Part 1. RAILROAD COMMISSION OF TEXAS
Chapter 2. INFORMAL COMPLAINT PROCEDURE
The Railroad Commission of Texas adopts amendments to §2.1, relating to Informal Complaint Procedure, new §2.5, relating to Informal Complaint Process Regarding Loss of or Inability to Account for Gas, and new §2.7, relating to Administrative Penalties for Failure to Participate, with changes to the versions published in the November 23, 2007, issue of the Texas Register (32 TexReg 8399). The Commission adopts these rules to implement portions of legislation enacted by the 80th Legislature, specifically House Bills 1920 and 3273.
House Bill 1920 enacted a new section in Texas Natural Resources Code, Chapter 85, pertaining to the informal complaint process regarding loss of or inability to account for natural gas gathered or transported. New §85.065 authorizes a producer to submit a written request to a person who gathers or transports gas for the producer for an explanation of any loss of or inability to account for the gas tendered to the person by the producer; describes the contents of such requests; sets deadlines by which the response must be made; and establishes conditions under which a complaint may be filed at the Commission.
House Bill 3273 enacted new sections in Texas Natural Resources Code, Chapter 81, that give the Commission new authority with respect to certain natural gas-related activities. New §81.058(c) authorizes the Commission, after notice and opportunity for hearing, to impose an administrative penalty against a purchaser, transporter, gatherer, shipper, or seller of natural gas who is a party to an informal complaint resolution proceeding and is determined by the Commission to have failed to participate in the proceeding or failed to provide information requested by a mediator in the proceeding. An administrative penalty imposed under Texas Natural Resources Code, §81.058, may not exceed $5,000 a day for each violation, but each day a violation continues or occurs is a separate violation for purposes of imposing a penalty under this section. The remedy provided by this section is cumulative of any other remedy the Commission may order.
New Texas Natural Resources Code, §81.059(b), provides that if the parties request that an informal dispute resolution mediation be conducted at a location other than the headquarters of the Commission in Austin, the parties must reimburse the Commission for the Commission's costs related to travel to those other locations.
The Commission received comments from Apache Corporation ("Apache"); Crosstex Energy Services, L.P. ("Crosstex"); State Representative Myra Crownover ("Representative Crownover"); Enbridge Energy Company, Inc. ("Enbridge"); Texas Alliance of Energy Producers ("the Alliance"); Texas Independent Producers and Royalty Owners Association ("TIPRO"); Texas Oil and Gas Association ("TXOGA"); and Texas Pipeline Association ("TPA"). In general, Apache, the Alliance, and TIPRO favored the proposed rules; Enbridge, Crosstex, TXOGA, and TPA either opposed the rules or offered detailed criticisms and suggested changes or both; and Representative Crownover urged the Commission to be mindful of the spirit of the agreements underlying House Bill 3273.
To implement these new statutory provisions, the Commission amends §2.1(c)(3) to include a reference to the more specific informal complaint procedure in new §2.5; the Commission adopts subsection (c)(3) with a change to correct the revised title of 2.5. The Commission also adopts new §2.1(h) regarding the requirement that the participants in an informal dispute resolution proceeding reimburse the Commission for the travel related expenses of its employees when they travel to a location outside Austin to participate in a mediation meeting. The Commission received no specific comments with respect to the proposed amendments in §2.1.
The Commission adopts new §2.5 with the revised title of Informal Complaint Process Regarding Loss of or Inability to Account for Gas. The new rule implements the provisions of Texas Natural Resources Code, §85.065, which applies only to the loss of or inability to account for natural gas that is tendered by a producer to a gatherer or transporter of gas on or after September 1, 2007. (The loss of or inability to account for natural gas that is tendered by a producer to a gatherer or transporter of gas before September 1, 2007, is governed by the law in effect on the date the gas was tendered.) The Commission will apply the policies, definitions, and procedures set forth in §2.1 to the extent they are consistent with §2.5. If the provisions of §2.1 are inconsistent with §2.5 or are not applicable, the provisions of §2.5 will apply to complaints pertaining to loss of or inability to account for gas that are filed pursuant to Texas Natural Resources Code, §85.065.
The Commission adopts new §2.7, relating to Administrative Penalties for Failure to Participate, to implement the authority delegated to the Commission by Texas Natural Resources Code, §81.058(c), which provides that the Commission, after notice and opportunity for hearing, may impose an administrative penalty against a purchaser, transporter, gatherer, shipper, or seller of natural gas who is a party to an informal complaint resolution proceeding and is determined by the Commission to have failed to participate in the proceeding or failed to provide information requested by a mediator in the proceeding. This section applies to informal complaint resolutions proceedings filed pursuant to §2.1 of this title and §2.5 of this title.
TIPRO strongly supported the new rules as proposed, and recognized that the Commission relied heavily on the legislative language. TIPRO also recognized that an agency must often include detailed language that was not part of the legislation, specifying its exact procedures to ensure that rules are applied consistently and that entities subject to the rule know what to expect. TIPRO took the position that the issue is not whether additional language should be included, but whether the additional language is in keeping with the intent of the legislation.
Apache complimented the Commission on excellent work in preparing the proposed rules to implement House Bill 1920; Apache finds that the proposed rules fulfill both the letter and the spirit of that legislation. Apache also offered specific amendments to the proposed rule text to enhance the process and make the rules easier to administer. In addition, Apache addressed the argument that the Commission does not have authority to promulgate rules to implement House Bill 1920, and specifically recognized that because the Commission will have to decide what lost or unaccounted for gas is during an informal complaint proceeding, it is best to have knowledge of what those terms mean at the beginning of the process rather than on a case-by-case basis. Apache also addressed arguments suggesting that Apache is using the rulemaking process related to House Bill 1920 to better its position in pending litigation to which Apache is a party. Apache denied such a motive and asserted that because the Commission's rules will operate prospectively, they will not have any effect on the lawsuit currently before the courts. In addition, Apache points out that the issue before the court in the Apache case is controlled by contract terms.
The Alliance commented that overall the proposal properly implements House Bill 1920, because the new rules will perform the important function of making clear to all parties, in advance, the basic guidelines. The Alliance commented that because the guidelines must be uniform for all parties, they should be adopted in rules rather than left to case-by-case determination.
Enbridge asserted that no rules are needed to implement the statutes, and the proposed rules do not further the goals of the informal complaint process. Enbridge had hoped that any rules would make the Commission dispute resolution process better, not worse, and stated that the Commission can accomplish that goal by adopting rules, if rules are needed, that respect the agreements reached in the legislative process rather than rules which make substantive changes to those statutes and result in a process which creates greater costs and more burdensome proceedings.
Crosstex, in all respects but one (discussed in a subsequent paragraph of this preamble), fully supports and incorporates by reference the comments of TPA. Crosstex cautioned the Commission, whose powers are limited to those specifically provided by the statute, against reaching beyond its statutory authority to make substantive changes to the statute through the implementing rules it creates.
TXOGA pointed out that House Bill 1920, a product of a very contentious and strongly negotiated debate among industry participants, achieved a balance of concerns and interests mutually agreed to among the involved parties. As a result of the delicate nature of the agreement leading to the legislation, TXOGA supports having new §2.5 follow as closely as possible the originating legislation, in an effort to preserve the mutual industry position reached in the legislation and believes the rule should not change, modify, add to or take away from the narrow agreements reached in the legislation.
TPA also referred to the extensive negotiations during the legislative session with respect to House Bill 1920, and noted that what is not in that bill was as intensely negotiated as what is in the bill, and the parties asked the legislature to pass the language without changes. TPA's comment asked that the Commission do the same and not change the agreements reached. TPA also stated that the bill is a procedural statute with detailed rights and obligations and thus no rule is needed to establish how the process is to work or what information is to be produced. If any rule is needed, TPA commented that only the statutory language needed to be placed in the Texas Administrative Code.
Representative Crownover asked that the Commission take into consideration that the language used in the rules would convey the spirit of agreement by the two groups that accomplished the passing of this necessary legislation that the proposed rules are based on.
In response to these general comments, the Commission appreciates the comments in support of the rules, but also acknowledges that there are some areas that may need to be clarified. The Commission disagrees that there is no need for the rules, or that only statutory language should be reproduced in rule form. First, the Commission notes that the amended and new rules in Chapter 2 implement both House Bill 1920 and House Bill 3273. No Commission representatives participated in the negotiations related to House Bill 1920, but Commission Staff did participate in the development of the language of House Bill 3273, sponsored by Representative Crownover. Parts of both bills relate to the informal complaint resolution process that was already in place at the Commission, in rule §2.1, and one important function of the new rules in Chapter 2 is to ensure that the additional procedural aspects of the two bills will be integrated smoothly into the existing procedural framework for informal complaints. Nothing in either bill speaks specifically to the mechanical procedures that are an important component of this agency's management of this administrative procedure. The Commission finds that a comprehensive set of rules provides the necessary clarity and direction both for those entities required to comply with the statutes and Commission rules and for Staff to properly administer the statutes. Further, since 1975, it has been a requirement in state law that an agency must adopt rules of practice stating the nature and requirements of all available formal and informal procedures (Texas Government Code, §2001.004). The Commission finds that the amendment and new rules are both necessary and within the authority of the Commission to adopt.
Further, while there may have been agreement among participants in the development of both bills, the language in the legislation is somewhat general in scope. For example, House Bill 3273 added provisions to Texas Natural Resources Code, Chapter 81, that authorize the Commission to impose an administrative penalty against certain entities if, as a participant to an informal complaint resolution proceeding, such an entity is determined by the Commission to have "failed to participate in the proceeding or failed to provide information requested by a mediator in the proceeding." The Commission could interpret and apply this authority on a case-by-case basis, but has determined that it would be helpful to potential participants in informal complaint resolution proceedings to be informed of the conduct that may trigger a Commission enforcement action. This approach has at least two elements to commend it: first, it promotes a consistent interpretation and application of the rule, and second, it allows participants in informal complaint resolution proceedings to conform their conduct to the expected standard, rather than learning after the fact that they have run afoul of one or more of those standards. This is particularly important for entities that are respondents in such proceedings, because their participation is mandatory under Commission rule §2.1.
With respect to new §2.5(c), which proposed definitions for certain terms, TIPRO commented generally that it believed the proposed rules defined terms reasonably and when needed. TIPRO especially appreciated the proposed definitions that incorporated existing statutory definitions.
TXOGA commented that the definition of "accounting" in §2.5(c)(1) should be deleted, because the term has a generally understood meaning and does not require definition in this rule. TXOGA also noted that the definition is duplicative of the requirement in §2.5(e)(3) that the person gathering or transporting gas "shall provide all elements of information listed in subsection (d)(1)(A) - (J) of this section, regardless of whether the producer requested each of those in the request for explanation of loss." The Commission disagrees with this comment, and finds that a definition is appropriate. However, the Commission also has amended the wording in the definition of the term "accounting" for greater specificity. Rather than defining "accounting" as "including but not limited to," the new wording provides that an "accounting" "may include" the specified elements. This change renders the definition virtually identical to the statutory provision from which it is derived, Texas Natural Resources Code, §85.065(c).
There were many comments regarding the proposed definition of "lost or unaccounted for gas (LUG)" in new §2.5(c)(2). The Alliance stated that this definition is ambiguous. It is not clear whether "lost gas" is a subset of gas that "cannot be accounted for," or is in addition to gas that "cannot be accounted for." Similarly, the Alliance noted, it is not clear whether the reference in §2.5(c)(2)(B) to "the difference between the volume or units of gas measured or allocated into a system and the volume or units of gas measured or allocated out of that system" is intended to apply only to gas that "cannot be accounted for" or to the entire category of lost or unaccounted for gas. The Alliance requests that these issues be addressed in the final rule, and agreed with the definitions offered by Apache in its comments.
Apache commented that "lost gas" is different from "unaccounted for gas" and stated its continued preference that these terms be defined separately. As the minimum alternative, however, Apache believes that "lost or unaccounted for gas" should be defined as in proposed §2.5(c)(2). Apache recommended that "lost gas" be defined as "gas that can be proven to have left or escaped a pipeline or plant system into surrounding soil or atmosphere whether intentionally or otherwise," and that "unaccounted for gas" be defined as "gas that cannot be accounted for, the volume of which is the difference between the volume or units of gas measured or allocated into a system and the volume or units of gas measured or allocated out of that system."
Apache addressed whether the specific definitions are needed and the recommendation that the Commission's rules merely recite the words of the statute by noting that at no time during the negotiations or passage of House Bill 1920 did Apache agree to any limitation on the Commission's authority to promulgate rules to implement the bill. The definitions proposed by the Staff are an excellent example of where the Commission has exercised its discretion and authority to implement the bill. That is, the Commission has recognized that it will have to decide what lost or unaccounted for gas is during this process and that it is best for all concerned that they have knowledge of what those terms mean at the front end of the process rather than on a case-by-case basis. Apache finds disingenuous the argument that the Commission does not need to implement House Bill 1920 through rules. Those who made this argument asked Apache to use the Commission's informal complaint process to resolve issues pertaining to lost or unaccounted for gas, but now that House Bill 1920 has passed, these same entities argue that the Commission should not use its discretion and authority to implement the necessary regulations. Apache concludes that if the Commission's informal complaint process was good enough to be the forum for resolving such complaints, then the Commission must have authority to resolve the fundamental issues, of which the first is what constitutes lost or unaccounted for gas.
Apache further took issue with TXOGA's position that the terms not be defined. Apache stated that even though it had suggested other specific definitions, the Commission has recognized the need to have some definitions in the proposed rules. Apache commented that, under the Commission's proposal, there is hope that the informal complaint resolution process will work. Under TXOGA's approach, Apache commented, the informal complaint process will become nothing but an argument over what is and what is not "lost gas" or "unaccounted for gas." Under the TXOGA approach, these questions will have to be resolved on a case-by-case basis. No one will have predictability under such a system, and, once again, producers will have an impediment to using the informal complaint resolution process.
Enbridge commented that even though a definition of "lost and unaccounted for gas" is not used to decide any issue in the statute or the proposed rule, the Commission proposed a definition of the term which attempts to distinguish between "lost" gas and "unaccounted for" gas. "LUG" is often defined in contracts. Definitions have been attempted by various regulators or industry associations, with differing results. Even the Commission has more than one existing definition. It is well known that the LUG definition is being litigated by some of those involved in the legislation. Yet, despite all the attempts to define LUG, there is no standard definition in use in the industry or government. Attempting to define a contentious term when there is no particular need to do so does not further the goal of making the Commission process faster, easier, and cheaper. It will further the goal of increased litigation and disputes.
TXOGA recommended that the term "lost and unaccounted for gas" not be defined. The statute itself does not contain a definition of LUG and one is not needed to implement the provisions of House Bill 1920.
TPA's comments on the proposed definition of "lost or unaccounted for gas" were extensive. TPA found particularly problematic the Commission's attempt to draw a distinction between "lost" gas and "unaccounted for" gas, an issue that is now pending in a contract action before the Texas Supreme Court. TPA noted that the separate definitions of "lost" gas and "unaccounted for" gas submitted in comments by an entity that is a party to that litigation appeared to be based on the party's brief in that litigation. TPA finds that the rule therefore creates the impression that the Commission has decided a hotly contested issue without any apparent need to do so. In fact, TPA commented, the term "lost and unaccounted for gas" does not actually appear in the operative provisions of the proposed rule or the statute.
TPA's commented further that, as evidenced by the testimony and discussions at the legislature, "lost and unaccounted for gas" means different things in different contracts and in different contexts. In many contracts, for example, "lost and unaccounted for" is simply a fixed factor that is applied each month by agreement of the parties. Much of what goes into a "LUG" calculation is not "gas" at all but components of a full well stream that have to be removed in order to market the gas. The definition of "lost and unaccounted for' used in a Commission rule cannot be consistent with all of the different ways the terms are used in the industry and may prejudice one of the litigants in any dispute.
TPA conceded that while some additional language may be needed in a rule in order to implement the statute, some of the provisions included in the proposed rule are substantive changes to the statute. The differences between the negotiated bill language and some of the provisions in the proposed rules would put the Commission in the position of changing the agreements that were reached after months of intense negotiations.
TPA pointed out that as proposed, §2.5(c)(2) contained a definition of lost and unaccounted for gas which both is unnecessary and could result in unanticipated and unknown consequences in gas purchase or transportation agreements. TPA noted that the proposed rule definition is circular. Any gas that escapes from a system will always be included in the difference in the volumes measured or allocated into a system and the units measured or allocated out. Therefore, "lost gas" volumes also show up in the measurement differences, which are defined as "unaccounted for" in the proposed rule. Moreover, gas that escapes from a system and is known is not measured; at best, it can be estimated. Unknown escapes are not even estimated. Therefore, trying to calculate "lost" separately from "unaccounted for" will never result in accurate numbers. Further, "lost and unaccounted for gas" may not be a difference in gas volumes at all, because natural gas is only a part of the typical full well stream that is gathered, processed, and treated. Samples of the full well stream represent only what was in the well stream at the time of sampling; differences due to varying production from particular wells, changes in composition over time, or differences due to operational changes by the well operator will all affect any "lost and unaccounted for" calculation. Differences in the types of measurements and variations under different conditions will show up in the "lost and unaccounted for" calculation. Thus, TPA concludes that it is unlikely that any definition of lost and unaccounted for gas will accurately reflect what actually occurs on a particular system.
TPA further noted that the Commission has at least two current definitions of "lost and unaccounted for gas" (in §7.5525 of this title (relating to Lost and Unaccounted for Gas) and §7.115(21) and (22) of this title (relating to Definitions)) and that other agencies have tried to define "lost and unaccounted for" gas. TPA asserts that the definition as proposed in §2.5(c)(2) serves no purpose, because House Bill 1920 provides that a producer may ask for an explanation of "any loss of or inability to account for the gas tendered," without being limited to any particular definition of the term or manner of calculating lost or unaccounted for gas. TPA thus concludes that a definition is not relevant to the rights and responsibilities of the entities affected and should not be particularly relevant to the Commission's implementation of the statute.
In response, the Commission appreciates those comments in support of the definition of the term "lost or unaccounted for gas (LUG)" as proposed, but also must acknowledge that there are too many disparate and often contradictory definitions of "lost gas," "unaccounted for gas," and "lost and unaccounted for gas" to be useful for the purpose of these rules. The Commission specifically disagrees with comments suggesting that the Commission intended to (or even could) influence the outcome of litigation pending at the Texas Supreme Court regarding the meaning of contract provisions related to lost and/or unaccounted for gas. The Commission's intent here was not to resolve once and for all what are clearly long-standing and fundamental disagreements about "lost gas" and "unaccounted for gas" and whether those are the same, overlapping, or completely separate. Rather, first, the Commission had hoped to define in a general way a term that could be used as a shorthand for particular types of complaints, so that the terminology of the rules was not impossible to read and understand. Second, the Commission had hoped to use the term to identify those informal complaints that must follow the specific procedures set forth in Texas Natural Resources Code, §85.065, i.e., those complaints that must be preceded by a producer's written request to a person who gathers or transports gas for the producer for an explanation of any loss of or inability to account for the gas tendered to the person by the producer. In this regard, the Commission specifically disagrees with TPA's comment that a definition is not relevant to the rights and responsibilities of the entities affected and should not be particularly relevant to the Commission's implementation of the statute. Because the current informal complaint resolution process outlined in Commission rule §2.1 does not require that a producer seek an explanation from a person who gathers or transports gas for the producer as a prerequisite to the filing of a complaint pursuant to §2.1, the Staff had hoped to find a way of more easily identifying matters that must follow the more specific procedural requirements imposed by House Bill 1920. All of the opportunities provided by that legislation invoke specific deadlines, and the longer it takes to categorize a complaint, the more difficult it is to meet those deadlines.
The Commission further disagrees that there is any intent to change any agreements that may have been reached during negotiations on the legislation; Commission representatives neither observed nor participated in such negotiations. The Commission's goal is to provide guidance to those entities required to comply with the rules and to the Staff who must administer these procedures impartially and within statutory deadlines.
Nevertheless, the Commission must agree with the comments of TXOGA and TPA that a single "one size fits all" definition is inappropriate to address case-by-case issues that may arise in an informal dispute resolution process. The Commission's goal is to maintain discretion and flexibility in mediating any informal complaints relating to the loss of or inability to account for gas. The Commission therefore adopts a definition of the phrase that is used in Texas Natural Resources Code, §85.065, "loss of or inability to account for gas." As adopted, the definition reads: "(2) Loss of or inability to account for gas--For purposes of mediating disputes pertaining to issues involving the 'loss or of inability to account for gas,' the Commission will examine the difference between the amount of gas metered into a system and the amount metered out."
With respect to the definition of "person who gathers or transports gas" in new §2.5(c)(3), TPA commented that common purchasers that neither transports nor gathers should not be included, because the statute refers only to gatherers or transporters. While a common purchaser may also be a gatherer or transporter, it is not necessarily the case that the two are identical and the rule should not impose requirements on those parties who do not operate the systems at issue and do not have the information necessary to respond to the complaint.
TXOGA commented that it is not appropriate to use the term "common purchaser" in this definition because this makes people who do not own or operate any pipeline subject to the rule, which should not be the intent of the rule. TXOGA recommended substituting the words "operator of" for the phrase "common purchaser of gas, gas utility, or take of natural gas including but not limited to," thus changing the definition of "person who gathers or transports gas" to read: "Any operator of a gas pipeline that provides gas gathering and/or transmission transportation service for a fee or some other compensation."
The Commission disagrees with these comments. The definition in §2.5(c)(3) does not bring all common purchasers within the scope of the definition, only those common purchasers that gather or transport gas for another entity. A common purchaser that does not gather or transport gas would not be subject to the rule. Further, the Commission's rule §7.115 includes the following definition of "transporter" (originally adopted as part of the Commission's code of conduct rule): "any common purchaser of gas, gas utility, or gas pipeline that provides gas gathering and/or transmission transportation service for a fee." This definition has been in place for more than ten years. However, to make this completely clear, the Commission adopts the definition with this additional clarifying statement: "A common purchaser that does not gather or transport gas is not subject to this section."
The Commission adopts the definition of "producer" as a person who owns or operates a well or wells producing oil or gas or both. Finally, the Commission adopts the definition of "waste" as it is defined in Texas Natural Resources Code, 85.046. The definitions in §2.1 apply in §2.5 as well. The Commission received no comments on these definitions as proposed, and the Commission adopts these without changes.
New §2.5(d) provides that, as a prerequisite to filing an informal complaint pursuant to Texas Natural Resources Code, §85.065, a producer must submit a written request for an explanation of loss to a person who gathers or transports gas for the producer in accordance with the requirements of this subsection. The subsection further describes the procedure by which the producer's request must be made and the information that the producer may ask for.
TPA commented that, as proposed, new §2.5(d)(1) fails to include the statutory provision providing for estimated data. The bill recognizes that much of the information on the laundry list will be "estimated," but the rule drops the word "estimated" from the list. That was an important part of the negotiations but is missing from the proposed rule. The language of the rule should be revised to be consistent with the statute. TPA recommended that the word "estimated" be added to subsection (d)(1)(D) - (H).
TXOGA stated that the statute recognizes that various items to be reported will not all be measured and some may be obtained by other means or "estimated." In subsection (d), the Commission has dealt very effectively with this by simply requiring the method of determination to be identified. TXOGA believe this is the preferred rule language and recommends that it remain as proposed.
The Commission agrees that the rule should mirror the statutory language, and has adopted the rule with the word "estimated" in §2.5(d)(1)(D) - (H).
New §2.5(d)(2) sets out the procedure by which the producer sends the request for explanation to a person who gathers or transports gas for the producer.
TPA commented that the requirement in §2.5(d)(2) that the producer's request for explanation be sent to the person listed on the Form P-5 on file with the Commission is the least effective way to get the notice to the personnel who have the information being requested. TPA stated that the request should be sent to the company contact, with the Form P-5 contact being only a last resort.
Although in other respects Crosstex fully supported and incorporated the comments of TPA, on §2.5(d)(2), Crosstex offered a different comment. Crosstex agreed with the requirement that the producer's request for explanation be sent to the address shown on the Form P-5 on file at the Commission. Crosstex acknowledged the varied contact arrangements within each company, and suggested that to ensure proper and timely responses to a producer's request for explanation, such a request should be sent to both the Form P-5 contact address and the producer's contact at the gatherer or transporter. The burden that such a requirement might present for a producer should be outweighed by their desire for accurate and timely responses.
The Commission disagrees with both TPA's and Crosstex's comments, but in recognition of the need to respond in a timely manner, the Commission has added additional methods of contacting the respondent to include both electronic mail and facsimile. The fourth sentence of subsection (d)(2) as adopted reads: "The producer shall send its complaint by facsimile or e-mail to the contact person and mail the request using United States Postal Service certified mail . . ." The Commission adopts subsection (d)(3) with a similar provision for allowing a response to be made by facsimile and e-mail as well as regular mail. As modified, these provisions should allow for more timely responses to a request for explanation.
New §2.5(d)(3) as proposed stated that not later than the 30th day after the date the person who gathers or transports gas receives the request from the producer, the person must provide the producer a written explanation of any loss of or inability to account for the gas tendered to the person by the producer. The person must include in the response any relevant information requested by the producer that is available to the person. In addition, for each element of information sought in a request for explanation of loss for which an amount of gas is to be provided, the person who gathered or transported the gas must state the method by which the amount was determined (measured, allocated, estimated, or other).
TPA commented that proposed §2.5(d)(3) creates a new requirement that is not in the statute. The statute requires only the production of the data on the "laundry list." The proposed rule, however, expands the requirement by providing that "the person shall include in the response any relevant information requested by the producer that is available to the person." The statute limits the production requirement to information that is both "relevant . . . and would be required to be included in an accounting under Subsection (c)" which is the laundry list set out above. The proposed language in the rule may have been intended to require only that information required by the statute but as written goes beyond the statutory obligation. The proposed rule should be rewritten to be consistent with the statute or deleted because it is not necessary given the other provisions of the rule and the statute.
The Commission agrees with TPA's comment and adopts the exact language that was included in the statute. As adopted, the second sentence of subsection (d)(3) reads: "The person shall include in the response any relevant information requested by the producer that is available to the person and that would be required to be included in an accounting under paragraph (1) of this subsection."
New §2.5(e) prescribes the procedure for filing an informal complaint. If a producer has submitted a request under subsection (d) to a person who gathers or transports gas for the producer and the person provides an inadequate explanation of any loss of or inability to account for the gas or fails to provide any explanation of any loss of or inability to account for the gas by the deadline stated in that subsection, the producer may file with the Commission an informal complaint against the person. An informal complaint may not be filed before the 30th day after the end of the production period covered by the complaint. An informal complaint must comply with the requirements of §2.1 of this title and, in addition, must include the items specified.
TXOGA commented that the provisions in §2.5(e)(1) and (2)(B) allowing an informal complaint to be filed as early as 30 days "after the end of the production period covered by the complaint" do not recognize the time the Commission allows for reporting production after the end of the production period. An informal complaint should not be filed until after the 30 day response period for the producer's request in subsection (d). TXOGA also pointed out that the producer's request will need to allow for a reasonable reporting period after the end of the production period. The very earliest an informal complaint could be filed would be 60 days (30 days for reporting and 30 days for response to a producer's request) and even that is not likely, since this does not consider any delay in the submission of the producer's request. TXOGA believes that the informal complaint filing should be keyed off the producer's response and not the end of production. TXOGA recommended revising the wording of subsection (e)(1) to read "an informal complaint may not be filed before the 30th day after the producer's request was received by the person who gathers or transports gas for the producer based on the certified mail receipt," and revising the wording of subsection (e)(2)(B) to read "state that at least 30 days have elapsed since the producer's request was received by the person who gathers or transports gas for the producer based on the certified mail receipt."
The Commission appreciates TXOGA's comments on the limited time for reporting current production data following the end of the production, but does not agree that a change in the rule is necessary. The earliest time that a producer may file an informal complaint is set by the statute, Texas Natural Resources Code, §85.065(b), and the Commission does not have authority to alter it. A producer may, of course, voluntarily wait an additional period of time to file an informal complaint. Further, the statute refers only to a production period, and does not refer to or establish time periods related to the filing of production reports with the Commission.
TPA commented that proposed §2.5(e) does not account for the shortened time frame allotted for gatherers and transporters to respond to informal complaints. The rule should be modified to require a complainant to, on the day of the filing with the Commission, send its complaint by facsimile or e-mail to the contact person.
The Commission agrees with TPA's comment and in the adopted rule text in both §2.5(e)(3) and (e)(5) has added the methods of contacting the respondent to include mail and facsimile or e-mail. This should allow more timely responses to all entities involved in the informal complaint process.
New §2.5(e)(3) as proposed stated that not later than the 14th day after the date the complaint is filed at the Commission, the person who gathered or transported the gas must provide to the producer and the Commission an accounting of the gas tendered to the person by the producer for gathering or transport during the production period covered by the complaint. The person may provide the accounting on a thousand cubic feet or a million British thermal unit basis, as applicable, and must provide all elements of information listed in subsection (d)(1)(A) - (J), regardless of whether the producer requested each of those in the request for explanation of loss. In addition, for each element of information for which an amount of gas is to be provided, the person must state the method by which the amount was determined (measurement, allocation, estimation, or other).
Enbridge commented that the proposed rule results in a needless waste of time and money in responding to the Commission. Proposed §2.5(e)(3) requires the entire laundry list of material to be provided to the Commission in every case, regardless of the nature of the complaint. The same amount of time and money would have to be spent even if the amount of gas involved is small. The same amount of time and money would have to be spent even if most of the information on the list has no relevance to the actual inquiry. For example, the producer may complain about a difference in meter readings. The rule, however, requires a massive amount of data that have nothing to do with meters, and it requires the data to be produced in 14 days. Fourteen days is insufficient time to gather some of the large volumes of data required. Therefore, the respondent would be in non-compliance of the regulations, if adopted, despite good faith efforts to comply. Again, the Commission process would become more expensive and time consuming instead of less for both the respondent and the Commission staff.
Enbridge further commented that the rule should provide that the Commission will request data relevant to the complaint and should furthermore recognize that massive amounts of data do not have to be provided if the amount of gas in controversy is small. It would make no sense to require boxes of data to respond to a complaint which concerns insubstantial amounts of gas. The nature and magnitude of the data requested by the Commission should be consistent with the nature and magnitude of the dispute.
TXOGA commented that in new §2.5(e)(3) the Commission assumes all complaints will involve all accounting issues listed in the statute. A request by a producer or an informal complaint may be limited to a specific issue, e.g., the effect of metering differences on the lost and unaccounted for calculation. In those cases where there is a very specific issue, neither the parties nor the Commission should be burdened with the production of documents which have nothing to do with the complaint. The statute, in §85.065(c), provides that the data requested by the Commission "may" include all the listed data, but the Commission is not required to do so when the Commission does not want or need it all. The Commission rule, however, requires the entire statutory list of accounting information to be filed with the Commission regardless of its relevance to the complaint. At the same time, TXOGA notes, the rule recognizes that the producer may request "any or all" of the listed items. TXOGA recommended revising the rule to provide that the Commission may require "any or all" of the information on the list that it wishes to receive rather than automatically requiring the filing of the entire list of documentation.
TPA commented that as proposed, new §2.5(e)(3) enlarges and expands the statutory obligation to produce data that was not agreed upon. TPA pointed out that the legislature adopted a very specific set of data that a gatherer or transporter could be required to produce under the statutory procedures. The statute provided a laundry list of items that could be requested and allowed the producer to request "any or all" of the items. The proposed rule tracks the statute with respect to the producer's request for explanation that is provided in new §2.5(d)(1). If the producer is not satisfied with the response, the statute allows the producer to file a complaint at the Commission. At that point, the gatherer or transporter has only 14 days to provide "the information the Commission determines to be necessary to resolve the complaint which may include" the same laundry list of information that the producer could request from the gatherer or transporter in the request for explanation. TPA disagrees with the proposed rule because it requires the gatherer or transporter to supply all the information on the laundry list regardless of whether the producer requested it and regardless of whether it has anything to do with the complaint. In TPA's view, the rule can and will result in a requirement for gatherers and transporters to collect massive amounts of information in only 14 days even though the information may be absolutely useless. That substantive addition to the statutory provisions adds a costly and burdensome requirement that goes farther than did the legislature and thus is, in TPA's view, beyond the Commission's authority. TPA observed that a request by a producer or an informal complaint may be limited to a specific issue, e.g., the effect of metering differences on the lost and unaccounted for calculation. In those cases where there is a very specific issue, neither the parties nor the Commission should be burdened with the production of documents which have nothing to do with the complaint. TPA wants the rule to be amended to provide that the Commission may require "any or all" of the information on the list that it wishes to receive rather than automatically requiring the filing of the entire list of documentation.
The Commission agrees with the comments from Enbridge, TXOGA, and TPA. The Commission supports efficiency in the request for data, and adopts subsection (e)(3) with revised language. As adopted, the Commission Staff will determine, on a case-by-case basis, what information is necessary to resolve an informal complaint under this section, and will communicate that to the respondent in a timely manner. The statute also recognizes that more time may be necessary to compile a response to an informal complaint. New §2.5(d)(4) permits the Commission to grant an extension of time to the person who gathered or transported the gas to provide the accounting required by subsection (d)(3), and subsection (d)(5) allows a person who does not have the information necessary to provide the accounting required by subsection (d)(3) to provide an alternative by providing to the producer and to the Commission a written explanation of the reason the person does not have the information. In addition, under §2.1(e)(10), a mediator may request additional information as the mediator deems necessary, and at any time during an informal complaint procedure, the mediator may request and review documents or information the mediator considers necessary in evaluating the complaint.
New §2.5(e)(4) states that the Commission may grant an extension of time to the person who gathered or transported the gas to provide the required accounting, but the additional time may not extend beyond the 45th day after the date the informal complaint was filed. The Commission received no comments on this provision, and adopts it without change.
New §2.5(e)(5) provides that if the person who gathered or transported the gas does not have the information necessary to provide the required accounting, the person must provide to the producer and to the Commission a written explanation of the reason the person does not have the information. The Commission adopts this paragraph with the clarifying change to permit response by facsimile or e-mail in addition to regular mail.
New §2.5(e)(6) states that if the person who gathered or transported the gas fails to provide the required accounting and the required explanation, the Commission will consider the informal complaint filed by the producer to be valid and will refer the matter for a formal evidentiary hearing. Some informal comments recommended adding another basis for referring a matter to a formal evidentiary hearing, specifically upon the Commission making a determination that the person who gathered or transported the gas committed waste. The Commission recognizes the statutory provision but must point out that there are due process considerations that must also be taken into account. The mediator in an informal complaint resolution proceeding cannot make determinations with respect to whether a person who gathered or transported gas committed waste, and the Commission cannot issue any orders based on a mediator's conclusions, precisely because the informal complaint resolution proceedings are not evidentiary hearings. A mediator can, however, determine that an evidentiary hearing is warranted, and one reason might be that, based on information developed in the informal complaint resolution process, it appears that the person who gathered or transported the gas may have committed waste. That would be part of the mediator's confidential memorandum submitted pursuant to §2.1 of this title.
TIPRO requested inclusion of language that clarifies that a referral to a formal evidentiary hearing in a dispute related to the loss of or inability to account for gas must be made on the Commission's own motion. Because a producer has the option at any time to raise this type of complaint in a formal proceeding, such language would remove any doubt that the Commission can initiate that step as empowered by the statute without either precluding or requiring action on a producer's part.
The Alliance commented that it is not clear what is meant by the language "the Commission shall consider the informal complaint filed by the producer to be valid," because if so considered, the matter would be referred to hearing. The Alliance requested that paragraph (6) be reworded to state: "If the person who gathered or transported the gas fails to provide the accounting required by paragraph (3) of this subsection and the explanation required by paragraph (5) of this subsection, or if it appears that the person who gathered or transported the gas may have committed wasted, the matter shall be docketed for a formal evidentiary hearing." The Alliance also recommended that evidence of potential waste would warrant referral to hearing.
The Commission disagrees with both these comments and declines to make any changes in new §2.5(e)(6). Because new §2.5 was written specifically to integrate with the existing informal complaint resolution rule, a formal evidentiary hearing related to the loss of or inability to account for gas may be initiated by the director as a show cause proceeding (or requested by either the complainant or the respondent), as provided in §2.1(f). A determination by a mediator that a person who gathered or transported gas had failed to provide the accounting required by Texas Natural Resources Code, §85.065(c), or the explanation required by Texas Natural Resources Code, §85.065(e), and thus that the informal complaint filed by the producer is considered to be valid would warrant initiation of a show cause proceeding by the director. Similarly, a mediator's determination that an evidentiary hearing is warranted because it appears that the person who gathered or transported the gas may have committed waste would form the basis for a show cause hearing initiated by the director, pursuant to §2.1(f).
TXOGA and TPA commented on a provision in Texas Natural Resources Code, §85.065, that does not have a counterpart in the proposed rules in Chapter 2. TXOGA stated that the Commission overlooked Section 85.065(h) in the legislation concerning audit privilege, and recommended that this be included in the rule to preclude the need to enforce this requirement in a court of law. TXOGA recommended that wording similar to paragraph (6) be included in a new paragraph to read: "If a person fails to comply with a written request for an audit, the Commission shall consider the audit request filed by the producer to be appropriate and shall refer the matter for formal evidentiary hearing."
TPA's comment noted the absence of the audit right provisions in the Chapter 2 rules, but stated its position that those contractual provisions do not have to be in the rule to be effective. Nevertheless, TPA does not object to including the provisions if needed to assure producers that their agreements have been protected.
The Commission disagrees with these comments and declines to add a new paragraph to new §2.5(e). Subsection (h) of Texas Natural Resources Code, §85.065, is the only portion of that new statute that does not mention the Railroad Commission. There is no express authority for the Commission to adjudicate an alleged failure to honor the audit requirement, nor is there express authority for the Commission to remedy such a failure. The Commission views this portion of Texas Natural Resources Code, §85.065, as a matter that is essentially contractual in nature and outside the jurisdiction delegated to the Commission in other portions of this section.
New §2.7 concerns administrative penalties for failure to participate, and implements the authority delegated to the Commission by Texas Natural Resources Code, §81.058(c), which provides that the Commission, after notice and opportunity for hearing, may impose an administrative penalty against a purchaser, transporter, gatherer, shipper, or seller of natural gas who is a party to an informal complaint resolution proceeding and is determined by the Commission to have failed to participate in the proceeding or failed to provide information requested by a mediator in the proceeding. This section applies to informal complaint resolutions proceedings filed pursuant to §2.1 and §2.5.
The Commission adopts one clarifying change in subsection (a) to correct the title of §2.5, which is being changed on adoption.
New §2.7(b) identifies specific conduct that constitutes failure to participate in an informal complaint resolution proceeding. An administrative penalty imposed under new §2.7 may not exceed $5,000 a day for each violation. Each day a violation continues or occurs is a separate violation for purposes of imposing a penalty under this section.
TPA commented that proposed §2.7(b) makes fact-findings without any facts. Section 2.7(b) contains a provision from Representative Crownover's bill dealing with those who refuse to participate in an informal dispute resolution process at the Commission. However, the rule sets out a laundry list of what constitutes "failure to participate." None of the items on that laundry list were part of the negotiations and while negotiations may have resulted in the adoption of some of that list (but not all) the fact is that the list was not part of the deal that was made. All of these items on the laundry list or proposed rule provisions determine, as a matter of fact, that the party has failed to participate. However, determining whether the acts actually were a failure to participate would depend on the facts of each case. The "failure" could be due to a good faith mistake or other reasonable cause. Some of the "failures" do, in fact, require an interpretation of the written response to the complaint to determine the response is inadequate. The Commission should not make any factual determinations in a rule; factual determinations should be made only after actual facts are known.
The Commission disagrees that it has made determinations of facts without any facts. The list in §2.7(b)(1) is a reiteration of the actions that a participant in an informal complaint resolution proceeding may be required to take. Whether a single instance of failure to take a required action constitutes "failure to participate" within the meaning of Texas Natural Resources Code, §81.058(c), would be an issue to be addressed in an enforcement proceeding, where the mitigating circumstances suggested by TPA can be addressed. The Commission finds that identifying specific examples that describe "failure to participate" is important, particularly for respondents whose participation in such informal complaint proceedings is mandatory under Commission rule §2.1. However, to address TPA's concern, the Commission adopts §2.7(b)(1) with a clarifying change. This paragraph now reads: to read: "Failure to participate in an informal complaint resolution proceeding may include . . ."
The amount of any penalty requested, recommended, or finally assessed in an enforcement action brought pursuant to new §2.7 will be determined on an individual case-by-case basis for each violation, taking into consideration the person's history of previous violations of §2.1 or §2.5, including the number of previous violations; the demonstrated good faith of the person charged; and any other factor the Commission considers relevant. The recommended penalty for a violation may be reduced by up to 50% if the person charged agrees to a settlement before the Commission conducts an administrative hearing to prosecute a violation. Once the hearing under new §2.7 is convened, however, the opportunity for the person charged to reduce the penalty is no longer available. The remedy provided by this section is cumulative of any other remedy the Commission may order.
TIPRO commented that §2.7(d)(1) - (3) and (e) establish mechanisms for reducing penalties for violations that are not stated anywhere in the legislation. While it can be argued that those provisions fall within the Commission's discretion and are even similar to provisions in other Commission rules, they are not envisioned by any part of House Bill 1920. TIPRO pointed out that some who take issue with the Commission establishing guidelines in rules pertaining to House Bill 3273 have no such objections to these guidelines that could mitigate their penalties.
The Commission acknowledges that the new sections of the Texas Natural Resources Code enacted by House Bill 3273 do not expressly provide for mitigation of penalties. However, the Commission agrees with TIPRO that administration of these new penalty provisions should be consistent with the Commission's other administrative penalty rules and the Commission makes no changes in §2.7(d) and (e).
The Commission adopts the amendments and new sections pursuant to Texas Government Code, §2001.004, which requires state agencies to adopt rules of practice stating the nature and requirements of all available formal and informal procedures and index, cross-index to statute, and make available for public inspection all rules and other written statements of policy or interpretations that are prepared, adopted, or used by the agency in discharging its functions; Texas Natural Resources Code, §81.052, which gives the Commission the authority to adopt all necessary rules for governing and regulating persons and their operations under the jurisdiction of the Commission as set forth in §81.051, and Texas Natural Resources Code, §§81.058 - 81.061, as enacted by House Bill 3273, 80th Legislature (2007). Among other things, these new provisions authorize the Commission, after notice and opportunity for hearing, to impose an administrative penalty against a purchaser, transporter, gatherer, shipper, or seller of natural gas who is a party to an informal complaint resolution proceeding and is determined by the Commission to have failed to participate in the proceeding or failed to provide information requested by a mediator in the proceeding. An administrative penalty imposed under Texas Natural Resources Code, §81.058, may not exceed $5,000 a day for each violation, but each day a violation continues or occurs is a separate violation for purposes of imposing a penalty under this section. The remedy provided by this section is cumulative of any other remedy the Commission may order. Texas Natural Resources Code, §81.059(b), provides that if the parties request that an informal dispute resolution mediation be conducted at a location other than the headquarters of the Commission in Austin, the parties must reimburse the Commission for the Commission's costs related to travel to those other locations. The Commission adopts the amendments and new sections pursuant to Texas Natural Resources Code, §85.065, as enacted by House Bill 1920, 80th Legislature (2007). This new section authorizes a producer to submit a written request to a person who gathers or transports gas for the producer for an explanation of any loss of or inability to account for the gas tendered to the person by the producer; describes the contents of such requests; sets deadlines by which the response must be made; and establishes conditions under which a complaint may be filed at the Commission.
The Commission also adopts the amendments and new sections pursuant to Texas Natural Resources Code, Title 3, Subtitle D, Chapter 111, and specifically Texas Natural Resources Code, §111.083, which requires common purchasers, as defined in Texas Natural Resources Code, §111.081(a)(2), to purchase or take the natural gas purchased or taken by it as a common purchaser under rules prescribed by the Commission in the manner, under the inhibitions against discriminations, and subject to the provisions applicable to common purchasers of oil; Texas Natural Resources Code, §111.086, which requires common purchasers to purchase without discrimination in favor of one producer or person against another producer or person in the same field and without unjust or unreasonable discrimination between fields in this state; Texas Natural Resources Code, §111.087, which prohibits common purchasers from discriminating between or against production of a similar kind or quality in favor of its own production; and Texas Natural Resources Code, §111.090, which authorizes the Commission to adopt rules that may be necessary to prevent discrimination.
The Commission also finds authority for the adopted rules in Texas Utilities Code, Title 3, Subtitle A, which authorizes the Commission to regulate gas utilities, to protect the public interest inherent in the rates and services of gas utilities, and to assure rates, operations, and services that are just and reasonable to the consumers and to the utilities; Texas Utilities Code, §102.003, which grants the Commission the power to require that gas utilities report to the Commission information relating to themselves and affiliated interests both within and without the State of Texas as it may consider useful in the administration of Title 3, Subtitle A (the Gas Utilities Regulatory Act); to require the filing with the Commission of, among other things, a copy of a contract or arrangement between a gas utility and an affiliate or a report filed with a federal agency or a governmental agency or body of another state; and to require that a contract or arrangement between a utility and an affiliate that is not in writing be reduced to writing and filed with the Commission; Texas Utilities Code, §104.003, which states that it is the duty of the Commission to ensure that every rate made, demanded, or received by any gas utility, or by any two or more gas utilities jointly, is just and reasonable, and directs that rates may not be unreasonably preferential, prejudicial, or discriminatory, but must be sufficient, equitable, and consistent in application to each class of consumers; Texas Utilities Code, §104.004, which prohibits a gas utility, as to rates or services, from making or granting any unreasonable preference or advantage to any corporation or person within any classification, or subject any corporation or person within any classification to any unreasonable prejudice or disadvantage, and from establishing and maintaining any unreasonable differences as to rates of service either as between localities or as between classes of service; and Texas Utilities Code, §104.007, which prohibits gas utilities from discriminating against any person or corporation that sells or leases equipment or performs services in competition with the gas utility, and from engaging in any other practice that tends to restrict or impair that competition.
Additional authority is found in Texas Utilities Code, Title 3, Subtitle B, and specifically, Texas Utilities Code, §121.104, which prohibits pipeline public utilities from discriminating in favor of or against any person, place or corporation, either in apportioning the supply of natural gas or in their charges therefor, and from directly or indirectly charging, demanding, collecting or receiving from any one a greater or less compensation for any service rendered than from another for a like and contemporaneous service; and Texas Utilities Code, §121.151, which directs the Commission to establish and enforce rules for transporting, producing, distributing, buying, selling, and delivering gas by pipelines subject to this chapter in this state, to establish fair and equitable rules and regulations for the full control and supervision of said gas pipelines and all their holdings pertaining to the gas business in all their relations to the public, and to prescribe and enforce rules and regulations for the government and control of such pipelines in respect to their gas pipelines and producing, receiving, transporting, and distributing facilities.
Texas Government Code, §2001.004; Texas Natural Resources Code, §81.052 and §§81.058 - 81.061; Texas Natural Resources Code, §85.065; Texas Natural Resources Code, Title 3, Subtitle D, Chapter 111, and specifically, §§111.083, 111.086, 111.087, and 111.090; and Texas Utilities Code, Title 3, Subtitles A and B, and specifically, §§102.003, 104.003, 104.004, 104.007, 121.104, and 121.151, are affected by the adopted amendments and new sections.
Statutory authority: Texas Government Code, §2001.004; Texas Natural Resources Code, §81.052 and §§81.058 - 81.061; §85.065; §§111.083, 111.086, 111.087, and 111.090; and Texas Utilities Code, §§102.003, 104.003, 104.004, 104.007, 121.104, and 121.151.
Cross-reference to statutes: Texas Government Code, §2001.004; Texas Natural Resources Code, §81.052 and §§81.058 - 81.061; §85.065; §§111.083, 111.086, 111.087, and 111.090; and Texas Utilities Code, §§102.003, 104.003, 104.004, 104.007, 121.104, and 121.151.
Issued in Austin, Texas, on April 8, 2008.
§2.1.Informal Complaint Procedure.
(a) Scope and jurisdiction. This section applies to complaints within the Commission's jurisdiction about natural gas purchasing, selling, shipping, transportation, and gathering practices. This section does not apply to matters arising under Texas Utilities Code, Chapter 103, entitled "Jurisdiction and Powers of Municipality," or initiated under Texas Utilities Code, Chapter 104, Subchapter C, entitled "Rate Changes Proposed by Utility," or Subchapter G, entitled "Interim Cost Recovery and Rate Adjustment."
(b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.
(1) Common purchaser--Has the same meaning as is given that term in Texas Natural Resources Code, §111.081.
(2) Complainant--A person who submits a complaint to the Commission pursuant to this section.
(3) Director--The director of the Gas Services Division of the Railroad Commission of Texas or the director's delegate.
(4) Gatherer--A person providing gathering service for a fee for a third party.
(5) Gathering service--Use of a pipeline to collect gas and bring it to a common point.
(6) Informal complaint proceeding--The process set out in this section for addressing complaints against entities within the Commission's jurisdiction, including but not limited to natural gas purchasers, sellers, shippers, transporters, and gatherers.
(7) Mediator--The individual who conducts an informal complaint resolution mediation.
(8) Monitor--The Commission employee appointed by the director to manage an informal complaint proceeding and/or assist a mediator who is not a Commission employee in the management of an informal complaint proceeding. A monitor may also be a mediator.
(9) Natural gas purchaser--A person that purchases natural gas.
(10) Natural gas seller or seller--A person that sells natural gas, including but not limited to a producer.
(11) Natural gas utility--Has the same meaning as is given that term in Texas Utilities Code, §101.003 and §121.001.
(12) Participant--A complainant, respondent, monitor, or mediator in an informal complaint proceeding.
(13) Person--An individual, corporation, partnership, joint venture, or other legal entity of any kind.
(14) Respondent--A person who is the subject of a complaint submitted to the Commission pursuant to this section.
(15) Shipper--A person for which a transporter is currently providing, has provided, or has pending a written request to provide transportation services.
(16) Similarly-situated shipper--A shipper that seeks or receives transportation service under the same or substantially the same, physical, regulatory, and economic conditions of service as any other shipper of a transporter. In determining whether conditions of service are the same or substantially the same, the Commission shall evaluate the significance of relevant conditions, including, but not limited to, the following:
(A) service requirements;
(B) location of facilities;
(C) receipt and delivery points;
(D) length of haul;
(E) quality of service (firm, interruptible, etc.);
(F) quantity;
(G) swing requirements;
(H) credit worthiness;
(I) gas quality;
(J) pressure (including inlet or line pressure);
(K) duration of service;
(L) connect requirements; and
(M) conditions and circumstances existing at the time of agreement or negotiation.
(17) Transportation service--The receipt of a shipper's natural gas at a point or points on the facilities of a transporter, and re-delivery of a shipper's natural gas by the transporter at another point or points on the facilities of the transporter, or on another person's facilities, including exchange, backhaul, displacement, and other methods of transportation, provided, however, that the term "transportation service" shall not include processing services or the movement of gas to which the transporter has title.
(18) Transporter--Any common purchaser of gas, any gas utility, or any gas pipeline, that provides gas gathering and/or transmission transportation service for a fee.
(c) Policy.
(1) The Commission encourages affordable, expeditious, and fair settlement and resolution of disputes regarding natural gas purchasers, sellers, transporters, and gatherers. The Commission will not tolerate discrimination among similarly situated shippers and sellers as is prohibited by Texas Natural Resources Code, Chapter 111, entitled "Common Carriers, Public Utilities, and Common Purchasers," and Texas Utilities Code, Title 3, Subtitle A, entitled "Gas Utility Regulatory Act," and Subtitle B, entitled "Regulation of Transportation and Use," and other matters of dispute subject to the Commission's jurisdiction. This section is adopted in furtherance of that policy.
(2) To accomplish the policy set out in this section, Commission employees, acting pursuant to this section, will attempt to facilitate, encourage, and promote resolution and settlement of complaints against natural gas purchasers, sellers, shippers, transporters, gatherers, and other persons subject to the Commission's jurisdiction consistent with the public interest and without lengthy and potentially expensive formal proceedings. The informal complaint procedure is intended to establish a forum for communication, with the goal of achieving mutually acceptable compromise and resolution that is in the public interest.
(3) Filing a complaint pursuant to this section is not a prerequisite to the filing of a formal complaint. If a complaint pertains to the loss of or inability to account for gas, the complaint must be filed pursuant to §2.5 of this title (relating to Informal Complaint Process Regarding Loss of or Inability to Account for Gas. The informal complaint resolution process is an optional method for resolving complaints. However, if an informal complaint is filed and the Commission determines that there is sufficient reason to go forward, the respondent shall participate in the process. At any time prior to the mediator's issuance of the confidential memorandum pursuant to subsection (e)(13) of this section, a complainant may unilaterally withdraw an informal complaint or a complainant and respondent may jointly agree to the dismissal of an informal complaint.
(d) General requirements and limitations.
(1) The Commission will not process anonymous complaints under this section.
(2) The communications, records, conduct, and demeanor of the participants in each informal complaint proceeding are confidential and handled in accordance with Texas Government Code, §2009.054, entitled "Confidentiality of Certain Records and Communications."
(3) A mediator shall have completed 40 hours of Texas mediation training that meets the standards of the Texas Alternative Dispute Resolution Procedures Act, as set out in Texas Government Code, §154.052, and must follow the ethical guidelines for mediators adopted by the Alternative Dispute Resolution Section of the State Bar of Texas.
(4) A mediator may be either a Commission employee or a non-Commission employee. If the complainant and respondent submit a written request to the director agreeing to share all costs of mediation, they may retain a non-Commission employee to conduct the mediation. If the complainant and respondent are unable to agree on whether to engage a non-Commission employee as the mediator, or in the absence of a request for a non-Commission employee mediator, the director shall appoint a Commission employee to conduct the mediation. If the mediator is not a Commission employee, then the director shall appoint a Commission employee as a monitor. The monitor will act as a technical advisor to the non-Commission employee mediator and may, at the direction of the non-Commission employee mediator, participate in the informal complaint proceeding. A non-Commission employee mediator shall have the same duties and obligations of a Commission employee mediator and may, in his or her sole discretion, compel the complainant and respondent to provide information pursuant to subsection (e)(10) of this section.
(5) Mediators and monitors shall not communicate with a Commission hearings examiner or a Commissioner about any material or substantive aspect of a complaint or reply filed pursuant to this section.
(6) Each complainant and respondent in an informal complaint proceeding shall cooperate fully in gathering and disclosing information requested by the mediator or monitor and shall participate in good faith in all aspects of the informal complaint proceeding.
(7) A natural gas purchaser, transporter, or gatherer shall not discontinue or deny service to a shipper or seller during the pendency of an informal complaint proceeding in which both are participants unless one of the following reasons applies for discontinuing service:
(A) There is insufficient capacity on the respective facility or facilities, provided, however, that the purchaser, transporter, or gatherer provide any partial capacity that may be available from time to time.
(B) The natural gas does not meet the quality specifications of the purchaser, transporter, gatherer, or downstream processors, pipelines, or customers. However, if the natural gas is flowing under an agreement and, at the impending termination of that agreement, there is sufficient capacity, and non-specification gas is being blended for other shippers or sellers in the area, and the acceptance of such volumes from the shipper or seller will not jeopardize downstream market deliverability of the gas, then the purchaser, transporter, or gatherer shall continue to take the gas until the conclusion of the informal complaint process, charging blending fees applicable to similarly situated shippers.
(C) Continuing to take the natural gas would:
(i) create a safety or environmental risk;
(ii) cause a violation of a safety or environmental regulation or permit; or
(iii) interfere with necessary maintenance and repairs of facilities.
(D) There is no existing contractual agreement in effect on the date the complaint is filed at the Commission as to the price to be paid or fees charged for the production during the pendency of the informal complaint process, provided, however, that the production will be taken if the complainant and respondent agree that the price or fees will be determined at a later date.
(E) There is such good cause as the mediator may determine in the particular case.
(8) Notwithstanding anything in paragraph (7) of this subsection that may be construed to the contrary, that paragraph does not change the rights of the parties that are participating in the informal complaint proceeding that those parties have under state law or any other regulation of the Commission.
(9) A transporter, gatherer, or purchaser shall not discriminate against a shipper or seller because the shipper or seller has, in good faith:
(A) filed an informal complaint at the Commission;
(B) filed a formal complaint at the Commission;
(C) instituted or caused to be instituted at the Commission any enforcement proceeding against a purchaser, transporter, or gatherer based on alleged violations of any rule or statute; or
(D) made inquiry to the Commission as to the facts or circumstances surrounding operation of a purchaser's, transporter's, or gatherer's system.
(10) The Commission may commence an enforcement action, initiated by the director, for failure by the complainant or the respondent to comply with all provisions of the informal complaint proceeding.
(e) Informal complaint process.
(1) An informal complaint proceeding is initiated by filing a complaint with the Commission by:
(A) calling the Commission Helpline at (512) 463-7288 Commission staff will answer calls to the Helpline from 8:00 a.m. to 5:00 p.m. on regular Commission business days. A voice mail system will be in place to receive calls during non-business hours; or
(B) submitting a complaint in writing by:
(i) regular United States mail to the following address: Director, Gas Services Division, P.O. Box 12967, Austin, Texas 78711-2967;
(ii) facsimile transmission (fax) to the following number: (512) 463-7962; or
(iii) internet submission by accessing the following URL: http://www.rrc.state.tx.us/divisions/gs/mos/complaints/icp.html.
(2) Each complaint shall include the following information:
(A) the name of the individual submitting the complaint;
(B) the complainant's name, mailing address, telephone number, and, if applicable, e-mail address and fax number;
(C) the respondent's name, mailing address, telephone number, and if applicable, e-mail address and fax number;
(D) a factual description of the events that are the basis of the complaint, including the onset or duration of such events;
(E) a statement of the current status of negotiations between the complainant and the respondent and a description of any actions the complainant has taken to resolve the dispute;
(F) a statement of the relief sought by complainant; and
(G) all supporting documentation, unless the complaint is made by telephone, in which case the documentation shall be supplied at a later time.
(3) The director shall assign a complaint to a monitor who shall promptly contact the complainant to confirm receipt of the complaint and to obtain any additional relevant and supporting documentation pertaining to the complaint. The monitor shall advise the complainant of its right to have the complaint mediated by a Commission employee or by a non-Commission employee mediator. If the complainant has submitted the complaint by telephone and wishes to pursue the matter, the monitor shall direct the complainant to submit the complaint by e-mail, facsimile, or letter, along with supporting documentation.
(4) After the monitor determines that the complainant has provided all required information, the monitor shall notify the respondent of the complaint by mailing to the respondent, via certified mail, return receipt requested, a copy of the complaint and all supporting documentation. This notification shall include notice to the respondent of its right to have the matter heard by a non-Commission employee mediator pursuant to the agreement of the complainant and the respondent.
(5) The respondent shall reply in writing to both the monitor and the complainant within 14 calendar days from the date of the monitor's notification letter. The respondent's reply shall address the substance of the complaint and either propose a solution or explain why the complaint is incorrect.
(6) The complainant and the respondent will be given 14 calendar days from the date of the respondent's reply to resolve the complaint without the participation of a mediator.
(7) If the complainant and the respondent have not reached an agreement, the monitor shall determine within seven days after expiration of the period allowed for informal resolution in paragraph (6) of this subsection whether either the complainant or the respondent or both want the matter referred to a Commission or non-Commission mediator and shall refer the matter back to the director.
(8) In the event the complainant and respondent agree upon a non-Commission employee mediator, then the monitor shall notify the agreed upon mediator. In the event the complainant and respondent desire to use a non-Commission employee mediator and are unable to agree upon the selection of a non-Commission employee mediator, each party shall each submit the name of its preferred mediator and the preferred mediators so designated shall choose a third mediator who will preside over the process.
(9) In accordance with the procedure set forth in subsection (d)(4) of this section, the director shall appoint a mediator within seven days after receipt of the information in paragraph (7) of this subsection.
(10) The mediator shall, within 14 calendar days after the appointment provided in paragraph (8) of this subsection, review all information received from the complainant and respondent. The mediator may request additional information as the mediator deems necessary. At any time during an informal complaint procedure, the mediator may request and review documents or information the mediator considers necessary in evaluating the complaint. The mediator shall furnish the complainant and respondent with a written summary of all relevant documents and information reviewed. The mediator's summary shall not disclose confidential information.
(11) The monitor shall schedule a mediation meeting with the complainant and respondent, which the mediator shall conduct, to occur within 14 calendar days after the date of the mediator's written summary. The monitor shall promptly notify the complainant and respondent of the date, time and location of the meeting, which may be conducted at the headquarters of the Commission in Austin, Texas; in the Commission's offices in the district in which the complaint arises; or at any other location by agreement of the participants.
(12) The complainant and respondent shall participate in the mediation meeting and undertake in good faith to settle all issues raised in the complaint. The complainant and respondent shall make available during the mediation meeting, in person, representatives who are empowered to make decisions on their behalf.
(13) If the mediation process does not result in a settlement of all issues during the period for mediation provided, after completing the mediation, the mediator shall promptly send a confidential memorandum to the complainant, the respondent, the monitor (unless the monitor is the mediator), and the director that states one or more of the following conclusions, based on the information reviewed by the mediator. The mediator may conclude that:
(A) there are specific actions which, if taken by either the respondent or the complainant or both, could result in resolution of the complaint;
(B) a formal evidentiary hearing may be warranted; or
(C) a formal evidentiary hearing may not be warranted.
(f) A formal evidentiary hearing may be:
(1) initiated by the director as a show cause proceeding; or
(2) requested by either the complainant or the respondent
(g) Internal report. The director shall maintain an internal report of all complaints received.
(1) The report shall be circulated no less often than once every six months to the Commissioners, the executive director, and the general counsel.
(2) The specific points of the participants' discussions and any negotiated resolution shall not be included in this internal report.
(h) Reimbursement. If the participants request that a mediation meeting be conducted at a location other than the headquarters of the Commission in Austin, Texas, pursuant to subsection (e)(11) of this section, the participants shall reimburse the Commission for the Commission's costs related to travel to that location.
§2.5.Informal Complaint Process Regarding Loss of or Inability to Account for Gas.
(a) Scope. This section implements the provisions of Texas Natural Resources Code, §85.065, which applies only to the loss of or inability to account for natural gas that is tendered by a producer to a gatherer or transporter of gas on or after September 1, 2007. The loss of or inability to account for natural gas that is tendered by a producer to a gatherer or transporter of gas before September 1, 2007, is governed by the law in effect on the date the gas was tendered.
(b) Policy. The Commission will apply the policies, definitions, and procedures set forth in §2.1 of this title (relating to Informal Complaint Procedure), to the extent they are consistent with this section. If the provisions of §2.1 of this title are inconsistent with this section or are not applicable, the provisions of this section will apply to complaints filed pursuant to Texas Natural Resources Code, §85.065.
(c) Definitions. In addition to the definitions in §2.1 of this title, the following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.
(1) Accounting--A comprehensive record of the details of the taking or acceptance of a producer's gas and the movement of that gas from the time and place of taking or acceptance to a delivery point by a person who gathers or transports that gas, which may include measurements, quality analyses, processing, and treatment; amounts used for fuel, dehydration, compression, or flaring; liquids extraction or removal of hydrocarbons; quantity of gas redelivered, allocated, or sold for the producer's account; and the physical system used by the person who gathers or transports gas for a producer.
(2) Loss of or inability to account for gas--For purposes of mediating disputes pertaining to issues involving the "loss of or inability to account for gas," the Commission will examine the difference between the amount of gas metered into a system and the amount metered out.
(3) Person who gathers or transports gas--Any common purchaser of gas, gas utility, or taker of natural gas including but not limited to a gas pipeline that provides gas gathering and/or transmission transportation service for a fee or some other compensation. A common purchaser that does not gather or transport gas is not subject to this section.
(4) Producer--A person who owns or operates a well or wells producing oil or gas or both.
(5) Waste--Waste of gas as defined in Texas Natural Resources Code, §85.046.
(d) Explanation of loss of or inability to account for gas. As a prerequisite to filing an informal complaint pursuant to Texas Natural Resources Code, §85.065, and this section, a producer must submit a written request for an explanation of loss of or inability to account for gas to a person who gathers or transports gas for the producer in accordance with the requirements of this subsection.
(1) A producer's request to a person who gathers or transports gas for the producer for an explanation of any loss of or inability to account for the gas tendered by the producer to the person shall be in writing and may ask the person to provide any or all of the following information:
(A) the amount of gas tendered by the producer from each well that has a meter;
(B) a laboratory analysis of the composition and heating value of the gas and other substances tendered by the producer, if such an analysis has been performed;
(C) if available, a schematic drawing of the person's system for gathering or transporting gas that shows:
(i) each meter type;
(ii) the date each meter was last calibrated;
(iii) the accuracy of each meter; and
(iv) all equipment that alters, disposes of, or otherwise consumes any of the gas tendered to the person;
(D) the estimated amount of gas used for fuel, flared, or vented for construction, repair, maintenance, or other operational uses and, if the information is available, the location of that use;
(E) the estimated amount of contaminants or other impurities removed from the gas and the location at which the impurities were removed;
(F) the estimated amount of liquid hydrocarbons and condensate removed from the gas and the location at which the liquid hydrocarbons and condensate were removed;
(G) the estimated amount of gas lost and the location at which the gas was lost;
(H) the estimated amount of gas redelivered by the person, including the amount of gas sold that was allocated to the producer, and the location at which the re-delivery of the gas occurred;
(I) any amount of gas received from the producer by the person that remains unaccounted for; and
(J) any other information the person who gathered or transported the gas considers relevant to the request for explanation of loss of or inability to account for gas.
(2) The producer shall submit the written request to the person who gathers or transports gas for the producer. The producer shall address the request to the contact person at the address shown on the Form P-5 for the person who gathers or transports gas for the producer that is on file with the Commission. If there is no Form P-5 for the person who gathers or transports gas for the producer on file at the Commission, the producer shall use the address on the producer's contract with the person who gathers or transports gas for the producer. The producer shall send its complaint by facsimile or e-mail to the contact person and mail the request using United States Postal Service certified mail, return receipt requested, and shall retain a complete copy of the written request and the returned certified mail receipt.
(3) Not later than the 30th day after the date the person who gathers or transports gas receives the request from the producer, the person shall provide the producer, by mail and facsimile or e-mail, a written explanation of any loss of or inability to account for the gas tendered to the person by the producer. The person shall include in the response any relevant information requested by the producer that is available to the person and that would be required to be included in an accounting under paragraph (1) of this subsection. For each element of information sought in a request for explanation for which an amount of gas is to be provided, the person who gathered or transported the gas shall state the method by which the amount was determined (measured, allocated, estimated, or other).
(e) Informal complaint. If a producer has submitted a request under subsection (d) of this section to a person who gathers or transports gas for the producer and the person provides an inadequate explanation of any loss of or inability to account for the gas, or fails to provide any explanation of any loss of or inability to account for the gas by the deadline stated in that subsection, the producer may file with the Commission an informal complaint against the person.
(1) An informal complaint may not be filed before the 30th day after the end of the production period covered by the complaint.
(2) An informal complaint shall comply with the requirements of §2.1 of this title and, in addition, shall:
(A) specify the production period covered by the complaint;
(B) state that at least 30 days have elapsed since the end of the production period covered by the complaint;
(C) if the producer metered the volume of gas tendered to the person who gathered or transported the gas:
(i) describe the type of meter used; and
(ii) state the date the meter was last calibrated; and
(D) include a copy of the producer's request to the person who gathers or transports gas for the producer for an explanation of loss of or inability to account for gas and a copy of the returned certified mail receipt.
(3) Not later than the 14th day after the date the complaint is filed at the Commission, the person who gathered or transported the gas shall provide to the producer and the Commission, by mail and facsimile or e-mail, an accounting of the gas tendered to the person by the producer for gathering or transport during the production period covered by the complaint. The person may provide the accounting on a thousand cubic feet or a million British thermal unit basis, as applicable, and shall provide all elements of information listed in subsection (d)(1)(A) - (J) of this section that the Commission determines are necessary to resolve the complaint. In addition, for each element of information for which an amount of gas is to be provided, the person shall state the method by which the amount was determined (measurement, allocation, estimation, or other).
(4) The Commission may grant an extension of time to the person who gathered or transported the gas to provide the accounting required by paragraph (3) of this subsection, but the additional time may not extend beyond the 45th day after the date the informal complaint was filed.
(5) If the person who gathered or transported the gas does not have the information necessary to provide the accounting required by paragraph (3) of this subsection, the person shall provide to the producer and to the Commission, by mail and facsimile or e-mail, a written explanation of the reason the person does not have the information.
(6) If the person who gathered or transported the gas fails to provide the accounting required by paragraph (3) of this subsection and the explanation required by paragraph (5) of this subsection, the Commission shall consider the informal complaint filed by the producer to be valid and shall refer the matter for a formal evidentiary hearing.
§2.7.Administrative Penalties for Failure to Participate.
(a) This section implements the authority delegated to the Commission by Texas Natural Resources Code, §81.058(c), which provides that the Commission, after notice and opportunity for hearing, may impose an administrative penalty against a purchaser, transporter, gatherer, shipper, or seller of natural gas who is a party to an informal complaint resolution proceeding and is determined by the Commission to have failed to participate in the proceeding or failed to provide information requested by a mediator in the proceeding. This section applies to informal complaint resolutions proceedings filed pursuant to §2.1 of this title (relating to Informal Complaint Procedure), and §2.5 of this title (relating to Informal Complaint Process Regarding Loss of or Inability to Account for Gas).
(b) Failure to participate in an informal complaint resolution proceeding may include:
(1) a person who gathers or transports gas not providing, by the 30th day after the date the person receives a request from a producer, a written explanation of any loss of or inability to account for the gas tendered to the person by the producer;
(2) a respondent not replying in writing to both the monitor and the complainant within 14 calendar days from the date of the monitor's notification letter that a complaint has been filed at the Commission;
(3) a respondent's written reply that does not address the substance of the complaint;
(4) a respondent's written reply that does not either propose a solution or explain why the complaint is incorrect;
(5) a person who gathers or transports gas not providing, by the 14th day after the date a complaint is filed at the Commission, the producer and the Commission an accounting of the gas tendered to the person by the producer for gathering or transport during the production period covered by the complaint;
(6) if the Commission has granted an extension of time to the person who gathered or transported the gas to provide the accounting required by §2.5(e)(3) of this title, the failure of the person to respond by the deadline;
(7) if the person who gathered or transported the gas does not have the information necessary to provide the accounting required by §2.5(e)(3) of this title, the failure of the person to provide to the producer and to the Commission a written explanation of the reason the person does not have the information;
(8) the person who gathered or transported the gas not providing either the accounting required by §2.5(e)(3) of this title or the explanation required by §2.5(e)(5) of this title;
(9) a complainant or a respondent not communicating with the other during the 14 calendar days from the date of the respondent's reply to attempt resolve the complaint without the participation of a mediator;
(10) a complainant or a respondent not advising the Commission monitor within seven days after expiration of the period allowed for informal resolution whether the person wants the matter referred to a Commission or non-Commission mediator;
(11) in the event the complainant and respondent desire to use a non-Commission employee mediator and are unable to agree upon the selection of a non-Commission employee mediator, failure of a complainant or a respondent to submit the name of a preferred mediator to work with the other's preferred mediator to choose a third mediator who will preside over the process;
(12) a complainant or respondent not providing documents or information the mediator considers necessary in evaluating the complaint and has requested;
(13) a complainant or respondent not attending a scheduled mediation meeting, absent good cause and prior notice to all participants;
(14) a complainant or respondent not participating in the mediation meeting or not undertaking in good faith to settle all issues raised in the complaint; or
(15) a complainant or respondent not making available during the mediation meeting, in person, representatives who are empowered to make decisions on their behalf.
(c) An administrative penalty imposed under this section may not exceed $5,000 a day for each violation. Each day a violation continues or occurs is a separate violation for purposes of imposing a penalty under this section.
(d) The amount of any penalty requested, recommended, or finally assessed in an enforcement action brought pursuant to this section will be determined on an individual case-by-case basis for each violation, taking into consideration the following factors:
(1) the person's history of previous violations of §2.1 or §2.5 of this title, including the number of previous violations;
(2) the demonstrated good faith of the person charged; and
(3) any other factor the Commission considers relevant.
(e) The recommended penalty for a violation may be reduced by up to 50% if the person charged agrees to a settlement before the Commission conducts an administrative hearing to prosecute a violation. Once the hearing is convened, the opportunity for the person charged to reduce the penalty is no longer available.
(f) The remedy provided by this section is cumulative of any other remedy the Commission may order.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on April 8, 2008.
TRD-200801868
Mary Ross McDonald
Managing Director
Railroad Commission of Texas
Effective date: April 28, 2008
Proposal publication date: November 23, 2007
For further information, please call: (512) 475-1295
Subchapter G. CODE OF CONDUCT
The Railroad Commission of Texas adopts new §7.7003, relating to Administrative Penalties and Other Remedies for Discrimination, and new §7.7005, relating to Authority to Set Rates, with changes to the versions published in the November 23, 2007, issue of the Texas Register (32 TexReg 8407). The new sections implement the authority delegated to the Commission by Texas Natural Resources Code, §81.058(a) and (b), and §81.061, as enacted by House Bill 3273, 80th Legislature (2007) (also referred to as "the Crownover Bill").
Texas Natural Resources Code, §81.058(a) and (b) authorize the Commission, after notice and opportunity for hearing, to impose an administrative penalty against a purchaser, transporter, gatherer, shipper, or seller of natural gas, a person described by Texas Natural Resources Code, §81.051(a) or §111.081(a), or any other entity under the jurisdiction of the Commission under the Texas Natural Resources Code that the Commission determines has violated a Commission rule adopting standards or a code of conduct for entities in the natural gas industry prohibiting unlawful discrimination or has unreasonably discriminated against a seller of natural gas in the purchase of natural gas from the seller, and against a purchaser, transporter, or gatherer of natural gas, if the Commission determines that the person engaged in prohibited discrimination against a shipper or seller of natural gas because the shipper or seller filed a formal or informal complaint with the Commission against the person relating to the person's purchase, transportation, or gathering of the gas.
Texas Natural Resources Code, §81.061, authorizes the Commission to use a cost-of-service method or a market-based rate method in setting a rate in a formal rate proceeding. On the filing of a complaint by a shipper or seller of natural gas, the Commission may set a transportation or gathering rate in a formal rate proceeding if the Commission determines that the rate is necessary to remedy unreasonable discrimination in the provision of transportation or gathering services. The Commission may set a rate regardless of whether the transporter or gatherer is classified as a utility by other law.
The Commission received comments from Representative Myra Crownover ("Representative Crownover"); Enbridge Energy Company, Inc. ("Enbridge"); Texas Independent Producers and Royalty Owners Association ("TIPRO)"; Crosstex Energy Services, L.P. ("Crosstex"); the Texas Oil and Gas Association ("TXOGA"); the Texas Pipeline Association ("TPA"); and the Texas Alliance of Energy Producers ("the Alliance"). In general, the Alliance and TIPRO favored the proposed rules; Enbridge, Crosstex, TXOGA, and TPA either opposed the rules or offered detailed criticisms and suggested changes or both; and Representative Crownover urged the Commission to be mindful of the spirit of the agreements underlying House Bill 3273.
Some commenters offered general comments on the proposed rules. Representative Crownover asked that the Commission take into consideration that the language used in the rules would convey the spirit of agreement by the two groups that accomplished the passing of this necessary legislation that the proposed rules are based on. The Commission thanks Representative Crownover for her work on House Bill 3273 and for her interest in the proposed rules.
Enbridge stated that no rules are needed to implement the statutes because House Bill 3273 is a procedural statute and rules are not necessary for any party to invoke the statutory provisions or for the Commission to enforce the statutes. If the Commission finds that rules are needed, the rules themselves should not create any substantive obligations not included in the statutory language. Enbridge stated that the proposed rules do make substantive changes, even though those changes are not necessary for the successful implementation of the statutes. Enbridge stated that the proposed rules do not further the goals of the informal complaint process, which was created to resolve complaints in an easy, fast, and inexpensive manner. House Bill 3273 was designed to make the informal complaint process easier to use by allowing the parties to choose their own arbitrator and hold mediations outside of Austin; Enbridge asserted that the bill also attempted to make the process more effective by including all types of pipelines, requiring participation, prohibiting retribution, and authorizing the Commission to set market-based rates instead of cost-of-service rates. The statute was designed to be neutral as to the issues in dispute and to be fair to all participants, but the proposed rules have the opposite effect. Enbridge stated that House Bill 3273 was intended to result in a process to determine issues, not result in a list of indictments without facts or explanation. The proposed rules are not impartial and fair, and only increase the amount of time, money, and animosity involved in complaints.
Enbridge also commented that the Crownover Bill increased the number of gathering systems subject to potential Commission rate regulation, but the bill also authorized the use of market-based rates to decrease the time and money spent on rate proceedings and to result in a rate that actually reflects the market. The proposed rules would use market-based rates only where the Commission determines there is "competition." Enbridge asserted that the benefits of the statute have been limited while the burdens have been increased, an effect contrary to the bill's purpose. Enbridge had hoped that any rules would make the Commission dispute resolution process better, not worse. The Commission can accomplish that goal by adopting rules, if rules are needed, that respect the agreements reached in the legislative process rather than rules which make substantive changes to those statutes and result in a process which creates greater costs and more burdensome proceedings.
The Commission disagrees with Enbridge that no rules are needed. The Commission finds that a comprehensive set of rules provides the necessary clarity and direction to properly administer the statute as it was intended. House Bill 3273 did not create the Commission's informal complaint process (the Commission's rule §2.1 did that), but it did delegate additional authority to the Commission with respect to informal complaints, most significantly the authority to assess administrative penalties against certain entities that have been determined to have engaged in prohibited conduct. While much of the language in the new rules tracks almost verbatim the wording in the statutory provisions enacted by House Bill 3273, nothing in that bill speaks specifically to the mechanical procedures that are an important component of the Commission's management of its administrative procedures, including the informal complaint resolution process. The Commission finds that a comprehensive set of rules provides the necessary clarity and direction both for those entities required to comply with the statutes and Commission rules and for Staff to properly administer the statutes. Further, since 1975, it has been a requirement in state law that an agency must adopt rules of practice stating the nature and requirements of all available formal and informal procedures (Texas Government Code, §2001.004). The Commission finds that the new rules are both necessary and within the authority of the Commission to adopt.
TXOGA, based on its eventual support for the final language in the Crownover Bill, commented that it is critical that the proposed rule implementing the bill closely follow the provisions in the bill and avoid losing the mutually-agreed industry balance achieved through those provisions. TXOGA asserted that the various problems highlighted by some in the industry will be greatly helped by the increased use of the Commission's informal complaint process, which gives all involved a chance to tell their side of the issue and allow increased communication to solve many of these problems. TXOGA supports the use of the informal complaint process as the most effective way for the Commission to better evaluate the nature of these problems and give the Commission experience to better report findings and formulate future rules as needed.
The Commission agrees with TXOGA the increased use of the Commission's informal complaint resolution procedures would be an effective method by which disputes can be resolved.
TIPRO commended the Commission on its interpretation of House Bill 3273 and its reliance on statutory language whenever possible. TIPRO has consistently commented that rules should incorporate language directly from statutes whenever possible, and asserted that the published rules meet that criterion and rely directly on statutory language. Having said that, TIPRO recognized that sometimes the authority granted by legislation inherently requires interpretation by an agency for implementation purposes; the agency must often include detailed language specifying its exact procedures to ensure that the rules are applied consistently and that entities subject to the rule know what to expect and can plan accordingly.
TIPRO stated that it was necessary for the Commission to include guidelines and examples in the rules that were not necessary in the legislation itself. As the only producer's association that was present for and a direct party to negotiations on House Bill 3273, TIPRO commented that the guidelines and examples of "unreasonable discrimination" and "prohibited discrimination" included in these rules are fully in keeping with the negotiations of the legislation. TIPRO strongly supported the proposed rules as published in the Texas Register.
Specifically, TIPRO stated that the use of the terms "unreasonable discrimination" and "prohibited discrimination" was a compromise as a means of defining "retaliation." Protecting producers from retaliation for filing an informal complaint was a priority of the Commission's Natural Gas Pipeline Competition Study Advisory Task Force and is stated throughout the Task Force's report that was adopted by the Commission. During legislative negotiations, comprehensively defining acts of "retaliation" proved impossible and there was agreement that any new definition of the term "retaliation" would generate potentially years of challenges before becoming an accepted legal definition. Therefore, the parties agreed to use the existing terms "unreasonable discrimination" or "prohibited discrimination" to describe actions and behaviors. TIPRO also states that the parties agreed that the definitions of these terms would be confined to status quo definitions, references, and case law that exist at this time, rather than expanding it through this particular legislation. Those references are found in Commission rules §§7.115, 7.7001, and 7.7003(d)(1) - (13) and (e)(1) - (5) and therefore, in TIPRO's view, are appropriate for the Commission to include in the rule.
TIPRO said the test for "retaliation" is a multi-part one: The Commission must check to see if the behavior falls under "unreasonable discrimination" or "prohibited discrimination" and that the behavior occurred in response to an informal complaint being filed. Simply engaging in "unreasonable discrimination" or "prohibited discrimination" is already an offense that carries a fine. The Commission must distinguish that same behavior in this specific circumstance to trigger the new, separate penalty. The Task Force, the Commission, the Legislature, and the parties to the negotiations understood the need for the new, separate penalty as a way of protecting filers of informal complaints. The parties discussed factors to determine the second part of the test, including the action occurring within reasonable time periods linked to the informal complaint process and whether or not the respondent took the action against a filer specifically or as part of a broader, non-retaliatory business decision. The parties agreed not to attempt such a laundry list in the statute itself and recognized that the Commission would have to exercise its discretion in making these determinations. TIPRO found that the proposed language in §7.7003(i)(1) - (5) is in keeping with that agreement and relies on current laws and rules while preserving flexibility for the Commission.
The Commission agrees with TIPRO's comments regarding the need for rules that specify the exact procedures to ensure that the rules are applied consistently and that entities subject to the rule know what to expect and can plan accordingly. The Commission also agrees with TIPRO's characterization of the House Bill 3273 negotiations with respect to use of the terms "unreasonable discrimination" and "prohibited discrimination" rather than "retaliation" in House Bill 3273.
TPA noted that pipeline companies are not the only parties who will have to comply with the proposed rules; the Crownover Bill applies to any entity which gathers or transports natural gas. The statute and the Commission's rules apply to non-utility gathering lines, such as those owned by producers and others not generally thought of as "pipelines." TPA stated that House Bill 3273 was the product of four years of legislative disputes, statewide Railroad Commission meetings, and intense negotiations during the legislative session before an agreement was finally reached as to the bill's language. Industry members, representatives of associations representing industry groups, members of the legislature and their staffs, and Commission staff all participated. TPA states that what is not in the bill was as intensely negotiated as what is in the bill, and when agreement was reached, all parties involved asked the legislature to pass the language as negotiated with no changes. The legislature did so, and TPA asked the Commission to do the same and not change the agreements reached by adding any provisions that were not agreed upon or taking out any provisions that were agreed upon. TPA stated that the Crownover Bill was designed to create a procedure to resolve disputes, and the statutory provisions do not attempt to pre-judge or determine the results, but create a process by which determinations can be made. TPA commented that the proposed rule does far more than implement the statute--it decides certain issues before any hearing is ever held or any evidence taken.
TPA also commented that the proposed rules seem to limit the applicability of one of the most innovative statutory provisions--the ability of the Commission to set market-based rates. One of the major benefits of the provision is to allow the parties to avoid expensive and time-consuming cost-of-service proceedings, especially for gatherers and others who have neither the expertise nor the financial resources to support cost-of-service ratemaking. TPA stated that the proposed rule appears to predetermine that the Commission will use market-based rates only after a competition study has been done and the Commission has determined that competition exists. TPA questioned this apparent limit on the use of market-based rates and asked why the Commission would limit the power given to it by the legislature or why the Commission believes it needs a rule to predetermine when it will exercise its legislative authority to use market-based rates. TPA stated that the additional provisions in the rules were not discussed during the legislative negotiations and were seen for the first time when the Commission considered the rules for proposal and publication. TPA stated that some of the changes and additions might have been agreed upon, but other clearly would not have been. TPA asserted that inclusion of those provisions in the final rule would make substantive changes to the bargain created by negotiation and legislative action after years of disputes.
The Commission agrees in part and disagrees in part with TPA's comments. The Commission disagrees that rules that implement statutory authority should have only statutory wording. In some instances, the rule text is provided as a ready reference for statutory provisions. For example, Texas Natural Resources Code, §81.058, authorizes the Commission, after notice and opportunity for hearing, to impose an administrative penalty against specific entities if the Commission determines an entity has violated a Commission rule adopting standards or a code of conduct. Commission rule §7.115 contains the definition of "similarly situated shipper" which is used in the Commission's code of conduct. These existing rule provisions contain the elements that the Commission will use to evaluate allegations that an entity has engaged in unreasonable discrimination or prohibited discrimination. The Commission agrees with TPA that some provisions need to be clarified, and the Commission has incorporated those clarifying amendments in the rules as adopted.
Crosstex fully supported the comments of TPA. The Commission disagrees with Crosstex, for the reasons set forth in the Commission's response to TPA's comments.
New §7.7003 implements the authority delegated to the Commission by Texas Natural Resources Code, §81.058(a) and (b). The terms used in this section have the same meaning as in §2.1 of this title (relating to Informal Complaint Procedure); §2.5 of this title (relating to Informal Complaint Process Regarding Loss of or Inability to Account for Gas); and §7.115 of this title (relating to Definitions). In subsection (c), the scope of the rule is set forth.
The Commission received no comments on §7.7003(a) through (c), but adopts one clarifying change in subsection (b) to correct the title of §2.5 of this title (relating to Informal Complaint Process Regarding Loss of or Inability to Account for Gas), which the Commission is adopting in a separate rulemaking proceeding.
The Commission adopts without change §7.7003(d), which provides that, in determining whether an entity has violated §7.7001 or has unreasonably discriminated against a seller of natural gas in the purchase of natural gas from the seller, the Commission will consider the factors set forth in the definition of "similarly situated shipper" in §7.115 of this title (relating to Definitions). In determining whether conditions of service are the same or substantially the same, the Commission will evaluate the significance and degree of similarity or difference in relevant conditions between sellers that are material and probative, including, but not limited to service requirements; location of facilities; receipt and delivery points; length of haul; quality of service (firm, interruptible, etc.); quantity; swing requirements; credit worthiness; gas quality; pressure (including inlet or line pressure); duration of service; connect requirements; and conditions and circumstances existing at the time of agreement or negotiation.
The Alliance referred to a list of "pipeline defenses" in subsection (d)(1) - (13) as factors that would have to be addressed in any discrimination complaint proceeding. The Alliance found it problematic that the rule requires all 13 factors to be addressed in every case, regardless of the degree to which they may or may not be relevant to the situation at hand. This means the Commission would go beyond the statute and create a rule that is virtually impossible to litigate or enforce. This would result in a process so complex and so expensive that potential complainants will largely conclude it is futile to seek redress at the Commission. Multiplying potential defenses, and then making their consideration mandatory in every case, is a recipe to discourage complaints and assistance from the Commission. The Alliance recognizes that the enumerated factors mirror those found in the definition of "similarly-situated shipper" in §7.115 of this title and §7.7001 of this title (relating to Natural Gas Transportation Standards and Code of Conduct). The Alliance says this has long been a problem as evidenced by the paucity of complaints even as the abuses of monopoly power have multiplied in the last 10 years since the adoption of §7.7001. House Bill 3273 did not require the Commission to specify a many-point laundry list of potential defenses for the pipelines and make evaluation of each and every one in every case. The Alliance urged the Commission to delete the subsection (d) list of pipelines' defenses.
The Commission disagrees with this comment; consideration of all 13 factors is expressly not mandatory. House Bill 3273 focused on conduct that constitutes either unreasonable discrimination or prohibited discrimination, and referred specifically to violations of a Commission rule adopting standards or a code of conduct for entities in the natural gas industry prohibiting unlawful discrimination. Specifically, the Commission's code of conduct rule, §7.7001, and the terms used in it, which are defined in §7.115, are necessarily part of the analysis of allegations of claims of unreasonable or prohibited discrimination. Whether all 13 factors in the definition of "similarly situated shipper" are relevant in any particular matter will be evaluated on a case-by-case basis; the rule language specifically provides that the Commission will evaluate the significance and degree of similarity or difference in relevant conditions between sellers that are material and probative. The Commission does not intend to evaluate information that is irrelevant, immaterial, or non-probative.
The Commission also disagrees with the Alliance regarding any inferences that can be drawn from the paucity of complaints under the Commission's code of conduct rule. The Commission's Natural Gas Pipeline Competition Study Advisory Task Force looked at some of the reasons there were so few complaints filed with the Commission, despite having an informal complaint process available for ten years. One factor was that so few producers were aware of the informal complaint process; another was the expense and difficulty for some very small producers to essentially shut down their offices and travel to Austin for the mediation meetings. The Commission addressed these concerns in adopting §2.1, the informal complaint resolution rule, in February 2007.
In §7.7003(e), the Commission proposed that in determining whether an entity has engaged in prohibited discrimination against a shipper or seller of natural gas because the shipper or seller filed a formal or informal complaint with the Commission against the person relating to the person's purchase, transportation, or gathering of the gas, the Commission will consider the time elapsed between the conclusion of the informal or formal complaint filed by a shipper or seller of natural gas and the conduct alleged to constitute prohibited discrimination; whether other shippers or sellers of natural gas have been offered the same or similar rates, terms, and conditions of service; the timing of those offers; and whether those offers were accepted; whether a shipper or seller of natural gas has been refused service under rates, terms, and conditions that are the same or similar as other shippers or sellers of natural gas; whether a shipper or seller has had service terminated without cause; and whether a shipper or seller of natural gas has experienced damage or destruction of property by a person that purchases, transports, or gathers the shipper's or seller's gas that results in lost revenue, lost production capability, or other economic harm.
TXOGA recommended deleting §7.7003(e)(1) - (5) and stated that this list of items deemed to constitute "retribution" was not discussed, debated, nor included in the Crownover Bill and should be heard as part of a case-by-case factual review through the Commission's complaint process. If the Commission develops a substantive record based on complaint proceedings and evidentiary hearings, then TXOGA might support more specific definitions of unreasonable or prohibited discrimination.
Similarly, Enbridge commented that the proposed rules decide, before any hearing is actually held or any specific allegations are actually known, that the Commission will consider a list of items contained in §7.7003(e) to determine if retribution has occurred.
TPA also stated that §7.7003(e) should be deleted because it establishes minimum evidentiary showings related to the determination of "retribution" without regard to the actual facts in each case. The "retribution" issue was one of the most important raised by the statewide meetings and the Competition Committee. Although definitions of retribution were presented in legislative negotiations, none were agreed upon. Certainly the laundry list of factors to be considered in §7.7003(e)(1) - (5) would have been carefully debated if it had been presented. Some will no doubt think the list is incomplete, while others will think it includes items which do not show either the absence or presence of discrimination. All would have to agree that the list was not part of the negotiations on these bills. Deciding what evidence will be considered prior to a hearing is sure to give one party or the other an advantage. Subsection (e) should be deleted.
The Commission disagrees with comments that §7.7003(e) establishes minimum evidentiary showings related to the determination of retribution without regard to facts in each case and with the comments suggesting that this subsection should be deleted. The rule nowhere uses the term "retribution." In the negotiations associated with House Bill 3273, the term "prohibited discrimination" was agreed upon in lieu of the term "retaliation." The Commission is obligated to enforce the Natural Resource Code provisions enacted by House Bill 3273, and finds that establishing guidance for affected persons with respect to the kinds of factual showings that could be relevant to an analysis of claims of prohibited discrimination is sound public policy. Nevertheless, the Commission recognizes that paragraphs (1) - (5) in proposed new §7.7003(e) could be too restrictive and could be misinterpreted as limiting the Commission's ability to evaluate claims of prohibited discrimination to only those listed factors. The Commission's goal is to maintain discretion and flexibility and to consider all relevant and material facts. Therefore the Commission adopts new §7.7003(e) without the specific components proposed in paragraphs (1) - (5). However, the Commission also notes that those paragraphs offer useful examples of the kinds of inquiries that are likely to elicit relevant and material facts, to wit: the time elapsed between the conclusion of the informal or formal complaint filed by a shipper or seller of natural gas and the conduct alleged to constitute prohibited discrimination; whether other shippers or sellers of natural gas have been offered the same or similar rates, terms, and conditions of service; the timing of those offers; and whether those offers were accepted; whether a shipper or seller of natural gas has been refused service under rates, terms, and conditions that are the same or similar as other shippers or sellers of natural gas; whether a shipper or seller has had service terminated without cause; and whether a shipper or seller of natural gas has experienced damage or destruction of property by a person that purchases, transports, or gathers the shipper's or seller's gas that results in lost revenue, lost production capability, or other economic harm.
In subsection (f), the Commission adopts without change the restatement of Texas Natural Resources Code, §81.058(d), which provides that an administrative penalty imposed under this section (of the statute) may not exceed $5,000 a day for each violation. Each day a violation continues or occurs is a separate violation for purposes of imposing a penalty under this section.
In subsection (g), the Commission adopts without change that if the Commission determines after notice and opportunity for hearing that an entity has engaged in prohibited discrimination for which a penalty may be imposed under this section, the Commission may issue any order necessary and reasonable to prevent the discrimination from continuing, including an order setting rates pursuant to §7.7005 of this title, relating to Authority to Set Rates.
In subsection (h), the Commission adopts without change that the remedy provided by this section is cumulative of any other remedy the Commission may order.
In subsection (i), the Commission proposed examples of conduct that "would be" considered to be unreasonable or prohibited discrimination, but did not provide an exhaustive listing of all conduct that the Commission would interpret as constituting discrimination; the examples were illustrative only. In all situations, the Commission will apply the relevant statutory and rule provisions to achieve the intended statutory purposes of preventing or remedying undue discrimination and ensuring that natural gas transportation and gathering services are provided at rates and under terms and conditions that are just and reasonable.
TIPRO commented that the proposed language in §7.7003(i)(1) - (5) is in keeping with that agreement and relies on current laws and rules while preserving flexibility for the Commission.
The Alliance strongly endorsed the inclusion of the examples of prohibited conduct in subsection (i) because this approach creates a rule that can be enforced, but suggests that subsection (i)(3) should be reworded to make clear its intended application.
Enbridge commented that the proposed wording in §7.7003(i) assumes retribution has occurred without explanation of the reasoning behind that decision and that certain practices are prohibited discrimination without any facts being determined and without any explanation being heard.
TXOGA recommended deleting §7.7003(i)(1) - (5), stating that these provisions were never part of the Crownover Bill. These types of "fact-finding" should be determined based on a hearing of all the facts. If the Commission develops a substantive record based on complaint proceedings and evidentiary hearings, then TXOGA might support more specific definitions of unreasonable or prohibited discrimination.
TPA commented that §7.7003(i)(1) - (5) should be deleted because it makes certain acts "de facto" discrimination. The list of such acts in the proposed rule is not part of the statute. While the proposed rule claims that the list is based on prior Commission interpretation and application of various statutes, the preamble provides no citations for these interpretations and applications. Since House Bill 3273 created a new penalty for discrimination, it is difficult to understand how the Commission could have made the decisions related to such items without a hearing and without having any actual facts to examine. The Advisory Committee established by the Commission recommended that the Commission define "unreasonable discrimination." TPA states that the Commission already has a definition of "discrimination" in §7.115 of this title, which already prohibits treatment which "unreasonably disadvantages or prejudices similar-situated" parties. Whether something is unreasonable depends on the facts of the case. TPA does not believe that the Commission has in fact construed the existing statutes and decided that the conduct on the list would be considered discrimination even before any hearing has been held. Referring to subsection (i)(3), TPA stated that it would be prohibited discrimination to have shared employees offering transportation services; affiliated companies often utilize the skills of an employee for more than one company. Yet TPA says the rule does not explain why the Commission has concluded that such an arrangement is prohibited discrimination. Whether discrimination exists is a question of fact and the facts of each case will have to be heard to make such a determination. The list in subsection (i) was not, and could not, have been agreed to in the bill. The Commission should not decide facts before a hearing is held and should not adopt the proposed list of pre-determined results contained in subsection (i).
The Commission's goal is to maintain discretion and flexibility and to consider all relevant and material facts. Therefore the Commission adopts new §7.7003(i) without the examples proposed in paragraphs (1) - (5). Subsection (i) is adopted with only the statement "In all situations, the Commission will apply the relevant statutory and rule provisions to achieve the intended statutory purposes of preventing or remedying undue discrimination and ensuring that natural gas transportation and gathering services are provided at rates and under terms and conditions that are just and reasonable." However, the Commission notes that paragraphs (1) - (5) in the proposed version of §7.7003(i) were examples of informal complaints that have been filed with the Commission over the past 11 years. These are examples of conduct that, depending on the facts in evidence, could be considered unreasonable or prohibited discrimination, and thus may be instructive:
(1) a gatherer or transporter that limits transportation on its system to only its affiliates;
(2) a gatherer or transporter that shares market information, such as gas use, names of contact people, contract terms, etc., with an affiliate shipper without simultaneously sharing the same information with other similarly situated shippers;
(3) an officer or employee of a gatherer or transporter who represents any other affiliate entity involved in negotiating and providing supply and transportation service to a customer and shares competitive information between these affiliates;
(4) a gatherer or transporter that attempts to prohibit or discourage connection to its pipeline system by using or quoting preferential charges for taps and meters for certain shippers and not offering the same charges to all shippers; and
(5) a gatherer or transporter that threatens a shipper or seller with removal of meter facilities or refusal of service if the shipper or seller seeks competitive supply or transportation options.
No facts are established or found in the rule; all matters of fact will be evaluated in an evidentiary hearing, which is subject to due process protections. Other fact situations not given as examples above may, after notice and an opportunity for an evidentiary hearing, may be found to constitute unreasonable or prohibited discrimination, based on the Commission's interpretation and application of provisions in Texas Natural Resources Code, Title 3, Subtitles A, B, and D, and Texas Utilities Code, Title 3, Subtitles A and B, and the Commission rules adopted pursuant to those statutes.
New §7.7005 implements the authority of the Commission pursuant to Texas Natural Resources Code, §81.061, as enacted by House Bill 3273, 80th Legislature (2007). The Commission received no comments regarding subsections (a) through (e) and adopts those subsections without change, except for subsection (b), in which the Commission adopts a correction to the title of §2.5 of this title.
New subsection (b) provides that the terms used in this section have the same meaning as in §2.1 of this title (relating to Informal Complaint Procedure); §2.5 of this title (relating to Informal Complaint Process Regarding Loss of or Inability to Account for Gas); and §7.115 of this title (relating to Definitions).
New subsection (c) declares that, except for rates established under Texas Utilities Code, Chapter 103, or Texas Utilities Code, Chapter 104, Subchapters C or G, the Commission may use a cost-of-service method or a market-based rate method in setting a rate in a formal rate proceeding.
New subsection (d) provides that on the filing of a complaint by a shipper or seller of natural gas, the Commission may set a transportation or gathering rate in a formal rate proceeding if the Commission determines that the rate is necessary to remedy unreasonable discrimination in the provision of transportation or gathering services. The Commission may set a rate regardless of whether the transporter or gatherer is classified as a utility by other law.
New subsection (e) states that the Commission may use a cost-of-service method or a market-based method in setting a rate pursuant to this section in a formal rate proceeding conducted after notice and an opportunity for hearing in accordance with the Commission's rules of practice and procedure in 16 Texas Administrative Code, Chapter 1.
New subsection (f) provides that in determining whether to use a cost-of-service method or a market-based method to set rates for transportation or gathering service, the Commission will consider all relevant factors including but not limited to whether there is effective competition in the provision of transportation or gathering services for which rates are at issue.
The Alliance supported §7.7005 as written and commends the language in subsection (f) that recognizes that "whether there is effective competition" will be an important factor in determining whether a "market-based method" is appropriate in a given situation.
TXOGA stated that the Commission should retain full authority to review the specific facts of the situation under consideration and at that time decide which would be most appropriate, either a market-based or cost-of-service based rate method to determine rates. The Commission's authority to use either rate method should not be predicated on the completion of or lack of a competition study for the particular situation under consideration.
TPA commented that proposed §7.7005(f) should not limit the application of market-based rates to cases where the Commission determines that competition exists. The statute gave the Commission the authority to set market-based rates in all cases except for city gate and distribution rates. Subsection (f) of the rule seems to say that market-based rates will be used only where there is competition. The bill did not put any restrictions on situations where market-based rates can be set by the Commission and neither should the rule. The proposed rules provide that the Commission will decide to use market-based rates after it has considered all relevant factors but only lists one factor--competition. Thus, the proposed rule appears to limit the application of the rule to situations where there has been a competition study or some other factual determination that competition exists. If the provision is intended to mean that the Commission will consider whether competition exists but that it may decide to exercise the authority whether or not competition exists, then this provision in the proposed rule is meaningless. The only apparent reason for the language is to limit the use of the Commission's authority to cases where a competition study has been done. Clearly that kind of limit is not in the statute. If the Commission wanted its authority to be limited it could have said so during the legislative process. If the Commission has now decided that it will only use its new authority in limited circumstances it should explain why it has decided to do so. If the language is not intended to limit the Commission, it should simply be dropped.
The Commission agrees in part and disagrees in part with all comments on §7.7005(f). The Commission agrees that the legislation did not place any restriction on when the Commission could apply a market-based method for setting rates. Subsection (f) might appear to limit the application of the rule to situations where there has been a competition study or some other requirement that proves up that competition exists before the market-based rate method can be used. Therefore the Commission adopts §7.7005(f) without the specific wording "including but not limited to whether there is effective competition in the provision of transportation or gathering services for which rates are at issue." However, competition in the provision of transportation or gathering services for which rates are at issue may be one of the relevant factors that the Commission may consider pursuant to §7.7005(f).
The Commission adopts the new sections pursuant to Texas Government Code, §2001.004, which requires state agencies to adopt rules of practice stating the nature and requirements of all available formal and informal procedures and index, cross-index to statute, and make available for public inspection all rules and other written statements of policy or interpretations that are prepared, adopted, or used by the agency in discharging its functions; Texas Natural Resources Code, §81.052, which gives the Commission the authority to adopt all necessary rules for governing and regulating persons and their operations under the jurisdiction of the Commission as set forth in §81.051, and Texas Natural Resources Code, §§81.058 - 81.061, as enacted by House Bill 3273, 80th Legislature (2007). Among other things, these new provisions authorize the Commission, after notice and opportunity for hearing, to impose an administrative penalty against a purchaser, transporter, gatherer, shipper, or seller of natural gas who is a party to an informal complaint resolution proceeding and is determined by the Commission to have failed to participate in the proceeding or failed to provide information requested by a mediator in the proceeding. An administrative penalty imposed under Texas Natural Resources Code, §81.058, may not exceed $5,000 a day for each violation, but each day a violation continues or occurs is a separate violation for purposes of imposing a penalty under this section. The remedy provided by this section is cumulative of any other remedy the Commission may order. Texas Natural Resources Code, §81.059(b), provides that if the parties request that an informal dispute resolution mediation be conducted at a location other than the headquarters of the Commission in Austin, the parties must reimburse the Commission for the Commission's costs related to travel to those other locations.
The Commission also adopts the new sections pursuant to Texas Natural Resources Code, Title 3, Subtitle D, Chapter 111, and specifically Texas Natural Resources Code, §111.083, which requires common purchasers, as defined in Texas Natural Resources Code, §111.081(a)(2), to purchase or take the natural gas purchased or taken by it as a common purchaser under rules prescribed by the Commission in the manner, under the inhibitions against discriminations, and subject to the provisions applicable to common purchasers of oil; Texas Natural Resources Code, §111.086, which requires common purchasers to purchase without discrimination in favor of one producer or person against another producer or person in the same field and without unjust or unreasonable discrimination between fields in this state; Texas Natural Resources Code, §111.087, which prohibits common purchasers from discriminating between or against production of a similar kind or quality in favor of its own production; and Texas Natural Resources Code, §111.090, which authorizes the Commission to adopt rules that may be necessary to prevent discrimination.
The Commission also finds authority for the rules in Texas Utilities Code, Title 3, Subtitle A, which authorizes the Commission to regulate gas utilities, to protect the public interest inherent in the rates and services of gas utilities, and to assure rates, operations, and services that are just and reasonable to the consumers and to the utilities; Texas Utilities Code, §102.003, which grants the Commission the power to require that gas utilities report to the Commission information relating to themselves and affiliated interests both within and without the State of Texas as it may consider useful in the administration of Title 3, Subtitle A (the Gas Utilities Regulatory Act); to require the filing with the Commission of, among other things, a copy of a contract or arrangement between a gas utility and an affiliate or a report filed with a federal agency or a governmental agency or body of another state; and to require that a contract or arrangement between a utility and an affiliate that is not in writing be reduced to writing and filed with the Commission; Texas Utilities Code, §104.003, which states that it is the duty of the Commission to ensure that every rate made, demanded, or received by any gas utility, or by any two or more gas utilities jointly, is just and reasonable, and directs that rates may not be unreasonably preferential, prejudicial, or discriminatory, but must be sufficient, equitable, and consistent in application to each class of consumers; Texas Utilities Code, §104.004, which prohibits a gas utility, as to rates or services, from making or granting any unreasonable preference or advantage to any corporation or person within any classification, or subject any corporation or person within any classification to any unreasonable prejudice or disadvantage, and from establishing and maintaining any unreasonable differences as to rates of service either as between localities or as between classes of service; and Texas Utilities Code, §104.007, which prohibits gas utilities from discriminating against any person or corporation that sells or leases equipment or performs services in competition with the gas utility, and from engaging in any other practice that tends to restrict or impair that competition.
Additional authority for the new rules is found in Texas Utilities Code, Title 3, Subtitle B, and specifically, Texas Utilities Code, §121.104, which prohibits pipeline public utilities from discriminating in favor of or against any person, place or corporation, either in apportioning the supply of natural gas or in their charges therefor, and from directly or indirectly charging, demanding, collecting or receiving from any one a greater or less compensation for any service rendered than from another for a like and contemporaneous service; and Texas Utilities Code, §121.151, which directs the Commission to establish and enforce rules for transporting, producing, distributing, buying, selling, and delivering gas by pipelines subject to this chapter in this state, to establish fair and equitable rules and regulations for the full control and supervision of said gas pipelines and all their holdings pertaining to the gas business in all their relations to the public, and to prescribe and enforce rules and regulations for the government and control of such pipelines in respect to their gas pipelines and producing, receiving, transporting, and distributing facilities.
Texas Government Code, §2001.004; Texas Natural Resources Code, Title 3, Subtitle A, Chapter 81, and specifically, §81.052 and §§81.058 - 81.061; Texas Natural Resources Code, Title 3, Subtitle D, Chapter 111, and specifically, §§111.083, 111.086, 111.087, and 111.090; and Texas Utilities Code, Title 3, Subtitles A and B, and specifically, §§102.003, 104.003, 104.004, 104.007, 121.104, and 121.151, are affected by the adopted new sections.
Statutory authority: Texas Natural Resources Code, §81.052 and §§81.058 - 81.061; §§111.083, 111.086, 111.087, and 111.090; and Texas Utilities Code, §§102.003, 104.003, 104.004, 104.007, 121.104, and 121.151.
Cross-reference to statutes: Texas Natural Resources Code, §81.052 and §§81.058 - 81.061; §§111.083, 111.086, 111.087, and 111.090; and Texas Utilities Code, §§102.003, 104.003, 104.004, 104.007, 121.104, and 121.151.
Issued in Austin, Texas, on April 8, 2008.
§7.7003.Administrative Penalties and Other Remedies for Discrimination.
(a) This section implements the authority delegated to the Commission by Texas Natural Resources Code, §81.058(a) and (b), as enacted by House Bill 3273, 80th Legislature (2007).
(b) Terms used in this section shall have the same meaning as in §2.1 of this title (relating to Informal Complaint Procedure); §2.5 of this title (relating to Informal Complaint Process Regarding Loss of or Inability to Account for Gas); and §7.115 of this title (relating to Definitions).
(c) The Commission, after notice and opportunity for hearing, may impose an administrative penalty against:
(1) a purchaser, transporter, gatherer, shipper, or seller of natural gas; a person described by Texas Natural Resources Code, §81.051(a) or §111.081(a); or any other entity under the jurisdiction of the Commission under the Texas Natural Resources Code that the Commission determines has:
(A) violated §7.7001 of this title (relating to Code of Conduct) or any other Commission rule adopting standards for entities in the natural gas industry prohibiting unlawful discrimination; or
(B) unreasonably discriminated against a seller of natural gas in the purchase of natural gas from the seller; and
(2) a purchaser, transporter, or gatherer of natural gas if the Commission determines that the person engaged in prohibited discrimination against a shipper or seller of natural gas because the shipper or seller filed a formal or informal complaint with the Commission against the person relating to the person's purchase, transportation, or gathering of the gas.
(d) In determining whether an entity has violated §7.7001 of this title or has unreasonably discriminated against a seller of natural gas in the purchase of natural gas from the seller, the Commission will consider the factors set forth in the definition of "similarly situated shipper" in §7.115 of this title (relating to Definitions). In determining whether conditions of service are the same or substantially the same, the Commission shall evaluate the significance and degree of similarity or difference in relevant conditions between sellers that are material and probative, including, but not limited to, the following:
(1) service requirements;
(2) location of facilities;
(3) receipt and delivery points;
(4) length of haul;
(5) quality of service (firm, interruptible, etc.);
(6) quantity;
(7) swing requirements;
(8) credit worthiness;
(9) gas quality;
(10) pressure (including inlet or line pressure);
(11) duration of service;
(12) connect requirements; and
(13) conditions and circumstances existing at the time of agreement or negotiation.
(e) In determining whether an entity has engaged in prohibited discrimination against a shipper or seller of natural gas because the shipper or seller filed a formal or informal complaint with the Commission against the person relating to the person's purchase, transportation, or gathering of the gas, the Commission will consider all relevant and material facts.
(f) An administrative penalty imposed under this section may not exceed $5,000 a day for each violation. Each day a violation continues or occurs is a separate violation for purposes of imposing a penalty under this section.
(g) If the Commission determines after notice and opportunity for hearing that an entity has engaged in prohibited discrimination for which a penalty may be imposed under this section, the Commission may issue any order necessary and reasonable to prevent the discrimination from continuing, including an order setting rates pursuant to §7.7005 of this title (relating to Authority to Set Rates).
(h) The remedy provided by this section is cumulative of any other remedy the Commission may order.
(i) In all situations, the Commission will apply the relevant statutory and rule provisions to achieve the intended statutory purposes of preventing or remedying undue discrimination and ensuring that natural gas transportation and gathering services are provided at rates and under terms and conditions that are just and reasonable.
§7.7005.Authority to Set Rates.
(a) This section implements the authority of the Commission pursuant to Texas Natural Resources Code, §81.061, as enacted by House Bill 3273, 80th Legislature (2007).
(b) Terms used in this section shall have the same meaning as in §2.1 of this title (relating to Informal Complaint Procedure); §2.5 of this title (relating to Informal Complaint Process Regarding Loss of or Inability to Account for Gas); and §7.115 of this title (relating to Definitions).
(c) Except for rates established under Texas Utilities Code, Chapter 103, or Texas Utilities Code, Chapter 104, Subchapters C or G, the Commission may use a cost-of-service method or a market-based rate method in setting a rate in a formal rate proceeding.
(d) On the filing of a complaint by a shipper or seller of natural gas, the Commission may set a transportation or gathering rate in a formal rate proceeding if the Commission determines that the rate is necessary to remedy unreasonable discrimination in the provision of transportation or gathering services. The Commission may set a rate regardless of whether the transporter or gatherer is classified as a utility by other law.
(e) The Commission may use a cost-of-service method or a market-based method in setting a rate pursuant to this section in a formal rate proceeding conducted after notice and an opportunity for hearing in accordance with the Commission's rules of practice and procedure in 16 Texas Administrative Code, Chapter 1 (relating to Practice and Procedure).
(f) In determining whether to use a cost-of-service method or a market-based method to set rates for transportation or gathering service, the Commission will consider all relevant factors in a formal rate proceeding.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on April 8, 2008.
TRD-200801869
Mary Ross McDonald
Managing Director
Railroad Commission of Texas
Effective date: April 28, 2008
Proposal publication date: November 23, 2007
For further information, please call: (512) 475-1295
Chapter 70. INDUSTRIALIZED HOUSING AND BUILDINGS
The Texas Commission of Licensing and Regulation (Commission) adopts amendments to 16 TAC §§70.10, 70.60, and 70.103, regarding the industrialized housing and buildings (IHB) program, without changes to the proposed text as published in the February 15, 2008, issue of the Texas Register (33 TexReg 1215) and the text of the rules will not be republished.
The purposes of the amendments are to minimize conflicts of interest for third parties participating in certification inspections and to streamline the process for approving alternative materials and methods of construction. The substance of these rule changes was recommended by the Industrialized Building Code Council ("Council") at its meeting on November 13, 2007.
Section 70.10 is amended to define certain acronyms that are used in amendments to §70.103, related to the Council's approval of alternative materials and methods of construction. Additionally, an unnecessary reference to an address for the International Code Council, Inc. is eliminated.
In §70.60(a) a sentence is deleted concerning the prohibition on the certification team leader being personnel of the third party inspection agency responsible for regular in-plant inspections of the manufacturer or the design review agency responsible for review of the manufacturer's design package. That sentence is moved to new subsection (b), and the words "an employee" are substituted for "personnel." This change clarifies that the prohibition applies only to employees of the third party inspection agency or design review agency. New language is added to subsection (b) to prohibit agencies and team members from soliciting, offering, or agreeing to provide future design review or in-plant inspection services for the manufacturer prior to the manufacturer completing all certification requirements. The prohibition does not apply to the manufacturer's current third party inspection agency or design review agency or to a team member that is employed by the manufacturer's current third party inspection agency or design review agency.
Under the current rule, the Department may use third parties, individuals who are not Department employees, as personnel for the certification teams that perform certification inspections of IHB manufacturing facilities. These individuals are typically employed by or associated with one of two types of entities: third party inspection agencies that perform regular, in-plant inspections of IHB manufacturers or design review agencies that review the design packages of IHB manufacturers. In either case, a potential conflict of interest exists for the individual on the certification team. The agency for whom the individual works may be seeking the business of the manufacturer undergoing the certification inspection, either to perform regular, in-plant inspections for the manufacturer or to perform design review services. The Department has a strong interest in ensuring that such potential business opportunities do not unduly influence the members of the certification team. The Council has expressed concern about such potential conflicts of interest. The amendment addresses these concerns by temporarily restricting the team members and agencies providing those team members from soliciting business from that manufacturer. This approach should protect against conflicts of interest while not significantly interfering with agencies' ability to acquire new business.
Section 70.60(e)(9) is amended to specify that the plant certification report must be signed by an authorized Department employee, rather than the certification team leader. This change is necessary because the certification team leader might not always be a Department employee, and the Department needs to retain control over the issuance of the report and the final approval of whether the manufacturer meets certification requirements.
Section 70.103(b) is amended to allow manufacturers or builders the additional option of submitting documentation of alternate materials and methods of construction electronically. New subsection (c) specifies two instances in which alternate materials or methods of construction have been pre-approved by the Council and do not require descriptions to be submitted to the Council for approval. The first instance is where there is a current code evaluation report from International Code Council Evaluation Services (ICC ES). The second is where there is a current product evaluation report or listing from a product certification agency accredited by the International Accreditation Service (IAS) that shows compliance with the applicable mandatory building codes. In these instances, the Department and the Council believe that the evaluation report or listing will provide sufficient evidence of compliance with the mandatory building codes and that no further scrutiny by the Council is needed. The rule clarifies that an industrialized house or building with an evaluation report or listing is not exempt from the requirements of Texas Occupations Code, Chapter 1202.
The Department drafted and distributed the proposed amendments to persons internal and external to the agency. The proposal was published in the Texas Register on February 15, 2008. The comment period closed on March 17, 2008. No public comments were received regarding the proposed amendments.
The amendments are adopted under Texas Occupations Code, Chapter 51, which authorizes the Department to adopt rules as necessary to implement that chapter and any other law establishing a program regulated by the Department, and Texas Occupations Code, Chapter 1202. In particular, §1202.101(a) directs the Texas Commission of Licensing and Regulation to adopt rules as necessary to ensure compliance with the purposes of Texas Occupations Code, Chapter 1202 and provide for uniform enforcement of this chapter.
The statutory provisions affected by the adoption are those set forth in Texas Occupations Code, Chapters 51 and 1202. No other statutes, articles, or codes are affected by the adoption.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on April 10, 2008.
TRD-200801909
William H. Kuntz, Jr.
Executive Director
Texas Department of Licensing and Regulation
Effective date: May 1, 2008
Proposal publication date: February 15, 2008
For further information, please call: (512) 463-7348