Amid Local Control Fight, a Proposal Cities Like

City officials are crossing their fingers that one Republican proposal – what consumer advocates call the session’s most important bill for natural gas utility customers – will pick up steam before time runs out.

State Rep. Jim Keffer, R-Eastland on April 10, 2013.

Texas lawmakers have lobbed a barrage of legislative bombs at local control this year, on oil and gas drilling, environmental oversight, housing policy and immigration, to name a few. State Rep. Jim Keffer has joined in that effort, pushing bills to ensure that Denton, the first Texas city to ban hydraulic fracturing, is also the last.

But local officials are crossing their fingers that one of the Eastland Republican’s proposals – what consumer advocates call the session’s most important bill for natural gas utility customers – will pick up steam before the clock runs out.

“It won’t redeem the whole legislative session,” said Jim Gerlt, the mayor pro tem of Lubbock. “But it sure helps if you have a little bit of a sweet taste in your mouth, instead of the bitter bile we’ve got right now.”

House Bill 3749 would reverse part of a controversial Texas Railroad Commission rule that changed how cities challenged natural gas rate increases and that critics say may lead to higher utility bills. 

On the surface, the dispute might look arcane. Texas cities have long had the right to negotiate with monopoly gas companies – those without local competition – when the companies want to raise rates to buy new equipment, fix aging pipelines or make other upgrades. Cities push back when they see seemingly frivolous costs in those proposals.

When cities and utilities reach an impasse, each side makes its case to the Railroad Commission in a process that resembles a trial. Cities often band together and argue as a coalition.

In December, the commission passed sweeping rules – set to take effect Sept. 1 – aimed at curbing legal costs associated with such hearings. The most controversial provision ensured that only cities challenging a rate increase would pay the legal bills – even if other cities saw lower rates because of a protest. In the past, such fees were spread throughout the region that benefited.

Cities and consumer advocates say that change would only benefit natural gas companies, because it would discourage cities from challenging rate hikes.

Keffer agrees, and he bristles at the fact that the commission passed the rules after the Legislature rejected a separate industry-led push to reform city rate challenges last legislative session.

Gas companies “had good salesmen and the Railroad Commission bought it, even though we asked them not to do it,” Keffer said in an interview. “It’s almost like a bully tactic.” A House committee approved his repeal bill in April, but the measure has since struggled to gain traction. 

Support for the Railroad Commission changes came from gas companies, the pipeline industry and legal reform groups. CenterPoint Energy made the biggest push.

“They should result in a more efficient regulatory process and reduce litigation costs which are ultimately passed on to customers,” Alicia Dixon, a company spokeswoman, said in an email. “We don’t believe that customers in cities that choose not to participate in rate cases should be forced to bear the legal costs incurred by law firms that their cities did not hire and are not directing.”

But finding a city that backs the Railroad Commission rule change is tough, if not impossible.

More than 50 Texas Cities filed comments to the commission opposing the change, with many since expressing support for Keffer’s bill. No city formally supports the commission rule, nor has any publicly opposed the repeal effort.

Cities say their protests prevent utilities from hiking rates to cover unnecessary costs.

In one case that came before the Railroad Commission several years ago, for instance, a city protest at the Railroad Commission prevented Atmos Energy from including $1.6 million in costs for meals, luxury travel, entertainment and lodging for executives in a broader filing to increase rates, according to the Joint Alliance of Municipalities for Fairness in Gas Utility Rates. In 2010, after CenterPoint Energy sought a $25.4 million rate hike for a number of reasons, the Railroad Commission sided with a city coalition, saying only $5 million was acceptable.

Legal fees in those appeals, however, can total hundreds of thousands of dollars, which ultimately show up on consumers' bills in some fashion.

“This new rule aims to reduce the burden of expensive attorney fees on ratepayers across Texas,” Railroad Commissioner David Porter said after the commission’s vote to change the rules. “It streamlines the [appellate] processes at the Railroad Commission, which, in turn, will lead to fewer expenses paid for by ratepayers.” 

But consumer advocates fear the changes would unleash a “free rider” effect: Fewer cities would protest rate hikes across a region, hoping to benefit from the negotiations without paying the legal costs.

“The rule change slowly erodes the work of cities that advocate on behalf of their citizens at the Railroad Commission,” said Jennifer Richie, president of the Atmos Cities Steering Committee, a coalition of more than 150 cities in North and Central Texas. “This is a real problem, as Texas cities are the most effective – and sometimes only – advocate for consumers at the agency.”

Gerlt and other city officials are cynical about why the rule passed, and suspect the influence of natural gas companies, particularly CenterPoint.

Since 2011, CenterPoint’s political action committee contributed more than $11,000 to Porter; $5,000 to Christi Craddick, the commission’s chairwoman; and $29,500 to Barry Smitherman – who finished his stint as commissioner in December – and his political action committee, according to the Texas Ethics Commission.

Such contributions are not uncommon; the company’s political action committee also donated $2,500 to Ryan Sitton, Smitherman’s replacement, in 2014, and $2,000 to Keffer in 2011.

Porter declined an interview. He introduced the changes after “many conversations with consumers, commission staff and industry about frustrations over unnecessary attorney fees,” Ramona Nye, a commission spokeswoman, told The Texas Tribune in January.  

Cities and consumer advocates have closely scrutinized CenterPoint, the Houston natural gas and power line monopoly, which saw its profits soar in recent years. In 2013, the company's power line division took in $46.5 million in "excess revenue" – beyond what the Public Utility Commission, which regulates monopoly transmission companies, authorized. 

Last March, the company announced plans for rate increases in its Texas Coast Division that could add $1 or $2 to the average customer’s monthly bill, yielding nearly $6.8 million in new revenue across the division. That’s one of five increases CenterPoint is seeking across all of its gas and power line divisions.

Dixon, the CenterPoint spokeswoman, said the Railroad Commission rules “do not take away a city’s original jurisdiction or their ability to protest rate increases.” 

Keffer said he doesn’t blame the company and others for pushing the Railroad Commission rules, but he dislikes the results and suggested that his colleagues should support his bill as a sign of goodwill toward cities in their otherwise tough session.

“The longer we don’t do something like this, it just festers and gets worse,” Keffer said. 

Disclosure: CenterPoint Energy is a corporate sponsor of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.