BILL ANALYSIS
By: Crownover
Committee Report (Substituted)
BACKGROUND AND PURPOSE
Through a rider to the 2006-2007 appropriations act, the Texas Legislature required the Railroad Commission of Texas to conduct a study that examined and determined the extent to which viable competition exists in the Texas natural gas pipeline industry from wellhead to burner tip. The study was required to recommend solutions to bring market competition to any non-competitive segments of the industry. The study was also required to include an assessment of the effectiveness of current laws, regulations, enforcement and oversight in addressing abuses of pipeline monopoly power and make recommendations for changes that may be necessary. In addition, the study was to include a comparative review of competition in the Texas interstate pipeline industry administered by the Federal Energy Regulatory Commission. The Railroad Commission was required to submit a report of its findings to the Legislative Budget Board and the Governor on or before November 1, 2006, and did so.
In addition, by rule effective April 3, 2006, the Commission established the Natural Gas Pipeline Competition Study Advisory Committee. The purpose of the committee was to give the Commission the benefit of the members' collective business, technical, and operating expertise and experience to help the Commission review competition in the Texas intrastate pipeline industry, assess the effect of current statutes and rules on such competition, and develop recommendations for changes to statutes or rules that may be necessary.
The Commission announced the appointment of the Natural Gas Pipeline Competition Study Advisory Committee on April 11, 2006, and charged the Committee with evaluating:
(1) Whether further improvements to the Commission's informal complaint process are warranted;
(2) Whether additional transparency is needed in the natural gas pipeline industry;
(3) What transporters should be affected by any change in policy or law;
(4) Whether to give special treatment to marginal wells;
(5) Whether the Commission should exercise oversight regarding the types and categories of fees charged related to gas gathering and transportation; and
(6) Whether other states methods for addressing discrimination relative to gas gathering and transportation should be adopted in Texas.
This bill is the culmination of discussions among many industry representatives to address these recommendations. The bill would give the Commission the authority to impose an administrative penalty for certain natural-gas related activities; add provisions concerning appointment of a mediator in an informal complaint; prohibit mandatory confidentiality provisions in a producer's contract for the sale, transportation, or gathering of natural gas; and establish the Commission's authority to set market-based rates in certain circumstances.
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.
ANALYSIS
This bill amends the Natural Resources Code by adding a section entitled "Administrative Penalty for Certain Natural Gas-Related Activities." This bill allows the Railroad Commission of Texas (commission) to impose an administrative penalty in certain instances for certain determinations as outlined by this bill. The commission may impose these penalties against a purchaser, transporter, gatherer, shipper, or seller of natural gas, certain persons, or any other entity under the jurisdiction of the commission. Administrative penalties imposed under this section may not exceed $5,000 a day for each violation, and each day a violation continues or occurs is a separate violation for purposes of imposing a penalty under this section. If the commission determines after notice and opportunity for hearing that an entity has engaged in prohibited discrimination for which a penalty may be imposed under this section, the commission may issue any order necessary and reasonable to prevent the discrimination from continuing. Remedy provided by this section is cumulative of any other remedy the commission may order.
This bill also adds a section entitled "Appointment of Mediators for Informal Complaints." This bill states that the commission may provide for the appointment of a commission staff member as the mediator of an informal complaint filed with the commission, or the parties may agree to employ and pay an independent mediator for the purpose of mediating the complaint. This bill provides that if the parties request the mediation be conducted at a location other than the offices of the commission in Austin, the parties shall reimburse the commission for the commission's costs related to travel to those other locations. This bill does not prohibit the commission from requiring that the parties participate in a formal complaint resolution proceeding. This bill states that at least annually, the commission shall notify oil and gas producers of the existence of any informal complaint resolution process provided for by the commission. This bill clarifies that filing an informal complaint is not a prerequisite for filing a formal complaint.
This bill also adds a section entitled "Confidentiality Provisions." This bill states that a confidentiality provision may not be required in a contract to which a producer is a party for the sale, transportation, or gathering of natural gas that is entered into on or after September 1, 2007. This bill further states that a confidentiality provision in a contract to which a producer is a party for the sale, transportation, or gathering of natural gas that was entered into before September 1, 2007, becomes unenforceable on the date the term of the contract expires.
This bill also adds a section entitled "Authority to Establish Market-Based Rates." This bill allows the commission the option of using cost-of-service method or market-based rates in a formal proceeding against a gatherer whether the gatherer is classified as a utility or not if the commission determines that the rate is necessary to remedy discrimination in transportation or gathering services.
EFFECTIVE DATE
September 1, 2007.
COMPARISON OF ORIGINAL TO SUBSTITUTE
Throughout the substitute, the word "hearing" is changed to the words "after notice and opportunity for hearing" in administrative processes.
In the section dealing with administrative penalties, the substitute clarifies that a rule or code of conduct specified under this section relates to prohibiting unlawful discrimination. The substitute also clarifies that the commission may impose a penalty if the purchaser, transporter, or gatherer engages in prohibited discrimination against a shipper or seller for filing a formal or informal complaint against the purchaser, transporter, or gatherer. The substitute also clarifies that when the commission issues an order, that the discrimination the entity engaged in must be "prohibited" discrimination.
In the section dealing with the appointment of mediators, the substitute clarifies that the parties shall reimburse the commission for travel costs of a mediation held outside of Austin by striking the following language "the commission appoints a staff member as the mediator and."
The substitute adds the following language "Filing an informal complaint is not a prerequisite for filing a formal complaint."
In the section dealing with confidentiality provisions, the substitute changes the phrase "producer's contract" to "contract to which a producer is a party" in one place and adds the phrase "to which a producer is a party" in another.
The substitute adds language that clarifies that on the filing of a complaint by a shipper or seller of natural gas, the commission may set rates in a formal proceeding if the commission determines that the rate is necessary to remedy unreasonable discrimination in the provision of natural gas transportation or gathering services and that it may set rates in such circumstances regardless of whether the transporter or gatherer is classified as a utility by other law.