TRC Wants E&P Tax Breaks, More Customer Oversight

Acknowledging there was no way for the Texas Railroad Commission to change high natural gas prices, the three-man board instead has unanimously recommended that the Texas Legislature act to lessen the impact of high prices by, among other things, offering industry tax breaks to encourage exploration and production. TRC also recommended it be given oversight over statewide customer service standards for public gas utility companies.

Following two days of hearings, which allowed industry, consumer groups and municipalities to address their concerns about natural gas prices, TRC forwarded its recommendations to the Texas Legislature's Senate Natural Resources Committee and the House Committee on Energy Resources last week.

The recommendations "are the first step in addressing the problem of high natural gas prices," said Commissioner Charles Matthews. Noting that the TRC "intends to fully address more broad aspects of the natural gas industry during a conference later this year," he said, "now we must work with the legislature in enacting these short-term solutions."

Commissioner Tony Garza, who also serves as vice chairman of the Interstate Oil and Gas Compact Commission, said the TRC and the Texas legislature "should operate from the premise, 'first, do no harm.' There's simply no easy or quick fix that we can legislate or enact to solve the high natural gas prices." But he said 'there are clearly opportunities to inform, educate and assist consumers in dealing with dramatic price fluctuations."

In a package of natural gas proposals forwarded to legislators, the commissioners noted they "will help to send market signals to consumers faster and more efficiently, will help to dampen extreme month-to-month price fluctuations, and will help to standardize billing information and service rules throughout the state."

However, to "influence the market price of the commodity, Texas must create an atmosphere to encourage the development and continued production of its natural gas resources. Testimony received at the hearings, from both suppliers and consumers, reiterated over and over that additional natural gas supply is the only answer to stabilizing market prices at a lower, more reasonable level."

Noting that Texas drilling rig activity is "now at its highest level since 1985," the commissioners said they wanted to "strongly encourage the legislature to consider severance tax incentives as a tool to assist in the development of additional natural gas supply. If your purpose is to reduce the price of the commodity to consumers, then you should reduce tax burdens when prices are high." The commission noted that Texas supplies about one fourth of the U.S. natural gas supply and "changes in Texas policy concerning natural gas production can have a significant influence on the entire North American natural gas market."

Recognizing that local distribution companies (LDCs) have "no incentive to minimize their cost of gas," TRC has recommended it be allowed to annually review each utility's gas supply portfolio plan. "On a regular basis, the commission would audit the utilities' natural gas purchases to ensure that gas costs were properly collected from customers. If necessary, the commission, through its existing regulatory authority, could investigate the prudence of the natural gas costs incurred by a utility based on specific customer complaints or commission action."

Because Texas allows split jurisdiction, with cities have initial jurisdiction over gas utilities operating within their city limits, TRC said there are 1,191 incorporated cities in the Texas that could set their own rates and service provisions for gas service. Instead, TRC is recommending that it be given the "general power to regulate and supervise the business of each gas utility within its jurisdiction."

TRC wants the legislature to give it the authority to determine statewide customer service standards for all investor-owned utilities, too, "regardless of whether they currently fall under the original jurisdiction of a municipality" or the commission. Without the changes, the commission noted that each individual city "would have to take identical actions to accomplish statewide uniformity in service standards."

Matthews said he believes that if the state legislature enacts TRC's recommendations, it "could help lower the cost of gas to Texas consumers. While natural gas prices are market driven, we can continue looking at policy and regulatory solutions that will benefit consumers and assist the industry in producing the natural gas needed to meet increasing energy demands."

Carolyn Davis, Houston

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