House Human Services met on March 22 to discuss a number of bills. This report covers HB 1520 relating to the recovery and securitization of extraordinary costs incurred by certain gas utilities. The video archive can be found here.
This report is intended to give you an overview and highlight of the discussions on the various topics taken up. It is not a verbatim transcript of the discussions but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.
HB 1520 (Paddie) – Relating to the recovery and securitization of extraordinary costs incurred by certain gas utilities; authority to issue bonds.
- Addresses the high cost of natural gas passed onto consumers; allows LDCs to spread the cost out over several years, resulting in a minimal bill increase
- Will be a regulatory asset of the Railroad Commission
Brent Bishop, CoServ – For
- Provides overview of CoServ operations
- Took steps to acquire augmented gas supplies
- Cooperation with Atmos Energy helped maintain uninterrupted service to customers, but carried insane gas costs, twice the normal amount
- Billed to customers with no markup
- In February 2021, LDCs were told to incur the expense to bill over a period of time by the Railroad Commission
- Would allow regulatory asset to build customer base over a number of years
- Benefits small and large gas companies
Daniel Pope, SiEnergy – For
- 16x greater gas costs for February, 3x more than entire 2021 for customers
- Utilities do not make any profit, profits only made by upstream entities
- SiEnergy tries to pay for gas up front
- Deferred $18.4 million gas costs to spread costs of multiple years
- Customers didn’t receive charges for extra consumption but didn’t address financing for company; negatively impacts customer growth
- Reynolds – The net effect of the bill is that you will spread out fees incurred to the consumer?
- Correct
- Reynolds – Instead of a 12-month period, there will be a slight increase over a longer period of time?
- Correct
- Anchia – Customers will pay this over time?
- Yes
- Anchia – How do you mitigate acquiring gas in markets with prices reflecting that time period?
- I would have to ask
- Anchia – You don’t have any long-term contracts, only in the month ahead?
- Correct
- Anchia – How do you protect your downside?
- We don’t
- Anchia – Do you have storage?
- Yes
- Anchia – How long does that last?
- I would have to ask
- Anchia – Would you say the storage is limited?
- It is not a lot
- Anchia – As a result, because you are in this month ahead market/spot market, it is passed onto consumers?
- Yes
- Anchia – Are there things you should have been doing to hedge?
- That is fair, we would be open to discussing that
Riley Stinnett, Texas Gas Service – For
- RRC would only qualify when there are benefits for the rate-payer
- Better to have mechanism authorized and not need it
- Anchia – How do you acquire gas?
- It is very similar to the previous witness, with some hedging mechanisms
- Anchia – Can you describe them?
- They are diversified
- Anchia – Do you have a trading desk?
- Some sort
- Anchia – Do you have any agreements for a fixed rate?
- We have contracts, but I’m not sure the extent of those
- Anchia – Did I describe hedging mechanisms properly?
- I understand what you are saying
- Anchia – Do you have sufficient storage?
- We didn’t have enough this time around
Jason Ryan, Senior VP CenterPoint Energy – For
- Without this bill, our customers would pay 2x to 3x the normal gas price they pay
- Would allow us to reduce amount by paying over a period of time, increase of $2 to $5/month
- Anchia – What percentage of your gas do you get in the month ahead market?
- About 1/3 is under long term agreements, 1/3 is purchased from spot markets
- Reynolds – If we do it will be a minimal increase and if we don’t it could be hundreds of dollars?
- Correct, we spent over $1 billion in costs over the course of the storm, $4.17 for a ten year period
- Reynolds – Those on a fixed income won’t be able to pay these bills?
- This would have a significant impact on the ability to pay
Conrad Gruber, Atmos Energy – For
- Provides an overview of Atmos organization & operations
- Anchia – Could you talk about the impact for your extraordinary gas purchases?
- These were related to human needs, the cost was $2 billion to Texas customers, securitization is the best way to reduce these costs
- Anchia – How does Atmos finance in the open market related to this bill?
- The state would have higher-rated bonds, and we had a credit downgrade, we would be more efficient, would be secured by guaranteed payment
- Anchia – You are leveraging the credit rating of the state for customers?
- It is to the benefit to the customers, would cost us more to finance it than for the state to finance it
- Anchia – What will these securities be backed by?
- They are backed by the fee that goes to the bonds
- Anchia – Who would the fee be charged to?
- The customer
- Anchia – What is the security behind the instrument
- It is a gas cost plus a small amount of interest
- Anchia – Who takes on the issuance cost
- The customers pay the issuance cost
- Anchia – If the state is helping companies issue cheaper debt, should taxpayers pay issuance costs?
- Access in capital markets is the same for everybody, whether we do it is with mortgage
- When we finance in debt or equity markets, there is always some cost or fee to go with it
- This bill uses credit worthiness to minimize these fees through the state
Cyrus Reed, Lonestar Chapter of the Sierra Club – On
- Securitization is a worthy goal, but our concern is to make sure there is very good language in the CS to protect the public interest and provide a way to dispute the proposed amounts
- We should look into programs to help the public such as gas conservation programs
- Putting on the table to consider using public funds for private entities efficiently
- Reynolds – You are on the bill
- Correct
- Reynolds – Would you agree that this is probably the only practical solution?
- This is a good solution, we want to make sure RRC looks into it with the best public interest and steps to ensure costs are ultimately true
- Reynolds – Have you provided that information to the author?
- No, only email
- Herrero – Can you look at page 15 of the bill Subsection B and see if that is what you are referring to?
- Will do, I am not an expert, but our lawyers thought it looked pretty good
Mark Evarts, RRC – On
- Anchia – A lot of gas was purchased in highly volatile markets, would hedging reduce costs?
- We consider underground storage a form of hedging amongst other things
- Anchia – Are entities prevented from hedging by the RRC?
- We use other instruments, but no
- Basically, paying an insurance premium through hedging to determine if it benefits customers
- Anchia – So companies don’t profit from hedging?
- It doesn’t help the bottom line, it is a straight pass-through to the customer
- Anchia – But ultimately it could reduce costs?
- If costs go up it does, but if they don’t, there is a fee associated with hedging passed to the customer
- Anchia – Their desire to hedge might be mitigated to reduce value to customers, would you be able to pass costs to invested parties
- Hedging doesn’t impact bottom line
- Anchia – So the entire business gets passed onto the customer, there is no profit?
- Cost of service is a separate determinant in the gas sector, but yes
- Anchia – If you are efficient with a gas trading desk, this doesn’t impact the bottom line?
- No
- Anchia – Are they prohibited from having affiliates that profit off of trading gas?
- No
- Herrero – Is the term extraordinary costs a term used now?
- It is specifically defined in the bill, but not to my knowledge
- Herrero – There is a new definition here for extraordinary costs, are we expanding what these entities would be able to charge or not charge?
- I’m not sure about weatherization costs, but it does go beyond what would happen in a normal course of business, bill was written to allow future disasters to be securitized, I wouldn’t anticipate that utilities be asked to cover short term borrowing costs
- Anchia – On the short-term issuance costs, do you read this bill to include these costs into a future securitization?
- I don’t think so, it is limited to their currently approved debt
- Anchia – If they had to engage in extraordinary financing, they could bake these costs into issuance?
- No
HB 1520 left pending