HBA-TYH S.B. 1152 76(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 1152 By: Bivins State Affairs 4/30/1999 Engrossed BACKGROUND AND PURPOSE Under the current Utilities Code, natural gas and oil royalties may be taken in kind and marketed by the state. The Natural Resources Code requires oil or gas leases from certain state entities or from the owner of the soil on Relinquishment Act land (Subchapter F, Chapter 52, Natural Resources Code) to include a provision granting these parties the right to take their respective royalty in kind and give the commissioner of the General Land Office (commissioner) and others the right to negotiate and execute contracts for sale, transport, or storage. It also grants the right to enter into insurance contracts or other agreements to secure or to guarantee payment of the in kind sales and authorizes the parties to negotiate and execute contracts for disposing of royalty in kind. S.B. 1152 expands the scope of the program to convert natural gas into electricity, giving the commissioner the authority to market electricity to wholesale and public retail customers, the potential to take royalties in kind on all state owned land, including university lands, the ability to purchase or enhance these in kind volumes with additional volumes, and the flexibility to either sell the commodity as is or to convert it to other forms of energy. This bill enables the commissioner to convert in kind natural gas to electricity and gives the state the opportunity to increase the revenues generated from state lands for the benefit of public and higher education. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 31.002(1), Utilities Code, to provide that the term "electric utility" does not include this state or an agency of this state. Makes conforming changes. SECTION 2. Amends Chapter 35, Utilities Code, by adding Subchapter D, as follows: SUBCHAPTER D. STATE AUTHORITY TO SELL OR CONVEY POWER Sec. 35.101. DEFINITIONS. Defines "commissioner" and "public retail customer." Sec. 35.102. STATE AUTHORITY TO SELL OR CONVEY POWER. Authorizes the commissioner of the General Land Office (commissioner) to sell or otherwise convey power generated from royalties taken in kind as provided by Sections 52.133(f) (Payment of Royalty in Kind), 53.026 (In Kind Royalty), and 53.077 (In Kind Royalty), Natural Resources Code, directly to a public retail customer regardless of whether the public retail customer is also a wholesale customer. Sec. 35.103. ACCESS TO TRANSMISSION AND DISTRIBUTION SYSTEMS; RATES. (a) Provides that except as provided in Section 35.104, the state is entitled to have access to all transmission and distribution systems of all electric utilities, municipally owned utilities, and electric cooperative corporations that serve public retail customers. (b) Requires an entity described by Subsection (a) to provide any utility service, including transmission, distribution, and other services to the state at the lowest applicable rate charged for similar service to other customers. Sec. 35.104. RETAIL TRANSACTION LIMIT. Provides that Sections 35.102 and 35.103 do not apply to the rates, retail service area, facilities, or public retail customers of a municipally owned electric utility or an electric cooperative that has not adopted retail competition. Prohibits the state, in a certificated service area of an electric utility that is not an electric cooperative, from engaging in retail transactions that exceed two and one-half percent of a retail electric utility's total retail load. Sec. 35.105. COSTS OF SERVING STATE AGENCY. Requires an entity described by Section 35.103(a) to provide any utility service, including transmission, distribution, and other services, which must include any stranded costs associated with providing service, to the state at the lowest applicable rate charged for similar service to other customers. Sec. 35.106. WHOLESALE CUSTOMERS. Provides that this subchapter does not prevent the commissioner, acting on behalf of this state, from registering as a power marketer. Sec. 35.207. ACCESS TO POWER GENERATION. Prohibits a gas utility or a municipally owned utility, if pipeline capacity is available on an existing facility of a gas utility or municipally owned utility, from refusing to provide gas service to an electric utility generating facility, if the purpose of the service is to generate power for public retail customers by the state or an agency of this state. SECTION 3. Amends Sections 52.133, Natural Resources Code, by amending Subsections (a), (c), and (d) and adding Subsection (f), as follows: (a) Deletes the exception of the Board for Lease of University Lands from a list of boards required to include a provision granting land to various entities and the commissioner the authority to take their royalty in kind. (c) Authorizes the commissioner to negotiate and execute contracts, at the direction of the Board for Lease of University Lands and other specified boards, that are necessary to dispose of their portion of the royalty taken in kind, including contracts for sale, marketing, transportation, including purchase and exchange agreements necessary to transport gas, and storage and including other contracts or agreements, to secure or guarantee payment. Makes nonsubstantive changes. (d) Authorizes the commissioner, the owner of the soil under Subchapter F (Relinquishment), or the commissioner acting on behalf of and at the direction of an owner of the soil under Subchapter F, the school land board, or a board for lease, to negotiate and execute contracts or any other instruments or agreements necessary to convert that portion of the royalty taken in kind into other forms of energy, including electricity. (f) Provides that for the purpose of this section, royalty taken in kind includes oil or gas sold or marketed by the commissioner that has been produced on state mineral lands or from the first three miles of federal waters adjacent to the state boundaries, also known as the 8g zone. Deletes text stating that this section is not applicable to the Board for Lease of University Lands. SECTION 4. Amends Section 53.026, Natural Resources Code, as follows: (a) Authorizes the commissioner or the commissioner acting on behalf of and at the direction of the board or a board for lease to negotiate and execute contracts or any other instruments or agreements necessary to dispose of or convert the portion of the royalty taken in kind into other forms of energy, including electricity. (b) Authorizes the commissioner or the commissioner acting on behalf of and at the direction of the board or a board for lease to negotiate and execute a contract or any other instrument or agreement necessary to convert that portion of the royalty taken in kind to other forms of energy, including electricity. (c) Created from existing text. SECTION 5. Amends Section 53.077, Natural Resources Code, as follows: (a) Makes a conforming change. (b) Authorizes the commissioner, each owner of the soil under this subchapter, or the commissioner acting on behalf of and at the direction of the owner of the soil under this subchapter to negotiate and execute a contract or any other instrument or agreement necessary to convert that portion of the royalty taken in kind to other forms of energy, including electricity. (c) Created from existing text. SECTION 6. Provides that to the extent of any conflict between this Act and S.B. No. 7, Acts of the 76th Legislature, Regular Session, 1999, S.B. No. 7 controls, regardless of the date of enactment. SECTION 7.Effective date: September 1, 1999. SECTION 8.Emergency clause.