-: Good morning.
I think we can still say Happy New Year.
This meeting of the Railroad Commission of Texas
will come to order to consider matters
which have been duly posted with the Secretary of State
for January 23, 2018.
The Commission will consider the items on the agenda
as posted on the agenda,
except we will be taking up items 495 and 496 last.
Under our public participation policy,
anyone desiring to offer public testimony on any items
that are not noticed on today's agenda
will need to fill out a testimony form
found in the back of the room
and submit it to Commission Secretary Kathy Way.
A reminder, please turn off your cell phones.
And item number one.
Good morning.
How are you, Dana?
-: Morning, Chairman, Commissioners.
For the record, my name is Dana Lewis,
Administrative Law Judge with the Hearings Division.
Item One is a motion for rehearing
in Gas Utility Docket 10640,
Petition for De Novo Review of the City of Dallas's
denial of the Dallas Annual Rate Review Tariff.
On December 5th, the Commission signed a final order
approving the examiner's recommendations.
The City of Dallas timely filed a motion for a hearing.
The motion does not assert any new issues of fact or law
not previously considered by the Commission
before the final order was signed.
Atmos replied to the motion for a hearing,
maintaining its opposition
to the points raised by the City of Dallas
and requesting the motion be denied.
I recommend the Commission deny the motion for a hearing,
which will be overruled by operation of law on March 15.
I'm available for questions.
-: Thank you.
Are there any questions?
I move we approve the examiner's recommendation.
Is there a second?
-: Second.
-: Second, Commissioner Sitton.
All in favor say aye.
All: Aye.
-: Motion passes.
Item is approved.
Thank you, Dana.
Item number two.
Well, you're just gonna stand up here
for a while, aren't you?
Morning, John.
-: Morning, Commissioners.
I'm Administrative Law Judge John Dodson, Hearings Division.
Agenda item two involves a suspension order for GUD 10679.
A rate case filed by gas utility SiEnergy
to increase rates in unincorporated areas
in Central and South Texas.
Commission staff has intervened
and also has a coalition of cities
comprised of Fulshear, Missouri City, and Sugarland.
We recommend the Commission suspend
the effective date of SiEnergy's proposed rates
for 150 days to allow for proper evaluation of the changes.
Otherwise, the proposed rates will
go into effect on February 9th.
I'm available for questions.
-: Thank you.
Are there any questions?
I move we approve the examiner's recommendation.
Is there a second?
-: Second.
-: Second, Commissioner Christian.
All in favor say aye.
All: Aye.
-: Motion passes.
Item's approved.
Item number three.
-: Agenda item three is GUD 10455.
Consolidated complaints challenging
common carrier rates of West Texas LPG Pipeline, or WTXP.
This item was presented and discussed
at the last conference and was continued.
And I remain available for questions.
-: Thank you.
Anybody wanna start with questions?
I've got several.
-: Go ahead.
-: Okay, so, John, it looks like, to me,
or the sense of it all is that
all three of us feel like we need to
move to some kind of market.
Right?
I think that's how you've written this.
I think that's what we've kind of all said in some respect.
When you look at the statute,
we have a market-based method.
Is that correct?
That's how the statute's written.
So it's market-based method or cost-to-service
are the two options we have when we do a case, right?
-: That's the language.
Christi: And it says method, correct?
So that doesn't mean...
We don't have a method, I guess is our question.
I mean, it's the problem.
There's no statutory language for a method.
Is that the way you read this?
-: I think that's right.
Christi: Okay, and we weren't given one.
So, we're trying to figure one out.
We're in a precedent setting case
to try to figure out a method.
Is that a fair statement?
-: I think it's a fair statement.
Though the only issue I have is that
resolving the old statute
and the statute that you're talking about...
I do think the term "competitive rates" is there.
That's the language that the legislature
put at the doorstep of the Commission.
So, in some way, that should be incorporated.
But, again, that's very vague, also.
So how do you define that?
-: Okay, alright, so the question that I've got...
And I think you did...
Thank you.
On your PFD is that you started on page 41.
That's kind of where your methodology is
of how you got to your rate.
I think is what I've got.
John: Right.
-: And so, in those, you looked at rates,
competitive rates, where they're competitive.
You looked at...
Specifically, I felt like it was interesting
you looked at performance.
And then you looked at geographic, right?
And those are the three main things
you looked at in your methodology.
Would that be fair?
-: Right.
So we looked at the rates that we could find
that were observable that we thought
captured the same stuff this pipeline provided in 2015
and nothing more than that.
So we got several rates first.
We got rates that we didn't think
captured a lot of recent infrastructure expenses.
And they performed about the same level.
And then we went to geography.
We looked at close, nearby pipelines
in the same neighborhood.
And then we selected the highest rate
among whatever was left.
Christi: Okay, alright, so...
Ryan: May I ask a quick clarification on that?
Christi: Sure.
-: So what type of geography...
Correct me if I'm wrong,
but one of the key points when you talked about
this being a competitive market
was that both at the origination
and destination points were fungible.
In other words, there were a number of mechanisms
to sell the product and a number of ways
to get that product into the final destination point.
So that's what you mean by,
not just locale of pipelines,
but also the fact that there were
a number of options in both
the origination and destination points?
John: For the finding that
competition exists in these markets,
that was considered, yes.
-: Okay, I just wanted to make sure.
-: And, really, that finding was
just for the pipeline activity alone.
We mentioned that there's some other ways.
The industry has ways of transporting stuff, for sure.
Ryan: Sure.
-: But just looking at the pipeline activity alone,
that's how we really make that finding.
Ryan: I think that's important.
Because that's not precedent setting for us.
That's the way that other pipeline markets,
other industries, determine if
something's a competitive market.
So I thought it was important that
that was considered.
Which you did.
So I just wanted to make sure that we clarify that.
-: So my concern is this.
When you look at this...
And I think you did a good job.
And I've read this five times myself.
And I don't know how your eyes aren't crossed
and you're still standing there, by the way.
But I think the challenge I've got with this is,
when I go look at...
Because we've never done this before.
And I wanna make sure we do it right
because I think if we don't do it right,
it changes the tone of the market
for maybe the rest of the state's life, frankly.
And the way I went and looked,
since we've never done this before,
is gone and looked at FERC and other places,
because we don't know how to do it, right?
And that's what we're trying to figure out.
And part of the feedback we've also gotten
is performance shouldn't be considered.
And you may have to consider other things.
And so, what I'd like to suggest
and what I will have a motion for,
after we have a discussion,
is to send this back one more time.
Because I would like to have a market-based study done
as expeditiously as possible.
I don't want this to sit here
for the rest of my life, by the way.
To give the parties one more opportunity
to give information, specifically about
the market concentration to market study.
I think we've got to have
the best information we have available.
And I'm not sure it's there.
And I'm not...
I don't have a comfort level there
that we have developed and have explained
what a vibrant market is in the state.
That's my concern.
So I'm gonna move to send it back
to have more additional things.
If the parties wanna look at FERC
or whatever other additional information
to make sure we've got as much market,
a vibrant market developed for us,
if that's what's sitting there.
So we know the answer.
'Cause I look at this,
and this is my personal opinion,
how we look at regulating, too.
It's like banking.
So banking, to me, is, obviously...
You can charge whatever you want in banking.
But you also, as a regulatory body,
they sit over there and they have usury laws.
So I think you've got to figure out
what that top threshold is.
And I'm not sure we know what the top or bottom...
I don't know we know what the thresholds are
to make sure that we continue to have a competitive market,
but making sure we're protecting the customer.
And that's the balance that I'm not there yet.
And I would like to see what else
that market study brings to us.
And I think that's what other regulatory bodies
have done historically.
And I think there's an opportunity for other people
to bring more information into that.
So that would be...
That's gonna be my motion.
But I'm gonna...
I'll hold on my motion if anybody's got any questions first.
Anybody else?
-: Yeah, thank you.
It seems to me that the crux of this case
is whether or not the market is competitive.
Because, if you have a truly competitive market...
I don't care whether it's
pipelines or transportation or medicine.
A truly competitive market,
then we don't worry about rates.
Because the market will flesh out the rates.
-: I don't disagree with that.
-: John, you make a comment, page 40...
And we talked about this last time.
If rates cannot be set under
some colorable definition of competitive here,
the Commission's market-based rate making authority
may never leave the shelf.
In WTXP's replies, they say that 80%
of the capacity on this line was duly connected.
So I'm putting your comments together
with other pieces in this record.
And that's an example of them.
What would you be looking for...
Let me say it differently. Can you walk me through...
Give me your high points as to
why you're convinced this...
You seem pretty convinced this is a competitive market
in your commentary here.
-: I think my finding was that competition exists.
Which is you're probably saying the same thing.
Before I looked at any of the evidence in the case,
I really spent a lot of time
trying to tack down what Texas law requires
and what it does not require.
This isn't the FERC.
This is another jurisdiction.
This is another industry in Texas.
This is the common carrier industry in Texas.
So I wanted to be clear on that.
So when you're talking about what competition exists...
-: Our common carrier statute,
and even the natural resource code,
don't define exactly what a competitive market is.
So, we're looking at other economic models
to determine what's the economic standard out there
for a competitive market, right?
-: For competition in these markets,
what mattered to me was that
there were options to transport.
I think that was proven, really,
just looking at the pipeline activity.
But, when you consider other things,
like trucking or other options,
the industry has a lot of technology and competence
to move its product.
None of these are really isolated origin points.
I don't think...
They're either within these major markets
or they're nearby.
And so, the ability, if shippers feel like they want to,
to build a lateral is there.
They have options to get their product
to where they're going.
Usually, it's mobility in this case.
So, really, because they had options,
I didn't think that anybody was purely captive.
That's really what went into it.
But I tried to make a conscious decision
not to import other jurisdiction's
rigid requirements for market competition in here.
Like the FERC.
FERC has a pretty rigid one.
Christi: They do.
And I'm not sure we need that rigid.
That's why I think there's multiple options.
-: So, for me, it wasn't really...
'Cause we didn't really have a lot of guidance
in the legislature here.
So, for me, it was looking at the record, the arguments.
All these markets and the origin points nearby.
Shippers had the technology and the availability.
Maybe not next door.
But there are pipelines nearby.
They could have made it work.
Assuming capacity and assuming infrastructure
and that kind of thing.
So, it wasn't a buttoned down market study,
like you're talking about, Chairman.
But the record, as I saw it in this case,
was the shippers had options to get where they were.
If they didn't like this pipeline's rates,
they may have had to...
If their only option was self help,
which is not a regulated environment,
they can come to the Commission if they need to.
But, if they were going to resort to self help,
they could have got their product moved.
-: It seems like, from what I...
That seems like the right conclusion.
Once again, I appreciate your commentary here.
When you say it may never leave the shelf,
that's a pretty direct...
That's a pretty strong statement.
And I appreciate that,
because I think it's important to say,
"Look, in this case..."
Once again, using the comment in WTXP's replies that
80% of the shippers are duly connected.
That seems to indicate that
most of the capacity on this line
has an easy double option.
It's a flip of a switch.
You go to another line.
So, it validates your point that
this would seem to be a fairly...
It seems to be a pretty competitive market.
My point in this is, while I appreciate the Chairman's
judiciousness in ensuring that we do this right,
I'll go back to what I said last conference.
If it's a competitive market, then we shouldn't get...
My position, we shouldn't get involved in rate making.
Now, as a regulatory body...
This is not a commentary on every pipeline case out there.
We have a lot of shippers, a lot of producers out there
in which it is a captive market.
There are not competitive situations.
That's why we are empowered with the ability that we have.
In this case, specifically because
it is a competitive market,
it seems pretty straightforward.
I think what we should be doing
is simply denying the complaint.
And saying, look, it's a competitive market.
The rates will work themselves out.
It's as competitive as we're going to get.
We should deny this complaint.
Allow the market to work.
And I think that's extremely important.
And I don't see value in additional market study,
because I think everything we need is here.
We understand that it's a competitive market.
So I believe we should be making that...
That decision, I think we should be making it today.
That's my opinion.
-: Madam Chairman.
You know, I appreciate y'all.
Last month, I'm the one that
caused it to be delayed this time.
So thank you for giving me time to look at this.
And let me just give you a few of the things
that I found in looking over this thing,
because I think it's quite important.
Free market's important to me,
but, as a banker, I lived through
the deregulation of the banking back under Ronald Reagan.
The Depository Institution Deregulatory Commission
was 19,000 pages.
And so, when the government says deregulate,
it's not exactly turn loose and go.
And, from the result of that,
we had a collapse in savings and loans association.
It cost taxpayers across this nation significant.
So that's why I'm concerned that we do it right.
And that's why I'm really hesitant to just...
At the last conference, I passed on this item
so we'd have additional time.
And I appreciate that.
As a conservative businessman
and an ex-banker and financial guy,
I feel it's important a true competitive market exists
and a market-based approach to rate making
then should be used if it's proved that.
To determine if a competitive market exists,
at a minimum, you've got to have two or more parties
acting independently to secure the business of a third party
by offering the most favorable terms.
In this case, producers must have at least a second pipeline
as an option for transporting oil and gas
to define there's a market.
As evidenced by the competition,
WTXP claims it has more than 80% of the interstate volumes
shipped along their pipeline.
Not necessarily the companies or suppliers.
It's the volume.
It's what I understood.
Going through there.
Through the argent points of
more than one pipeline connection.
If that's true, we can, by definition,
conclude that there is a competitive market
for most of the shippers along this pipeline.
However, when dealing with a common carrier pipeline,
as a class of pipeline for use of
the eminent domain at its original time,
it's important for the Railroad Commission
to remember that we still have the duty to review
and authority to adjust rates,
even though we call it a competitive market
and move toward a competitive market.
To determine whether or not
the Commission should adjust rates
within a competitive market,
we've got to determine to what extent a true market exists
and a market where a true market competition exists.
We might decline to exercise
the market-based rate adjustment authority.
True competition exists in a market
where buyers and sellers are so numerous that most,
if not all, of the elements of the monopoly are absent
and the market price of a commodity
is beyond the control of individual buyers and sellers.
Unfortunately, this is not the case in this situation.
According to the evidence in the record,
most argent points have only one other competitor
and some even have zero other competitors.
Again, as a financial planner for 45 years in the industry,
I think it's important we do our best
to move towards a market-based approach.
And to not do it thoughtfully is irresponsible of us.
'Cause this is historically setting for the future.
One of the first pieces of advice
I received as a Railroad Commissioner
was from our General Counsel.
And I'll remember those words.
They said that, on the dais, if we say something
or we say something out in public,
our actions and statements here
can impact the market, both in Chicago in the options market
and the stock market nationwide.
And, at this sensitive time of energy in the United states,
the first time we've become energy secure in decades,
I just think we need to be very careful
and keep these facts in mind.
And that's where I'm at is I'm not solid yet
on the point of exactly what we need to do.
I agree we need to make a decision to do it.
I'm not passing on that responsibility.
But I've lived through the shakeups that
occurred when you just say, "Hey, let's go to town."
And I don't know if I'm there yet.
-: I think it would be helpful for us to...
If I may, I think we are in agreement on a few things.
I think it would be helpful to provide some guidance here.
-: Look, I have a limited reason I want to open it.
So I don't wanna open this whole case again.
I wanted limited reason to get market information,
whether it's more information on
the market concentration, I think,
is what we're both concerned about.
In all three of these markets, by the way.
'Cause I think you've gotta go across the whole board.
And, let me say, John, I think you can look at FERC.
I think there are multiple things you can look at.
I'm picking on FERC because it's clear.
And they've got a system.
And, even when you look at FERC, they didn't jump...
And I think this is where we're struggling over here.
They didn't jump form cost-to-service
straight to free market.
They had some stops in between,
for lack of a better way to put it.
And I think that we need to be thoughtful.
If we need to have stops in between
or jump all the way to free market.
And I don't know that I have enough information sitting,
based on the full market,
to know the answer to that question today.
-: Madam Chairman.
I'm sorry.
-: No, that's okay.
-: Two concerns.
Number one, I'm comfortable with extending for new studies,
'cause I always...
Being a legislator, that was always
what you got out of something.
So, my question is is there any timeline estimate...
'Cause I don't want to see this thing grind on forever.
-: That's what I was going to ask.
So, when I say expeditiously, John,
how long will it take you, realistically?
I don't know the right answer.
To open it back up for this limited piece of it.
We're not gonna debate cost-to-service.
We are debating what is included
in a market concentration study
and what constitutes, in my opinion, a market.
So that is important to understand that.
And, if that's just cost, if it's a lot of other things
that are involved in that, geographics,
I think that there are multiple things that
all parties ought to have an opportunity
to comment on that.
For you to assess whether...
And, look, you may come back to
the exact same answer you've already got today.
I don't know the right answer,
but I wanna make sure we've got the right answer.
Because we didn't just discern we had a market,
but we also set a rate.
And said, if you've got a market
and you go with Commissioner Sitton's argument,
then we shouldn't be setting a rate.
If you go with the two of us who aren't sure,
is there a top end rate that's acceptable?
Should you be protecting the consumer, too?
And so that's where I think I still have some clarity
of what we should be doing to protect
and how we move out a cost-to-service
to get to market-based long term for the state.
-: Can I ask to clarify this, just for my own sake?
And I'll talk philosophically here.
Sounds like we're all three in agreement that,
if a market is truly competitive,
then we don't need to get in there.
We don't need to be involved in it.
-: Maybe or maybe not, Ryan.
I think you've got to look to see if there is...
I mean, that's where I...
The banking piece for usury, I think,
is really important to look at this.
I'm not saying that's occurring here,
but I'm not sure what is occurring at that part...
Whether we need to make sure we're protecting consumers
and the customers on this line.
And I think that's part of the question.
I don't have answered for me yet.
-: I'll say it again.
Not talking about this case.
'Cause you've said, just a second ago, hey...
It seemed like you agreed.
If a market's really competitive,
then we don't have to worry about the rates.
The question I think you're asking is,
"Is it really competitive?"
-: I think that we're trying to figure out
what this market looks like.
-: And I'm not sure that we...
I think there needs to be...
I believe that maybe some type of watching it...
This is the entire direction of
the industry of the largest producing state in the world.
And for us to just throw open the doors
to a whole new system without
any consideration of what the rates may do,
what the markets may do...
I think that needs to be considered.
And so, I'm hesitant on saying just let them go
free market compete.
-: So, in other words,
even if it's a truly competitive market,
you think we still may need to set rates,
'cause we may know better than the market does
where those rates need to go?
-: Having been in the business for years,
I've never seen an absolutely free market.
All markets have regulations, stop points, gaps, shut downs.
I've lived through the Crash of '87.
I've lived through the 2008.
Every time the market now goes...
Every time that happens, the government,
the regulators come in to help the consumer
and put certain calls in and stops.
It moves 100 points.
It pauses for two hours.
It moves 500, it shuts down for the day.
All kinds of things have been added,
using the example that you're mentioning.
And I don't know,
but what we need to be very careful
before we create another savings and loan type debacle.
Because we just say, "Okay, turn it loose."
Because, when they did that to the banks,
there was 18-20% interest CDs.
And everybody was just fighting with
the biggest rate that they could get in all this.
I remember, I lived through that.
And, all of a sudden, it went bankrupt
and cost the consumers and taxpayers
of the United States billions of dollars.
And I am just well aware of how important...
As the General Counsel told me,
the markets watch what we do.
I wanna be very careful not to
assure the markets and assure the citizens that
we are not going to be here watching over
what they've given us to be responsible for.
And I think that's part of our responsibility.
So I'm thinking there should be
oversight by this Commission
and not just turn loose our responsibility.
I think we have a responsibility to watch that market.
And, for us to just say,
"Okay, we're no longer there.
We no longer set anything.
We no longer set limits, set reasons and rules."
That's a little too far, in my book, right now.
Now, we may move toward that,
as we see the markets move and see how it's done
and see how it walks.
Maybe at some point.
But to open it up just full steam ahead
on Day One frightens me.
Because I know what history has shown when you do that.
-: I'm not sure your analogy's totally applicable.
-: I think, Ryan, where you're doing a skip.
And I think the concern...
Market-based rates don't necessarily mean free market to me.
I think that market...
We were charged, by statute, to have a market-based method.
Now, that may be free market.
That may not be or be some kind of methodology.
And I think that's where it's very important,
in this precedent setting case,
that we define, so people know going forward,
what that methodology should look like
and what they should come in and bring
so we don't have to send a case back three and four times.
That's driven me crazy, frankly.
But I think we need good information.
So a market-based methodology
is not the same thing as a free market.
I think you've defined them differently.
But I don't define market-based methodology as free market.
I think there are multiple ways
to look at a market-based methodology
depending on the market.
And that's what I'd like more information
about what the market is here
so we know what that methodology needs to look like.
-: The commentary here, which I think I wanna clear up,
is you've given examples of
savings and loan and banking crises,
which were a true deregulation.
We don't...
Most new pipelines...
Almost all new pipelines that are being built,
we don't regulate those rates.
Those are determined by the market already.
When those pipelines are being constructed,
they go out and get investors.
They secure rates based on what their contracts are.
So, this isn't...
I don't think that analogy is correct.
I wanna be clear to everybody that,
look, we're talking about specific cases
where certain pipelines are in a market environment
where there are competitive options.
And those cases, based on the legislature's 2006 revision,
or whatever it was, that we use a market-based approach.
I don't have a problem with the fact that,
yeah, there might be different ways to look at
what a market-based rate is.
My point, if something is truly competitive,
IE, the shippers have a number of options,
then that diminishes the risk of a negative situation.
Because the market's gonna work itself out.
There's always cost in changing business.
I go out and buy a house and sell a house.
I gotta pay realtor fees, transaction fees.
There's cost in making changes.
But that doesn't mean that
the market's not competitive, the market's not free.
So, this is an instance...
I think, probably, on one end of the spectrum...
I like the way John put it.
If we can't get some colorful definition
of competitive here,
then the Commission's market-based rate making authority
may never leave the shelf.
I thought that was good commentary
on this being one end of the spectrum
of a truly competitive market.
So I like the clarity of the situation.
Competitive markets.
What I was trying to do was get to clarification to John
to say, "Look, I think what we're asking for..."
And I'm asking if this is what,
Chairman, Commissioner, you're asking for
is we wanna first understand is this a competitive market?
I mean, it seemed like you both asked questions
about what that really means.
How much cost there is.
If they're building laterals.
What those are relative to the difference
in cost of shipping product.
I mean, to me, that's the first question asked.
That could be pretty fast.
-: I think I've established there's competition there.
Competitive market.
That's that.
Now, what do we do with it?
What is the responsible thing to move toward?
'Cause we're not talking about private carriers.
We're talking about common carriers.
Which we have had regulation on.
And I am for moving toward that.
But I wanna do the responsible move, again,
as we change this historical precedent.
And make sure that we're doing the right thing.
But I can't feel comfortable right now
with just saying, "Okay, just turn it loose."
And I'm scared of what happens to the rate payers,
the citizens of the state who have empowered us,
elected us, and the industry itself.
That, I think, they need...
Sunset tore us up for a time.
Because it's uncertainty.
And the market does not exist well in uncertainty.
Whenever we loosen something like this,
we need to, I think, establish somewhat of a road map
as we're going toward a freer market.
But there's never a deregulated total free market.
We'll always need to have some oversight.
And that's just our part.
-: Let me say it differently.
I don't think we should delay this.
However, if you're going to...
Trying to give John some clarity.
The question...
It seems like the primary question is,
"How competitive is the market?"
Is that the first question?
Is that...
Am I summarizing what your point is?
-: No, I understand it's a competitive market to an extent.
It is not a totally free market.
You have still 20% of the volume there
that does not have a lot of other options.
You also have...
And, when you do free it,
my concern is not whether it's free or not free.
I'm for moving toward that.
And I think we're making an agreement here
to move away from us setting every rate.
I think we all three are on that page.
I'm concerned that we make sure we're taking
responsible first steps.
And I think it should be a process,
rather than just us release it.
That concerns me, because I think it's
too fragile a time in the nation's energy policy.
We just achieved energy security in this nation.
We've just...
The market is going the right direction.
The prices are going the right direction.
We're talking about expanding like never before.
All of the things that we're all aware of
that's happening in our industry.
And I wanna be responsible not to
harm that direction that the industry is moving
by throwing a kink in it.
So, that's my concern.
I think it needs to be...
Look at what are the proper steps
to move toward a freer market that has less regulation.
But oversight is always a part of our responsibility.
Now, I wish I had...
That's why I'm looking for what are the proper steps.
But I'm not comfortable right now with
Ryan just saying, "Hey, it's competitive.
So, just turn it loose."
I'm not comfortable with that right now.
-: Understood.
I'm trying to get what it is you're asking John to do.
Christi: John, do you have any questions about
what we're asking you to do?
(laughter)
How about we just ask John?
-: As I understand it, a limited scope remand
to solicit more evidence and, perhaps,
argument on a market study to determine what...
To address market concentration
in all three of these markets.
To find out a little more information about alternatives.
About what's happening.
Competition, whether or not these are competitive markets.
We can go circle back to that, also,
to see what the evidence shows.
What I'm not...
Is the intent to apply that kind of a study
and that kind of analysis just to this case
or is the intent there to apply that going forward?
'Cause it may have different facts
for different cases in the future.
-: And I think, obviously,
we want to apply it to this case, first and foremost.
If we apply it well to this case,
hopefully, it becomes some good precedent
for us to be able...
Based on the facts of the other cases.
Because there may be cases where
we still are having these cost-to-service
based on whatever the market shows in that particular area.
And I can think of places in the state
where there's one pipeline or something that services, right?
And so, I think you'd have a hard time
getting to a market there, potentially.
So, I think it depends on the facts.
And, I think, based on what
Commissioner Christian is saying,
if there's some steps we need to take going forward
or some safeguards we need to make sure
we're continuing to put in place or look at,
that might be a limited part of this
to go back and have some suggestions
and some thoughts about that.
-: Yes, ma'am.
As far as speed, we can certainly front burner this,
if you'll excuse the industry...
We can put this on a fast track as much as we can.
It's been my practice throughout this case,
because there's so many novel issues
and they're all kind of intertwined and complex,
to give the parties as much time
as they felt reasonably necessary to bring things,
to make their studies without...
So, I don't know how...
I couldn't...
We can fast track this, definitely.
But, as far as how much time the parties
are going to need to do their studies
and to stay within the bounds of
what this remand is gonna be,
I don't know if I can promise that now.
I'd probably ask for the parties' input
on a procedural schedule for this
and see what they feel is fair.
-: Okay, I just don't want a whole lot of delays.
I know this case has had a few.
John: Understood, understood.
I will push to go on the faster side with that.
-: So, I'm gonna move what we've talked about.
If you want me to restate it, I will.
But I'm gonna move that we remand this case
for the limited purpose we've discussed.
Is there a second?
-: I'll second.
-: Second, Commissioner Christian.
All those...
Oh, I'm sorry.
Before I walk off from this case,
we've got some people here to testify.
Does anybody want to hear anything from anybody?
Okay, so, I've got a motion and a second.
All those in favor, say aye.
-: [Christi And Wayne] Aye.
-: Opposed?
-: No.
-: Two-one.
Thank you, John, for your work.
Let the room clear for just a minute.
Okay, we're on four, five, and six.
Good morning.
-: Good morning, Chairman and Commissioners.
I'm Jennifer Cook with the Hearings Division.
Items four through six were heard at the same time
and presented together in one PFD,
because they have common facts, parties, and legal issues.
And I plan to present them together today.
And will provide one order.
Ammonite Oil and Gas Corporation
filed three applications under
the Mineral Interest Pooling Act, also known as MIPA,
each requesting the Commission to pool
its leased acreage into a unit
for an already drilled horizontal well
on Apache Corporation's Apache Bluejay Unit.
Apache requests the applications be denied.
The McGary Living Trust, the McGary Family Trust,
and the Mary Jane McGary Trust
also participated and protest the applications.
They are mineral interest owners
and one of the two tracts comprising
the Apache unit at issue.
Ammonite asserts the proposed pooling will prevent waste
and protect correlative rights.
Ammonite claims it's leased riverbed tract
should be pooled with the wells on the Apache unit
such that the Apache unit will be
divided into three approximately equal units,
one for each of the wells,
and each pooled with 1/3 of Ammonite's riverbed tract.
The riverbed tract at issue
traces the boundary of the portion
of the Apache unit facing the river.
It meanders and, consequently, is nonlinear.
The tract begins at one side of the Pecos River riverbed
and ends at the other such that
the tract is relatively narrow.
Ammonite argues, due to the shape of the tract,
it's not technologically or economically feasible
to drill a well to produce the underlying minerals
and the tract must be pooled
for the tract's mineral interest owners
to obtain their fair share of minerals and prevent waste.
Ammonite did not provide any scientific or expert testimony
to support its claims or its applications.
Apache asserts there should be
no forced pooling in this case.
Apache claims the wells do not produce minerals
from Ammonite's riverbed tract.
There is no drainage.
And Ammonite's acreage provides
no contribution to production.
Apache claims Ammonite's voluntary pooling offer
was not fair and reasonable.
It provided no benefit to Apache,
would cause Apache to incur
additional costs for additional equipment,
would cause lease line spacing problems,
and unfairly dilute the Apache unit
mineral interest owner's portion.
Apache further asserts pooling
will not prevent waste or protect correlative rights.
Apache claims the wells are already drilled
and do not drain minerals from the Ammonite tract.
Pooling will not impact
the amount of hydrocarbons produced or lost,
so waste is not an issue.
Apache also asserts pooling will not
protect correlative rights,
because the Ammonite tract minerals
are still in place beneath the Ammonite tract
and, in fact, Apache asserts pooling will
negatively impact the Apache unit
mineral interest's owner's correlative rights
by taking minerals produced
solely from under the Apache unit
and giving a portion to Ammonite.
The protestants express concern regarding
Ammonite's proposal to split
the Apache unit into three units,
one for each of the wells.
The protestants claim their
correlative rights will be impacted.
The protestants are currently being paid
on production from all three wells,
per an agreement of the interest owners of the unit.
If the Apache unit were forcibly split
into three separate units
and pooled with Ammonite's tract,
the protestants would not be paid on
the same basis as that agreement.
The Administrative Law Judge and technical examiner
recommend that the Commission find
insufficient evidence a fair and reasonable offer was made
by Ammonite to Apache,
which is required by the MIPA.
Further, the examiner's recommend the Commission
find Ammonite has failed to demonstrate
that the proposed pooled units
will prevent waste, protect correlative rights,
or prevent the drilling of unnecessary wells.
Finally, the examiners recommend the Commission
dismiss and deny the applications.
Exceptions and a reply were filed.
And I am available for questions.
Christi: Thank you, Jennifer.
Are there any questions?
-: One question.
Jennifer, I just want to make sure, for clarity...
We've talked about...
We've seen a number of these types of cases come forward.
Actual draining of minerals is not
a requirement in the MIPA, right?
We see MIPA as an incentive
for people to negotiate in good faith ahead of time
to prevent waste because a track is stranded.
It seems like, in this case, the finding was,
because of the timing of the Ammonite offer
and that units were already formed,
it made the offer not good, if you will,
or it wasn't a good faith offer.
It would have been unduly burdensome on Apache
to split up the units and to redevelop.
Hence the reason to deny this.
I just wanted to make sure that was
the key crux of the issue of the case for me.
-: That was certainly one factor, I think.
The lack of drainage was another factor,
because Apache wasn't getting anything.
And Ammonite wasn't contributing to the wells.
It was asking to benefit from the production.
But I do think there were other facts in this case
that were also very serious factors.
Such as the one you mentioned.
-: I wanna make sure.
I think, in MIPA, drainage is not a requirement.
In other words, if somebody makes an offer,
someone just ignores it, minerals are stranded.
Even if they're not draining,
they can still be forced into the pool as a result.
Hence incentivizing, normally,
operators to negotiate in good faith
to try to capture those minerals.
That's a correct statement?
Jennifer: I agree with you that drainage
is not in the MIPA statutes.
That word is not in there.
It is not an expressed requirement.
I think there's been debate in the law
and among some of the Commissioners
as to whether that should be an implied requirement.
-: But, in this...
Like I said, in this case, it seems like,
regardless of that, the timing of the offer,
where they were in their development,
it would have been unduly painful, if you will,
to Apache to make the development.
Hence the offer was...
I'm not gonna say not a good faith offer,
but it wasn't one that was reasonable.
Hence the reason the MIPA standard shouldn't be applied.
Anyway, I'm fine with your findings.
I'd just like to clarify those two things are different.
Thank you.
-: Any other questions?
I move we approve the examiner's recommendation
for all three of these items.
You said you had one order, correct, Jennifer?
There's one order, is that correct?
Jennifer: There's one order, yes.
-: So, I just need one motion.
I move we approve the examiner's recommendation
for these items.
Is there a second?
-: Second.
-: Second, Commissioner Sitton.
All in favor, say aye.
All: Aye.
-: Motion passes.
Items are approved.
Thank you.
Items seven and eight together.
Morning, Clayton.
-: Good morning, Chairman and Commissioners.
Clayton Hoover, Administrative Law Judge.
Items seven and eight are good faith claim cases
in which the sole issue is
whether the operator has a good faith claim
to continue to operate the lease.
The record evidence demonstrated that
Creative did not present a good faith claim
to operate the leases,
because the JOAs admitted into evidence
clearly show that a successor operator
must be a working interest owner.
And Creative owns no working interests
and has never owned any working interests.
While the JOAs allow name changes
and transfers to affiliates,
in this case, there have been no name changes
or transfers of interests.
The operator has never owned any working interests
and is clearly prohibited from serving as operator.
It is, therefore, recommended that
the Commission find that
Creative does not have a good faith claim
to continue operating the leases.
Exceptions and replies were filed.
I'm available for questions.
-: Thank you.
Are there any questions?
We have one of the parties to the case here.
Does anybody wanna hear from that person?
Okay, I move we approve the examiner's recommendation for...
Do you have one order or two?
I'm sorry.
Clayton: I have one order.
-: One order.
Okay, I move...
Clayton: I'm sorry.
Two orders.
-: So, I need two different motions?
Clayton: Yes.
-: Okay, I move we approve the examiner's recommendation
for item number seven.
Is there a second?
-: Second.
-: Second, Commissioner Christian.
All in favor, say aye.
All: Aye.
-: Motion passes.
Item is approved.
I move we approve the examiner's recommendation
for item number eight.
Is there a second?
-: Second.
-: Second, Commissioner Sitton.
All in favor, say aye.
All: Aye.
-: Motion passes.
That item's approved.
Thank you.
-: Thank you, Chairman.
Items nine through 24 are motions for rehearing
on the 16 MIPA cases in which
Ammonite seeks to form MIPA units
using Frio River tracts leased by the state of Texas
for the benefit of the Permanent School Fund
and EOG acreage with 16 existing wells.
At the conference on December 5, 2017,
a final order dismissing these applications
based on Commissioner Christian's motion was entered.
Ammonite has filed the motions for rehearing.
No new issues of fact or law
not previously considered were raised.
Denial is recommended.
The motion for rehearing will be
overruled by operational law on February 5, 2018.
Christi: Are there any questions?
-: No, even though I think we got this ruling wrong,
I don't think there's any new issues of fact or law.
-: Okay, do you have one order on this.
Clayton: One order on this.
-: That's good.
Just wanna make sure I'm doing enough motions.
I move we approve the examiner's
recommendation on these items.
Is there a second?
-: Second.
-: Second, Commissioner Sitton.
All in favor, say aye.
All: Aye.
-: Motion passes.
Those items are approved.
Thank you, Clayton.
Alright, Oil and Gas Consent Agenda.
Items 25 through 74.
There are 50 items on here.
Any we need to deal with individually?
Alright, I'm gonna move that we approve
items 25 through 74.
Is there a second?
Wayne: Second.
-: Second, Commissioner Christian.
All in favor, say aye.
All: Aye.
-: Motion passes.
Those items are approved.
Rule 15, inactive wells.
There were 19 items.
We're now down to 16.
Apparently, some have gotten fixed.
So, these are items 79 through 93.
But the following three, I'm told, have been fixed.
So items 81, 84, and 91, they have achieved compliance.
Is that correct?
Anybody else that I missed?
Alright, I'm gonna move we approve items 75 through 93
with the exceptions of item numbers 81, 84, and 91.
Is there a second?
Ryan: Second.
-: Second, Commissioner Sitton.
All in favor, say aye.
All: Aye.
Motion passes.
Those items are approved.
Master Default items.
Items 94 through 109.
There's 16 of them.
Again, I'm gonna move that we approve those items,
items 94 through 109.
Is there a second?
Wayne: Second.
-: Second, Commissioner Christian.
All in favor, say aye.
All: Aye.
-: Motion passes.
Those items are approved.
And Agreed Enforcement Orders, items 110 through 485.
There are 376 items on this docket.
And I move we approve items 110 through 485.
Is there a second?
Ryan: Second.
-: Second, Commissioner Sitton.
All in favor, say aye.
All: Aye.
-: Motion passes.
Those items are approved.
This concludes the hearing section.
Thank you.
Alright, Administrative.
Morning, Wei.
-: Good morning Chairman, Commissioners.
Wei Wang, Interim Director.
For the update, I'm glad to report that
we're making good progress on the hiring front.
Today, our head count is 708 employees
comparing to 659 when we started the year.
So, as the industry recovers,
we're taking good measures to make sure
we have adequate staffing
and boots on the ground to process applications
and perform inspections.
Now, on the well plugging,
Clay, at a later point, will provide you
with the first quarter updates on the well plugging numbers.
And that is my update today.
-: Great.
Any questions for Wei?
Okay, thank you.
Morning, Alec.
-: Good morning, Chairman, Commissioners.
For the record, my name is Alex Schoch.
General Counsel of the Railroad Commission of Texas.
Item 488 will be addressed by David Cooney
and then Natalie Dubile will come up
to address items 489 and 490.
Christi: Okay, great, good morning.
-: Good morning, Commissioners, Chairman.
David Cooney from the Office of General Counsel.
Just a brief report on the status
of the Clean Power Plan Repeal Proposal.
We had joined with TCEQ and the PUC
to comment on the repeal of the Clean Power Plan,
which was proposed by the Trump administration.
Comments were originally...
And we put together comments.
And we're prepared to file a joint letter
with the other two agencies.
Comments were originally due in mid-January.
The EPA extended the comment deadline to April 26.
And so, on instruction from the Governor's Office,
the TCEQ held back on filing those joint comments.
And we're in discussion with the Governor's Office
to see what areas they wanna make sure we address
and we'll reapproach before the April 26 deadline.
And we'll keep everyone posted.
-: Okay, great, thank you very much for staying engaged.
Any questions?
Thank you, David.
489, good morning.
How are you?
-: Good.
Good morning, Chairman, Commissioners.
For the record, my name is Natalie Dubile
with the Office of General Counsel.
Item number 489 is staff's recommendation
to publish proposed amendments to
16 Texas Administrative Code, Chapter Seven.
Staff proposes amendments to Chapter Seven
to correct outdated references,
correct minor typographical errors,
and reflect statutory and rule changes
outside of Chapter Seven.
Their proposed amendments include
changing the title of Chapter Seven to Gas Services,
updating Commission division and department names,
correcting references to rules in Chapter One,
which was recently amended,
removing references to
the NERU cuneiform system of accounts,
as the Commission now requires use of
the FERC uniform system of accounts,
and amending Section 7.315 to reflect
changes in industry accounting.
Staff requests the Commission's approval
to publish the proposal in
the Texas Register for Public Comment.
If approved today, the proposal will appear
in the February 9th issue of the Texas Register.
The proposal and an online comment form
would also be made available on the Commission's website,
giving interested persons more than
two additional weeks to review
and submit comments to the Commission.
I'm available to answer any questions.
-: Thank you, Natalie.
Any questions?
I move we approve the staff's recommendation.
Is there a second?
-: Second.
-: Second, Commissioner Sitton.
All in favor, say aye.
All: Aye.
-: Motion passes.
Item is approved.
Next one.
-: Thank you.
Item number 490 is staff's recommendation
to adopt amendments to 16 Texas Administrative Code,
Sections 18.1, 18.4, and 18.11.
The proposed amendment to Section 18.1
clarifies that, pursuant to House Bill 1818,
the Commission now has damage prevention authority
over interstate pipelines,
as well as intrastate pipelines.
Staff also recommends adoption of
two amendments to bring Chapter 18
into compliance with PHMSA program requirements.
First, an amendment to Section 18.4 and 18.11
to require an excavator to notify
the pipeline operator at the earliest practical moment,
but not later than one hour, after damaging a pipeline.
And, second, an amendment to Section 18.11
to require an excavator to call 911
to report the release of any product
from a damaged pipeline.
Finally, staff recommends adoption of amendment
to Section 18.11 to give excavators and operators
30 days to report information regarding
a damage incident to the Commission.
On November 7, 2017, the Commission approved
publication of the proposed amendments
in the Texas Register for a public comment period,
which ended on January 2, 2018.
The Commission received three comments on the proposal,
which are discussed on pages one and two of the preamble.
Staff recommends that the Commission adopt the amendments
without changes to the proposed texts
published in the Texas Register.
I'm available to answer any questions.
Christi: Thank you.
Are there any questions?
-: Just one.
I'm just wondering...
We were given...
Was it the federal government that
gave us additional authority over the interstate pipelines?
Natalie: I believe that was the legislature
in the last session in House Bill 1818.
-: Okay, thank you.
-: And this also gets us into further compliance
with PHMSA and One Call.
Is that correct, as well?
Natalie: That's correct.
-: Okay, great.
Any other questions?
I move we approve staff's recommendation.
Is there a second?
-: Second.
-: Second, Commissioner Christian.
All in favor, say aye.
All: Aye.
-: Motion passes.
Item is approved.
Thank you, Natalie.
Morning.
-: Good morning, Chairman, Commissioners.
For the record, I am Clay Whittle
with the Oil and Gas Division.
I will be presenting items 491 and 492.
Item 491 is the Oilfield Cleanup Program annual report
for Fiscal Year 2017.
Texas Natural Resources Code 81.069c
requires the Commission to file
an annual report to the legislature
for the Oil and Gas Regulation and Cleanup Fund.
This report covers the period from
September 1, 2016 through August 31, 2017
and contains information on
the state-managed plugging and cleanup programs,
enforcement activities, and financial information.
We recommend your approval of this report
for submission to the legislature.
May I answer any questions?
-: Thank y'all.
We're making good progress.
Any questions?
I move we approve the staff's recommendation.
Is there a second?
-: Second.
-: Second, Commissioner Sitton.
All those in favor, say aye.
All: Aye.
-: Thank you, Clay.
You're on 492, correct?
-: 492, yes, ma'am.
And I will present the well plugging report
and Peter Pope will come up
and present the site remediation report.
During the first quarter, plugging operations were completed
and files were closed on 221 wells at a cost of $3,573,460.
This includes only those wells that were plugged,
invoiced by the plugging contractor,
and approved for payment by field operations.
During this same period, 410 new wells
were approved for plugging with state funds.
I'm happy to report, as of last Friday, January 19,
530 wells have been physically plugged
at an estimated cost of $7.7 million.
The well plugging target for Fiscal Year 2018 is 1500 wells.
And I will now turn this over to Peter Pope.
Christi: Thank you.
-: Good morning, Chairman, Commissioners.
I'm Peter Pope, manager of the Site Remediation Section.
During the first quarter of Fiscal Year '18,
site remediation completed and closed 16 activities
using OGRC funds at a cost of approximately $235,000.
We also authorized 72 new activities.
And, for a current snapshot,
as of January 22, we had completed another nine activities,
which brings our total completed up to 27
at a cost of approximately $272,000.
And then, on top of that,
we have another 21 activities that
have been completed in the field
and we're awaiting final payment of the invoice.
May I answer any questions?
-: Are there any questions for Clay or Peter?
Thank y'all for making good progress.
We appreciate the report.
493, good morning.
How are you?
-: I'm good.
Thank you.
Good morning, Chairman and Commissioners.
For the record, my name is Mark Everts
with the Oversight and Safety Division.
I'll be presenting item 493.
The Oversight and Safety Division
proposes two new forms,
public notice of proposed rate increase
and customer notice of interim rate adjustment,
also known as GRIP.
Each of these forms is designed
to provide gas utility filers
with a clear example of notice forms
that comply with statute and rule,
streamline this aspect of the filing process,
and provide effective notice to customers.
The use of these forms is recommended, not required.
The Oversight and Safety Division
also proposes a revised interim rate adjustment spreadsheet
to streamline the filing process
for gas utility applicants.
This fully executable Excel spreadsheet form
can be downloaded by applicants
and replaces a non-interactive PDF form.
The use of this form is recommended, not required.
The Oversight and Safety Division also proposes
changes to the form used by gas utilities
to report gas utility tax.
These changes are minor and are necessary
to reflect industry accounting changes.
Use of this form is required.
The Oversight and Safety Division
respectfully requests your approval
to publish these proposed forms
on the Commission website for a minimum of 30 days
to receive informal comment.
I'm available for questions.
Christi: Thank you, Mark.
Are there any questions?
I move we approve the staff's recommendation.
Is there a second?
Wayne: Second.
Christi: Second, Commissioner Christian.
All those in favor say aye.
All: Aye.
-: Motion passes.
Item is approved.
Thank you.
494 is mine.
That's where we are.
Is that right, Alex?
Just to make sure I didn't skip something.
So, I wanted to make sure,
since the Congress has actually passed
Tax Cuts and Jobs Act of 2017...
I think that's their official name.
In doing so, they reduced the corporate tax rate
from 35% to 21% as of January 1st.
I think, as a prudent regulator,
the Railroad Commission should
proactively watch for opportunities
to ensure that our gas utility rates
are set at the lowest reasonable rate for consumers.
And those taxes are allowed to be included
in the rates that the utilities...
That we set with the utilities.
So, I wanna...
Considering the reduced corporate tax rate...
And I know we have some active cases.
And I wanna make sure that,
one, we are watching the active cases,
but also I'd like the staff to analyze
the impact of this tax act on the current rates.
But also make sure that we are not overpaying
on gas rates we've already done.
So, I wanna make sure we're passing those savings
back on to those customers.
So, if y'all...
This is just a direction to staff
to make sure we're paying attention, readjusting.
And y'all are gonna come back to us, hopefully,
Mark, with some recommendations.
So, if anybody's got any questions.
Comments.
Alright, great, thank you very much.
Alright, item 497 is public participation
and we don't have any additional cards.
So we're at 495 and 496, our executive session.
So having convened in a duly noticed open meeting,
the Railroad Commission of Texas now at 10:31 on Tuesday...
It's not Tuesday.
It is Tuesday, January 23.
Hold a closed door meeting
at the Willa May Conference Room
on the 12th floor of
the William B. Travis state Office Building
pursuant to the Texas Government Code, Chapter 551.
The Commission will discuss personnel matters
related to the position of the Executive Director
pursuant to Section 551.074 of the code.
The Commission will reconvene
at an open meeting in the Willa May Conference Room
on the 12th floor of the
William B. Travis state Office Building.
We are recessed.
Thank you.