Newly adopted House Bill 4384 allows gas utilities to classify certain capital and tax expenditures as “regulatory assets” in rate proceedings. Under the law, utilities can then quickly begin charging their customers for these assets.
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The Texas Railroad Commission should take action to mitigate ratepayer fallout from a potentially expensive new gas utility law, including through the consideration of savings from infrastructure retirements to offset the costs of new utility infrastructure.
That was among the messages delivered this month by the Steering Committee of Cities Served by Atmos, a municipal coalition, in comments it filed Nov. 17th at the agency. At issue are provisions of newly adopted House Bill 4384 that allows gas utilities to classify certain capital and tax expenditures as “regulatory assets” in rate proceedings. Under the law, utilities can then quickly begin charging their customers for these assets.
In October, the commission launched a rulemaking proceeding to implement HB 4384 and various interested parties, including ACSC, have now filed their recommendations. In its comments, ACSC reiterated its previously stated concerns about the law: that it encourages the expensive use of piecemeal ratemaking, for example, and that it continues to allow gas utilities to charge ratepayers for capital expenditures prior to any substantive review of those expenditures.
But HB 4384 also would have the effect of further reducing the lag time between when a utility spends money on capital projects and when the utility profits from such expenditures by recovering them in rates, according to ACSC. This is a problem because some amount of “regulatory lag” creates incentives for utilities to spend money in a more efficient manner. “While ACSC acknowledges and values the importance of safe and reliable infrastructure, it has concerns about the impairment of regulatory lag, which plays a longstanding and important rule in the regulated system,” wrote ACSC general counsel Thomas Brocato in the organization’s Nov. 17 comments.
Recommendations
ACSC enumerated several recommendations to guide the agency’s ongoing rulemaking efforts. Chief among them was a recommendation relating to the treatment of “regulatory assets” under HB 4384. By definition, a regulatory asset can refer to various costs incurred by a utility that are not immediately expensed but rather deferred for later recovery through future rate increases. HB 4384 allows utilities to classify certain capital expenditures and taxes as regulatory assets and then quickly recover those expenditures through annual interim rate proceedings without substantive prior review.
ACSC says that offsetting capital retirements (along with capital expenditures) also should be included in any calculation of regulatory assets. Otherwise, “utilities could have the advantage of fully recovering new plant in the regulatory asset and also earning a return on the retired plant,” ACSC noted in its comments. Furthermore, the inclusion of capital retirements in regulatory asset calculations “aligns with the Federal Energy Regulatory Commission Uniform System of Accounts, which support that concept that gas plant should be reduced to reflect retirements,” ACSC noted.
ACSC also made the following additional recommendations:
- The rule implementing HB 4384 should include more clarity on how regulatory assets are handled in existing interim rate filings.
- When creating regulatory assets, gas utilities should use only approved values for return, depreciation and taxes as determined in its most recent substantive rate case. That is, HB 4384 rules should bar utilities from using estimates for these values.
- The rule should require that utilities provide documentation supporting the in-service date for capital projects it includes in new regulatory assets.
The Railroad Commission is expected to issue a final rule in the coming months.
About ACSC
The Steering Committee of Cities Served by Atmos is a coalition of 188 cities in North and Central Texas that participates in rate setting matters at the Railroad Commission. ACSC has been a regular participant in rate cases of Atmos Energy Corp. and its predecessors for more than 25 years.