC	($427,986)	($453,523)	($311,290)
Revenue-PSC
Assessment to utilities	$427,986	$453,523	$311,290
ESTIMATED NET EFFECT
ON PUBLIC SERVICE
COMMISSION FUND	$0	$0	$0
FISCAL IMPACT - Local Government	FY 2000	FY 2001	FY 2002
	(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 fiscally impact small businesses as it would allow each to choose their own suppliers of electric generation services. In addition, small businesses who supply electric generation services would be required to meet specifications of this legislation.

DESCRIPTION

RETAIL ELECTRIC SERVICE CUSTOMER CHOICE-

This act provides that retail electric generation services shall be provided in a competitive market. The Public Service Commission shall determine the commencement date after which all retail electric consumers, except those in areas exempted by the act, shall be permitted to choose their supplier or suppliers of electric generation services. The commencement date shall be the later of January 1, 2002 or the date that the Commission determines that all provisions of the act which must be implemented prior to commencement are implemented. Retail service options shall include: service from a Retail Electric Provider (REP) under a standard offer, an individually negotiated bilateral contract with an REP, purchase through a market aggregator who will negotiate directly with an REP on behalf of the consumer or purchase from an incumbent electric utility as a supplier of last resort.

LICENSURE OF COMPETITIVE ELECTRICITY PROVIDERS - All REPs, aggregators and brokers shall obtain and hold a license from the Commission in order to do business in the state. The act contains licensing requirements which include: proof of financial and operational fitness, an agreement to collect and remit applicable state and local sales and use taxes and local business taxes, an agreement to report certain customer data, a requirement to sell at least a certain fraction of power to residential customers and a requirement that the rates to a customer shall not exceed the standard offer of the LDU providing service to such customer. The act provides for the review and approval of license applications. A license shall be valid for five years and may be renewed. The Commission may suspend or revoke a license for failure to meet one or more requirements of a license.

MUNICIPAL AND COOPERATIVE OPT IN - Municipally-owned utilities and rural electric cooperatives may elect to participate in retail competition. Municipalities may elect to participate by vote of the governing body or upon approval by voters of a proposal to participate. Cooperatives may vote to participate. Exclusive generation service rights shall no longer apply to those municipally owned utilities and rural electric cooperatives which elect to participate in retail competition. Retail choice shall continue in an area annexed by a municipality not participating in retail competition.

SEPARATION OF ASSETS - Existing, electric utilities which provide generation and other services shall functionally separate the generation services on or before the commencement date. Local Distribution Utilities (LDUs) and other companies may own transmission facilities. Affiliates of electric utilities may own electric generation assets and may sell generation directly to a retail consumer. The Commission shall continue to investigate the development of competition and the degree of concentration of market power and shall implement remedies to promote a competitive market. The Commission shall investigate the impact of mergers and other disposition of assets which may affect development of retail competition.

ACCESS TO TRANSMISSION AND DISTRIBUTION FACILITIES - All Missouri electric utilities shall provide access to their transmission and distribution facilities, ancillary services and other available services to any buyer or seller on a nondiscriminatory and comparable basis. The

DESCRIPTION (continued)

Commission shall ensure that no REP has an unfair advantage in offering access to and pricing transmission and distribution services. The Commission shall establish, by rule, standards of conduct governing the relationships among the various business functions conducted by electric utilities. The LDU shall have an obligation to connect and provide delivery of electric service to all retail consumers within its current retail service territory on nondiscriminatory terms and conditions.

RELIABILITY - The state, the Commission and utilities shall work with the FERC and other entities to establish Independent System Operators (ISOs) or their equivalents to operated the transmission system. Each electric utility shall join an ISO by July 1, 2000. The act specifies certain requirements for an ISO. All competitive electricity providers shall provide proof of adequate capacity reserve to the ISO or purchase such services from the ISO. RATES FOR TRANSMISSION AND DISTRIBUTION - The Commission shall establish just and reasonable rates for unbundled local distribution services. Each electric utility shall file unbundled service tariffs to provide services to all eligible purchasers on a nondiscriminatory basis. The Commission shall have jurisdiction over all aspects of transmission rates and services not subject to the exclusive jurisdiction of the FERC. The Commission may establish performance-based or incentive rate mechanisms and rate caps on electric services as part of the rate-making process to encourage mitigation of transition costs.

UNBUNDLED BILLS AND CONSUMER PROTECTION - The Commission shall adopt rules requiring the separation of charges for generation, distribution and transmission services, transition costs and taxes on retail customer bills. The Commission shall adopt rules regulating billing, complaints, billing disputes and change of service or provider. The Commission shall, prior to the commencement date, carry out an educational program to inform customers regarding changes in provision of service and requirements regarding disclosure of information by sellers and to help customers make informed choices.

TRANSITION OR "STRANDED" COSTS - Electric utilities shall be given a reasonable opportunity to recover from retail consumers the portion of verifiable net transition costs that the Commission determines is eligible for recovery. The transition charges which shall not cause the total price for electric power paid by any consumer purchasing from an LDU or its affiliate during the recovery period to exceed the rate per kilowatt-hour paid on the commencement date. Net transition costs shall not include transmission and distribution assets and shall be reconciled to actual electricity market conditions from time to time. Transition costs may include adjustments approved by the Commission for certain unforeseen, required expenditures. Costs arising from prudently-incurred power purchase contracts or associated with any renegotiation of the contracts shall be eligible for recovery in transition cost recovery charges. Transition cost charges shall not be recoverable for changes in usage occurring in the normal course of business. Electric utilities shall have the duty to take all reasonable measures to mitigate transition costs according to a process established in the act.

Each electric utility may file a recovery plan which documents anticipated transition costs,

DESCRIPTION (continued)

mitigation proposals and offsetting increases in the value of other assets. The Commission shall approve and publish a recovery plan for each electric utility submitting a plan. The approved recovery plan shall establish the amount of transition costs eligible for recovery from retail consumers and the transition charges. The recovery of transition costs shall be through a nonbypassable, nondiscriminatory, appropriately structured charge that is fair to all retail consumers, limited in duration and consistent with the promotion of fully competitive markets, and unless otherwise determined by the Commission, shall be through a fixed per kilowatt hour charge on all sales. Charges to recover transition costs shall only apply to consumers within an electric utility's former retail service territory.

STATEWIDE POOL/PROVIDER OF LAST RESORT - The act establishes a statewide pool to help LDUs serve as the provider of last resort for electric generation services in areas with retail choice. The statewide pool shall be governed by a Board of Directors which shall be appointed by the Commission and shall consist of at least nine and no more than fifteen members. Each member of the Board shall meet all membership requirements established by the Commission and shall not have a substantial financial interest in electric generation, transmission or distribution service. REPs shall provide customer lists to LDUs. The act requires LDUs to provide load forecasts to the pool, including the load requirements for REP customers. The statewide pool shall arrange to purchase generation for the load not served by

REPs. The Commission shall establish the rates which LDUs may collect from customers for purchases from the statewide pool. The statewide pool shall be terminated on December 31, 2005 if the pool serves less than ten percent of residential customers unless the Commission determines the pool will still be needed.

TAXATION - This act makes changes to the provisions enacted in Senate Bill 627 from the 1998 legislative session, which required sellers of electricity and gas to be certified by the Commission

and to file agreements which the sellers entered into, with either the distributor or political subdivision, for the payment of all gross receipt taxes or franchise fees owed. This act clarifies that the sales at issue will be deemed to be local sales even if title passes outside the state, and that a retail consumer will not be considered a seller. Electric and gas corporations shall file tariffs to comply with the act. The act also extends the same framework to sales and use tax, requiring sellers of electricity and gas to file, with the Commission, agreements entered into with either the distributor or political subdivision to collect and remit all sales and use taxes. Distributors and political subdivisions are prohibited from providing energy services to any person unless the seller has been certified by the Commission and has filed its agreements. Sellers are required to waive all rights to challenge the validity of any agreement and of any right to a refund. A declaratory judgment action is authorized. Legal action challenging the validity of any agreement suspends that agreement until a final court judgment is made; if a court judgment invalidates the agreement structure, energy services may only be provided upon a showing of public convenience and necessity by the Commission.

DESCRIPTION (continued)

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

This proposal could affect Total State Revenues.

SOURCES OF INFORMATION

Office of Administration-Division of Design and Construction

Office of Administration-Facilities Management

Department of Natural Resources

Department of Economic Development

Office of Public Counsel

Public Service Commission

City Utilities of Springfield

Office of the Secretary of State

Missouri Municipal League

Columbia Water and Light

Jeanne Jarrett, CPA

Director

March 1, 1999