Regulatory Spotlight, Part I: Texas Adds New Laws for Natural Gas Distributors

GJ Flannery Case Studies, Gas Energy

Our “Regulatory Spotlight” series will provide an ongoing look at the changing regulatory landscape for gas and electric utilities.  This inaugural entry discusses two bills that passed the Texas legislature in 2019. Upcoming entries will focus on new initiatives around accounting treatment of capital vs. service expenditures; political and legislative “hot topics” in the 2020 elections; renewable portfolio standards and their implications for providers; and evolving regulatory trends in Texas, the Southeast, and California.

Though environmental regulations have loosened in the past years, the regulatory environment for natural gas companies is tightening.  Increasingly, utilities face a trend towards stricter rules for gathering, reporting, and sharing data with rate-payers and overseers. Two new laws in Texas provide a recent example of tighter standards around how gas distribution companies are required to handle and present data on gas accidents. 

In late May, the Texas legislature passed two regulatory bills that will impact natural gas distribution pipelines.  Rep. Rafael Anchia, the chairman of the House Energy Resources Committee and the originator of both bills, stated: “This legislation will increase transparency, improve safety, and provide accountability in order to reduce the risk of deadly gas explosions in our state. It will make our communities safer and will save lives.”  What is the content of these bills, and what significance do they have for operators?

HB 864 and HB 866, both of which passed unanimously, introduce new regulations on natural gas distribution pipelines.  HB 864 requires distribution utilities to provide detailed information on pipeline incidents to the Texas Railroad Commission “before the expiration of one hour following the operator’s discovery of the incident.”  Among the required details are: the time and location of the incident, the telephone number of the pipeline operator’s on-site person, and “any other significant facts relevant to the incident” (ibid). HB 866 requires distribution utilities to remove and replace all cast iron pipeline material by the end of 2021, as well as to develop and implement a risk-based program to remove and replace underground gas distribution pipelines.  Additionally, utilities must annually remove or replace at least eight percent of pipeline facilities that qualify as high-risk under this program.

In addition to calls for new regulation, customer demands for greater transparency have become commonplace.  In the past five years, customers and homeowners have filmed several natural gas explosions and posted them online.  The prevalence of social media enables concerned citizens to share these examples at warp speed. Responding to these demands will require utilities to provide accurate, timely, and substantive information about pipeline safety measures and leak management.  In Texas, HB 864 ensures that “timely” means “under an hour after an incident occurs.”

The passage of these two bills exemplifies a broader industry trend toward increasing scrutiny into gas operations from regulators, utility customers, and concerned third parties.  While the cost of natural gas in the U.S. may be near record lows, new compliance and reporting requirements are likely to continue to increase.


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