Item 3- Draft Recommendation TGS Franchise — original pdf

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Draft Resource Management Commission Resolution on Texas Gas Service Franchise October 20, 2025 Introduction The City of Austin (The City) has a 20-year franchise agreement with Texas Gas Service (TGS), which is the company’s license to operate in the city limits. That franchise agreement expires in October of 2026. The renewal of the franchise is a once-in-a-generation opportunity to correct or reform longstanding problems that include high rates, high fuel costs, poorly designed rate structures, poorly performing energy conservation programs, scant funding to assist low-income ratepayers, and lack of progress in shrinking the company’s carbon footprint with the company. 1.0 Selection of Company and Term of Franchise WHEREAS, Texas Gas Service, the fifth consecutive owner of the main private gas utility that has provided service in the city limits of Austin since the 1870s, has never participated in a competitive process to determine if the company offers ratepayers adequate or better service; and WHEREAS, the current term of the franchise is 20 years (a 10-year initial period with a subsequent 10-year automatic renewal with minimal conditions), is too long a time period to lapse without a revised regulatory agreement; and 1.1 High and Inequitable Rates WHEREAS, retail residential gas rates have gone up about 132% between 2016 and 2025, which is 96% above inflation; and WHEREAS, Texas Gas Service has proposed three rate increases in since 2024; and WHEREAS, these rate increases are largely driven by the cost of capital expansion or improvements of the system, and no city or state regulator has the ability to prevent these expenditures prior to their occurrence; and WHEREAS, TGS does not collect full payment for new infrastructure (known as Contribution in Aid of Construction or Capital Recovery Fees) required for new customers, thus subsidizing new customers while increasing gas bills of existing customers; and WHEREAS, the recent combination of TGS Central Texas and Gulf Coast regions for purposes of ratemaking has raised Austin’s bills while lowering bills in the Coastal region; and 1.2 Rate Structure (Conservation-Based Rates that Also Help Low-Income Customers) WHEREAS, Austin’s municipal utilities have progressive tiered rates that charge less per unit for less usage, while Texas Gas Service has historically maintained a regressive flat rate, which discourages conservation and adversely affects lower-income ratepayers who typically consume less energy; and 1.3 Low-Income Assistance WHEREAS, TGS currently has no customer assistance program that reduces monthly gas bills for low-income customers; and WHEREAS, TGS only provides minimal funding for emergency bill payments for low-income customers; and WHEREAS, in contrast, Austin Energy and Austin Water provide substantial funding for these kinds of low-income assistance; and 1.4 High Fuel Costs WHEREAS, fuel costs, which are added to rates as part of the total gas bill, have spiked in recent years due to increased storage and pipeline demand charges; adding to affordability problems; and 1.5 Securitization Costs WHEREAS, the $3.5 billion for gas purchased under predatory conditions that occurred during Winter Storm Uri was so expensive that the costs were amortized over 16 years, and Austin TGS residential ratepayers will pay about $38 a year until the debt is retired (in about 2039); and WHEREAS, neither TGS or the City of Austin (which itself consumes natural gas) have never legally challenged these outrageous costs; and 1.6 Franchise Fees WHEREAS, the City of Austin levies a 5% franchise fee on the gross receipts of rates and normal fuel costs, which support the City’s General Fund services; and WHEREAS, when fuel costs go up because of predatory fuel costs, the City receives a windfall franchise fee that magnifies that financial pain for consumers; and WHEREAS, the City exempts franchise fee collections from public entities (including governments, educational institutions, and hospitals that provide indigent health care), which does not always occur in other Texas cities; and 1.7 Energy Conservation WHEREAS, TGS has been planning and operating residential energy conservation incentive programs that do not pay for themselves in reduced fuel costs or reduced fuel consumption; and WHEREAS, some of these conservation programs are more effective at marketing gas appliances than assisting consumers with cost-effective energy savings; and WHEREAS, TGS conservation program incentives are, on average, much higher than those offered by other gas utilities around the country; and WHEREAS, TGS is currently in violation of its franchise, which requires it to implement energy conservation programs as part of its normal operations; THEN BE IT THEREFORE RESOLVED that the City’s Resource Management Commission recommend that the Austin City Council implement the following policies related to the new Texas Gas Service franchise agreement: 2.0 Selection of Company and Term of Franchise • Instead of only negotiating with Texas Gas Service, the City of Austin should conduct a competitive bidding process from other utilities, with Austin Energy being one of the contenders. • the new franchise agreement should be limited to a 10-year term with a firm expiration date and no automatic renewal, as a shorter term will ensure greater regulatory accountability. 2.1 High Rates In order to deal with high and constantly increasing rates, the new franchise agreement should include the following: • Henceforth, the City of Austin should demand preapproval of all capital expenditures relevant to its rates. • The City should oppose mergers of the Central-Gulf region with other TGS regions. If such a merger occurs during the 2025 rate case, Austin should require that the merger impacts as they concern the City be reversed. • Austin should demand full capital recovery fees for new hookups and developments. This model should emulate how Austin Water collects water infrastructure improvements for the entire system from new customers as well as the infrastructure for the local infrastructure specific to these new customers. 2.2 Rate Structure (Conservation-Based Rates that Also Help Low-Income Customers) • The City of Austin should require Texas Gas Service to implement a progressive residential tiered rate structure with no less than three tiers, and that monthly base-rate fees collect no more than 30% of the total rate base, reflecting the current rate structures of Austin Energy and Austin Water. 2.3 Low-Income Assistance • The City should immediately require TGS to adopt an income-qualified monthly customer assistance program, to be phased in to enroll at least 7% of ratepayers in the Austin city limits by January 2029. • The City should require TGS to fund at least $500,000 annually (to go up with annual inflation) for income-qualified emergency bill assistance in the Austin city limits, and to fund at least half of this with money paid by shareholders of the company. 2.4 High fuel costs • TGS and the City should investigate ways to lower gas storage costs, demand fees, and reservation fees to historical levels, including ownership of relevant infrastructure such as gas storage systems by the gas company or co-ownership by the gas company and Austin Energy, whose customers would also benefit from lower gas costs. 2.5 Securitization Costs • Gas companies and City of Austin should consider filing lawsuits to recover the high predatory costs charged during Winter Storm Uri. 2.6 Franchise Fees • The 5% franchise fee levied by the City of Austin on all fuel revenue should exempt franchise fees on fuel charges when they reach unexpectedly high levels as a form of bill relief. • The City should conduct a benchmark study of large Texas cities to compare the practice of exempting public entities from natural gas utility franchise fees. If the City of Austin is found to be abnormally lenient in collecting franchise fees compared to other large Texas cities, then a phased-in collection of these fees should be enacted. 2.7 Energy Conservation Programs • Austin should take over planning and management of TGS conservation programs as part of the new franchise agreements, with charges for gas conservation programs paid by TGS. • If the City is not successful in negotiations to take over planning and management of TGS natural gas conservation efforts, then the City should: 1) advertise to gas utility customers when their conservation programs are not cost-effective as part of a consumer protection policy; 2) intervene and provide testimony at the Railroad Commission of Texas to ensure the conservation programs are as cost-effective as possible; 3) prohibit TGS from spending unutilized gas conservation program funds for any other purpose. Attachments