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.