BILL ANALYSIS H.B. 176 By: STILES March 7, 1995 Committee Report (Unamended) BACKGROUND Currently, the Gas Utility Regulatory Act (GURA) allows utilities and their affiliated companies to file a consolidated federal tax return if it results in an overall tax savings to the corporation. The tax savings attributable to the utility company are flowed through to utility customers, while the tax savings attributable to the non-utility affiliates remain with the individual affiliates. However, recent Texas Supreme Court decisions in the Public Utility Regulatory Act have held that the income tax advantages from affiliated, non-utility companies must be used in reducing the utility's tax obligation. This interpretation, if applied to GURA, would be a disincentive for gas companies to launch ventures such as natural gas vehicles, gas conditioning, etc.; because it reduces the tax benefits normally given to start-up businesses. Certain expenses, such as advertising, charitable contributions and other public service activities, are not allowed by the Railroad Commission to be used for rate making purposes. These same Supreme Court decisions have held that when these "disallowed" expenses have associated income tax savings, these savings are to be used in calculating the utility's rates. Under GURA, this would be a disincentive for gas companies to participate in local charitable events as well as reduce their ability to advertise and promote the use of natural gas appliances, vehicular fuels and natural gas air-conditioning systems. PURPOSE To continue to include all tax savings realized by a natural gas utility in providing utility services in the calculation of the utility's rates. To clarify when a utility company is affiliated with a non-utility business, any deductions associated with the affiliated business remain with the affiliated companies and not be included in the utility's rate. To provide that when a utility expense is not allowed to be included in the rate, any associated tax deductions not be included in the rate making. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Makes the following changes in Section 5.06 of the Gas Utility Regulatory Act (GURA): Amends GURA § 5.06(a) by inserting "used to establish just and reasonable rates" to emphasize that the components of net income must be related to the utility operation. Creates a new GURA § 5.06(b) by moving the definition of "net income" into its own section and adding "from gas utility service to modify "total revenues," and "related to that gas utility service" to modify "reasonable and necessary expenses." These changes require the net incomes calculation to reflect the revenue and expenses used in the utility service. Renames GURA § 5.06(b) as (c) and adds "used to establish just and reasonable rates for gas utility rates for gas utility services" to indicate that any expenses to affiliates cannot be used in rates unless the expenses are found reasonable and necessary, and the price to the utility is no higher than the price charged to other affiliates or unaffiliated entities. Deletes existing subsection (c) and creates a new GURA § 5.06(d) which provides that only tax benefits related to the utility expense or investment will be used in rate-making. In addition, this subsection states that if an expense or investment is not allowed by the Commission to be included in the rates, the related tax benefit may not be included in the rates. Furthermore, the income tax expense shall be computed using statutory tax rates. Renames the existing subsection (d) as GURA § 5.06(e) and amends the Railroad Commission's authority to promulgate rules by requiring such rules to comply with the other provisions of § 5.06 relating to expenses included in the computation of rates. SECTION 2. Provides that H.B. 176 applies only to rate proceedings for which a statement of intent is filed on or after the effective date of the bill, and to any appeal of those proceedings. SECTION 3. Emergency Clause. Effective Date: Upon Passage. SUMMARY OF COMMITTEE ACTION H.B. 176 was considered by the Energy Resources Committee in a public hearing on March 6, 1995. The following persons testified in favor of the bill: William E. Avera, representing ENERGAS, ENTEX, Southern Union, and Lone Star Gas; Paul Plunket, representing ENTEX; Pam McClellan, representing Southern Union Gas Company; Joe N. McClendon, representing Lone Star Gas Company; and, Patrick Nugent, representing Texas Natural Gas Pipeline Association. The following persons testified against the bill: Jay Doegey, representing the city of Arlington, Texas; Ellen Blumenthal, representing herself; Janee Briesemeister, representing Consumers Union; Tim Curtis, representing Texas Citizen Action; and, Tom Smith, representing Public Citizen. Walter Washington of the Office of Public Utility Counsel testified neutrally on the bill. The bill was reported favorably without amendments, with the recommendation that it do pass and be printed, by a record vote of 9 ayes, 0 nays, 0 PNV, and 0 absent.