Agency Highlights

United States Environmental Protection Agency (“EPA”)

An EPA Interpretive Statement issued on April 15, 2019 clarifies the Clean Water Act’s (“CWA”) applicability to groundwater. This Interpretive Statement sets forth the EPA’s position on the inapplicability of the CWA’s National Pollutant Discharge Elimination System (“NPDES”) permitting program to releases of pollutants from a point source to groundwater that subsequently migrates or is conveyed by groundwater to jurisdictional waters of the U.S. Simply put, regardless of whether or not there is a hydrologic connection between groundwater and a jurisdictional surface water, EPA views releases of pollutants to groundwater as categorically excluded from the CWA’s NPDES permitting requirements.

To be clear, EPA did not conclude that the CWA applies only to direct releases to navigable waters. Rather, the Interpretive Statement leaves open the possibility of CWA liability when pollutants are conveyed to a navigable water through a mechanism other than groundwater. This is because EPA views groundwater as an intervening cause, which breaks the chain of connection between the discharge and the jurisdictional water for NPDES purposes. The Interpretive Statement does not, however, address whether and/or what potential mechanisms of conveyance through other mediums would break the causal chain. Accordingly, the determination of whether an NPDES permit is required for indirect discharges to waters of the U.S. will continue to be made on a fact-specific, case-by-case basis.

The position taken in this Interpretive Statement is based on EPA’s conclusion that Congress explicitly left regulation of discharges to groundwater to the states and to the EPA under other statutory authorities. According to EPA, a holistic reading of the CWA and its legislative history indicates groundwater was specifically intended to be excluded from the NPDES permitting program. EPA points to the passive references made to groundwater in the supportive provisions of the CWA (e.g., those concerning providing information, guidance, and funding to states), and to the categorical exclusion of groundwater from the operative sections of the CWA. According to the Interpretive Statement, Congress chose to leave groundwater regulation to the states with the intent of striking a jurisdictional balance between federal and state responsibility.

While the Interpretive Statement does inform future permitting decisions, it neither alters legal rights or obligations, nor changes or creates law. Nonetheless, EPA’s stated position differs from the theories on groundwater-related NPDES liability currently arising out of the federal circuit courts. The Fifth, Sixth, and Seventh Circuits have read the statutory language as only applying where a pollutant has been directly added to navigable waters via a point source, and not another mechanism, like groundwater. The Fourth and Ninth Circuits, on the other hand, have interpreted Section 402 of the CWA as applying to “fairly traceable” discharges from a point source to “sufficiently connected” navigable waters where the pollutant has travelled over or through any other medium, including groundwater. On February 19, 2019, the U.S. Supreme Court even granted certiorari in the Ninth Circuit case (Haw. Wildlife Fund v. Cty. of Maui, 886 F.3d. 737 (9th Cir. 2018); see also April 2019 The Lone Star Current). As such, EPA recognizes that its Interpretive Statement should only guide states and EPA regional offices outside of the Fourth and Ninth Circuits.

EPA issues new guidance for implementation of CWA Section 401 water quality certifications. CWA Section 401 is intended to give states and authorized tribes a direct role in protecting water quality within their jurisdictions. Under Section 401, states and tribes are authorized to certify that a discharge to waters of the U.S. that may result from a proposed activity will comply with applicable provisions of certain enumerated sections of the CWA. Recently-issued Executive Order 13868, “Promoting Energy Infrastructure and Economic Growth,” however, takes the position that outdated federal guidance and regulations regarding Section 401 are causing confusion and uncertainty, and are hindering the development of energy infrastructure. As such, it directed EPA to issue new guidance to clarify water quality certification requirements under Section 401.

Such guidance, titled “Clean Water Act Section 401 Certification Guidance for Federal Agencies, States, and Authorized Tribes,” was issued by the EPA on June 7, 2019, and replaces the prior interim guidance from 2010. The new guidance makes clear that Section 401 also places limitations on how the role of states and tribes may be implemented to maintain an efficient permitting process within the system of cooperative federalism established by the CWA.

With regard to statutory and regulatory timelines, the guidance makes clear that (1) federal permitting agencies have the authority and discretion to establish certification timelines so long as they are reasonable and do not exceed one year; (2) the timeline for review begins upon receipt of a written request for certification; and (3) although the CWA does not provide any procedure by which a project proponent may negotiate or agree to provide the state or tribe with additional time to consider the request, the CWA also does not prohibit a federal permitting agency from modifying an established reasonable timeline, as long as it remains reasonable and does not exceed one year from receipt of the request.

As required by Executive Order 13868, the new guidance also addresses the appropriate scope of Section 401 review and conditions. EPA recommends that the scope of a Section 401 certification review, and the decision to issue or deny a Section 401 certification, be limited to an evaluation of potential impacts to water quality. Accordingly, EPA concludes that conditions in a Section 401 certification should be limited to ensuring compliance with the appropriate provisions of CWA Sections 301, 302, 306 and 307. The guidance document also recommends that if a state or tribe issues a Section 401 certification with conditions beyond the permissible scope of Section 401, i.e., conditions not related to water quality, or has denied a water quality certification for reasons beyond the scope of Section 401, federal permitting agencies may determine whether a permit or license should be issued with those conditions or if the state or tribe has waived the certification requirement.

The new Section 401 guidance also clarifies the scope of information relevant to a state or tribe’s Section 401 certification review, indicating it should be limited to the application materials submitted for the federal permit or license. EPA also recommends that states or tribes not delay action on a certification request until a National Environmental Policy Act (“NEPA”) review is complete because the environmental review required by NEPA has a broader scope than that required by Section 401. Further, according to the new guidance, any effort by a state or tribe to delay action past the reasonable timeline due to insufficient information may be inconsistent with the CWA and specifically with Section 401.

EPA issues rule exempting air emissions from manure at farms from federal reporting requirements. In June 2019, the EPA issued a final rule exempting air emissions from animal waste at farms from Emergency Planning and Community Right-to-Know Act (“EPCRA”) reporting requirements. Under the prior rule, air emissions from animal waste at farms were reportable under EPCRA because such releases are generally not federally permitted and may exceed the applicable reportable quantity. However, under the new rule, such releases would be exempt. The exemption is limited to air emissions from animal waste at farms, and would not apply to releases of substances from animal waste into water.

Standards of Performance for New Stationary Sources and Emission Guidelines for Existing Sources: Commercial and Industrial Solid Waste Incineration Units. In April 2019, EPA issued a final rule amending several provisions of the 2016 New Source Performance Standards and Emission Guidelines for Commercial and Industrial Solid Waste Incineration (“CISWI”). The rule provides regulated facilities additional time to complete initial compliance demonstrations; allows facilities to comply with production-based emission limits in lieu of the concentration-based limits in the 2016 CISWI rule; extends the timeline for performance evaluation tests from 60 days to 180 days; and allows facilities to use a continuous emissions monitoring system for demonstrating initial compliance, which is aimed at lowering compliance testing costs.

EPA Proposes to Approve Texas’ Affirmative Defense in Air Emission Enforcement Actions. In April 2019, EPA issued a proposal to approve affirmative defense provisions in Texas’s state implementation plan (“SIP”) that would shield large stationary sources from civil penalties for excess air emissions resulting from upset events and unplanned maintenance, startup, or shutdown activities. An affirmative defense in this context means a defense advanced by a defendant in an enforcement proceeding that specifies particular criteria that, if met, prevent imposing penalties for violations of SIP requirements. While the proposal approves affirmative defenses in Texas’s SIP, it still prohibits affirmative defenses within EPA’s hazardous air pollutant rules. The comment period for the proposal closed on June 28, 2019, but there is no indication on when it will be final.

EPA Issues Draft Interim Recommendations to Address PFAS in Groundwater. In April 2010, the EPA released its draft Interim Recommendations for Addressing Groundwater Contaminated with Perfluorooctanoic Acid (“PFOA”) and/or Perfluorooctane Sulfonate (“PFOS”), which are two of the primary substances that fall under the larger category of per- and polyfluoroalkyl substances (“PFAS”). The EPA indicated earlier this year that it intends on rolling out a comprehensive regulatory scheme to address PFAS, as discussed in the April 2019 edition of The Lone Star Current. The Interim Recommendations set 70 parts per trillion as the preliminary remediation goal for groundwater for PFOA and PFOS combined. EPA intends for the recommendations, when finalized, to provide “a starting point for making site-specific cleanup decisions” as well as “clear and consistent guidance for federal cleanup programs, including the Comprehensive Environmental Response, Compensation, and Liability Act.”

The EPA received over 370 comments on the recommendations before the comment period closed on June 10, 2019. Several state agencies, including the Texas Commission on Environmental Quality (“TCEQ”), provided comments. TCEQ commented that while the agency agrees with the recommendations, it does not believe that they are broad enough, as the guidance does not indicate how other PFAS components will be addressed. In addition, TCEQ questioned how EPA intends to implement the recommendations, without a federally-promulgated standard, in situations where other state risk-based information supports cleanup at a different level. EPA will make any revisions it deems necessary to the recommendations upon reviewing these comments before providing the guidance to the Office of Management and Budget for final review.

Texas Commission on Environmental Quality (“TCEQ”)

TCEQ is seeking public comment on a proposed rulemaking regarding the beneficial reuse of treated wastewater. The rulemaking proposed in Docket No. 2019-0399-RUL would amend TCEQ’s rules to give an applicant for a Texas Land Application Permit (“TLAP”) the option to obtain a “beneficial reuse credit” in order to reduce the acreage required for land application of treated domestic wastewater. Such a credit would be based on firm reclaimed water demand demonstrated by water use data from the applicant’s reclaimed water users. Under the proposed rule, an applicant could also use a beneficial reuse credit to increase permitted flows without changing the disposal acreage or to change both the disposal acreage and the permitted flow, but the proposed rules would not allow the effluent storage size required by Chapter 222 to be reduced by the beneficial reuse credit. TCEQ also proposes to prohibit reducing the disposal site area by more than 50% of the area required based on permitted flow.

The proposed rulemaking is the result of a petition filed by the City of Austin in response to increasing demands on water supplies and decreasing availability of land areas large enough for domestic wastewater disposal under TCEQ’s current rules. TLAP applicants seeking a beneficial reuse credit would be required to submit five years of consecutive data from the period immediately preceding the application filing date, if available, to demonstrate firm reclaimed water demand. The executive director determined that if such data is not available, at least two years of water data is necessary to support a user’s demand as firm. Accordingly, potential applicants must be existing entities with historical water use data, and prospective or speculative water use data would be prohibited. For users with less than five years of water use data, the credit would be calculated as 80% of the lowest single month of total outdoor water use. Otherwise, the credit would be 80% of the average of the lowest three months of total outdoor water use or 100% of the average of the lowest three months of total water use data.

The public comment period began June 28, 2019, and ends July 30, 2019. Until that time, written comments may be submitted electronically at https://www6.tceq.texas.gov/rules/ecomments/, or mailed to Ms. Kris Hogan, MC 205, Office of Legal Services, TCEQ, P.O. Box 13087, Austin, TX 78711-3087. All comments should reference Rule Project Number 2016-042-309-OW. Additionally, a public meeting is scheduled for 10 a.m. on July 25, 2019, at TCEQ, 12100 Park 35 Circle, Building E, Room 201-S, Austin, Texas 78753.

Texas Legislature

The Senate Committee on Agriculture, Water, and Rural Affairs (“Senate Ag. & Water”) has submitted its interim report, including findings and recommendations for consideration by the 86th Legislature, to Lieutenant Governor Dan Patrick. The year and a half between legislative sessions in Texas is known as the “interim” period. Committees of the House of Representatives (the “House”) and Senate use this period to conduct hearings and hold public meetings to study certain issues, or charges, assigned to them by the Speaker of the House or the Lieutenant Governor, the presiding officers of their respective chambers. At the close of the 85th Legislative Session, the Lieutenant Governor’s interim charges to Senate Ag. & Water directed it, among other things, to study and evaluate water right permit issuance, the regulatory framework for groundwater conservation districts (“GCDs”) and river authorities, and prioritization in the Regional Water Plan. Having done so, Senate Ag. & Water recently published its interim report. Noteworthy findings in the interim report include a recommendation that the length of time it takes the TCEQ to process surface water permits be improved upon, and the conclusion that Texas landowners and producers would be better served by a GCD regulatory process that was similar across neighboring GCDs. The TCEQ also produces a biennial report for the state’s lawmakers before every regular legislative session. That report was delivered to the state Capitol on December 7, 2018, and, perhaps prophetically, contained an appendix addressing “Permit Time-Frame Reduction and Tracking.” A full copy of the interim report prepared by Senate Ag. & Water of the 85th Legislative Session is available here: https://senate.texas.gov/cmtes/85/c505/c505.InterimReport2018.pdf, and the TCEQ’s biennial report can be accessed at: https://www.tceq.texas.gov/publications/sfr/tceq-biennial-report/biennial-report-to-the-86th-legislature-fy2017-fy2018/biennial-report-to-the-86th-legislature-fy2017-fy2018.

Texas Water Conservation Association (“TWCA”)

January 2020 will bring new leadership to TWCA. With current General Manager Dean Robbins planning his retirement from TWCA effective December 31, 2019, the Board of Directors voted at its recent Mid-Year Conference to name Stacey Allison Steinbach, current Assistant General Manager, as the incoming General Manager upon Dean’s retirement. Ms. Steinbach has worked at TWCA for the past four years, but her water-related collaboration with Mr. Robbins began 15 years ago at the beginning of Ms. Steinbach’s career as a water attorney in Austin. In addition to her time at TWCA, Ms. Steinbach has served as executive director of the Texas Alliance of Groundwater Districts and as an attorney at the Texas General Land Office. Prior to that, Ms. Steinbach worked in the Water Practice Group at Lloyd Gosselink. Ms. Steinbach holds a Bachelor of Science in biology and ecology from Baylor University, a Master of Science in wildlife and fisheries sciences from Texas A&M University, and a juris doctor, with honors, from the University of Montana School of Law.

Public Utility Commission of Texas (“PUC”)

On March 22, 2019, Governor Abbott appointed Lori Cobos as Public Counsel for the PUC’s Office of Public Utility Counsel (“OPUC”) with a term set to expire on February 1, 2021. OPUC represents small commercial and residential consumers in the electric, telecommunications, and water and wastewater utility industries in utility matters before state and federal regulatory agencies and courts. Leading OPUC’s representation of consumers, the Public Counsel oversees OPUC’s overall operations.

Prior to her appointment, Ms. Cobos worked in private practice as the principal owner of Cobos Law Firm. Her practice focused on the representation and counseling of clients regarding legal, regulatory, public policy, legislative, and business development matters in the Texas energy industry. Ms. Cobos also has more than fifteen years of experience in the Texas electric power industry, having served in several senior-level positions at the PUC and as in-house counsel for the Electric Reliability Council of Texas prior to her appointment. Specifically, Ms. Cobos served as an advisor for two PUC Commissioners, assistant counsel to the PUC Executive Director, and senior policy analyst in the PUC’s policy development division. Ms. Cobos’ interest in the Texas electric power industry dates back to law school, during which time she worked as a law clerk at Lloyd Gosselink. Ms. Cobos’ appointment has not yet been confirmed by the Texas Senate.

Utilities File EECRFs. Pursuant to the PUC’s energy efficiency rules, electric utilities made their annual Energy Efficiency Cost Recovery Factor (“EECRF”) filings at the end of May to adjust their rates during the following year to reflect changes in program costs and performance bonuses. The filings also true-up any prior energy efficiency costs over- or under-collected pursuant to PURA and PUC rules. Because EECRF proceedings are limited in scope and review, they proceed on an expedited schedule.

AEP Texas Inc. (“AEP Texas”) is seeking to adjust its EECRF to collect $11,244,298 ($9,027,616 for the Central Division and $2,216,682 for the North Division) in 2020. CenterPoint Energy Houston, LLC (“CenterPoint”) is seeking to collect $37,820,991, Texas-New Mexico Power Company is seeking to collect $5,854,754, and Oncor Electric Delivery Company, LLC (“Oncor”) is seeking to collect a 2020 EECRF of $56,446,846.

In each EECRF proceeding, the PUC has issued its Preliminary Order, setting the list of issues to be addressed at the State Office of Administrative Hearings.

Cities Request Dismissal of TGS Harvey Cost Recovery Request. On April 16, 2019, Texas Gas Service (“TGS”), a division of ONE Gas, Inc., filed its Statement of Intent to Increase Rates to Recover Hurricane Harvey Response Costs Within the Gulf Coast Service Area with the Railroad Commission of Texas (“RRC”). In its filing, TGS requested a total increase in revenue of $714,389 over a two-year period. This amounts to an annual increase of 1.22% (including gas costs) or 1.98% (excluding gas costs).

In June 2019, the Cities of Groves, Nederland, Port Arthur, Port Neches, and Galveston (the “Cities”) filed a Joint Motion to Dismiss TGS’s docket. The Cities argued that the application, if approved, would result in piecemeal ratemaking, alleging that the expenses should have been presented with a comprehensive base rate case in order to be eligible for recovery. The Cities also requested the proceedings be abated in order to give the parties the opportunity to reach a settlement. The parties have reached a settlement in principle that resolves this procedural issue. Under the terms of the settlement, these costs will be preserved for a future rate case.

RRC Issues Order on Atmos RRM Denial Appeal. Atmos Energy Corp., Mid-Tex Division (“Atmos”), appealed certain cities’ denial of Atmos’ Rate Review Mechanism (“RRM”) case. Atmos and the cities filed a partial settlement agreement in February 2019, resolving all issues except whether short-term debt should be used in calculating Atmos’ capital structure.

A hearing on the merits was held on March 7, 2019, and the Administrative Law Judges issued their Proposal for Decision (“PFD”) on April 24, 2019. On May 21, 2019, the Commission issued its Final Order, agreeing with the PFD and approving the parties’ partial settlement, and also deciding that short-term debt should be excluded from Atmos’ rate base.

The issue as to whether short-term debt should be treated the same way as long-term debt in determining the utility’s capital structure is currently in litigation in the pending appeal in district court from the Commission’s decision in the last Atmos Pipeline rate case (Gas Utilities Docket No. 10580), scheduled for oral argument on July 31, 2019. In that case, the Commission determined it was reasonable to include short-term debt in the Company’s capital structure. Atmos Pipeline is arguing in the appeal that the Commission acted against precedent in its decision.

Oncor Hits Speedbump in Sale of South Texas Assets to AEP Texas. As previously reported, on March 29, 2019, in Docket No. 49402, Oncor and AEP Texas filed a joint report and application for the PUC to approve the transfer of Oncor’s McAllen and Mission area distribution assets, service areas, and associated retail electric delivery customers to AEP Texas. The assets being sold are the same assets that were sold to Oncor from Sharyland Utilities, L.P. and Sharyland Distribution and Transmission Services, L.L.C. in PUC Docket No. 47469.

On May 30, 2019, the Steering Committee of Cities Served by Oncor (“Cities”), the Office of Public Utility Counsel, and Texas Industrial Energy Consumers filed a Joint Request for Hearing. Those intervenors, along with the Alliance for Retail Markets, are concerned about how the approval of Oncor and AEP Texas’ Application will affect customer rates and the confusion it will cause with AEP Texas’ rate case pending at the same time. Parties are currently discussing possible settlement or abatement of the schedule to correspond with the timing of the AEP Texas rate case.

Oncor DCRF Settled, Awaiting PUC Approval. As previously reported, Oncor filed an application with the PUC on April 8, 2019, to amend its Distribution Cost Recovery Factor (“DCRF”). The parties have settled and have filed the settlement documents with the PUC for approval.

Oncor is seeking to update its current DCRF Rider and Wholesale DCRF (“WDCRF”) Rider to include additional distribution of invested capital placed in service from January 1, 2017, through December 31, 2018. This is Oncor’s second DCRF filing since its last full base rate case in PUC Docket No. 46957.

Oncor’s application states that it invested $838,823,298 in net distribution system invested capital booked during the period of January 1, 2017, through December 31, 2018. The Company’s total distribution revenue requirement associated with allowed return, depreciation, income and other taxes on its net distribution invested capital during that period is $84,746,424. Adjusted for load growth, the total distribution revenue requirement is $44,633,617. Compared to the revenue requirement of $15,199,813 agreed to, and approved, in Oncor’s last DCRF in Docket No. 48231, this filing seeks to increase the Company’s total distribution revenue requirement by approximately $29,433,804.

The PUC referred the case to the State Office of Administrative Hearings (“SOAH”) on April 9, 2019, requesting the assignment of an Administrative Law Judge (“ALJ”) to conduct a hearing and issue a proposal for decision, if necessary. On June 10, based on the settlement stipulation submitted by the parties, the SOAH ALJ remanded the case to the PUC and subsequently dismissed the SOAH docket. The settlement requires PUC approval at an open meeting of the Commissioners.

PUC Reaches Decisions on SPCOA Revocations. The PUC has finally entered orders in several of Staff’s requests for Service Provider Certificate of Operating Authority (“SPCOA”) revocations. The PUC staff has filed over a dozen requests to revoke SPCOAs that are unused, or whose holders have not met their obligations under the certificates.

In June, the PUC granted nine default orders, revoking SPCOAs from Broadband Fiber, LLC; BroadLinkOne; iNetworks Group, Inc.; Magnum Networks, LLC; Public Wireless; Safetel, LLC; Sara Telecom, LLC; T2 Communications, LLC; and Usmani Enterprises, Inc.

The PUC also denied several of Staff’s motions for default order in its revocation proceedings for various reasons, including incorrect addresses for notices, and finding good cause for the companies’ untimely hearing requests (Vitcom and Phonoscope). PUC Staff has withdrawn petitions to revoke SPCOAs from Cbeyond Communications LLC and Crown Castle NG Central LLC for various reasons, as have been previously reported. In addition, on June 12, 2019, Staff withdrew its petition to revoke ExteNet Systems, Inc.’s SPCOA. This case had been abated at the parties’ request to allow for settlement negotiations. However, the Staff has now requested the ALJ to close the docket; the case was dismissed on June 17. Staff withdrew its revocation application without prejudice to refiling, stating that it will request a new docket if it becomes necessary to revoke ExteNet’s SPCOA in the future.

The petition to revoke Telenational Communication Inc.’s SPCOA is the only case that has not had any movement since the filing of the petition on April 30, 2019.

CenterPoint and AEP Texas Rate Case Updates. The PUC and interested parties continue to review the recent rate case filings by CenterPoint and AEP Texas.

On April 5, CenterPoint filed its application to increase system-wide transmission and distribution rates by $161 million per year. In its filing in PUC Docket No. 49421, CenterPoint asserts that it is entitled to an increase of $154 million in retail transmission and distribution rates (an increase of about 7.4%) and $6.8 million in wholesale transmission rates (an increase of about 1.8%). According to CenterPoint, the impact on an average residential customer would be an increase of about $2.38 per month.

The parties in the CenterPoint case just wrapped up a hearing on the merits that took place on June 24-27, 2019.

Similarly, on May 1, AEP Texas filed its application to increase system-wide transmission and distribution rates. AEP Texas seeks to consolidate the rates of its Texas Central Company (“TCC”) and Texas North Company (“TNC”) divisions into a single rate under the business name “AEP Texas,” reflecting the PUC’s approval to merge the management and operation of the divisions in Docket No. 46050. In its filing in PUC Docket No. 49494, AEP Texas asserts that it is entitled to an increase of $38.3 million in retail distribution rates (an increase of about 4.2%) and a decrease of $3.16 million in wholesale transmission rates (a decrease of about 0.7%). According to AEP Texas, the impact on an average residential customer in the AEP TCC division would be an increase of about $4.75 or 9.8% per month. The impact on an average residential customer in the AEP TNC division would be an increase of about $5.01 or 10.6% per month.

The parties in the AEP Texas case are currently undertaking discovery and reviewing AEP Texas’ direct testimony. Intervenors’ direct testimony is due on July 25, 2019, and the hearing on the merits is scheduled for August 20-23, 2019.

PUC Approves Settlement of Oncor and Sharyland Merger. As we have previously reported, Oncor Electric Energy Delivery Company LLC (“Oncor”), Sharyland Distribution & Transmission Services, L.L.C. (“SDTS”), Sharyland Utilities, L.P. (“Sharyland”), and Sempra Energy (“Sempra”) (collectively, “Applicants”) filed a Joint Report and Application for Regulatory Approvals (“STM Application”) at the PUC in Docket No. 48929. On April 5, 2019, the parties agreed upon a stipulation that seeks a settlement of the STM Application.

The STM Application seeks approval for several transactions: (1) the exchange of transmission assets between SDTS and Sharyland and the respective CCN amendments required; (2) the acquisition of InfraREIT, Inc. by Oncor; and (3) the acquisition of a 50% indirect interest in Sharyland by Oncor and Sempra.

The Steering Committee of Cities Served by Oncor intervened in this proceeding, along with Texas Industrial Electric Consumers, Office of Public Utility Counsel, and several other intervenor groups. After lengthy settlement discussions throughout March and April 2019, the Applicants agreed to accept terms offered by the opposition.

At its May 9, 2019 open meeting, the PUC Commissioners adopted a final order, specifying several terms that the parties must adhere to after the closing. The major terms of settlement include: (1) elimination of a Future Development Agreement between Sharyland and Oncor, which all intervenors found to be not in the public interest; (2) Oncor providing merger savings rate credits to customers of $5 million in 2019, $5 million in 2020, and $2 million in 2021; (3) Oncor and Sharyland providing 90% of interest savings of each utility resulting from improved credit after the merger; (4) Oncor agreeing to not seek transaction costs from ratepayers and holding its customers harmless from any de-REITing liabilities; and (5) the South Texas Sharyland utility will be ring fenced in a manner similar to Oncor, with the exception that it will not be required to have an independent board of directors. There are several additional settlement terms relating to treatment of taxes and regulatory assets.

Atmos Mid-Tex Files its 2019 Annual RRM. On April 1, 2019, Atmos Mid-Tex (“Atmos Mid-Tex”) made its annual filing under the Rate Review Mechanism (“RRM”) Tariff. The RRM is an annual expedited review rate proceeding used by Atmos in its Mid-Tex and West Texas service areas. The RRM Tariff was created as a substitute for Gas Reliability Infrastructure Program (“GRIP”) filings as a part of Atmos Mid-Tex’s 2007 system-wide rate case.

The RRM Tariff process allows cities to evaluate all aspects of the utility’s business, similar to a full rate case but in a shortened timeframe, and using certain assumptions from the last fully-litigated rate case. Cities can then negotiate the proposed increase with Atmos Mid-Tex. In contrast, GRIP filings are not subject to substantive review by cities, and only address recovery of the utility’s capital investment.

In its 2019 RRM filing, Atmos Mid-Tex claims to have a $70 million revenue deficiency on a system-wide basis. Atmos Mid-Tex also reports that from 2011 through 2017, it replaced 1,154 miles of distribution pipe and over 171,000 steel service lines. Further, during 2018, Atmos Mid-Tex claims to have replaced 290 miles of distribution pipe and 16,000 steel service lines. Under the provisions of the RRM Tariff, October 1 is the effective date for new rates. Cities will be requested to take action on this matter in September.

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“Agency Highlights” is prepared by Maris Chambers in the Firm’s Districts, Compliance and Enforcement, Energy and Utility, and Water Practice Groups; Sam Ballard in the Firm’s Air and Waste Practice Group; and Patrick Dinnin in the Firm’s Energy and Utility, Litigation, and Compliance and Enforcement Practice Groups. If you would like additional information or have questions related to these cases or other matters, please contact Maris at 512.322.5804 or mchambers@lglawfirm.com, Sam at 512.322.5825 or sballard@lglawfirm.com, or Patrick at 512.322.5848 or pdinnin@lglawfirm.com.