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Florida Commission Says Revenue Impact From Electric Choice "Unknowable" At This Time, But Says "Several Government Revenues Would Be Reduced"

Cites "Significant Costs To State And Local Governments" From Transition

March 18, 2019

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Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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Florida's Financial Impact Estimating Conference, a state commission which prepares financial impact statements to accompany any proposed constitutional amendment, said that the fiscal impacts from a proposed electric choice constitutional amendment are, "unknowable", at this time

"The final design of the new market system for electricity is unknowable until the Legislature acts. There will be significant costs to state and local governments to transition to a fully operational system. The cost of purchasing electricity by governments may be higher or lower, depending on changes in charges for electricity resulting from the amendment. As currently administered, several government revenues would be reduced, but the legislative response to these effects is unknown," according to a financial impact statement from the conference

"Some parts of the restructured system will result in additional costs that do not exist today and will likely be significant. These include addressing the treatment of stranded assets, transition expenses and the mechanics of divestiture. While most of these costs may ultimately be recovered through additional charges on customer electric bills, some may have to be paid upfront by the State or another entity established for this purpose. More importantly, state and local governments are consumers of electricity like other customers and, as such, would directly bear any added expense of electric bills that are higher than they otherwise would be," the statement says

"The economic theory underlying deregulation is that free market competition either drives down electric prices or staves off increases by providing incentives to keep down costs and pursue operational efficiencies. Academic and case studies of other states where restructuring has occurred are inconclusive with respect to the magnitude of the price change, its timing, and its direction. To the extent that charges for electricity decrease, state and local governments will experience lower electric bills. The converse is also true," the statement says

"Compared to the effect on costs, price changes have the opposite budgetary effect from taxes that are based on price. For example, lower prices would lead to decreased Gross Receipts Tax revenue which is bonded for the construction of educational facilities; however, its current collection point (at distribution) will not work under the proposed structure. Legislation will be needed to address the structural changes; however, what the Legislature may do is unknown," the statement says

"Another impact of the proposal is on local government franchise fees which are in part, based on consideration for the local government’s agreement not to provide competing utility services. This part of the fee would be irrelevant under restructuring, and existing collections would be significantly reduced," the statement says

"Because key terms and relationships are undefined by the amendment and in current law -- and since the interests of incumbent businesses are at stake -- significant litigation and legal expenses are probable, regardless of the final legislative design," the statement says

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