Proposed Rules Title 16

TITLE 16. ECONOMIC REGULATION

Part 1. RAILROAD COMMISSION OF TEXAS

Chapter 3. OIL AND GAS DIVISION

16 TAC §§3.1, 3.58, 3.73, 3.78

The Railroad Commission of Texas proposes amendments to §3.1, relating to Organization Report; Retention of Records; Notice Requirements; §3.58, relating to Oil, Gas, or Geothermal Resource Operator's Reports; §3.73, relating to Pipeline Connection; Cancellation of Certificate of Compliance; Severance; and §3.78, relating to Fees and Financial Security Requirements. The Commission proposes the amendments to implement Senate Bill 1670, 80th Legislature (2007), Regular Session, and make conforming changes.

In general, Senate Bill (SB) 1670 clarifies that any well under the Commission's jurisdiction, including an injection or disposal well, for which the Commission has canceled the certificate of compliance cannot be used until the Commission has reissued the certificate of compliance. The bill also provides that where an operator uses a well, or reports such use, after the certificate of compliance for the well has been canceled, the Commission may refuse to renew the operator's organization report until the operator has paid any reconnect fee or fees and the Commission reissues the certificate of compliance. The change should accelerate compliance and ensure that the Commission receives all payments due it at the time of organization report renewal.

SB 1670 redesignated Texas Natural Resources Code, Chapter 85, Subchapter E (relating to Certificates of Compliance), as Texas Natural Resources Code, Chapter 91, Subchapter P, and amended the current language of some sections. SB 1670 redesignated Texas Natural Resources Code, §85.161, relating to Well Owners and Operators Certificates, as Texas Natural Resources Code, §91.701, and amended the section to delete reference to the "oil or gas conservation laws of the state and conservation rules and orders of the commission" and to clarify that a certificate of compliance is necessary for any well subject to the Commission's jurisdiction under Texas Natural Resources Code, Title 3 (Oil and Gas); Texas Water Code, Chapter 26 (Water Quality Control), §26.131 (Duties of the Railroad Commission); or Texas Water Code, Chapter 27 (Injection Wells), Subchapter C (Oil and Gas Waste), to show compliance with that title, section, or subchapter and with any license, permit, or certificate issued to the owner or operator under that title, section, or subchapter.

SB 1670 redesignated Texas Natural Resources Code, §85.162, related to Prohibited Connection, as Texas Natural Resources Code, §91.702, and amended the section to delete reference to the "oil or gas conservation laws of the state and conservation rules and orders of the commission" and to clarify that no operator of a pipeline or other carrier can connect with any oil or gas well or any wells subject to Commission jurisdiction under Texas Natural Resources Code, Title 3; Texas Water Code, §26.131; or Texas Water Code, Chapter 27, Subchapter C, or any Commission rule, order, license, certificate, or permit issued pursuant to these statutes, until the owner or operator of the well furnishes a certificate of compliance.

SB 1670 redesignated Texas Natural Resources Code, §85.163, relating to Temporary Connection, as Texas Natural Resources Code, §91.703, but made no changes to the text.

SB 1670 redesignated Texas Natural Resources Code, §85.164, relating to Cancellation of Certificate, as Texas Natural Resources Code, §91.704, and amended the section to clarify that the Commission can cancel a certificate of compliance if the owner or operator of a well has violated or is violating Texas Natural Resources Code, Title 3; Texas Water Code, Chapter 26, §26.131; or Texas Water Code, Chapter 27, Subchapter C.

SB 1670 further redesignated Texas Natural Resources Code, §85.165, relating to Effect of Cancellation on Operator of Pipeline or Other Carrier, as Texas Natural Resources Code, §91.705, and amended the section to make a conforming amendment to reflect that, on notice from the Commission to the operator of a pipeline or other carrier connected to any well under Commission's jurisdiction that the certificate of compliance has been canceled, the operator of the pipeline or other carrier must disconnect from the well. The change makes it unlawful for the operator of a pipeline or other carrier to reconnect to--rather than transport oil from--the well until the Commission issues a new certificate of compliance, clarifying that all wells, including injection and disposal wells, are subject to the statute and Commission rules.

SB 1670 redesignated Texas Natural Resources Code, §85.166, relating to Effect of Cancellation on Owner or Operator of a Well, as Texas Natural Resources Code, §91.706, and amended the section to clarify that it is unlawful for an owner or operator of a well for which the certificate of compliance has been canceled to use the well for production, injection, or disposal until the Commission issues a new certificate of compliance. The bill also added a new provision that if an operator uses or reports use of a well for production, injection, or disposal for which the operator's certificate of compliance has been canceled, the Commission may refuse to renew the operator's organization report until the operator pays the reconnect fee required by Texas Natural Resources Code, §91.707, and the Commission issues a new certificate of compliance for the well.

SB 1670 redesignated Texas Natural Resources Code, §85.167, relating to Fee for Reissued Certificate, as Texas Natural Resources Code, §91.707, and amended the section to make a conforming amendment to require payment of any reconnect fee resulting from violations before the Commission can issue a new certificate of compliance.

Current language in Texas Natural Resources Code, Chapter 85, Subchapter E (Certificate of Compliance) is broad enough to cover all wells under the jurisdiction of the Commission. However, while the statutory language makes it very clear that an operator cannot produce an oil or gas well without a certificate of compliance, it is less clear that an operator cannot use an injection or disposal well without a certificate of compliance. SB 1670 amended this statutory language to clearly provide that any well subject to the Commission's jurisdiction, including an injection or disposal well, may not be used until the Commission has issued or reissued a certificate of compliance.

The bill also added a new provision that if an operator uses or reports use of a well for production, injection, or disposal for which the operator's certificate of compliance has been canceled, the Commission may refuse to renew the operator's organization report until the operator pays the reconnect fee and the Commission issues a new certificate of compliance for the well. The proposed change should accelerate compliance and ensure that the Commission receives all reconnect payments due the Commission from operators who have produced or used a well with a canceled certificate at the time of the organization report renewal.

The Commission proposes to amend §3.1(a)(3) to add Texas Health and Safety Code, Chapter 401; Texas Utilities Code, §121.201; and Texas Water Code, Chapter 26, to the list of statutes pursuant to which each organization performing activities subject to the Commission's jurisdiction must maintain a current organization report with the Commission until all duties, obligations, and liabilities incurred pursuant to Texas Health and Safety Code, Chapter 401 (relating to Oil and Gas Naturally Occurring Radioactive Material), Texas Utilities Code, §121.201 (relating to Safety Rules; Railroad Commission Power), and Texas Water Code, Chapter 26 (relating to Water Quality Control), as well as Commission rules, Texas Natural Resources Code, Title 3 (Subtitles A, B, C, and Chapter 111 of Subtitle D) and Title 5, and Texas Water Code, Chapters 27 and 29, are fulfilled.

The Commission proposes to amend §3.1(f) to delete the wording "and the taxation requirements of the Comptroller of Public Accounts. A tax dispute with the Comptroller of Public Accounts shall not be a basis for disapproving an organization report."

The Commission proposes to add new §3.1(g), to state that if an operator uses or reports use of a well for production, injection, or disposal for which the operator's certificate of compliance has been canceled, the Commission may refuse to renew the operator's organization report until the operator pays the required reconnect fee or fees and the Commission issues the certificate of compliance required for that well.

The Commission proposes to amend the title of §3.58 to "Certificate of Compliance and Transportation Authority; Operator Reports" and to clarify that a P-4 (certificate of compliance and transportation authority) is required to operate "any well subject to the jurisdiction of the Commission." The Commission also proposes to amend §3.58(a)(1) to add references to Texas Natural Resources Code, Title 3; Texas Water Code, §26.131; and Texas Water Code, Chapter 27, and to clarify that the Commission has the authority to require an operator to provide evidence of a good faith claim to operate a lease or well. In general , the Commission's existing practice for handling the two-signature Form P-4s will not change; however, there may be special circumstances where the Commission would need some evidence of a transferee's right to operate a lease or well when a Form P-4 is filed to change the designation of operator.

The Commission proposes to amend §3.73(a), to add "or other carrier" and "subject to the jurisdiction of the Commission" to conform the rule wording with the new statutory language enacted by SB 1670.

The Commission proposes to amend §3.73(h) to replace the reference to Texas Natural Resources Code, §85.165, with a reference to Texas Natural Resources Code, §91.705, and to clarify that upon notice from the Commission that the certificate of compliance has been canceled, the pipeline or other carrier connected to any well "subject to the jurisdiction of the Commission" must disconnect from or suspend service to the well and shall not "reconnect to" the well until the Commission issues a new certificate of compliance.

The Commission proposes to amend §3.73(i) to replace the reference to Texas Natural Resources Code, §85.165, with Texas Natural Resources Code, §91.706(a), and to clarify that an operator of any well for which the Commission has canceled the certificate of compliance may not use that well "for production, injection, or disposal" until the Commission issues a new certificate of compliance for the well.

The Commission proposes to add new §3.73(j) to state that if an operator uses or reports use of a well for production, injection, or disposal for which the operator's certificate of compliance has been canceled, the Commission may refuse to renew the operator's organization report until the operator pays the fee required and the Commission issues the certificate of compliance for the well. The Commission proposes to redesignate current subsection (j) as subsection (k).

Leslie Savage, Oil and Gas Division planner, has determined that for the first year the proposed amendments will be in effect, the fiscal implications as a result of enforcing or administering them will be a cost to the state of $28,500 for computer programming. SB 1670 allows the Commission to refuse to renew an organization report if the operator has not paid the reconnect fees, but only in cases where the operator has used or reported use for production, injection, or disposal. Therefore, the Commission requires a mechanism to monitor the systems where activity is reported (production, injection, and disposal) to trigger the requirement and the ability to flag the system for leases where actual operation is occurring but not being reported. For years two through five, there will be no additional cost or savings to the state as a result of enforcing or administering the amendments. There will be no fiscal implications for local governments.

Ms. Savage also has determined that the public benefit as a result of the proposed amendments will be the ability of the Commission to accelerate compliance with the requirement to pay reconnect fees and that non-compliant wells will not be used.

It is anticipated that the proposed amendments will not have an adverse economic effect on small businesses or micro-businesses as a whole. The amount of the reconnect fee provided by Texas Natural Resources Code, §91.707, is unchanged from previous law. Operators who maintain their leases and wells in compliance with applicable statutes and rules will not suffer cancellation of certificates of compliance or be required to pay reconnect fees, and the amendments will have no new reconnect fee impact for operators of wells that have not been produced or used after the certificate of compliance for the well has been canceled.

On the other hand, there may be an additional cost of compliance for non-compliant small and micro-business operators who are now illegally producing or using wells for which the certificate of compliance has been canceled and renewing their organization reports over a period of years without paying reconnect fees. Under the proposed amendments, this will not be possible, because to renew the operator's organization report, the operator will be required to pay the reconnect fee and obtain re-issuance of the certificates of compliance for wells used or produced against severance.

The Commission has no way to estimate the number of reconnect fees for wells that have been produced or used against severance that non-compliant small and micro-business operators may be required to pay, and that are not currently being paid, to renew the operators' organization reports. It is not expected that many small and micro-business operators will be affected because use or production of a well while the certificate of compliance for the well is canceled is a violation of §3.73 of this title, for which administrative penalties of up to $10,000 per violation may be assessed pursuant to §85.3855 of the Texas Natural Resources Code.

The statutory reconnect fee is $300. Assuming that an individual, small business, or micro-business operator incurs, during a given year, one additional $300 reconnect fee, the annual cost to such an organization would be $300 per employee if the organization has one employee, $15 per employee if the organization has 20 employees, and $3.03 per employee if the organization has 99 employees.

Comparable annual cost per employee for the largest businesses potentially required, during a given year, to pay one additional $300 reconnect fee would be $0.60 for an employer of 500 persons and $0.30 for an employer of 1,000 persons.

Assuming that a hypothetical micro-business operator has gross sales of $100,000, and is required to pay one additional reconnect fee annually, the cost of compliance to this operator would be $0.30 per $100 of sales. Assuming further that a hypothetical small business operator has annual gross sales of $500,000, and is required to pay one additional reconnect fee annually, the cost of compliance to this operator would be $0.06 per $100 of sales. For comparative purposes, the cost of compliance to the largest operators of the need to pay one additional reconnect fee annually would be a fraction of one cent per $100 of gross sales.

Comments on the proposed amendments may be submitted to Rules Coordinator, Office of General Counsel, Railroad Commission of Texas, P.O. Box 12967, Austin, Texas 78711-2967; online at www.rrc.state.tx.us/rules/commentform.html; or by electronic mail to rulescoordinator@rrc.state.tx.us. The Commission will accept comments for 30 days after publication in the Texas Register . The Commission encourages all interested persons to submit comments no later than the deadline. The Commission cannot guarantee that comments submitted after the deadline will be considered. For further information, call Ms. Savage (512) 463-7308. The status of Commission rulemakings in progress is available at www.rrc.state.tx.us/rules/proposed.html.

The Commission proposes the amendments to §§3.1, 3.58, 3.73, and 3.78 pursuant to Texas Natural Resources Code, §§91.701 - 91.707, as amended by SB 1670, 80th Legislature, Regular Session (2007), effective September 1, 2007, which authorize the Commission to require a certificate of compliance for all wells subject to the Commission's jurisdiction; prohibit a pipeline or other carrier connection with a well for which no certificate of compliance has been issued; authorize the Commission to cancel a certificate of compliance for a well if the operator has violated Texas Natural Resources Code, Title 3, Texas Water Code, §26.131, or Texas Water Code, Chapter 27, Subchapter C, or any Commission rule, order, license, permit, or certificate issued pursuant to those statutes; require a pipeline or other carrier, upon notice, to disconnect from a well for which the certificate of compliance has been canceled; prohibit use of a well for production, injection, or disposal for which the certificate of compliance has been canceled; authorize the Commission to collect a fee for re-issuance of a certificate of compliance that has been canceled; and provide that where an operator uses a well, or reports such use, after the certificate of compliance for the well has been canceled, the Commission may refuse to renew the operator's organization report until the operator has paid the reconnect fee or fees and the certificate of compliance has been reissued. The Commission proposes the amendments pursuant also to Texas Natural Resources Code, §91.142, which requires the filing of annual organization reports by every person or entity subject to the Commission's jurisdiction; Texas Natural Resources Code, §81.051 and §81.052, which authorize the Commission to adopt rules governing oil and gas well and pipeline operators; Texas Natural Resources Code, §§141.011 - 141.012, which authorize the Commission to adopt rules governing geothermal resource wells; Texas Water Code, §§27.031, 27.032, and 27.034, and Texas Natural Resources Code, §91.101, which authorize the Commission to adopt rules governing injection wells; Texas Health and Safety Code, §401.415, which authorizes the Commission to adopt rules governing the disposal of oil and gas NORM waste; Texas Utilities Code, §121.201, which authorizes the Commission to adopt rules governing transportation of gas and gas pipeline facilities; and Texas Government Code, §2001.006, which permits a state agency, in preparation for the implementation of legislation that has become law but has not taken effect, to adopt a rule or take other administrative action that the agency determines is necessary or appropriate and that the agency would have been authorized to take had the legislation been in effect at the time of the action.

Texas Health and Safety Code, §401.415; Texas Natural Resources Code §§81.051, 81.052, 85.202, 86.042, 91.101, 91.142, 91.701 - 91.707, 141.011, and 141.012; Texas Utilities Code, §121.201; and Texas Water Code, §26.131 and §§27.031 - 27.034, are affected by the proposed amendments.

Statutory Authority: Texas Government Code, §2001.006; Texas Health and Safety Code, §401.415; Texas Natural Resources Code §§81.051, 81.052, 85.202, 86.042, 91.101, 91.142, 91.701 - 91.707, 141.011, and 141.012; Texas Utilities Code, §121.201; and Texas Water Code, §26.131 and §§27.031-27.034.

Cross-reference to statutes: Texas Health and Safety Code, Chapter 401; Texas Natural Resources Code, Chapters 81, 85, 86, 91, and 141; Texas Utilities Code, Chapter 121; and Texas Water Code, Chapters 26 and 27.

Issued in Austin, Texas on August 14, 2007.

§3.1.Organization Report; Retention of Records; Notice Requirements.

(a) Filing requirements.

(1) - (2) (No change.)

(3) Each organization performing activities subject to the jurisdiction of the Commission shall maintain a current organization report with the Commission until all duties, obligations, and liabilities incurred pursuant to Commission rules, the Natural Resources Code, Titles 3 (Subtitles A, B, C, and Chapter 111 of Subtitle D) and 5, Texas Health and Safety Code, Chapter 401; Texas Utilities Code, §121.201, and the Water Code, Chapters 26, 27 , and 29, are fulfilled.

(4) - (10) (No change.)

(b) - (e) (No change.)

(f) Organization reports shall not be approved unless the organization has complied with the state registration requirements of the Secretary of State [ ~~and the taxation requirements of the Comptroller of Public Accounts. A tax dispute with the Comptroller of Public Accounts shall not be a basis for disapproving an organization report~~ ].

(g) Pursuant to Texas Natural Resources Code, §91.706(b), if an operator uses or reports use of a well for production, injection, or disposal for which the operator's certificate of compliance has been canceled, the Commission may refuse to renew the operator's organization report required by Texas Natural Resources Code, §91.142, until the operator pays the fee required by §3.78(b)(9) of this title (relating to Fees and Financial Security Requirements) and the Commission issues the certificate of compliance required for that well.

§3.58. Certificate of Compliance and Transportation Authority; Operator Reports [ ~~Oil, Gas, or Geothermal Resource Operator's Reports~~ ].

(a) Certificate of Compliance and transportation authority.

(1) Each operator who seeks to operate any well subject to the jurisdiction of the Commission [ ~~wells related to crude oil, natural gas, or geothermal resources~~ ] shall file with the commission's Austin office a commission form P-4 (certificate of compliance and transportation authority) for each property on which the wells are located certifying that the operator has complied with Texas Natural Resources Code, Title 3; Texas Water Code, §26.131; and Texas Water Code, Chapter 27, and [ ~~the conservation laws and the oil, gas, and geothermal resources conservation~~ ] orders, rules, and regulations of the commission pursuant to Texas Natural Resources Code, Title 3; Texas Water Code, §26.131; and Texas Water Code, Chapter 27, in respect to the property. The Commission form P-4 establishes the operator of an oil lease, gas well, or other well; certifies responsibility for regulatory compliance, including plugging wells in accordance with §3.14 of this title (relating to plugging); and identifies gatherers, purchasers, and purchasers' commission-assigned system codes authorized for each well or lease. Operators shall file form P-4 for new oil leases, gas wells, or other wells; recompletions; reclassifications of wells from oil to gas or gas to oil; consolidation, unitization or subdivision of oil leases; or change of gatherer, gas purchaser, gas purchaser system code, operator, field name or lease name. When an operator files a form P-4, the oil and gas division shall review the form for completeness and accuracy. The Commission may require an operator who files a form P-4 for the purpose of changing the designation of an operator for a lease or well to provide to the Commission evidence that the transferee has the right to operate the lease or well. Except as otherwise authorized by the Commission, a transporter (whether the operator or someone else) shall not transport the oil, gas, or geothermal resources from such property until the Commission has approved the certificate of compliance and transportation authority. No certificate of compliance designating or changing the designation of an operator will be approved that is signed, either as transferor or transferee, by a non-employee agent of the organization unless the organization has filed with the commission, on its organization report, the name of the non-employee agent it has authorized to sign such certificates of compliance on its behalf.

(2) - (4) (No change.)

(b) - (d) (No change.)

§3.73.Pipeline Connection; Cancellation of Certificate of Compliance; Severance.

(a) No pipeline or other carrier shall be connected with any [ ~~oil, gas, or geothermal resources~~ ] well subject to the jurisdiction of the Commission until the operator of the well provides the pipeline or other carrier [ ~~operator~~ ] with a certificate from the Commission that the rules in this title have been complied with. This section shall not prevent a temporary connection with any well in order to take care of production and prevent waste until the operator has a reasonable time, not to exceed 30 days from the date of such connection, within which to obtain such certificate. For purposes of this section, the term "Commission" means the Railroad Commission of Texas, the Director of the Oil and Gas Division, or the Director's delegate.

(b) - (g) (No change.)

(h) Pursuant to Texas Natural Resources Code, §91.705 [ ~~§85.165~~ ], upon notice from the Commission to any operator of a pipeline or other carrier connected to any [ ~~oil, gas, or geothermal resource~~ ] well subject to the jurisdiction of the Commission that the certificate of compliance applicable to the well has been cancelled by the Commission, the operator of the pipeline or other carrier shall disconnect from or suspend service to the well and shall not reconnect to [ ~~transport any oil or gas produced from~~ ] that well until a new certificate of compliance has been issued by the Commission. Pursuant to Texas Natural Resources Code, §85.3855, failure to comply with this subsection may subject a person to a penalty of up to $10,000 per violation.

(i) Pursuant to Texas Natural Resources Code, §91.706(a) [ ~~§85.166~~ ], upon notice from the Commission that a certificate of compliance as to any [ ~~oil, gas, or geothermal resource~~ ] well has been cancelled as provided in this section, the operator of such well shall not use [ ~~produce oil, gas, or geothermal resources from~~ ] that well for production, injection, or disposal until a new certificate of compliance with respect to the well has been issued by the Commission as provided in this section. Pursuant to Texas Natural Resources Code, §85.3855, failure to comply with this subsection may subject a person to a penalty of up to $10,000 per violation.

(j) Pursuant to Texas Natural Resources Code, §91.706(b), if an operator uses or reports use of a well for production, injection, or disposal for which the operator's certificate of compliance has been cancelled, the Commission may refuse to renew the operator's organization report required by Texas Natural Resources Code, §91.142, until the operator pays the fee required pursuant to §3.78(b)(9) of this title (relating to Fees and Financial Security Requirements) and the Commission issues the certificate of compliance required for that well.

(k) [ ~~(j)~~ ] The provisions of this section shall be cumulative of other Commission actions and procedures relating to violations of state statutes or Commission permits, rules, and orders, including the authority of the Commission to immediately shut in a well or lease, or to direct the operator to shut in a well or lease, when an emergency exists due to pollution or an imminent threat of harm to people or property.

§3.78.Fees and Financial Security Requirements.

(a) (No change.)

(b) Filing fees. The following filing fees are required to be paid to the Railroad Commission.

(1) - (8) (No change.)

(9) If a certificate of compliance for an oil lease or gas well has been canceled for violation of one or more Commission rules, the operator shall submit to the Commission a nonrefundable fee of $300 for each severance or seal order issued for the well or lease before the Commission may reissue the certificate pursuant to §3.58 of this title (relating to Certificate of Compliance and Transportation Authority; Operator Reports [ ~~Oil, Gas, or Geothermal Resource Producer's Reports~~ ]) (Statewide Rule 58).

(10) - (14) (No change.)

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 14, 2007.

TRD-200703599

Mary Ross McDonald

Managing Director

Railroad Commission of Texas

Earliest possible date of adoption: September 30, 2007

For further information, please call: (512) 475-1295

Chapter 8. PIPELINE SAFETY REGULATIONS

Subchapter C. REQUIREMENTS FOR NATURAL GAS PIPELINES ONLY

16 TAC §8.201

The Railroad Commission of Texas proposes amendments to §8.201, relating to Pipeline Safety Program Fees, to implement provisions of House Bill 1, 80th Texas Legislature (2007), and, specifically, Article VI, Railroad Commission Rider 11, which makes the amounts appropriated from general revenue for State fiscal years 2008 and 2009 for the pipeline safety program and the underground pipeline damage prevention program, as well as other direct and indirect costs for the programs, contingent upon the Commission assessing fees sufficient to generate, during the 2008-2009 biennium, revenue to cover that general revenue appropriation.

The proposed amendments in §8.201(b) change the deadline for filing the DOT Distribution Annual Report, Form 7100.1-1, from 2006 to an annual requirement without a specified year; change the deadline by which the annual pipeline safety program fee is to be paid from April 20, 2007, to an annual requirement of March 15 of each year; and increase the assessment rate from $0.37 to $0.50 annually for each service line reported to be in service at the end of each calendar year. The Commission proposes the increase in the annual service line fee in order meet the requirements of House Bill 1 with respect to funding not only the established pipeline safety program, but the underground pipeline damage prevention program as well, for which the Commission adopted rules that go into effect on September 1, 2007.

Mary McDaniel, Director, Safety Division, has determined that for each year of the first five years that the rule as proposed to be amended will be in effect, there will be fiscal implications for State government. A fee of $0.50 for each of an estimated 4,600,000 service lines (an increase of $0.13 over the current rate of $0.37 per service line), is estimated to increase revenue to the Railroad Commission by $598,000 beginning in the calendar year 2008, and by at least $598,000 in each year of the next four years that the fee remains at $0.50 per service line and there are at least 4,600,000 service lines reported each year. All revenue derived from the pipeline safety program fee, both the $0.50 per service line and the $100 per master metered system, which the Commission is not proposing to increase, has been appropriated to the Commission to supplement the funds received from the federal Office of Pipeline Safety to support both the Commission's established existing pipeline safety program and the Commission's new underground pipeline damage prevention program. If the number of service lines is less than 4,600,000 in either 2008 or 2009, the Commission's revenue will decrease accordingly, and the Commission's appropriation will be reduced as well.

Ms. McDaniel anticipates that there will be additional costs for state government as a result of enforcing or administering the section as amended. The Commission will add five new full-time equivalent employees (FTEs) for the new underground pipeline damage prevention program. The Commission anticipates expenses of $251,915 for salaries; $35,633 for payroll related costs; $8,275 for travel; and $50,710 for other operating costs. In addition, there will be an expenditure of approximately $123,000 for additional salary expense, in each year of the first five years that the proposed amendments will be in effect, and an expenditure of $110,210 for vehicles in the first year that the proposed amendments will be in effect, but not in the second through fifth years. Any remaining funds will be used to make up for an anticipated shortfall in federal funding for the pipeline safety and underground damage prevention programs. There will be no other fiscal implications for State government, because state agency customers of natural gas distribution systems are exempt from payment of the pipeline safety program fee.

There will be fiscal implications for local governments that operate natural gas distribution systems, such as municipalities and government housing authorities; however, these entities are authorized to reimburse themselves by imposing a one-time surcharge to the existing rates charged to their customers. It is possible that there will be a mismatch between the amounts the natural gas distribution system operators remit to the Commission and the amounts they collect from their customers through the surcharge reimbursement mechanism, but the Commission cannot determine whether any discrepancy will be in favor of the natural gas distribution system operators or the customers.

Ms. McDaniel has also determined that for each year of the first five years that the rule as proposed to be amended will be in effect, the public benefit will be not only the continuation of the Commission's pipeline safety program to ensure public safety with regard to pipeline operations, but the additional benefit of funding support for the underground pipeline damage prevention program, which applies to both pipeline operators and excavators and takes effect on September 1, 2007. The underground pipeline damage prevention program seeks to educate excavators about safe excavation practices, and will have a web site through which persons can report unsafe practices and violations of the Commission's rules.

Pursuant to Texas Government Code, §2006.002(c), Ms. McDaniel has estimated that there will be a cost of compliance for individual, small business, or micro-business natural gas distribution system operators that are currently regulated under the Commission's pipeline safety program. For each natural gas distribution operator, regardless of its business organization, the cost will be an additional $0.13 for each service line reported on the DOT Distribution Annual Report, Form 7100.1-1.

The Commission has determined that it is likely that some natural gas distribution system operators meet the definition of small business or micro-business as set forth in Texas Government Code, §2006.001(1) and (2). For a small business or micro-business operator of a natural gas distribution system that has 1,000 customers, the cost of compliance with §8.201 as amended will be an additional $130 per year. However, this small business or micro-business operator would not incur any additional administrative costs, either for remitting the pipeline safety program fee to the Commission on a timely basis or for assessing the surcharge to customers, because the pipeline safety program fee has been in effect since 2003. The total additional annual cost for this operator is therefore $130. Using the comparison set forth in Texas Government Code, §2006.002(c)(2)(A), cost per employee, a small business or micro-business operator of a natural gas distribution system with five employees would have a net additional annual cost of compliance of $26.00 per employee; with 25 employees, a cost of $5.20 per employee; and with 50 employees, a cost of $2.60 per employee. The operator would be permitted to recover the additional $130 of the pipeline safety program fee through the surcharge to customers, up to $0.50 per service line.

The comparable annual cost per employee of the increased pipeline safety program fee for the largest businesses affected by the proposed amendments to §8.201 would be as follows. A natural gas distribution system operator with 1,000,000 service lines would pay an additional $130,000 annually for the pipeline safety program fee. There would not be any additional administrative costs, either for remitting the pipeline safety program fee to the Commission on a timely basis or for assessing the surcharge to customers, because the pipeline safety program fee has been in effect since 2003. With 500 employees, such a business would have an additional annual per-employee cost of compliance of $260 per employee; with 1,000 employees, $130 per employee; with 5,000 employees, a cost of $26 per employee. The operator would be permitted to recover the additional $130,000 of the pipeline safety program fee through the surcharge to customers, up to $0.50 per service line.

In addition to the cost of compliance for natural gas distribution system operators, there will be a cost of compliance for all individual customers of natural gas distribution systems who will be assessed a surcharge by their provider. The residential or small commercial customer of a natural gas distribution system who has one service line would have an additional annual cost of compliance of $0.13. Commercial and industrial customers of natural gas distribution systems will have additional annual costs of compliance of $0.13 for each service line. State agency customers of natural gas distributions systems are exempt from payment of the pipeline safety program fee.

Comments on the proposal may be submitted to Rules Coordinator, Office of General Counsel, Railroad Commission of Texas, P.O. Box 12967, Austin, Texas 78711-2967; online at www.rrc.state.tx.us/rules/commentform.html; or by electronic mail to rulescoordinator@rrc.state.tx.us. Comments should refer to Gas Utilities Docket Number (GUD No.) 9737. The Commission will accept comments until 5:00 p.m. on Monday, October 1, 2007. The Commission finds that a 30-day comment period is reasonable because the proposal as well as an online comment form will be available on the Commission's web site no later than the day after the open meeting at which the Commission approves publication of the proposal, giving interested persons over two additional weeks to review, analyze, draft, and submit comments. The Commission encourages all interested persons to submit comments no later than the deadline. The Commission cannot guarantee that comments submitted after the deadline will be considered. For further information, call Ms. McDaniel at (512) 463-7166. The status of all Commission rulemakings in progress is available at www.rrc.state.tx.us/rules/proposed.html.

The Commission proposes the amendments under Texas Utilities Code, §§121.201-121.210, which authorize the Commission to adopt safety standards and practices applicable to the transportation of gas and to associated pipeline facilities within Texas to the maximum degree permissible under, and to take any other requisite action in accordance with, 49 United States Code Annotated, §§60101, et seq .; and Texas Utilities Code, §121.211, which authorizes the Railroad Commission to adopt, by rule, an annual inspection fee not to exceed 50 cents for each service line reported by a natural gas distribution system subject to Chapter 121 on the Distribution Annual Report, Form RSPA F7100.1-1; and House Bill 1, 80th Texas Legislature (2007), Article VI, Railroad Commission Rider 11, which requires the Commission to assess fees sufficient to generate during the 2008-2009 biennium, revenue to cover the general revenue appropriation.

Texas Utilities Code, §§121.201 - 121.211; and 49 United States Code Annotated, §§60101, et seq ., are affected by the proposed amendments.

Statutory authority: Texas Utilities Code, §§121.201 - 121.211; 49 United States Code Annotated, §§60101, et seq .; and House Bill 1, 80th Texas Legislature (2007).

Cross-reference to statute: Texas Utilities Code, Chapter 121; 49 United States Code Annotated, Chapter 601; and House Bill 1, 80th Texas Legislature (2007).

Issued in Austin, Texas on August 14, 2007.

§8.201.Pipeline Safety Program Fees.

(a) (No change.)

(b) The Commission hereby assesses each operator of a natural gas distribution system an annual pipeline safety program fee of $0.50 [ ~~$0.37~~ ] for each service (service line) reported to be in service at the end of each calendar year [ ~~2006~~ ] by each system operator on the Distribution Annual Report, Form F7100.1-1, to be filed on March 15 of each year [ ~~, 2007~~ ].

(1) Each operator of a natural gas distribution system shall calculate the total amount of the annual pipeline safety program fee to be paid to the Commission by multiplying the number of services listed in Part B, Section 3, of Department of Transportation (DOT) Distribution Annual Report, Form F7100.1-1, due to be filed on March 15 of each year by $0.50 [ ~~, 2007 by $0.37~~ ].

(2) Each operator of a natural gas distribution system shall remit to the Commission on March 15 of each year [ ~~April 20, 2007,~~ ] the amount calculated under paragraph (1) of this subsection.

(3) - (6) (No change.)

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 14, 2007.

TRD-200703597

Mary Ross McDonald

Managing Director

Railroad Commission of Texas

Earliest possible date of adoption: September 30, 2007

For further information, please call: (512) 475-1295

Chapter 9. LP-GAS SAFETY RULES

Subchapter A. GENERAL REQUIREMENTS

16 TAC §9.26

The Railroad Commission of Texas proposes amendments to §9.26, relating to Insurance Requirements. Specifically, the Commission proposes amendments to update the requirements for certificates of insurance and to delete some references to insurance endorsements.

Proposed amendments in subsection (a)(1) add wording to allow the use of an insurance Acord^TM form or any other form prepared and signed by the insurance carrier that contains all the information required by the certificate of insurance. The certificates or forms must be issued by an insurance carrier authorized or accepted by the Texas Department of Insurance. The Figure in subsection (a) includes changes to delete the column entitled "Insurance Policy Endorsement Required" and to add references to the Acord^TM form in the column entitled "Form Required." The Commission proposes no changes to the license categories or dollar amounts for the types of coverage. The Commission proposes to delete subsection (b) regarding endorsements.

The proposed amendments in subsection (c), proposed to be re-designated as subsection (b), would delete references to endorsements and clearly state that the licensee shall give the Section notice of 30 calendar days before cancellation of any insurance coverage. The remaining subsections are proposed to be re-designated.

The Commission proposes new subsection (j) requiring each licensee to promptly notify the Commission of any change in insurance coverage or insurance carrier by filing a properly completed revised certificate of insurance; insurance Acord^TM form; other form that contains all the information required by the certificate of insurance; or documents demonstrating the applicant's compliance with the self-insurance requirements set forth in subsection (i). A licensee's failure to promptly notify the Commission of a change in the status of insurance coverage or insurance carrier may result in an enforcement action and an administrative penalty.

The Commission finds that these proposed amendments, and in particular, the Commission's recognition and acceptance of the Acord^TM form or any other form prepared and signed by the insurance carrier that contains all the information required by the certificate of insurance, will allow more flexibility for the LP-gas industry while still providing the Commission with the necessary information regarding proof of insurance. The Acord^TM form was developed by the Association for Cooperative Operations Research and Development (ACORD), a global, non-profit insurance association whose mission is to facilitate the development and use of standards for the insurance, reinsurance, and related financial services industries. Hundreds of insurance and reinsurance companies and thousands of agents and brokers are affiliated with ACORD. Thus, the Commission's acceptance of this standardized form will be efficient while still ensuring that LP-gas licensees meet the insurance requirements for licensure.

Concurrently with these proposed amendments to §9.26, the Commission requests comments on proposed changes to three forms, LPG Form 996A, LPG Form 997A, and LPG Form 998A, as well as the fee calculation sheet that accompanies notices of license renewal. These documents will be published separately in the "In Addition" section of the Texas Register . The changes to the forms eliminate obsolete TDI endorsement information and add acceptance of the Acord^TM forms universally used by the insurance industry.

Richard Gilbert, assistant director, Gas Services Division, License and Permit Section, has determined that for each year of the first five years the proposed amendments are in effect there will be no fiscal implications for state or local governments as a result of enforcing or administering the amendments.

Mr. Gilbert has also determined that the public benefit anticipated as a result of the amendments will be more flexibility for the LP-gas licensees or applicants for license.

Texas Government Code, §2006.002, requires a state agency considering adoption of a rule that would have an adverse economic effect on small businesses or micro-businesses to reduce the effect if doing so is legal and feasible considering the purpose of the statutes under which the rule is to be adopted. Before adopting a rule that would have an adverse economic effect on small businesses, a state agency must prepare a statement of the effect of the rule on small businesses, which must include an analysis of the cost of compliance with the rule for small businesses and a comparison of that cost with the cost of compliance for the largest businesses affected by the rule, using cost for each employee, cost for each hour of labor, or cost for each $100 of sales. The Commission does not have data showing the expense for each employee, the expense for each hour of labor, or the total sales revenue for any LP-gas licensee, nor does the Commission have data to determine which, if any, LP-gas licensees are "small businesses" or "micro-businesses," as those terms are defined in Texas Government Code, §2006.001; however, for the purposes of Texas Government Code, §2006.002(c), the Commission assumes that there are LP-gas licensees that fall within the definitions of both "small business" and "micro-business." Under the proposed amendments, however, all LP-gas licensees would be able to submit an Acord^TM form, in addition to or in lieu of the three forms, LPG Form 996A, LPG Form 997A, and LPG Form 998A that are currently required. Mr. Gilbert has therefore determined that there will be no additional cost to LP-gas licensees as a result of enforcing or administering the rule as proposed to be amended.

The Commission proposes the amendments under Texas Natural Resources Code, §113.051, which authorizes the Commission to adopt rules relating to any and all aspects or phases of the LP-gas industry that will protect or tend to protect the health, welfare, and safety of the general public, and §113.097, which requires LP-gas licensees to demonstrate proof of insurance coverage to the Commission and requires the Commission to adopt by rule reasonable amounts of coverage that LP-gas licensees must maintain for motor vehicle bodily injury and property damage liability on each motor vehicle, including trailers and semi-trailers, used to transport LP-gas; for general liability based on the type or types of licensed activities; for workers' compensation for employees under policies of work-related accident, disability, and health insurance, including coverage for death benefits; and for completed operations or products liability insurance, or both, based on the type or types of licensed activities.

Texas Natural Resources Code, §113.051 and §113.097, are affected by the proposed amendments.

Statutory authority: Texas Natural Resources Code, §113.051 and §113.097.

Cross reference to statute: Texas Natural Resources Code, Chapter 113.

Issued in Austin, Texas on August 14, 2007.

§9.26.Insurance and Self-Insurance Requirements.

(a) LP-gas licensees or applicants for license shall comply with the minimum amounts of insurance specified in Table 1 of this section or with the self-insurance requirements in subsection (i) [ ~~(j)~~ ] of this section. Before the License and Permit Section of the Gas Services Division (the Section) grants or renews a license, an applicant shall submit either:

Figure: 16 TAC §9.26(a) (.pdf)

(1) a valid certificate of insurance ; an insurance Acord ^TM form; or any other form prepared and signed by the insurance carrier that contains all the information required by the certificate of insurance. The certificates or forms must be issued by an insurance company authorized or accepted by the Texas Department of Insurance [ ~~, which shall remain in effect during the entire period that the license is in effect~~ ]; or

(2) properly completed documents demonstrating the applicant's compliance with the self-insurance requirements set forth in subsection (i) [ ~~(j)~~ ] of this section.

[ ~~(b)~~ Certificates of insurance filed with the Section shall have one of the endorsements specified in Table 1 of this section attached to the policy, and the endorsements shall not be canceled without cancellation of the policy to which they are attached.]

(b) [ ~~(c)~~ ] Each licensee shall [ ~~endorsement issued and attached to a certificate of insurance requires the insurance carrier, noted as "company" on the certificate of insurance, to~~ ] give the Section written notice 30 calendar days before the [ ~~insurance~~ ] cancellation of any insurance coverage . The 30-day period [ ~~notice~~ ] commences on [ ~~to run from~~ ] the date the notice is actually received by the Section.

(c) [ ~~(d)~~ ] A licensee or applicant for a license that does not employ or contemplate employing any employee in LP-gas activities may file LPG Form 996B in lieu of a certificate of workers' compensation, including employer's liability insurance, or alternative accident and health insurance coverage. The licensee or applicant for license shall file the required insurance certificate with the Section before hiring any person as an [ ~~a dealership~~ ] employee.

(d) [ ~~(e)~~ ] A licensee, applicant for a license, or an ultimate consumer that does not operate or contemplate operating a motor vehicle equipped with an LP-gas cargo container or does not transport or contemplate transporting LP-gas by vehicle in any manner may file LPG Form 997B in lieu of a certificate of motor vehicle bodily injury and property damage insurance, if this certificate is not otherwise required. The licensee or applicant for a license shall file the required insurance certificate with the Section before operating a motor vehicle equipped with an LP-gas cargo container or transporting LP-gas by vehicle in any manner.

(e) [ ~~(f)~~ ] A licensee or applicant for a license that does not engage in or contemplate engaging in any LP-gas operations that would be covered by completed operations or products liability insurance, or both, may file LPG Form 998B in lieu of a certificate of completed operations and/or products liability insurance. The licensee or applicant for a license shall file the required insurance certificate with the Section before engaging in any operations that require completed operations and/or products liability insurance.

(f) [ ~~(g)~~ ] A licensee or applicant for a license that does not engage in or contemplate engaging in any operations that would be covered by general liability insurance may file LPG Form 998B in lieu of a certificate of general liability insurance. The licensee or applicant for a license shall file the required insurance certificate with the Section before engaging in any operations that require general liability insurance.

(g) [ ~~(h)~~ ] A licensee may protect its employees by obtaining accident and health insurance coverage from an insurance company authorized to write such policies in this state as an alternative to workers' compensation coverage. The alternative coverage shall be in the amounts specified in Table 1 of this section.

(h) [ ~~(i)~~ ] A state agency or institution, county, municipality, school district, or other governmental subdivision shall meet the requirements of this section for workers' compensation, general liability, and/or motor vehicle liability insurance by filing LPG Form 995 with the Section as evidence of self-insurance, if permitted by the Texas Labor Code, Title 5, Subtitle C, and Texas Natural Resources Code, §113.097.

(i) [ ~~(j)~~ ] Self-insurance requirements.

(1) This subsection applies to a licensee's or a license applicant's motor vehicle bodily injury and property damage liability coverage and general liability coverage. A licensee or license applicant shall not elect to self-insure for more than 12 consecutive months, exclusive of the six-month period for which a letter of credit is required to remain in effect pursuant to paragraph (4) of this subsection.

(2) A licensee or license applicant desiring to self-insure shall file with the Section a properly completed LPG Form 28, Notice of Election to Self-Insure Per Rule 9.26 (created 11/02) and a properly completed LPG Form 28-A, Bank Declarations Regarding Irrevocable Letter of Credit (created 11/02). The licensee or license applicant shall attach to the LPG Form 28-A any documentation necessary to show that the bank issuing the irrevocable letter of credit meets the requirements in paragraph (5)(E) of this subsection.

(3) The irrevocable letter of credit shall be in an amount that is no less than the total of all minimum insurance coverage amounts required by the Commission in the Table in subsection (a) of this section for every coverage for which the licensee or license applicant seeks to self-insure.

(4) The irrevocable letter of credit shall be valid until the expiration date shown on LPG Form 28, which shall be no sooner than six months after the earlier of either:

(A) the expiration date of the license; or

(B) the effective date of insurance coverage.

(5) A letter of credit commemorated by LPG Form 28-A shall:

(A) be irrevocable during its term;

(B) be payable to the Commission or Commission's designee in part or in full as directed by the Commission in compliance with an order from state or federal court;

(D) not apply to the licensing requirements for worker's compensation insurance including employers liability insurance or alternative accident/health insurance; and

(E) be issued by a federally insured bank authorized to do business in the State of Texas which meets or exceeds the following requirements:

(i) Bank management shall attest that the bank is not subject to any outstanding written enforcement action, agreement, order, capital directive, or prompt corrective action directive issued by a state or federal bank regulatory agency;

(ii) The bank shall be "well capitalized" as defined in federal bank regulatory statutes with:

(I) a total risk-based capital ratio of 10% or greater;

(II) a Tier 1 risk-based capital ratio of 6% or greater; and

(III) a leverage ratio of 5% or greater.

(iii) The bank shall have received a satisfactory or better rating at its most recent Community Reinvestment Act (CRA) examination by a federal bank regulatory agency;

(iv) The bank management shall attest that the full amount of the letter of credit, when added to other indebtedness of the licensee or applicant for license to the bank, is within the bank's regulatory lending limit; and

(v) The issuing bank shall be in good standing with the State Comptroller's Office regarding the payment of franchise taxes and other obligations to the state.

(6) Within 30 days of the occurrence of any incident or accident involving the business activities of a self-insured LP-gas licensee that results in property damage or loss and/or personal injuries, the licensee shall notify the Railroad Commission, Safety Division, in writing of the incident. The licensee shall include in the notification a list of the names and addresses of any individuals known to the licensee who may have suffered losses in the incident. The licensee shall also provide written notice to all such individuals of the licensee's status as being self-insured and of the expiration date of the licensee's letter of credit.

(j) Each licensee shall promptly notify the Commission of any change in insurance coverage or insurance carrier by filing a properly completed revised certificate of insurance; insurance Acord ^TM form; other form prepared and signed by the insurance carrier that contains all the information required by the certificate of insurance; or documents demonstrating the applicant's compliance with the self-insurance requirements set forth in subsection (i) of this section. Failure to promptly notify the Commission of a change in the status of insurance coverage or insurance carrier may result in an enforcement action and an administrative penalty.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 14, 2007.

TRD-200703600

Mary Ross McDonald

Managing Director

Railroad Commission of Texas

Earliest possible date of adoption: September 30, 2007

For further information, please call: (512) 475-1295

Chapter 12. COAL MINING REGULATIONS

Subchapter G. SURFACE COAL MINING AND RECLAMATION OPERATIONS, PERMITS, AND COAL EXPLORATION PROCEDURES SYSTEMS

Division 2. GENERAL REQUIREMENTS FOR PERMITS AND PERMIT APPLICATIONS

16 TAC §12.108

The Railroad Commission of Texas proposes to amend §12.108, relating to Permit Fees, to implement provisions of House Bill 1, 80th Texas Legislature (2007), and, specifically, Article VI, Railroad Commission Rider 10, which makes the amounts appropriated from general revenue for State fiscal years 2008 and 2009 to cover the cost of permitting and inspecting coal mining facilities contingent upon the Commission assessing fees sufficient to generate, during the 2008-2009 biennium, revenue to cover the general revenue appropriations.

The Commission proposes to amend the fees set forth in subsection (b) as follows. In paragraph (1), the Commission proposes to decrease the annual fee for each acre of land within a permit area on which coal or lignite was actually removed during a calendar year from the current $160 to $150. In paragraph (2), the Commission proposes to increase the annual fee for each acre of land within a permit area covered by a reclamation bond on December 31st of a year, as shown on the map required by §12.142(2)(C) of this chapter (relating to Operation Plan: Maps and Plans), from the current $3.00 to $3.75. Finally, in paragraph (3), the Commission proposes to increase the annual fee for each permit in effect on December 31st of a year from the current $3,550 to $4,200. The Commission anticipates that annual fees at these new amounts will result in revenue of $1,273,000 in each year of the 2008-2009 biennium.

Melvin Hodgkiss, Director, Surface Mining and Reclamation Division, has determined that during each year of the first five years the proposed amendments would be in effect, the net effect on state government will be zero. The Commission's coal mining regulatory program is partially funded with a fifty per cent cost reimbursement grant from the United States Department of the Interior, Office of Surface Mining Reclamation and Enforcement. The State's share of the cost for implementing this regulatory program, $1,273,000, is funded from fees paid by the regulated coal mining industry. These fees come from two general categories: application fees and annual fees. Application fees are specified in §12.108(a); the Commission does not propose to revise these in this rulemaking.

The total amount in annual fees required to fund this regulatory program was determined by subtracting the total amount of application fees estimated for collection in each year of the 2008-2009 biennium ($64,000) from the estimated $1,273,000 State share cost to fund the program in each year of the 2008-2009 biennium. The remainder of the State's share of the annual expense, $1,209,000, is then allocated for collection from annual fees according to the following distribution: seven per cent for annual permit fees, 37.2 per cent for mined acreage fees, and 55.8 per cent for bonded acreage fees. The proposed annual fee rates were then derived based on the estimated area where coal or lignite will be removed during 2007 and the estimated permit status and bonded acres on December 31, 2007.

The seven per cent to be collected from annual permit fees ($84,000) was divided by 20, the estimated number of permits as of December 31, 2007, to derive the $4,200 individual permit fee proposed in subsection (b)(3). The 37.2 per cent to be collected from mined acreage fees ($450,000) was allocated across 3,000, the number of acres within the permit areas on which coal or lignite will be removed during the calendar year 2007 to derive the $150 acreage fee proposed in subsection (b)(1). Finally, the remaining 55.8 per cent to be collected through the bonded acreage fee was divided by 180,000, the number of acres under bond as of December 31, 2007, to derive the $3.75 per bonded acre fee proposed in subsection (b)(2).

Mr. Hodgkiss has determined that during each year of the first five years the proposed amendments would be in effect will increase the economic cost to the mining industry by a total of $118,000. This is based on a comparison of the revenue that would be generated under the current $160 annual mined acreage fee, the $3 per bonded acre fee, and a fee of $3,550 for each of 20 permits issued. There are no fiscal impacts on local governments.

Mr. Hodgkiss has determined that the public benefit resulting from the new fee structure for coal mining activities is the alignment of fees paid by the coal mining industry with the costs incurred by the Railroad Commission, as required by House Bill 1.

In accordance with Texas Government Code, §2006.002, Mr. Hodgkiss has determined that there will be no adverse economic effects on small businesses or micro-businesses because of the proposed amendments because there are no small businesses or micro-businesses, as those terms are defined in Texas Government Code, §2006.001, holding coal mining permits from the Commission. The proposed amendments also will not affect a local economy; therefore, the Commission has not prepared a local employment impact statement pursuant to Texas Government Code, §2002.022.

Comments on the proposal may be submitted to Rules Coordinator, Office of General Counsel, Railroad Commission of Texas, P.O. Box 12967, Austin, Texas 78711-2967; online at http://www.rrc.state.tx.us/rules/commentform.html; or by electronic mail to rulescoordinator@rrc.state.tx.us and should refer to SMRD Docket No. 2-07. Comments will be accepted for 30 days after publication in the Texas Register. The Commission finds that a 30-day comment period is reasonable because the proposal as well as an online comment form will be available on the Commission's web site no later than the day after the open meeting at which the Commission approves publication of the proposal, giving interested persons over two additional weeks to review, analyze, draft, and submit comments. The Commission encourages all interested persons to submit comments no later than the deadline. The Commission cannot guarantee that comments submitted after the deadline will be considered. For further information, call Melvin Hodgkiss, Director, Surface Mining and Reclamation Division, at (512) 463-6901. The status of all Commission rulemakings in progress is available at www.rrc.state.tx.us/rules/proposed.html.

The Commission proposes the amendments under Texas Natural Resources Code, §134.013, which authorizes the Commission to promulgate rules pertaining to surface coal mining operations; Texas Natural Resources Code, §134.055, which authorizes the Commission to obtain annual fees and mandates the fee structure in §12.108; and House Bill 1, 80th Texas Legislature (2007), Article VI, Railroad Commission Rider 10, which requires the Commission to assess fees sufficient to generate during the 2008-2009 biennium, revenue to cover the general revenue appropriations.

Texas Natural Resources Code, §134.013 and §134.055, are affected by the proposed amendments.

Statutory authority: Texas Natural Resources Code, §134.013 and §134.055; House Bill 1, 80th Texas Legislature (2007).

Cross-reference to statute: Texas Natural Resources Code, §134.013 and §134.055; House Bill 1, 80th Texas Legislature (2007).

Issued in Austin, Texas on August 14, 2007.

§12.108.Permit Fees.

(a) (No change.)

(b) Annual Fees. In addition to application fees required by this section, each permittee shall pay to the Commission the following annual fees due and payable not later than March 15th of the year following the year for which these fees are applicable:

(1) a fee in the amount of $150 [ ~~$160~~ ] for each acre of land within the permit area on which coal or lignite was actually removed during the calendar year;

(2) a fee of $3.75 [ $3 ] for each acre of land within a permit area covered by a reclamation bond on December 31st of the year, as shown on the map required by §12.142(2)(C) of this chapter (relating to Operation Plan: Maps and Plans); and

(3) a fee of $4,200 [ ~~$3,550~~ ] for each permit in effect on December 31st of the year.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 14, 2007.

TRD-200703598

Mary Ross McDonald

Managing Director

Railroad Commission of Texas

Earliest possible date of adoption: September 30, 2007

For further information, please call: (512) 475-1295

Chapter 13. REGULATIONS FOR COMPRESSED NATURAL GAS (CNG)

Subchapter C. CLASSIFICATION, REGISTRATION, AND EXAMINATION

16 TAC §13.62

The Railroad Commission of Texas proposes amendments to §13.62, relating to Insurance Requirements. Specifically, the Commission proposes amendments to update the requirements for certificates of insurance and to delete some references to insurance endorsements.

In subsection (a), the Commission proposes to move the Figure, which is currently in subsection (i), to subsection (a) and change a cross-reference. The Figure includes changes to delete the column entitled "Insurance Policy Endorsement Required" and to add references to the Acord^TM form in the column entitled "Form Required." The Commission proposes no changes to the license categories or dollar amounts for the types of coverage.

In subsection (b), the Commission proposes to clarify the wording and to allow the use of an insurance Acord^TM form or any other form prepared and signed by the insurance carrier that contains all the information required by the certificate of insurance. The certificates or forms must be issued by an insurance carrier authorized or accepted by the Texas Department of Insurance. The Commission proposes to delete other unnecessary wording.

In subsection (d), some references are changed from subsection (i)(5) to subsection (a), because of the Figure being moved to subsection (a). The Commission proposes new paragraphs (4) and (5) to clarify requirements that are on the Figure with regard to completed operations or products liability insurance. New paragraph (5) regarding accident and health insurance is similar to subsection (j), which the Commission proposes to delete.

The Commission proposes to delete subsection (g) which refers to endorsements.

Current subsection (h) is redesignated as subsection (g) and wording is proposed to clearly state that the licensee shall give the Section notice of 30 calendar days before cancellation of any insurance coverage.

With the wording proposed in subsection (g), the Commission proposes to delete subsection (i) because it is unnecessary.

The Commission proposes new subsection (i) requiring each licensee to promptly notify the Commission of any change in insurance coverage or insurance carrier by filing a properly completed revised certificate of insurance; insurance Acord^TM form; other form that contains all the information required by the certificate of insurance; or documents demonstrating the applicant's compliance with the self-insurance requirements set forth in §13.63 of this title, relating to Qualification as Self-Insured. A licensee's failure to promptly notify the Commission of a change in the status of insurance coverage or insurance carrier may result in an enforcement action and an administrative penalty.

The Commission finds that these proposed amendments, and in particular, the Commission's recognition and acceptance of the Acord^TM form or any other form prepared and signed by the insurance carrier that contains all the information required by the certificate of insurance, will allow more flexibility for the CNG industry while still providing the Commission with the necessary information regarding proof of insurance. The Acord^TM form was developed by the Association for Cooperative Operations Research and Development (ACORD), a global, non-profit insurance association whose mission is to facilitate the development and use of standards for the insurance, reinsurance, and related financial services industries. Hundreds of insurance and reinsurance companies and thousands of agents and brokers are affiliated with ACORD. Thus, the Commission's acceptance of this standardized form will be efficient while still ensuring that CNG licensees meet the insurance requirements for licensure.

Concurrently with these proposed amendments to §13.62, the Commission requests comments on proposed changes to three forms, CNG Form 1996A, CNG Form 1997A, and CNG Form 1998A . These forms will be published separately in the "In Addition" section of the Texas Register. The changes to the forms eliminate obsolete TDI endorsement information and add acceptance of the Acord^TM forms universally used by the insurance industry.

Mr. Gilbert has also determined that the public benefit anticipated as a result of the amendments will be more flexibility for the CNG licensees or applicants for license.

Texas Government Code, §2006.002, requires a state agency considering adoption of a rule that would have an adverse economic effect on small businesses or micro-businesses to reduce the effect if doing so is legal and feasible considering the purpose of the statutes under which the rule is to be adopted. Before adopting a rule that would have an adverse economic effect on small businesses, a state agency must prepare a statement of the effect of the rule on small businesses, which must include an analysis of the cost of compliance with the rule for small businesses and a comparison of that cost with the cost of compliance for the largest businesses affected by the rule, using cost for each employee, cost for each hour of labor, or cost for each $100 of sales. The Commission does not have data showing the expense for each employee, the expense for each hour of labor, or the total sales revenue for any CNG licensee, nor does the Commission have data to determine which, if any, CNG licensees are "small businesses" or "micro-businesses," as those terms are defined in Texas Government Code, §2006.001; however, for the purposes of Texas Government Code, §2006.002(c), the Commission assumes that there are LP-gas licensees that fall within the definitions of both "small business" and "micro-business." Under the proposed amendments, however, all CNG licensees would be able to submit an Acord^TM form, in addition to or in lieu of the three forms, CNG Form 1996A, CNG Form 1997A, and CNG Form 1998A that are currently required. Mr. Gilbert has therefore has determined that there will be no additional cost to CNG licensees as a result of enforcing or administering the rule as proposed to be amended.

The Commission proposes the amendments under Texas Natural Resources Code, §116.012, which authorizes the Commission to adopt rules and standards relating to compressed natural gas activities to protect the health, welfare, and safety of the general public, and §116.036, which authorizes the Commission to adopt rules establishing specific requirements for insurance coverage and evidence of such coverage.

Texas Natural Resources Code, §116.012 and §116.036, are affected by the proposed amendments.

Statutory authority: Texas Natural Resources Code, §116.012 and §116.036.

Cross-reference to statute: Texas Natural Resources Code, Chapter 116.

Issued in Austin, Texas on August 14, 2007.

§13.62.Insurance Requirements.

(a) Pursuant to the Texas Natural Resources Code, Chapter 116, the Railroad Commission of Texas has adopted the minimum amounts of insurance required of those persons or businesses licensed by the License and Permit Section of the Gas Services Division (the Section) to do business in Texas. The minimum amounts of insurance and other insurance requirements are specified in Table 1 [ ~~in subsection (i)(5)~~ ] of this section.

Figure: 16 TAC §13.62(a) (.pdf)

(b) Before the [ ~~The~~ ] Section grants or renews [ ~~shall not issue~~ ] a license , [ ~~authorizing activities under §13.61 of this title (relating to Licensing), or renew an existing license unless~~ ] the applicant shall submit either: [ for license or license renewal provides proof of required insurance coverage with an insurance carrier authorized to do business in this state, or provides, on approval of the Section, proof of required insurance coverage issued by a surplus lines insurer that meets the requirements of the Texas Insurance Code, Article 1.14-2, and rules adopted by the Texas Department of Insurance under that article. ]

(1) a valid certificate of insurance; an insurance Acord ^TM form; or any other form prepared and signed by the insurance carrier that contains all the information required by the certificate of insurance. The certificates or forms must be issued by an insurance company authorized or accepted by the Texas Department of Insurance; or

(2) properly completed documents demonstrating the applicant's compliance with the self-insurance requirements in §13.63 of this title (relating to Qualification as Self-Insured).

(d) Except as provided in the column relating to Statements in Lieu of Insurance Certificates in Table 1 in subsection (a) [ ~~(i)(5)~~ ] of this section, and paragraphs (1) - (5) [ ~~(1) - (3)~~ ] of this subsection, the types and amounts of insurance specified in subsection (a) [ ~~(i)(5)~~ ] of this section are required while engaging in any of the activities set forth in this section or any activity incidental thereto.

(1) - (3) (No change.)

(4) A licensee or applicant for a license that does not engage in or contemplate engaging in any CNG operations that would be covered by completed operations or products liability insurance, or both, may file CNG Form 1998B in lieu of a certificate of completed operations and/or products liability insurance. The licensee or applicant for a license shall file the required insurance certificate with the Section before engaging in any operations that require completed operations and/or products liability insurance.

(5) A licensee may protect its employees by obtaining accident and health insurance coverage from an insurance company authorized to write such policies in this state as an alternative to workers' compensation coverage. The alternative coverage shall be in the amounts specified in Table 1 of this section.

(e) - (f) (No change.)

[ ~~(g)~~ Each certificate of insurance filed with the Section must have one of the endorsements specified in subsection (i)(5) of this section attached to the policy, and may not be cancelled without cancellation of the policy to which it is attached.]

(g) [ ~~(h)~~ ] Each licensee shall [ ~~endorsement issued and attached to a certificate of insurance noted in subsection (g) of this section requires the insurance carrier, noted as company on the certificate of insurance to~~ ] give the Section [ ~~30 days'~~ ] written notice 30 calendar days before the [ ~~insurance~~ ] cancellation of any insurance coverage . The 30-day period [ ~~30 days' notice~~ ] commences on [ ~~to run from~~ ] the date the notice is actually received by the Section.

~~[ ~~(i)~~ Cancellation of a certificate of insurance becomes effective on the occurrence of any of the following events and not before:]~~

~~[ ~~(1)~~ receipt by the Section of written notice stating the insurer's intent to cancel a policy of insurance and giving a minimum of 30 days' notice before the insurance cancellation;]~~

~~[ ~~(2)~~ receipt by the Section of an acceptable replacement insurance certificate;]~~

~~[ ~~(3)~~ voluntary surrender of a license and the rights and privileges conferred by the license;]~~

[ ~~(4)~~ receipt by the Section of a statement made by a licensee stating that the licensee is not actively engaging in any operations which require a particular type of insurance and will not engage in those operations unless and until all certificates of required insurance applicable to those operations are filed with the Section; or]

~~[ ~~(5)~~ the Railroad Commission of Texas' cancellation by order or after hearing.]~~

~~[ ~~Figure: 16 TAC §13.62(i)(5)~~ ]~~

[ ~~(j)~~ Notwithstanding the requirement specified in Table 1 of this section that each licensee carry a policy of workers' compensation insurance, the licensee may protect its employees by obtaining accidental insurance coverage from an insurance company authorized to write such policies in this state as an alternative to workers' compensation coverage. The alternative coverage shall be in the amounts specified in Table 1 of this section.]

(h) [ ~~(k)~~ ] A state agency or institution, county, municipality, school district, or other governmental subdivision may meet the requirements relating to general liability and/or motor vehicle liability insurance or workers' compensation coverage by submitting evidence of self-insurance that complies with the requirements of §13.63 of this title (relating to Qualification as Self-Insured).

(i) Each licensee shall promptly notify the Commission of any change in insurance coverage or insurance carrier by filing a properly completed revised certificate of insurance; insurance Acord ^TM form; other form prepared and signed by the insurance carrier that contains all the information required by the certificate of insurance; or documents demonstrating the applicant's compliance with the self-insurance requirements set forth in §13.63 of this title (relating to Qualification as Self-Insured). Failure to promptly notify the Commission of a change in the status of insurance coverage or insurance carrier may result in an enforcement action and an administrative penalty.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 14, 2007.

TRD-200703602

Mary Ross McDonald

Managing Director

Railroad Commission of Texas

Earliest possible date of adoption: September 30, 2007

For further information, please call: (512) 475-1295

Chapter 14. REGULATIONS FOR LIQUEFIED NATURAL GAS (LNG)

Subchapter A. GENERAL APPLICABILITY AND REQUIREMENTS

16 TAC §14.2031

The Railroad Commission of Texas proposes amendments to §14.2031, relating to Insurance Requirements. Specifically, the Commission proposes amendments to update the requirements for certificates of insurance and to delete some references to insurance endorsements.

The proposed amendment in subsection (a) is found in the Figure, which includes changes to delete the column entitled "Insurance Policy Endorsement Required" and to add references to the Acord^TM form in the column entitled "Form Required." The Commission proposes no changes to the license categories or dollar amounts for the types of coverage.

Proposed amendments in subsection (b) add wording to allow the use of an insurance Acord^TM form or any other form prepared and signed by the insurance carrier that contains all the information required by the certificate of insurance. The certificates or forms must be issued by an insurance carrier authorized or accepted by the Texas Department of Insurance. Obsolete wording in subsection (b)(1), (2), and (5) is proposed to be deleted.

The Commission proposes amendments in subsection (c) to delete references to endorsements and to clearly state that the licensee shall give the Section notice of 30 calendar days before cancellation of any insurance coverage.

The Commission proposes new subsection (i) requiring each licensee to promptly notify the Commission of any change in insurance coverage or insurance carrier by filing a properly completed revised certificate of insurance; insurance Acord^TM form; other form that contains all the information required by the certificate of insurance; or documents demonstrating the applicant's compliance with the self-insurance requirements set forth in §14.2034, relating to Self-Insurance Requirements. A licensee's failure to promptly notify the Commission of a change in the status of insurance coverage or insurance carrier may result in an enforcement action and an administrative penalty.

The Commission finds that these proposed amendments, and in particular, the Commission's recognition and acceptance of the Acord^TM form or any other form prepared and signed by the insurance carrier that contains all the information required by the certificate of insurance, will allow more flexibility for the LNG industry while still providing the Commission with the necessary information regarding proof of insurance. The Acord^TM form was developed by the Association for Cooperative Operations Research and Development (ACORD), a global, non-profit insurance association whose mission is to facilitate the development and use of standards for the insurance, reinsurance, and related financial services industries. Hundreds of insurance and reinsurance companies and thousands of agents and brokers are affiliated with ACORD. Thus, the Commission's acceptance of this standardized form will be efficient while still ensuring that LNG licensees meet the insurance requirements for licensure.

Concurrently with these proposed amendments to §14.2031, the Commission requests comments on proposed changes to three forms, LNG Form 2996A, LNG Form 2997A, and LNG Form 2998A. These forms will be published separately in the "In Addition" section of the Texas Register . The changes to the forms eliminate obsolete TDI endorsement information and add acceptance of the Acord^TM forms universally used by the insurance industry.

Mr. Gilbert has also determined that the public benefit anticipated as a result of the amendments will be more flexibility for the LNG licensees or applicants for license.

Texas Government Code, §2006.002, requires a state agency considering adoption of a rule that would have an adverse economic effect on small businesses or micro-businesses to reduce the effect if doing so is legal and feasible considering the purpose of the statutes under which the rule is to be adopted. Before adopting a rule that would have an adverse economic effect on small businesses, a state agency must prepare a statement of the effect of the rule on small businesses, which must include an analysis of the cost of compliance with the rule for small businesses and a comparison of that cost with the cost of compliance for the largest businesses affected by the rule, using cost for each employee, cost for each hour of labor, or cost for each $100 of sales. The Commission does not have data showing the expense for each employee, the expense for each hour of labor, or the total sales revenue for any LNG licensee, nor does the Commission have data to determine which, if any, LNG licensees are "small businesses" or "micro-businesses," as those terms are defined in Texas Government Code, §2006.001; however, for the purposes of Texas Government Code, §2006.002(c), the Commission assumes that there are LNG licensees that fall within the definitions of both "small business" and "micro-business." Under the proposed amendments, however, all LNG licensees would be able to submit an Acord^TM form, in addition to or in lieu of the three forms, LNG Form 2996A, LNG Form 2997A, and LNG Form 2998A that are currently required. Mr. Gilbert has therefore has determined that there will be no additional cost to LNG licensees as a result of enforcing or administering the rule as proposed to be amended.

The Commission proposes the amendments under Texas Natural Resources Code, §116.012, which authorizes the Commission to adopt rules and standards relating to liquefied natural gas activities to protect the health, welfare, and safety of the general public, and §116.036, which authorizes the Commission to adopt rules establishing specific requirements for insurance coverage and evidence of such coverage.

Texas Natural Resources Code, §116.012 and §116.036, are affected by the proposed amendments.

Statutory authority: Texas Natural Resources Code, §116.012 and §116.036.

Cross-reference to statute: Texas Natural Resources Code, Chapter 116.

Issued in Austin, Texas on August 14, 2007.

§14.2031.Insurance Requirements.

(a) Pursuant to the Texas Natural Resources Code, Chapter 116, the Commission has adopted the minimum amounts of insurance for LNG licensees authorized by the State of Texas specified in Table 1 of this section.

Figure: 16 TAC §14.2031(a) (.pdf)

(b) Before the License and Permit Section of the Gas Services Division (the Section) grants or renews a license, the applicant shall submit either: [ ~~A licensee or applicant for license shall file a valid certificate of insurance as proof of insurance before the Commission grants or renews a license.~~ ]

(1) a valid certificate of insurance; an insurance Acord^TM form; or any other form prepared and signed by the insurance carrier that contains all the information required by the certificate of insurance. The certificates or forms must be issued by an insurance company authorized or accepted by the Texas Department of Insurance; or

(2) properly completed documents demonstrating the applicant's compliance with the self-insurance requirements in §14.2034 of this title (relating to Self-Insurance Requirements).

[ ~~(1)~~ Certificate of insurance shall be valid only when issued by an insurance carrier authorized to do business in Texas, or by a surplus lines insurer that meets the requirements of the Texas Insurance Code, article 1.14-2, and rules adopted by the Texas Department of Insurance under that article.]

[ ~~(2)~~ Certificates of insurance filed with the Commission shall have one of the endorsements specified in Table 1 of subsection (a) of this section attached to the policy. Endorsements may not be cancelled without cancellation of the attached policy.]

(3) - (4) (No change.)

~~[ ~~(5)~~ Cancellation of a certificate of insurance becomes effective if:]~~

~~[ ~~(A)~~ the Commission receives written notice stating the insurer's intent to cancel a policy of insurance and giving a minimum of 30 calendar days' notice before such cancellation;]~~

~~[ ~~(B)~~ the Commission receives an acceptable replacement certificate of insurance;]~~

~~[ ~~(C)~~ the licensee voluntarily surrenders a license and the rights and privileges conferred by the license;]~~

[ ~~(D)~~ the Commission receives a statement made by the licensee stating that the licensee is not actively engaging in any operations which require a particular type of insurance and will not engage in those operations unless and until all certificates of insurance required for those operations are filed with the Commission; or]

~~[ ~~(E)~~ the Railroad Commission of Texas issues an order following a hearing related to a certificate of insurance.]~~

(c) Each licensee shall [ ~~endorsement issued and attached to a certificate of insurance shall require the insurance carrier, noted as "company" on the certificate of insurance, to~~ ] give the Section written notice 30 calendar days [ ~~Commission 30 days' written notice~~ ] before the [ ~~insurance~~ ] cancellation. The 30-day period [ ~~notice~~ ] commences on [ ~~from~~ ] the date the notice is actually received by the Section [ ~~Commission receives the notice~~ ].

(d) - (h) (No change.)

(i) Each licensee shall promptly notify the Commission of any change in insurance coverage or insurance carrier by filing a properly completed revised certificate of insurance; insurance Acord ^TM form; other form prepared and signed by the insurance carrier that contains all the information required by the certificate of insurance; or documents demonstrating the applicant's compliance with the self-insurance requirements set forth in §14.2034 of this title (relating to Self-Insurance Requirements). Failure to promptly notify the Commission of a change in the status of insurance coverage or insurance carrier may result in an enforcement action and an administrative penalty.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 14, 2007.

TRD-200703603

Mary Ross McDonald

Managing Director

Railroad Commission of Texas

Earliest possible date of adoption: September 30, 2007

For further information, please call: (512) 475-1295

Part 2. PUBLIC UTILITY COMMISSION OF TEXAS

Chapter 25. SUBSTANTIVE RULES APPLICABLE TO ELECTRIC SERVICE PROVIDERS

Subchapter J. COSTS, RATES AND TARIFFS

Division 1. RETAIL RATES

16 TAC §25.239

The Public Utility Commission of Texas (commission) proposes new §25.239, relating to Transmission Cost Recovery Factor for Certain Electric Utilities. The proposed new section will set forth the mechanism by which an electric utility that operates solely outside of the Electric Reliability Council of Texas (ERCOT) in areas of this state included in the Southwest Power Pool or the Western Electricity Coordinating Council and that owns or operates transmission facilities can request annual recovery of its reasonable and necessary expenditures for transmission infrastructure improvement costs and changes in wholesale transmission charges, as allowed by Public Utility Regulatory Act (PURA) §36.209. PURA §36.209, Recovery by Certain Non-ERCOT Utilities of Certain Transmission Costs, added by HB 989 of the 79th Legislature, Regular Session (2005), permits the commission, after notice and hearing, to allow an electric utility to recover on an annual basis its reasonable and necessary expenditures for transmission infrastructure improvement costs and changes in wholesale transmission charges to the electric utility under a tariff approved by a federal regulatory authority, to the extent that the costs have not otherwise been recovered. Further, PURA §36.209 specifies that the commission may allow the electric utility to recover only the costs allocable to retail customers in the state, and may not allow the electric utility to over-recover costs. Project Number 33253 is assigned to this proceeding.

Ms. Lauren Damen, Senior Retail Market Analyst, has determined that for each year of the first five-year period the proposed section is in effect there will be no fiscal implications for state or local government as a result of enforcing or administering the section.

Ms. Damen has determined that for each year of the first five years the proposed section is in effect the public benefit anticipated as a result of enforcing the section will be more timely matching between the incurrence of costs for transmission infrastructure improvement and changes in wholesale transmission charges and the recovery of those costs by certain electric utilities. Better matching costs to their recovery should provide additional incentives for utilities to make transmission investment that is needed to improve customer service and to facilitate meeting the state's renewable energy goals. There will be no adverse economic effect on small businesses or micro-businesses as a result of enforcing this section. There is no anticipated economic cost to persons who are required to comply with the section as proposed.

Ms. Damen has also determined that for each year of the first five years the proposed section is in effect there should be no effect on a local economy, and therefore no local employment impact statement is required under Administrative Procedure Act (APA), Texas Government Code §2001.022.

The commission staff will conduct a public hearing on this rulemaking, if requested pursuant to the Administrative Procedure Act, Texas Government Code §2001.029, at the commission's offices located in the William B. Travis Building, 1701 North Congress Avenue, Austin, Texas 78701 on Tuesday, October 16, 2007, at 9:30 a.m. The request for a public hearing must be received within 31 days after publication.

Comments on the proposed new section may be submitted to the Filing Clerk, Public Utility Commission of Texas, 1701 North Congress Avenue, P.O. Box 13326, Austin, Texas 78711-3326, within 31 days after publication. Sixteen copies of comments to the proposed amendment are required to be filed. Reply comments may be submitted within 45 days after publication. Comments should be organized in a manner consistent with the organization of the proposed rule. The commission invites specific comments regarding the costs associated with, and benefits that will be gained by, implementation of the proposed section. The commission will consider the costs and benefits in deciding whether to adopt the section. All comments should refer to Project Number 33253.

In addition to the proposed new language, the commission requests that parties submit comments on the following questions:

1) Should the commission establish a threshold for the establishment of a transmission cost recovery factor (TCRF)? If so, what should the threshold be?

2) Should the commission establish a threshold for revision of the TCRF in which the approved transmission charges and transmission investment costs must exceed a set amount or have decreased by a set amount for the TCRF to be revised? If so, what should that threshold be?

3) Should the rule specify whether increased revenue resulting from load growth should be considered in determining whether the electric utility is recovering its transmission costs? Please explain.

This new section is proposed under the Public Utility Regulatory Act, Texas Utilities Code Annotated §14.002 (Vernon 2007), which provides the Public Utility Commission with the authority to make and enforce rules reasonably required in the exercise of its powers and jurisdiction; and specifically, PURA §36.209 which grants the commission the authority to allow certain electric utilities that operate solely outside of ERCOT, to recover on an annual basis reasonable and necessary expenditures for transmission infrastructure improvement costs and changes in wholesale transmission charges to the extent that the costs or charges have not otherwise been recovered.

Cross Reference to Statutes: Public Utility Regulatory Act §14.002 and §36.209.

§25.239.Transmission Cost Recovery Factor for Certain Electric Utilities.

(a) Application. The provisions of this section apply to an electric utility that operates solely outside of the Electric Reliability Council of Texas in areas of Texas included in the Southwest Power Pool or the Western Electricity Coordinating Council and that owns or operates transmission facilities.

(b) Definitions.

(1) Approved transmission charges (ATC)--Wholesale transmission charges approved by a federal regulatory authority that are not being recovered through the electric utility's other retail or wholesale rates and that are appropriately allocated to Texas retail customers. The charges may relate to the use of transmission facilities owned and operated by another transmission service provider or regional transmission organization, including administrative fees but not including dispatch fees, congestion charges, costs incurred to hedge congestion charges, or ancillary service charges.

(2) Transmission invested costs (TIC)--The investment costs to the electric utility associated with new transmission facilities and upgrading transmission facilities.

(c) Recovery authorized. The commission, after notice and hearing, may allow an electric utility to recover its reasonable and necessary costs for transmission infrastructure improvement and changes in wholesale transmission charges to the electric utility under a tariff approved by a federal regulatory authority to the extent that the costs or charges have not otherwise been recovered and are incurred after December 31, 2005. Any such recovery shall be made through the use of a transmission cost recovery factor (TCRF) approved by an order of the commission. The TCRF shall be calculated pursuant to subsection (d) of this section. If a utility has not had a base rate proceeding with a final order issued after December 2005, the utility shall not be eligible for recovery under this provision without first obtaining a final order in a base rate proceeding.

(d) Transmission cost recovery factor (TCRF). The TCRF shall be determined by the following formula:

Figure: 16 TAC §25.239(d) (.pdf)

(e) Transmission cost recovery factor revenue requirement (RR). For an electric utility subject to this section, the transmission cost recovery factor revenue requirement (RR) shall be calculated by using the following formula:

Figure: 16 TAC §25.239(e) (.pdf)

(f) Setting and updating the TCRF. An electric utility that is subject to this section may file an application to set or amend a TCRF in a general base rate case for the utility or a separate proceeding for that purpose. The commission staff may also file an application to amend a TCRF. An electric utility may not apply to amend its TCRF more frequently than once each calendar year. In a docket in which the TCRF is amended, the commission may order the refund of any previous over-recovery, but the commission shall not order the surcharge of any under-recovery. An over-recovery shall be considered to have occurred if the revenues from the TCRF were greater than the costs that the TCRF was intended to recover.

(g) TCRF forms. The commission may develop forms for TCRF applications and for monitoring the revenues from a TCRF. If the commission develops and approves such forms, an electric utility shall use the forms as required by the instructions accompanying the form.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 16, 2007.

TRD-200703659

Adriana A. Gonzales

Rules Coordinator

Public Utility Commission of Texas

Earliest possible date of adoption: September 30, 2007

For further information, please call: (512) 936-7223