Agency Highlights

United State Environmental Protection Agency (“EPA”)

EPA Shifts Policy on Construction Prior to Issuance of an Air Permit and TCEQ Follows Suit. On March 25, 2020, EPA proposed new guidance on interpreting the Clean Air Act’s (“CAA”) construction regulations. In a change from the 40-year understanding of the regulation, the EPA clarified that the only construction prohibited prior to issuance of an air permit is construction on the emitting unit itself. If adopted by state permitting authorities, this guidance would provide permittees with more flexibility to perform construction activities before receiving a permit.

The EPA has described the new guidance as a “revised interpretation” of the original CAA statute. Prior to the release of this guidance, the EPA interpreted the CAA to prohibit the construction of non-emitting sources, such as footings, foundations, storage structures, and retaining walls until the emitting units were permitted. According to the EPA, this interpretation tends to preclude source owners/operators from engaging in a wide range of preparatory activities they might otherwise desire to undertake before obtaining an NSR permit.

In response to the new EPA guidance, the TCEQ submitted a request to the EPA to modify its State Implementation Plan (“SIP”) in order to allow minor source applicants to commence construction before issuance of a final permit. This SIP change would allow project developers to begin construction after the TCEQ Executive Director completes a technical review and has issued a draft permit for public comment.

EPA Proposes Rule to Formalize the Guidance Document Process. On May 22, the EPA published a proposed rule to revise the agency’s practice of organizing, evaluating, and issuing guidance documents subject to an Executive Order titled, Promoting the Rule of Law Through Improved Agency Guidance Documents. The proposed rule seeks to formalize how EPA will manage the issuance of guidance documents subject to the requirements outlined in the Executive Order. The purpose of the rule is to ensure EPA guidance documents:

• Are developed with appropriate review;
• Are accessible and transparent to the public;
• Are subject to public participation;
• Meet standards established for guidance documents and “significant guidance
• documents”; and
• Contain procedures allowing public petition to modify or withdraw an active document.

In order to meet this stated purpose, the rulemaking lays out internal EPA policies and procedures for the issuance of future guidance documents pursuant to the directives in the related Executive Order (E.O. 13891), including the following:

• Include the term “guidance” and identify the component office issuing the document;
• Provide the title of the guidance and the document identification dumber, along with the date of issuance;
• Identify the general activities to which and the persons to whom the document applies, including a summary of the subject matter covered in the guidance document;
• Identify the citation to the statutory provision or regulation to which the guidance document applies;
• If the guidance modifies or replaces a previous guidance document, identify the previous document; and
• Include a disclaimer that the guidance document does not have the force and effect of law.

The comment period closed on June 22, 2020.

Environmentalists and Industry Groups Battle Over EPA Particulate Matter Limits. On April 14, the EPA proposed a rulemaking related to National Ambient Air Quality Standards (“NAAQS”) for particulate matter limits, including both the PM10 and PM2.5 standards. Specifically, EPA is proposing to retain the particulate limits at existing levels.

On May 20, 2020, the EPA held a virtual public stakeholder meeting on the proposed rulemaking and both environmental and industry groups raised issues and competing claims. Environmental Groups advocated for stricter air quality limits, citing to studies by the Harvard School of Public Health linking adverse health outcomes to prolonged exposure to particulates. Opposing industry groups warned of severe economic damage if the limits are tightened.

The comment period closed on June 29, 2020 for the proposed rulemaking.

EPA Plans to Add New Chemical to Air Pollutant List. The EPA has agreed to grant rulemaking petitions dating back to 2010, seeking to add a commonly used degreaser to the list of regulated hazardous air pollutants. The rulemaking petitions seek to add 1-bromopropane to the list of regulated pollutants, which will trigger further requirements under the CAA to set emission limits for the chemical. In granting the rulemaking petitions, the EPA indicated that it would issue a rulemaking to formally add 1-bromopropane to the list.

The chemical is most often used for degreasing metal parts, increasing adhesive effectiveness, and removing stains from clothes, and is a key ingredient in mold killers. The latest Toxic Release Inventory reported that 1-bromopropane emissions totaled 746,562 pounds. Concurrent with the rulemaking, the EPA is expected to release general information on the potential health risks associated with the substance.

Please refer to future editions of The Lone Star Current to learn about EPA’s eventual rulemaking on this issue and the ensuing notice and comment period.

Texas Commission on Environmental Quality (“TCEQ”)

Update on TCEQ Petroleum Storage Tank Rules. The TCEQ’s Petroleum Storage Tank rules that became effective in May 2018 included different timelines for compliance. Some of these rules become enforceable after January 1, 2021, so facilities should review these rules and verify compliance before this deadline. TCEQ adopted rules incorporating changes from EPA’s 2015 revisions to the federal underground storage tank (“UST”) regulations. The TCEQ rules are codified in Title 30, Texas Administrative Code, Chapter 334. Among others, the following requirements go into effect on January 1, 2021:

• Annually test release detection equipment;
• Perform periodic testing and inspection of spill prevention equipment and containment sumps used for interstitial monitoring (the frequency depends on the equipment type);
• Perform walk-through inspections of spill prevention equipment (spill buckets) and release detection equipment every 30 days;
• Complete annual walk-through inspections for all containment sumps regardless of installation date; and
• Conduct annual walk-through inspections of handheld release detection equipment, such as tank gauge sticks or groundwater bailers (if applicable).

TCEQ Adopts Changes to 30 Texas Administrative Code (TAC) Chapters 305 and 335, concerning waste management regulations. On May 20, the TCEQ adopted amendments and repealed certain sections of Title 30, Texas Administrative Code Chapter 335 regarding Consolidated Permits, and adopted new and amended sections in 30 TAC 335 regarding Industrial Solid Waste (“MSW”) and Municipal Hazardous Waste. The adopted rulemaking revises state industrial solid waste and hazardous waste management regulations to maintain equivalency with the Resource Conservation and Recovery Act revisions promulgated by the EPA, and implements changes required by statute.

More specifically, the adopted amendments increase the MSW application fee from $150 to $2,050. The increase would only apply to new applications, not those already submitted, and applies to new applications and amendment, but does not include modifications. In addition, the rulemaking requires the TCEQ to perform a “site assessment” before issuing a MSW permit. Next, the rulemaking excludes gasification and pyrolysis from regulation as an MSW facility, but requires a showing that the product is valuable. And finally, the rulemaking repeals Chapter 330, Subchapter F, Analytical Quality Assurance and Quality Control. The TCEQ found the chapter to be obsolete as a result of the Quadrennial Rules Review, which found that the rules “expired on January 1, 2009 and the agency uses other guidance documents to implement data quality controls and sampling guidelines.”

Public Utility Commission (“PUC”)

Utilities File EECRFs. Pursuant to the PUC’s energy efficiency rules, electric utilities made their annual Energy Efficiency Cost Recovery Factor (“EECRF”) filings around June 1, 2020, to adjust their rates during the following year to reflect changes in program costs and performance bonuses. The EECRF filings also true-up any prior energy efficiency costs over- or under-collected, pursuant to the Public Utility Regulatory Act (“PURA”) and PUC rules. Because EECRF proceedings are limited in scope and review, they proceed on an expedited schedule.

For 2021, AEP Texas, Inc. (“AEP Texas”) is seeking to adjust its EECRF to collect $58,223,059 (Docket No. 50892); CenterPoint Energy Houston, LLC (“CenterPoint”) is seeking to collect $49,696,013(Docket No. 50908); Texas-New Mexico Power Company (“TNMP”) is seeking to collect $5,921,913 (Docket No. 50894); and Oncor Electric Delivery Company, LLC (“Oncor”) is seeking to collect $64,782,106 (Docket No. 50886).

As in past years, City groups intervened in these EECRF proceedings to review the utilities’ demand and energy goals, program incentive costs, evaluation, management, and verification expenses, and performance bonuses. City groups are still reviewing the applications and will propose adjustments in testimony. In each EECRF proceeding, parties have each recently filed their lists of issues to be addressed. Parties anticipate entering settlement discussions soon, as these proceedings often settle without going to hearing.

Distribution Cost Recovery Factors (“DCRF”) Update. In early April 2020, electric utilities filed applications with PUC to amend their DCRFs. Utilities file a DCRF proceedings to update the DCRF Rider and Wholesale DCRF (WDCRF) Rider in their tariff to include additional distribution invested capital placed in service since their last full base rate case.
Oncor filed an Application to Amend its DCRF on April 3, 2020 (Docket No. 50734), seeking to increase Oncor’s total distribution rates by $75,889,531 annually (an approximately $0.88 increase to the average residential customer’s bill). The parties have filed settlement documents, resolving all issues in the docket. Under the settlement, Oncor reduced its request by $6 million to a total DCRF annual revenue requirement increase of $69.9 million. The agreed rates will be effective September 1, 2020.

TNMP filed its Application for Approval of a DCRF on April 6, 2020 (Docket No. 50731), seeking to increase distribution rates by $14,673,176 annually (an approximately $2.79 increase to the average residential customer’s bill). Following negotiations, the parties have filed settlement documents resolving all issues in the docket. Under the agreement, TNMP reduced its request by $385,000 to a total DCRF annual revenue requirement of $14.3 million. Pending approval by the Commission at an open meeting, the agreed rates will be effective September 1, 2020.

AEP filed an Application to Amend its DCRF on April 3, 2020 (Docket No. 50733), seeking to increase distribution rates by $39.87 million annually (an approximately $1.83 increase to the average residential customer’s bill). The parties have filed settlement documents, resolving all issues in the docket. Under the settlement, AEP reduced its request by $765,000 to a total DCRF annual revenue requirement of $39.1 million. The agreed rates will be effective September 1, 2020.

We will provide updates as these cases proceed.

PUC Begins to Wind Down COVID-19 Relief Measures. At the June 12, 2020 Open Meeting, the PUC announced its intent to begin winding down measures it adopted in March and April to address the unprecedented threat presented by the coronavirus disease 2019 (“COVID-19”).

In March and April, the Commission established a moratorium on utilities disconnecting customers or assessing late-payment fees for six months, into September. The PUC also established the COVID-19 Electricity Relief Program (ERP), which is a mechanism that will protect Texas citizens impacted by the COVID 19 emergency, and provide certainty to the electric utilities and retail electric providers for recovery of unpaid utility bills. The ERP pays a substantial part of the power bills of residents who have lost their jobs as a result of the COVID-19 pandemic. Later, in April and May, the Commission altered the deadlines for some of its measures.

The deadline has passed for several of the protections put into place by the PUC. The prohibition on late-payment fees for residential customers of retail electric providers in areas open to customer choice ended on May 15, 2020. Additionally, the prohibition on disconnections for non-payment for customers of water utilities and non-ERCOT utilities ended on June 13, 2020.

The ERP’s suspension of disconnections for non-payment (for customers of ERCOT utilities), and the addition of eligible residential customers, will end on July 17, 2020. Commission Staff filed a memorandum for the Commissioners’ consideration at the June 12 Open Meeting, recommending the establishment of a timeline to wind down the ERP. The timeline recommends separate dates to allow all eligible customers a meaningful opportunity to benefit from the program. Additionally, Staff recommended holding a workshop for utilities and retail electric providers on June 16.

At the June 12, 2020 Open Meeting, the Commissioners agreed with Staff’s recommendations for winding down the ERP. Commission Staff will prepare something for the Commissioners to consider at the Open Meetings in July.

We will provide updates as the PUC navigates the implementation of its COVID-19 measures.

PUC Will Look to Legislature to Address Texas Universal Service Fund (“TUSF”) Shortfall. On April 29, the PUC opened Project No. 50796 in order to review the TUSF rate. The purpose of the TUSF is to enable all residents of Texas to obtain basic local telecommunications services needed to communicate with other residents, businesses, and governmental entities. The TUSF accomplishes this by assisting telecommunications providers in providing baseline services at reasonable rates to customers in high-cost, rural areas, and to qualifying low income and disabled customers. The TUSF is funded by a state-wide uniform charge, payable by each telecommunications provider, based on a percentage of each provider’s actual intrastate telecommunications services receipts. Since 2015, the TUSF has been funded by a 3.3% charge on the Texas intrastate taxable telecommunications receipts. This is particularly low, compared to previous rates as high as 5.65%.

As a result of revenues declining faster than disbursements, the TUSF is headed to a position in which it cannot collect enough revenues to support its statutory obligations, potentially within a year, unless mitigation measures are taken. Without TUSF support, small and rural Incumbent Local Exchange Carriers (ILECs) will not be able to serve all of their customers, or meet Provider of Last Resort obligations, among others.

The PUC received comments in Docket No. 50796. Telecommunications providers – AT&T, Comcast, Windstream, CenturyLink, and AMA TechTel Communications – provided comments essentially agreeing that the assessment could be increased and the fund could be broadened to include services such as Voice Over Internet Protocol (“VoIP”), but that the legislature needs to address legal and policy issues before the Commission can take action. Interest groups – Office of Public Utility Counsel (“OPUC”), CTIA – The Wireless Association (“CTIA”), Texas Cable Association (“TCA”), Texas Telephone Association (“TTA”), and the Texas Statewide Telephone Cooperative (“TSTCI”) – also filed comments that offered various proposals for short-term and long-term solutions to the shortfall in the fund. But these groups were split over whether TUSF should be extended to include VoIP, and whether the legislature needs to address legal and policy issues before the Commission can take meaningful action.

The Commission Staff presented a proposed order to the Commission that would increase the TUSF assessment rate from 3.3% to 6.4%. On June 12, 2020, the Commission declined to take any action on Staff’s proposed order, and instead, recommended that the Legislature address the issue regarding TUSF funding. Chairman Walker was not satisfied with any of the options for Commission action. She explained that there are underlying policy issues and questions regarding the funding of TUSF, and that she could not in good conscience double the TUSF rate. The Commissioners decided to leave the TUSF as-is, but to limit TUSF funding to lifeline projects, which are a small percentage of the TUSF fund. The Commissioners directed Staff to provide a proposal at a future open meeting on how to proceed.

We will provide updates on the Commission’s actions, and any further measures taken to address the TUSF fund shortfall, in a future edition of The Lone Star Current.

WETT STM Update. On February 24, 2020, Wind Energy Transmission Texas, LLC (WETT), AxInfra US LP (AxInfra), Hotspur HoldCo 1 LLC (Hotspur 1), Hotspur HoldCo 2 LLC (Hotspur 2), and 730 Hotspur, LLC (730 Hotspur) (together Joint Applicants) filed an application with the PUC for approval of a sales transaction (STM) that would result in the transfer of ownership and control of WETT to AxInfra, an investment fund managed by Axium Infrastructure US, Inc. (Axium US).

Under the application, AxInfra will ultimately control WETT. 730 Hotspur will acquire a non-controlling minority interest in Hotspur SPC, an Axium subsidiary that will have an upstream, indirect ownership interest in WETT.

On June 22, 2020, the participating parties filed a Unanimous Stipulation and Agreement, resolving all issues in the docket. The agreement sets out proposed ring-fencing provisions and other regulatory commitments to be considered for adoption by the PUC. These regulatory commitments are meant to ensure that WETT’s STM is in the public interest and in accordance with PURA.
The Commission has yet to approve the agreement and STM at an Open Meeting. We will provide updates as this case progresses.

Commission Directs Staff to Open Rulemaking to Streamline SPCOA Relinquishments. Several telecommunications companies have filed applications at the PUC to relinquish their Service Provider Certificate of Operating Authority (“SPCOA”). However, the relinquishment process is more complicated than simply informing the Commission of the company’s intent to discontinue providing services in Texas. Companies often fail to provide notice to required entities such as the Texas Universal Service Fund and the Office of Public Utility Counsel (“OPUC”).

At its open meeting on May 29, 2020, the Commission discussed Docket No. 50272, concerning Advanced Integrated Technologies’ (“AIT”) SPCOA relinquishment application. In the AIT case, the Administrative Law Judge (“ALJ”) recommended dismissal of the relinquishment application. The Commissioners disagreed, reasoning that AIT had already provided enough information to allow the Commission to relinquish its certificate. Chairman Walker said that she was frustrated that the current rule and process makes it too hard for companies to relinquish their SPCOA, when they have expressed that they are not interested in conducting business in Texas. She asked the PUC staff to open a rulemaking to establish a more streamlined process so that companies can more easily relinquish their certificate.

Texas Railroad Commission (“RRC”)

RRC Approves TGS Rate Case Settlement. On December 20, 2019, Texas Gas Service Company (“TGS” or “Company”), a Division of ONE Gas, Inc. (ONE Gas), filed its Statement of Intent to change gas rates at the RRC and in all municipalities exercising original jurisdiction within the City of Beaumont and the incorporated areas of the Central Texas Service Area (“CTSA”) and Gulf Coast Service Area (“GCSA”), effective February 6, 2020. The RRC suspended the effective date of the rate request for 150 days, until July 5, 2020.

In its filing, TGS sought to: (1) increase its gas rates on a system-wide basis by $15.7 million per year; (2) consolidate the CTSA, GCSA, and the City of Beaumont into a new service area called the Central-Gulf Service Area (CGSA); and (3) implement new CGSA tariffs and withdraw the CTSA and GCSA incorporated and environs tariffs.

After filing direct and rebuttal testimony, the parties entered into a unanimous settlement agreement on May 29, 2020, disposing of all issues in the docket other than TGS’s proposed consolidation of service areas. Under the settlement agreement: (1) Beaumont will be consolidated with the GCSA even if the GCSA and CTSA are not consolidated; (2) there will be a $5.4 million “black box” reduction to the Company’s requested revenue requirement increase, now totaling $10.3 million; (3) there will be a $16 customer charge; and (4) there will be a 9.5% return on equity (ROE).

On June 16, 2020, the RRC approved the settlement agreement, as recommended by the Examiners. The parties filed briefs
on the remaining consolidation issue on May 22, 2020 and reply briefs on
June 1, 2020; however, the ALJ and Examiners have not yet rendered a Proposal for Decision on this issue.

We will provide updates as this case progresses.

“Agency Highlights” is prepared by Lauren Thomas in the Firm’s Water Practice Group; 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 Lauren at 512.322.5850 or lthomas@lglawfirm.com, Sam at 512.322.5825 or sballard@lglawfirm.com, or Patrick at 512.322.5848 or pdinnin@lglawfirm.com.