How the Railroad Commission Regulates Natural Gas Pipeline Rates

How the Railroad Commission Regulates Natural Gas Pipeline Rates

History matters. On Dec. 19, 1890 Art. X, §2 of the Texas Constitution was amended to include a provision forming the Railroad Commission of Texas, stating the “Legislature … may provide and establish all requisite means and agencies invested with such powers as may be deemed adequate and advisable (to regulate Railroads).” This enshrined the Railroad Commission in the Texas Constitution to ensure fair transportation rates by railroads for farms and ranches needing to get their products to market.

Today, after almost 130 years of regulatory evolution, the RRC no longer oversees railroad rates. However, the state regulator now has a similar responsibility to natural gas producers who need to get their product from the leases to the markets through pipelines.

The analogy of railroads and pipelines may be obvious to some. But how, as natural gas begins to dominate the state, national, and global conversation regarding electrical generation, exports, and emissions, does this regulatory responsibility actually work?

The process is called the “Informal Complaint Procedure.”

A look at an RRC organization chart will show the Oversight and Safety Division. Inside this division is the Gas Services Department. Formed almost 25 years ago, the agency presciently foresaw the increasing importance of natural gas in Texas and organized this department as a response. The Department has several responsibilities, including ensuring a continuous, safe supply of natural gas is available to Texas consumers at the lowest reasonable price. Another part of this oversight is the Informal Complaint Procedure.

As stated by the RRC website, “The Informal Complaint Process is designed to address complaints about the transportation of natural gas through gathering systems and intrastate pipelines. These can include purchasing, selling, shipping, transportation or gathering practices, depending upon the agreement between shipper and transporter.”

The agency authority comes from Texas Natural Resources Code, Chapters 81, 85, & 111, Statewide Rule 34, Texas Utilities Code, Chapter 104, and 16 Administrative Code § 7.7001, et seq. This statute authorizes the Commission to set just and reasonable rates when settling transportation disputes. The legislative mandate encourages affordable, expeditious and fair settlement and resolution of disputes regarding natural gas purchasers, sellers, transporters and gatherers.

As stated by the agency, “The Commission will not tolerate discrimination among similarly situated shippers and sellers.” An important and complex responsibility. Here is how they do it.

It starts with filing a complaint with the Railroad Commission. A person may call the Commission’s Helpline, submit a complaint in writing, or file an informal complaint online at http://www.rrc.texas.gov/gas-services/complaint-filing/informal-gas-transportation-purchase-complaint-preliminary-information-online-form/. An attorney is not required to participate in the informal complaint process.

The complainant can then expect Commission Staff to contact them to confirm receipt of the complaint and obtain any additional information needed. Commission Staff will determine whether mediation is needed.

The Gas Services Division Director shall appoint either a Commission or non-Commission employee mediator (through an agreement between the complainant and respondent). The mediator shall review the relevant information and provide both parties with a confidential written summary of the review.

The Commission Staff will schedule a mediation meeting after the mediator provides a written summary. Following the mediation meeting, if no resolution has been reached, the mediator will send a confidential memorandum to all parties summarizing potential next steps, which may, or may not, include, moving to the formal complaint process.

The formal process will involve a hearing. This includes evidence, testimony and an eventual ruling by the Railroad Commissioners in open conference.

Opinions may differ on the efficacy and elegance of this procedural waltz between the complainant, the pipeline company and the agency. However, understanding the process is the first step in knowing if anyone needs to use it.

About the author: John Tintera, the Executive Vice President of the Texas Alliance of Energy Producers, is a regulatory expert and licensed geologist (Texas #325) with a thorough knowledge of virtually all facets of upstream oil and gas exploration, production and transportation, including conventional and unconventional reservoirs. As a former Executive Director and 22-year veteran of the Railroad Commission of Texas, considered the premier oilfield regulator in the nation, Tintera oversaw the entire regulatory process, from drilling permits to compliance inspections, oil spill response, pollution remediation and pipeline transportation.

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