BILL ANALYSIS C.S.H.B. 1715 By: CRADDICK May 4, 1995 Committee Report (Substituted) BACKGROUND Texas production of hydrocarbons continues to decline. Production from marginal oil and gas wells continues to be shut-in. This production loss results in lost tax revenues to school districts, local government and the state. It also results in the loss of electrical load for utilities. One of the biggest costs associated with the production of marginal oil and gas wells is the cost of electricity. Utilities and the Public Utility Commission state that other than a rate case for each field, they lack the legal authority to address the electrical rates charged for these fields. Individual rate cases can take up to one and a half years to be heard at the Public Utility Commission. With over a thousand fields at issue, addressing this matter through the regulatory route will result in additional production being shut-in and lost, and it will cost the producers and the utilities additional costs in legal fees. PURPOSE This bill will create a special electrical charge for marginal oil and gas properties and customers who would otherwise terminate or reduce service from an electric utility. The result will be the extension of the economic life of oil and gas fields in the state thus extending tax revenue streams for schools, counties and the state. This bill also will result in the continuation of the electrical loads associated with these fields. Presently, these loads are being lost and the loss of revenue to the utilities is being made up by the remaining consumers. 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 C.S.H.B. 1715 amends the Public Utility Regulatory Act of 1995 (PURA), as enacted by S.B. 319, 74th Legislature, Regular Session, 1995, as follows: SECTION 1. Amends Section 1.003(14) to clarify the definition of a "rate" as being approved by a regulatory authority. Exempts from this definition a "price" charged to a customer for electric service. SECTION 2. Amends Section 2.001 to make technical revisions to the divisions of the definition of "public utility" and "utility." Adds the definition of "price" as a charge to a customer for electricity that is at or lower than a "rate" approved by a regulatory authority. SECTION 3. Amends Subtitle D, Title II, by adding Sec. 2.1512, entitled "PRICE RANGE" as follows: Subsection (a) Requires retail rates to be approved by the regulatory authority to ensure that they are just and reasonable. Allows an electric utility to charge individual customers a price lower than the approved rate if: (1) the utility files notice of its price for each customer classification with the P.U.C. and revises the notice when rate changes are approved by the regulatory authority; (2) the minimum price is figured by subtracting 30% of the demand-related cost from the approved rate; (3) the lower price will be charged to an existing customer having received service for at least 36 months or a new customer; (4) the lower price is offered only to customers consuming electricity within the area the utility is certified to serve; and, (5) the customer can show that: (A) without the reduced price, it will cease or reduce service from the utility; or, (B) a reduced price will extend the economic life of a well or group of wells that are considered marginal or are part of an enhanced oil recovery project. Subsection (b) Prohibits a utility from offering or charging a price lower than the minimum price for the applicable customer class (as provided in Subsection (a)). Subsection (c) States that if a utility is charging a customer a price that is lower than the rate approved, the utility is required to submit to the regulatory authority: (1) the customer contract (including name and address of the customer); (2) documentation showing the price charged is in compliance with this section; (3) the approved rate that would have been charged; (4) a statement indicating if the customer is a new or existing customer; (5) if an existing customer, the number of months they have continuously received service at the location now getting the lower price; and, (6) sworn affidavits supporting information used to determine eligibility for the price. Subsection (d) Gives the P.U.C. exclusive original jurisdiction to review prices charged under this section. On complaint by an affected person or competing utility, the P.U.C. is required to determine compliance. If a price is determined to be outside the allowed range, the P.U.C. may disallow it. Subsection (e) States that except as provided by other provisions of this section, a utility may not offer a price lower than the lowest approved rate to a customer in an area certified for service from multiple electric utilities. Subsection (f) Prevents this section from affecting the authority of the regulating authority to change or establish new rates as provided in other sections of PURA. States that this section does not affect the validity of previously set rates. Subsection (g) Allows an electric utility to charge lower prices for customers receiving wholesale electric service if the price: (1) applies only to the retail priced portion of a customer's electrical load; (2) is not less than the utility's marginal cost for that portion; and, (3) is not discounted by more than 10% of the customer's average-demand-related cost for that portion. SECTION 4. Amends Section 2.154(b) to exempt lower prices charged to individual customers from being required to be filed with the regulating authority under this section. Requires the regulating authority to consider any individual customer price filed as secret and exempts such information from disclosure under the Open Record Act. SECTION 5. Amends Section 2.202 to clarify that rates approved by the regulatory authority may not be unreasonably preferential or discriminatory. Prohibits prices from being higher than rates set by the regulatory authority. SECTION 6. Amends Section 2.214 to clarify that prices charged below rates set by the regulatory authority are not to be considered an impermissible difference, preference or advantage. SECTION 7. Amends Section 2.215(a) to allow a public utility to charge less than the rates prescribed by the P.U.C., and to allow customers to pay that lesser price. SECTION 8. Effective Date: September 1, 1995. SECTION 9. Emergency Clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The original bill amended Chapter 10, Title 32, Revised Statutes, to require electric utilities and electric cooperatives to offer marginal oil and gas well operators a reduced electric rate. The substitute amends the Public Utility Regulatory Act (S.B. 319 as enrolled this session) to allow an electric utility to adopt a flexible pricing plan that would provide a reduced rate to customers (including marginal well operators) who would otherwise be forced to terminate electric service. SUMMARY OF COMMITTEE ACTION H.B. 1715 was considered by the Energy Resources Committee in a public hearing on March 13, 1995. At the request of the author, the bill was left pending. H.B. 1715 was considered by the Energy Resources Committee in a public hearing on April 10, 1995. The bill was laid on the table subject to call without objection. H.B. 1715 was considered by the Energy Resources Committee in a public hearing on April 24, 1995. The committee considered a complete substitute for the bill. The following witnesses testified in favor of the bill: Wayne Roesler, representing the Association of Electric Utilities of Texas; Larry Aimes, representing Meridian Oil Inc.; Eileen Campbell, representing Marathon Oil Company; and, Ed Howard, representing TIPRO and several other oil and gas associations. Campbell McGinnis, representing Texas Electric Cooperatives, Inc., testified against the bill. Bret Slocum of the Public Utility Commission testified neutrally on the bill. The bill and the substitute were left pending. H.B. 1715 was considered by the Energy Resources Committee in a public hearing on May 2, 1995. The substitute considered on April 24, 1995 was adopted without objection. The bill was reported favorably as substituted, with the recommendation that it do pass and be printed, by a record vote of 7 ayes, 0 nays, 0 PNV, and 2 absent.