Colorado Legislative Council Staff

STATE and LOCAL

FISCAL NOTE

TABOR Refund Impact

State Cash Fund Revenue and General and Cash Fund Expenditure Impact

Local Revenue and Expenditure Impact


Drafting Number:

Prime Sponsor(s):

LLS 98-830

Rep. McPherson

Date:

Bill Status:

Fiscal Analyst:

March 3, 1998

House Business Affairs

Will Meyer (866-4976)

 

TITLE:            CONCERNING THE RESTRUCTURING OF THE RETAIL ELECTRIC MARKET IN COLORADO.



Summary of Legislation


            The provisions of this bill would require that by January 1, 2002, currently regulated investor- owned utilities allow their customers to choose their supplier of electricity. Under the provisions of this bill, the transmission and distribution of electricity would remain regulated by the Public Utilities Commission (PUC). The bill would allow public utilities to offer other products and services on a non-regulated basis. The bill would provide for “non-bypassable rates or charges” to be imposed and collected as part of transmission or distribution service to pay transition costs, air quality improvement costs (if included) , and implementation costs incurred by the utilities. Non-bypassable rates or charges also would be imposed for a transition period of three years to pay public benefit costs of programs for low-income energy assistance, low-income customer weatherization, community aesthetics, and research and development for the commercialization of renewable resources. The bill would allow utilities to conduct one or more customer choice pilot programs. The bill would become effective July 1, 1998.


STATE FISCAL IMPACT SUMMARY

FY 1998/99

FY 1999/2000

State Revenues

General Fund

Fixed Utility Cash Fund



$433,295



$613,999

State Expenditures

General Fund

Fixed Utility Cash Fund

Department of Law Cash Fund Exempt*


$77,111

$412,701

$185,596


$68,511

$572,006

$185,596

FTE Position Change

6.1 FTE

8.5 FTE

Local Government Impact — Potential change in revenues and expenditures.

              * The cash fund exempt expenditures of the Department of Law are included in the expenditures out of the Fixed Utility Cash Fund, Department of Regulatory Agencies, as identified above.


            The bill would require all investor-owned public utilities to submit a restructuring plan to the PUC by no later than January 1, 2000. The bill would exempt municipal utilities and cooperative electric associations from the requirements of the bill unless the local governing body for such municipal utility or cooperative electric association affirmatively chooses to participate in the industry restructuring, in which case they would be required to submit a restructuring plan to the local governing body by no later than January 1, 2000. The restructuring plan would include the calculation of the costs that would be incurred as the result of restructuring. The bill would require the Department of Revenue to analyze impacts of restructuring on state and local governments’ tax revenues and to recommend legislative changes to address any adverse effects on the tax revenues of the state or local governments. The bill would require the PUC to devise a new funding formula to ensure adequate revenues to continue to fund the administrative expenses for the supervision and regulation of transmission and distribution services providers and the licensing of electric suppliers and to make recommendations to the General Assembly for necessary legislative changes to accomplish this funding formula revision. The bill would allow utilities to issue restructuring bonds, but only with the approval of the PUC or the relevant local governing body.



State Revenues


            Fixed utilities assessments are made annually based on the appropriation to the PUC for work related to fixed utilities. The FY 1998/99 and FY 1999/2000 assessments would be increased to cover the increased costs of both the PUC and the OCC. Revenues to the Fixed Utilities Cash Fund would increase by $433,295 in FY 1998/99 and $613,999 in FY 1999/2000, an amount sufficient to cover the costs of the bill as well as those costs not included in this fiscal note pursuant to the Joint Budget Committee’s budget policies.



TABOR Refund Impact


            Section 20 of Article X of the Colorado Constitution, limits the maximum annual percentage increase in state fiscal year spending. Once total state revenue from all sources that are not specifically excluded from fiscal year spending exceeds these limits for the fiscal year, the state constitution requires that the excess shall be refunded in the next fiscal year unless voters approve a revenue change as an offset. Based on the current Legislative Council economic forecast, it is projected that the state will be in a TABOR refund position during each of the next five fiscal years. Any increase or decrease in state revenue from changes in fees, fines, licenses, or other revenue sources will affect the amount of the state revenue to be refunded.



State Expenditures


            The provisions of the bill would have an impact on the expenditures of the PUC, the OCC, and the Department of Law, as well as the Department of Revenue. The bill requires that electric utilities offer their customers a choice of electric supplier, on or before January 1, 2002. Before that date, the bill would allow electric utilities to apply to the PUC for customer choice pilot programs and would require the PUC to approve or modify them within 60 days. The bill would require all investor-owned public utilities to submit a plan for restructuring to the PUC by no later than January 1, 2000. The provisions of the bill would require the PUC to:

  

               approve applications for implementation of customer choice pilot programs that are designed to allow utilities the opportunity to gain experience with the market mechanisms and internal systems’ modifications necessary to provide customer choice. It is estimated that the PUC would require 0.1 FTE each Financial Analyst III, Economist IV, and Professional Engineer II in FY 1998/99 to review, and approve or modify pilot program applications;

 

               conduct a public hearing on restructuring plans submitted by the utilities (no later than January 1, 2000). The restructuring plans would contain projected transition costs, implementation costs, and public benefits costs, and could also include air quality improvement costs. It is estimated that this would require 0.5 FTE each Financial Analyst III, Economist IV, and Professional Engineer II in FY 1999/2000 and 0.3 FTE in FY 2000/01;

 

               review and approve education of customers plans about consumer choice contained in the restructuring plans. It is estimated that the PUC would require 0.1 FTE each Financial Analyst III, Economist IV, and Professional Engineer II in FY 1998/99, FY 1999/2000, and FY 2000/01;

 

               approve the plans for functional separation of supply from transmission and distribution within 120 days of receipt of the plan. The PUC would require 0.1 FTE each Financial Analyst III, Economist IV, and Professional Engineer II beginning in FY 1999/2000 to review and approve such plans;

 

               assure that duplication of distribution facilities is avoided, requiring each utility providing distribution service to file a tariff that prices distribution services separately from transmission and electric supply. It is estimated that the PUC would require 0.2 FTE each Financial Analyst III, Economist IV, and Professional Engineer II in FY 2000/01 and 0.1 FTE for each in FY 2001/02 onward to implement this provision;

 

               review and approve the transition costs, a part of the restructuring plans, and determine the allowable costs, reasonable recovery period, and calculation of the allowable charges. The PUC would require 0.1 FTE each Financial Analyst III, Economist IV, and Professional Engineer II in FY 1999/2000 onward to implement this provision;

 

               review and approve implementation costs so as to allow reasonable costs to be recovered by the utility. The PUC would require 0.1 FTE each Financial Analyst III, Economist IV, and Professional Engineer II in FY 1999/2000 onward to develop rules and implement the regulations;

 

               establish public benefit costs charges at a level to provide three years of transitional support to low-income energy assistance, low-income weatherization, renewable energy and other programs as provided in the utility’s restructuring plan. The PUC would require 0.1 FTE each Financial Analyst III, Economist IV, and Professional Engineer II in FY 1999/2000 to implement this provision;

 

               develop rules for bill information - customer nonpayment for the discontinuance of service. The PUC would require 0.1 FTE each Financial Analyst III, Economist IV, and Professional Engineer II beginning in FY 2001/02 to implement this provision;

 

               develop rules and regulations to establish just and reasonable rates for distribution and transmission services and to regulate those services, to license suppliers and enforce licensing provisions, and to ensure that transmission and distributions facilities and services are safe and reliable. The PUC would require 0.1 FTE each Financial Analyst III, Economist IV, and Professional Engineer II in FY 1998/99 to develop rules and 0.1 FTE for each in FY 1999/2000 onward to implement the regulations;

 

               provide licensing to suppliers of electric supply and other non-regulated products and services. The PUC would require 0.1 FTE each Financial Analyst III, Economist IV, and Professional Engineer II in FY 1998/99 to license suppliers of pilot programs and 0.1 FTE to license all suppliers beginning in FY 2000/01;

 

               assess penalties against suppliers for violations, including license revocation. The PUC would require 0.1 FTE each Financial Analyst III, Economist IV, and Professional Engineer II beginning in FY 2001/02 to enforce this provision of the bill;

 

               regulate unauthorized switching “slamming”. The PUC would require 0.1 FTE each Financial Analyst III, Economist IV, and Professional Engineer II in FY 2001/02 to enforce the slamming prohibitions contained in the bill; and

 

               analysis for future funding of the PUC would be required to provide adequate continued funding for the Fixed Utilities Fund. The PUC would require 0.2 FTE each Financial Analyst III, Economist IV, and Professional Engineer II beginning in FY 1999/2000 to develop the initial recommendations for a new funding model, implement the model, and maintain the model;


            The workload of the OCC, which represents consumers before the PUC, including residential, small business, and agricultural consumers would increase as the result of the provisions of the bill. It is assumed that two plans would be submitted by utilities to the PUC by January 1, 2000, and that the PUC would hold and complete hearings within 18 months. It is estimated that the OCC would require an additional 1.0 FTE Rate Examiner Analyst V. It also would contract for additional expertise required.


            The Department of Revenue would require additional staff expertise to analyze how the collection of tax revenue by the state and local governments that would be affected by the restructuring provisions of this bill and competition in the electric supply market. It is estimated that the Department of Revenue would require 1.5 FTE at a total General Fund cost of $77,111 in FY 1998/99 and $68,511 in FY 1999/2000.


            The additional costs to the PUC, OCC, and Department of Law are as follows:


ADDITIONAL COSTS TO THE PUC, OCC, AND DEPARTMENT OF LAW

Personal Services: PUC TOTAL FTE - 1.2/3.6 FTE

FY 1998/99

FY 1999/2000

  Rate Financial Analyst III - 0.4/1.2 FTE

$21,735

$65,206

  Economist IV - 0.4/1.2 FTE

22,819

68,459

  Professional Engineer II - 0.4/1.2 FTE

25,156

75,469

Personal Services: OCC TOTAL FTE - 1.0/1.0 FTE

 

 

  Rate/Financial Analyst V (1.0 FTE)

69,403

69,403

  Contract Consultant

60,000

90,000

Operating Costs: PUC & OCC

7,592

14,673

Capital Outlay (Including ADP) - PUC & OCC

17,200

 

Centralized Data Processing PUC & OCC

800

800

Legal Services: PUC 1.0/1.0 FTE @$48 per hour

86,400

86,400

OCC 1.4/1.4 FTE (Non-Oregon Plan)

101,596

101,596

TOTAL EXPENDITURES - 4.6/7.0 FTE

$412,701

$572,006

 

            It is anticipated that the additional expenditures required to implement this bill would decline substantially in future years.


 

Expenditures Not Included


            Pursuant to the Joint Budget Committee’s budget policies, the following expenditures have not been included in this fiscal note totaling $20,594 in FY 1998/99 and $41,993 in FY 1999/2000.

 

               health and life insurance costs;

               short-term disability costs;

               inflationary cost factors;

               leased space; and

               indirect costs.




Local Government Impact

 

            The fiscal impacts to local governments would be conditional on their choosing to implement the provisions of the bill. While there may be some short-term costs to implement the provisions of the bill, it is expected that these would be offset by long-term reductions in the cost of electricity. The net impact to local governments could only be determined on a case by case basis, and cannot be accurately estimated at this time.



Spending Authority


            The fiscal note implies that the Department of Regulatory Agencies would require additional cash spending authority of $412,701 (CF) and 4.6 FTE in FY 1998/99. Out of that amount, the Department of Law would require additional cash spending authority of $185,596 CFE and 2.4 FTE. The Department of Revenue would require $77,111 General Fund and 1.5 FTE in FY 1998/99.

  


Departments Contacted


            Regulatory Affairs      Revenue          Law