Municipal Rate Case Participation: The Railroad Commission’s End Run

 

The Texas Railroad Commission (RRC) issued proposed rules this month that would essentially halt municipal participation in gas utility rate cases.  The RRC did so in spite of a clear message from the legislature that the current process is working.  City officials who are concerned should contact their legislators now. 

Cities form coalitions to represent the collective interests of cities and their citizens in utility rate cases.  These coalitions save ratepayers money because they refuse to accept a utility’s rate increase requests at face value.  By participating in rate cases, cities are able to dig into the complex calculations of ratemaking to determine whether a utility has made a reasonable request.  When cities determine that a utility’s request is unreasonable, they present evidence supporting the findings to the RRC and recommend reducing the rate increase. 

The legislature allows cities to be reimbursed by the utility company for their reasonable rate case expenses.  Because these expenses are ultimately passed on to consumers by the utility, cities are always cost-conscious.  Cities must balance the cost of participation in a ratemaking proceeding against the need to protect the interests of their residents.  Typically, municipal participation has resulted in a net savings for ratepayers because the utility’s rate increase was reduced by an amount far in excess of the expenses incurred by the cities. 

For example, city coalitions participated in a rate case brought by CenterPoint Energy Entex (Houston Division) that was decided by the RRC in February 2010.  While CenterPoint initially sought a $25.4 million increase, the RRC adopted almost all of the accounting adjustments recommended by the cities.  That resulted in an increase of only $5 million (one-fifth of CenterPoint’s original request).

It seems clear that municipal participation in ratemaking has prevented large increases in consumer utility rates and that cities value this authority.  However, one investor owned utility has repeatedly attempted to pass legislation to remove cities from the process.  The issue returned with a vengeance during the 2013 legislative session in the form of H.B. 1148 and H.B. 1149.

In the face of strong opposition by cities, the House Committee on State Affairs Committee never voted out either bill.  That alone would seem to send a clear signal from lawmakers that the current process should be left in place.  However, the RRC issued proposed rules this month that attempt to administratively enact provisions that would similarly limit municipal participation in gas rate cases. 

The RRC has actually proposed two new rules that would: (1) consolidate city intervenors and limit discovery (the RRC intends to limit the number of “requests for information” – a discovery tool – that a city can make to obtain information from a utility about a proposed rate increase); and (2) address city rate case expenses.  The rate case expense rule would relieve a utility from its obligation to reimburse a city’s rate case expenses until a city actually pays those expenses upfront or commits itself to pay them.  It also puts the burden of litigation expenses on the cities that challenge the rate.  

The process for a city or coalition of cities to intervene is a complex one, and only a handful of attorneys in the state have the expertise to do so.  According to those attorneys, the purpose of the rule is clear:  to stop cities from keeping investor owned utility rates reasonable. 

The comment period on the proposed new rules ends at noon on August 25, 2014.  Detailed information on the proposal, and a link to make online comments, are available at:

http://www.rrc.state.tx.us/legal/rules/proposed-rules/

Interested city officials can comment on the proposal, but the better course of action for most cities is to contact their legislators with the following message:  Municipal intervention in utility rate cases keeps our utility costs low.  The legislature rejected limits on that participation last session, and a state agency shouldn’t attempt an end run around such clear legislative intent.

The League, along with a number of other organizations, will be submitting comments.

 

TML member cities may use the material herein for any purpose. No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the Texas Municipal League.

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