Lufkin relies on franchise agreements to provide some utility services to residents. Those agreements provide for regulation of electricity and natural gas, but prevent the city from using another service provider.
A system established by the Texas Legislature nearly 100 years ago still determines how cities regulate the natural gas industry today. The Cox Gas Bill, approved by lawmakers on June 12, 1920, implemented a partitioned system in which both the cities and state had a say in a gas monopoly’s rates. Franchise agreements let cities deny a gas monopoly’s rate increase request; however, the companies are allowed to appeal that decision to the Railroad Commission, who has the final say.
That system apparently worked well enough until 2003, when a measure approved by the Texas Senate bill left hundreds of cities incapable of serving as that regulation.
That brings us to this week, when Alfred R. Herrera, managing partner at Herrera Law & Associates, PLLC, will argue against CenterPoint Energy’s most recently proposed rate increase before the Texas Railroad Commission. Herrera Law & Associates, PLLC is representing Lufkin and 51 other cities in the fight with CenterPoint.
Senate Bill 1271, or the Gas Reliability Infrastructure Program, allows natural gas companies to seek rate increases from its customer base to cover the cost of infrastructural improvements.
Since 2014, residential gas rates in Lufkin have increased by 43% for GRIP, costing residential consumers an average of $7.89 more per month. It would have been closer to $10, but CenterPoint issued a rate reduction during their general rate case in 2018 because of President Donald Trump’s tax reform.
“Even though gas prices have fallen — the cost of gas, the commodity, has fallen — we’ve had a 43% increase over the six years in rate due to GRIP for our residential customers, which we think is outrageous,” Lufkin city manager Keith Wright said.
We agree, but CenterPoint doesn’t see it that way.
“Customers already benefited from a lower tax rate, along with other key elements, in the Tax Reform Bill,” according to Alejandra Diaz, from CenterPoint’s media relations outreach. “This reform should continue to allow customers the benefit of sustained utility infrastructure investment and the opportunity to reduce costs driven by lower federal tax rates.”
Wright said the GRIP is basically an automatic rate increase based on their perceived need for infrastructure improvements. “Regardless of their revenue, regardless of their expenditures, if they say I need to replace this section of pipe then that is what they base their GRIP request on. It never goes down. It goes up.
“You would think if you got a rate increase for a set value to implement an infrastructure project, that project doesn’t continue to incur cost. None of these rates have gone down on the infrastructure projects. They just keep adding to that.”
Centerpoint can file for a GRIP increase six times before it is required to conduct a comprehensive study, Herrera said. Wright believes that study is due this year.
GRIP increases contributed to nearly $25 million in added customer costs between 2011 and 2017, according to the Texas Coalition for Affordable Power.
Natural gas production began to skyrocket in 2005 with the advent of fracking and horizontal drilling. The resulting market forces of supply and demand sent prices tumbling. That remains an issue today. For example, in the second quarter of 2019, producers in the Waha Hub of West Texas’ Permian Basin were paying shippers to take their gas away because of limited pipeline infrastructure and equipment issues.
Natural gas is the only public utility within the purview of the Railroad Commission, but Herrera doesn’t believe that’s going to be sufficient. He believes it’s the Legislature’s responsibility to fix the problem, because they created it to begin with.