Meeting Summary - 05/14/2025 Senate Natural Resources

▶️2 - HB2663 Darby et al. SP: Birdwell

• Introduction of HB2663 by Representative Darby, with Senator Birdwell as the sponsor.
• Purpose: To prevent wildfires and protect landowners by improving oversight of electrical infrastructure at long-term inactive oil and gas well sites.
• Prompted by 2024 Panhandle wildfires due to neglected electrical equipment at inactive oil sites.
• Current law requires removal of tanks and surface equipment but not aging electrical equipment.
• HB2663 mandates operators to affirm removal of electrical equipment for plugging extensions on wells inactive for 10+ years.
• Bill builds on current law under section 89.029 of the natural resources code without altering the ten-year framework for surface equipment removal.
• Railroad Commission responsible for imposing up to $25,000 penalties for non-compliance or false affirmations by operators.
• Discussion: Electrical service cable connected to a well must be removed or de-electrified after 10 years.
• Practicality: De-electrification is an easy and cost-effective solution compared to complete removal.
• The ten-year provision allows flexibility, avoiding the need for rebuilding electrical infrastructure before possible well reactivation.
• Public testimony opened for HB2663.
• Participants: James Henderson and Currie Smith from Texas Southwest Cattle Raisers Association and Cyrus Reed. David Lindley from Railroad Commission present as a resource witness.

▶️James Henderson, TSCRA - HB2663

• James Henderson, representing Texas Southwestern Cattle Raisers Association (TSCRA) and landowner, testified in support of HB2663.
• TSCRA represents 28,000 members and landowners in Texas.
• Henderson served on a house interim committee on Panhandle wildfires, having conducted hearings in Pampa.
• Wildfires in Texas resulted in over a million acres burned, causing death of 20-30,000 cattle alongside significant economic and personal losses.
• Fires were attributed to poorly maintained electric poles and faulty electric equipment at oil and gas sites.
• House Bill 2663 aims to prevent such incidents by requiring maintenance of well sites and enabling penalties for violations.
• HB2663 mandates removal of electrical equipment from inactive well sites and grants authority to the Railroad Commission to impose fines up to $25,000.

▶️Currie Smith, TSCRA - HB2663

• Currie Smith addressed the committee representing Texas Southwestern Cattle Raiders and himself.
• Smith supports HB2663, highlighting fire incidents linked to faulty electrical infrastructure.
• Since February 2006, 4 million acres have burned in the Texas Panhandle, with 3 million acres due to utility and oil and gas operator faults.
• The fires resulted in 20 fatalities and significant losses, including cattle, pasture, and homes.
• Smith criticized outdated electrical infrastructure, particularly around Borger, Texas, in the West Panel Field.
• Concerns were raised about the Railroad Commission's failure to address violations, despite being shown evidence by Smith.
• As an oil and gas industry participant, Smith emphasized the need for proper electrical maintenance to avoid reputational damage.
• Smith urged support for HB2663 as a step in the right direction for improved electrical infrastructure.

▶️Cyrus Reed, Sierra Club - HB2663

• Cyrus Reed from the Sierra Club expresses strong support for HB2663.
• The investigative committee identified two primary problems; one addressed in another bill, and the other requiring action on old electrical equipment on inactive wells.
• HB2663 aims to resolve issues related to old electrical equipment on inactive wells that pose fire risks.
• The bill provides flexibility by allowing either the removal of the equipment or de-energizing it.
• The goal is to prevent fires, as many have personally experienced their destructive impacts.
• The bill is supported due to its potential to prevent such fires involving utility equipment.
• No other comments were heard, and the discussion of HB2663 is left pending.

▶️4 - HB4384 Darby SP: Birdwell

• The chair introduced HB4384 by Representative Darby, with Senator Birdwell as the senate sponsor.
• The bill addresses financial strain from delayed cost recovery (regulatory lag) for new infrastructure investments by gas utilities.
• Utilities face delays of 18-20 months in recovering costs for new pipelines, meters, and safety upgrades.
• Regulatory lag affects utilities' credit ratings and their ability to reinvest for safe and reliable gas delivery.
• HB4384 allows gas utilities to temporarily defer costs like post in service carrying costs, depreciation, and property taxes for new infrastructure.
• The deferred costs will be recovered in the Gas Reliability Infrastructure Program (GRIP) annual filing.
• Regulatory oversight remains intact, with the Railroad Commission reviewing costs during rate proceedings.
• If costs are disallowed, utilities must refund ratepayers with interest.
• The bill encourages smart infrastructure planning for financial stability in gas utilities while protecting ratepayers.
• Public testimony on HB4384 included input from Thomas Brocato, Jason Ryan, and Cyrus Reed, alongside resources from the Railroad Commission.

▶️Thomas Brocato, ACSC - HB4384

• Thomas Brocato testified against HB4384 on behalf of ACSC.
• Concerns include increased profits for utilities and rates for ratepayers without offsetting benefits.
• The bill allows utilities to self-implement rate increases by overspending.
• Claim that CenterPoint wrote the bill, but faced scrutiny over lack of evidence.
• Discussion on how rate regulation should balance interests of customers and utility investors.
• Current mechanisms such as GRIP allow annual inclusion of plant and profits into rates without a substantive review.
• Bill fails to address reductions in existing plant costs, leading to potential overcollection.

▶️Cyrus Reed, Sierra Club - HB2663

• Cyrus Reed also expressed opposition, citing lack of proper regulatory oversight.
• Acknowledged slight improvements to the bill, such as potential for consumers to get money back with interest.
• Overall sentiment against the bill due to its allowance for utilities to defer and recover costs, negatively impacting consumers.

▶️Jason Ryan, CenterPoint - HB4384

• Jason Ryan from CenterPoint Energy supports HB4384.
• The bill ensures consistent accounting for replacing old pipes and installing new ones.
• CenterPoint serves nearly 2 million gas utility customers in Texas.
• Ryan argues that potential negative outcomes are unlikely.
• The bill aims to apply consistent accounting standards for new infrastructure due to state growth.
• Consistent accounting provides financial benefits for CenterPoint and its customers.
• Despite changes, the bill does not reduce the Railroad Commission’s oversight capabilities.
• Ryan is open to addressing any questions from the committee.

▶️Senator Birdwell to Cyrus Reed, HB4384 - Cost Recovery Process Concerns

• Cyrus Reed clarifies that HB4384 allows additional costs on consumers to be recovered before undergoing the full regulatory process.
• The bill impacts ratepayers retrospectively, involving them in costs after infrastructure investments are made.
• There is a discussion on the impact of growth, debt, and credit ratings on utilities, referencing the rapid development in areas like Tarrant County.
• Concerns are raised about the lack of cost control mechanisms, as the bill does not specify limits on cost recovery which could burden consumers.
• The comparison is made to the City of Austin's utility, where administrative cost increases are capped and require council approval if they exceed a certain threshold.
• Potential solutions like implementing an intermediate check or using a model similar to Austin's utility are proposed to address these concerns.
• Senator Birdwell considers a floor amendment to address intermediate checks while ensuring the growth and financial stability of utilities.

▶️Senator Hancock to Jason Ryan, HB4384 - Impact on Borrowing Costs

• Discussion on the impact of HB4384 on borrowing costs and rates.
• Jason Ryan explained the necessity of borrowing money due to the cash flow negative nature of the business.
• Credit ratings directly affect interest rates and returns required by banks and investors.
• HB4384 is considered credit positive legislation, improving credit ratings and borrowing conditions.
• Lower borrowing costs benefit customers by reducing hidden costs and improving affordability.
• The bill applies a proven framework used for replacement pipe to new growth investments.
• No evidence was presented to show that the existing framework has been burdensome on customers.

▶️Senator Sparks to Jason Ryan, HB4384 - Cost Transparency

• Senator Sparks inquired about the transparency and audit processes related to costs, referencing existing methods used for replacement pipe installations.
• Jason Ryan explained the current transparent process involves annual filings with cities and the Railroad Commission, detailing expenditures.
• He assured that this process avoids overspending and maintains checks on prudence of spending, with any disallowed costs being refunded to customers with interest.
• The proposed bill HB4384 would adopt this same transparent process for new pipe installations.
• Public testimony on HB4384 was closed without further comments, and the bill was left pending.