Texas Natural Gas Rates FAQs

Yes, the Railroad Commission has exclusive original jurisdiction over natural gas utility rates in areas outside of municipalities, such as "environs" and "special rate areas." Areas adjacent to a municipality and served by the same distribution system serving the municipality are referred to as "environs." Areas outside and not adjacent to an incorporated municipality are referred to as "special rate areas." Also, the Railroad Commission has exclusive original jurisdiction over the rates and services of a utility such as a natural gas pipeline, that delivers gas to a distribution utility.

A municipality may request the Railroad Commission to advise and assist the municipality on a natural gas utility matter pending before the Railroad Commission, a court, or the municipality’s governing body. Cities should be aware, however, that budget constraints imposed by the Legislature limit the resources that the Railroad Commission has available for providing assistance to municipalities. A rate review handbook is available from the Railroad Commission. The handbook contains a comprehensive review of the ratemaking process. Information regarding this publication is available by phone at (512) 463-7077 or in the Gas Services section of the agency’s web site: www.rrc.texas.gov.

City staff may have the expertise required to evaluate a proposed rate increase. If necessary, many consultants, attorneys, and associations are available to provide assistance, usually on a fee basis.

A utility can propose to raise or lower the rates it charges to provide natural gas distribution service within a city. Proposals to increase rates are most common. A utility must follow a specific, formal process to propose and implement a rate increase. But, a rate decrease can be implemented simply through the filing of a new tariff.

A utility must file a written statement of intent to increase rates with the city it serves and publish notice in a local newspaper for four successive weeks, and may not put the increased rates into effect until at least 35 days after filing the statement of intent. Upon the filing of a statement of intent, the city may take one of several actions:

1. The city may take no action at all, in which case the proposed rate increase will automatically take effect after day 35.
2. Unless the increase is a "a major change" (i.e., one that would increase the aggregate revenues of the utility more than the greater of $100,000 or 2.5 percent), the city, for good cause shown and under any conditions the city may prescribe, may allow a rate increase to take effect before the end of the 35 day period.
3. The city may suspend the proposed rate increase for an additional 90 days beyond the 35^th day (a total of 125 days from the date that the initial rate increase was filed). If, after 90 days from the date that the statement of intent of proposed rate increase was filed, the city has not established final rates, the utility may put into effect a rate less than or equal to the proposed rate upon filing a bond payable to the city. If, by the 125^th day from the date the statement of intent was filed, the city has not adopted a rate ordinance setting final rates, then the city is considered to have approved the rates proposed by the utility, and they go into effect after the 125^th day.
4. The city may expressly deny any rate increase, in which case the utility may:
   a) maintain the existing rate schedule;
   b) appeal to the Railroad Commission the city’s rate ordinance denying the requested increase in rates; or
   c) file with the city a statement of intent proposing a different rate increase.
5. The city may expressly grant a lower than requested rate increase, in which case the utility may:
   a) appeal to the Railroad Commission the city’s rate ordinance denying the requested increase in rates and setting rates at a lower level than requested; or
   b) put the new rates into effect (even though they are lower than the utility originally requested), and file with the city a new statement of intent proposing another rate increase.
   c) simply put the new rates into effect (even though they are lower than the utility originally requested).
6. The city may expressly approve the requested rate increase as filed.

A utility can propose a rate increase to a city as often as the utility desires. In practice proposals to increase rates rarely occur more frequently than once per year. Often many years pass before a utility seeks a rate increase.

The governing body of any municipality participating in or conducting ratemaking proceedings may select and engage rate consultants, accountants, auditors, attorneys, and/or engineers to advise and represent the municipality with litigation or natural gas utility ratemaking proceedings before any regulatory authority or in court. The natural gas utility engaged in those proceedings is required to reimburse the governing body for the costs of those services only to the extent that the costs are found reasonable by the applicable regulatory authority. The natural gas utility commonly recoups these costs along with its own reasonable rate case expenses by applying a surcharge, which is determined by the regulatory authority, to its utility rates for that particular municipality. This surcharge usually is applied on a per customer or per Mcf basis and is typically spread out over a period of time to reduce its impact on ratepayers. The regulatory authority typically monitors the amount of money collected under the surcharge to ensure that the utility does not overcollect.

Most statements of intent propose a percentage rate increase. The percentage increase is most frequently stated as the increase in total revenues, including the portion of revenues which covers the cost of natural gas purchases. Since the cost of natural gas is simply passed through to the customer without a profit, some prefer to exclude from the calculation of a rate increase revenues which cover the cost of natural gas purchases. The following example illustrates the difference between including and excluding cost of natural gas pass-through revenue when calculating a percentage rate increase.

Further information regarding the topics discussed in this information sheet can be obtained from the Gas Services Division of the Railroad Commission of Texas.

(512) 463-7167

Texas natural gas distribution systems include 32 investor owned utilities and 85 municipally owned systems. These natural gas distribution systems serve 4.6 million customers, which comprise domestic households, small commercial, and large industrial customers.

Over 1,100 Texas cities are served by natural gas distribution systems. 97 of these cities are served by municipally owned distribution systems. The rest of these cities are served by investor owned utilities.

376,902,622 Mcf of gas was purchased through natural gas distribution systems in 2011. Gas sales through natural gas distribution systems totaled over $2.04 billion in 2011.

The majority of Texas municipalities are served by investor owned utilities. In these municipalities, the municipality grants a franchise to a utility company, and the municipality has original jurisdiction (and the Railroad Commission has exclusive appellate authority) over the rates, operations, and services of the natural gas utility within the municipality. The Railroad Commission has no authority over the rates, operations, and services of a municipally-owned gas utility within the municipality’s boundries.

Since the municipality has original jurisdiction over the rates, operations, and services of the natural gas utility within the municipality, customer complaints should be addressed to the municipal department which is responsible for the administration of this contract.

By statute, the city, as the regulatory authority, has a legal obligation to set rates that are just and reasonable. If the utility or any other party to the proceeding at the city is not satisfied with the rates set by the city, that aggrieved party may appeal the city’s rate ordinance to the Railroad Commission, where rates will be determined through a formal evidentiary rate case proceeding. The city has standing to participate in this appeal as a party. An appeal by any party of the rates set by Railroad Commission order would go to Travis County District Court.

The Railroad Commission monitors the overall quality of service and rates provided to a city by an investor owned utility. Through regular audits, the Railroad Commission assures, among other service issues, that the utility charges its customers the rates which have been formally authorized, and orders refunds if customers have been overcharged.