Prohibit Utility Companies from Charging State Agencies Higher Rates Than City or County Governments

The Legislature should amend laws regulating electric, gas, telephone and water utilities to specify that the state is entitled to a most favored nation clause, meaning that no utility, including a municipal utility, may charge state agencies higher rates than it charges city or county governments.


Background
State agencies sometimes pay higher rates for the same utility service provided to cities or counties. The most extreme examples involve electric utilities. For instance, in the El Paso investor-owned utility service area, the utility was supplying electricity to both the county and the state for highway lighting. The state s side of the highway paid higher rates than the county s side merely because the state was not included in the municipal highway lighting class available to the county. The cost differences between the rates charged for the county in the municipal highway lighting class and for the small commercial class used to bill the state for lighting ranged from a 27.9 percent to 214.9 percent higher c ost per kilowatt hour depending upon the type of lighting involved. The state s exclusion from the lower-cost rate class was based simply on its status as a state governmental customer as opposed to being a county governmental customer.

Similarly, that same investor-owned utility has a city/county rate class for other accounts. State office buildings, unlike city and county office buildings, are not eligible to take service in the lower-rate class. As a result, the agencies housed in thos e state office bu ildings spent approximately $83,000 more annually for electric service. Moreover, the state university in that particular service area also was not eligible to take advantage of the city/county rate class available to the local community college and the mu nicipal airport, and consequently spent approximately $550,000 more annually for electric service. 1

Gas utilities sometimes bill state agencies higher consumption charges and higher rates than charged to other governmental and public authority customers. For example, in one service area, while the customer charge was the same to both the state and other governmental customers, the consumption charge in the state s rate class was almost double the consumption charge of the local government class. Furthermor e, that gas utility excluded the state from the rate class available to local governments in that particular service area, but included state agencies in its public authority class in other parts of its service areas. The gas utility has agreed to correct the problem in that one service area in the next rate case.


Recommendations
A. The Legislature should amend laws regulating electric, gas, telephone and water utilities to specify that no utility, including a municipal utility, may charge state customers higher rates than city or county customers.

The state should be allowed to subscribe to the most advantageous rate given its facility usage or consumption characteristics . The state should be allowed to take services under the same rate schedules (heretofore specifically applicable to cities, counties, and/or public authorities) if the rates are lower than the current state rates.

B. The Legislature should direct, through an appropriation rider, each agency receiving a cost savings resulting from a lower rate to identify these savings to the Legislative Budget Board, the Governor s Office of Budget and Planning and the Comptroller s office.

The Legislature should direct the Comptroller to reduce general revenue appropriations to that agency by the identified savings amount.



Implications
The primary advantage of specifying that utilities may not charge state customers higher rates than city and/or county customers for the same utility service is that state accounts will be treated equally and state government operating costs will be reduce d.


Fiscal Impact
The savings associated with prohibiting utilities from excluding state accounts from city and/or county rate classes are difficult to quantify because of the number of service areas in which the state receives utility services. Only some utilities have a municipal rate class with more advantageous rates for city or county customers.

However, even if the prohibition against excluding state accounts from city and/or county rate classes applied only in the El Paso electric utility service area discussed, the savings are estimated to exceed $83,000 annually for state office buildings and $550,000 annually for the state university paid from sources other than the General Revenue Fund. 2 Additional annu al cost savings for other areas of the state are estimated to be $2.5 million, resulting in savings of $1.6 million in general revenue and $900,000 in other funds.



Endnotes
1 Interviews with Scott McCollough, Office of the Attorney General, Austin, Texas, September 25, October 7, November 16, November 30, and December 2, 1992.
2 Ibid.