The best way to ease the burden of high natural gas costs is tolet producers produce and not overly regulate generators, industryofficials told the Texas Railroad Commission this week. The TRC,which is preparing recommendations on the state’s natural gasmarket, will hear testimony from stakeholders again Thursday beforefinalizing its recommendations for state legislators.

Among the issues now being considered for some kind oflegislative action in this session are incentives for utilities tominimize commodity costs passed to consumers; shared regulatoryjurisdiction between municipalities and the TRC; price informationto better influence consumer consumption; mitigation techniques forlarge month-to-month swings in consumer’s bills because ofcommodity price fluctuations; regulation of oversight of naturalgas service for agricultural purposes; and incentives for utilitiesin gas purchasing that could reduce extreme Nymex and spot pricefluctuations.

Speaking to the concerns of consumers, Commissioner CharlesMatthews, who noted the commission has received “hundreds” of callsfrom consumers in the past few months about their gas bills, saidthat residents think “utilities have good, too good, of a deal.Whatever they pay for gas, they assume no risk. I as a customer,assume all of the risks. How do I answer the person who asks thatof me?” However, Matthews said it was important to hear from allsides. “This unique opportunity will allow the commission todevelop specific recommendations the legislature has asked for andcan use.”

“The current high prices are the result of market forces, andthese same market prices will also work to lower those prices assupplies develop and demand adjusts,” said Duke Energy FieldServices’ Mark Border.

Reliant Energy Whole Group’s Jamie Mitcham said “it is hard forme to accept that the price is being set ‘by the last Mcf traded’on Nymex or the spot market each day. The last contract of the dayis nothing more than a data point reference. The true ‘cost’ or’value’ of the entire gas chain is really the product of thousandsof transactions over the course of a day, each visible in realtime. I don not believe that any action taken by the RailroadCommission can affect the Nymex nor do I believe that it shouldwant to.”

Mitcham said that the problem the TRC faces is the “extremevolatility in the price of natural gas and its impact onconsumers.” However, without solving the “underlying problem ofhaving adequate production and the infrastructure for the deliveryof natural gas, there is no long-term solution.”

Bill Hammond, speaking for the Texas Association of Businessesand Chambers of Commerce, urged the commission to draft legislationto lower the state’s severance tax. The tax currently is 7.5% fornatural gas and 4.6% for oil.

“Reducing severance taxes would be the catalyst for an increasedrate of return on Texas-based projects,” Hammond said, “and a moreattractive investment for oil. And gas companies.”

George Hepburn of Reliant Energy/Entex recommended that TRCconsider focusing attention on the “supply planning and managementprocess rather than a narrow set of gas price matrices.” He saidthat an annual update or review of LDC gas purchase strategiescould be used that would put “both the commission and the industryin a positive collaborative posture.”

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