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Texas Railroad Commission Facing Another Sunset Review

Another Sunset review of the Railroad Commission of Texas (RRC) has recommended again a name change of the agency, which has nothing to do with railroads and everything to do with oil and natural gas. Stricter monitoring and enforcement of industry and changes to hearings procedures also are recommended.

"...[P]robably the most important change to provide transparency is to let the people of Texas in on what this agency does by having its name accurately reflect its mission," state Sunset Advisory Commission staff said.

The commission likes the name Texas Energy Resource Commission; however, previous attempts to change the commission's name, as well as institute other reforms, have failed in the past.

More relevant to oil and gas operators are the six other Sunset recommendations.

One is to transfer contested hearings and natural gas utility oversight from the RRC to other agencies. In the case of the former, the State Office of Administrative Hearings should take over RRC duties. The Public Utility Commission of Texas should oversee gas utilities as it regulates all other state utilities, the Sunset staff said.

"Although the Railroad Commission has taken steps to restructure its in-house hearings function, the fairness of its contested proceedings is clouded by ongoing ex parte concerns and the commission's in-house judges' lack of independence, and the commission fails to adequately track its hearings performance," Sunset commission staff said.

The Sunset commission staff also recommend improvements to oil and gas monitoring and enforcement. "...[T]he agency continues to struggle to provide reliable data to show the effectiveness of its efforts," the Sunset executive summary said. "The commission's emphasis on getting operators to take corrective action to come into compliance with its requirements certainly has merit, but falls short of providing incentive for operators to comply without first having to be told by the commission's limited field staff."

The Sunset review also found that bonding requirements placed on operators are insufficient to fund remediation of a backlog of abandoned wells. "The revenue from these required bonds covered just 15.9% of the cost to plug wells in fiscal year 2015," Sunset staff said. "These insufficient statutory bond requirements have left the Railroad Commission with less funding to plug wells and increased liability as the cost to plug wells has more than doubled since the bond amounts were set in 1991... [see Shale DailyMarch 8]." Staff also recommends restructuring the bonding program to make the burden more equal among operators.

"Once again the Sunset staff have found that oil and gas companies are being treated with kids' gloves by the Railroad Commission," said Luke Metzger, director of Environment Texas. "Too many oil and gas companies routinely violate the law with few if any consequences from state regulators. And the state of Texas is making taxpayers, rather than oil and gas companies, pick up most of the tab to clean up abandoned, polluting oil wells."

Sunset staff also recommended improved oversight of pipeline infrastructure to better ensure public safety. The RRC should be authorized to enforce damage prevention requirements of interstate pipelines and also be allowed to collect a pipeline permit fee to support its regulatory function, the commission staff said.

The Texas Alliance of Energy Producers said it is reviewing the Sunset staff recommendations. "We would like to emphasize that the money funding the Railroad Commission Oil and Gas Division, the Well Plugging Program, and the commission's enforcement and contested hearing process are not typical taxpayer funds," it said. "They are special fees and monies collected solely from the oil and gas industry. This "tax" on the oil and gas industry pays for the abandoned well pluggings, hearings, and Oil and Gas Division operating costs. General revenue dollars are not spent to fund RRC's oil and gas regulatory oversight.

"We believe that the special expertise necessary to understand and regulate the industry lies within the Railroad Commission. We are hesitant, especially in these difficult times for the oil field, to weaken the state regulator and re-assign duties to other less experienced entities."

Additional attention is also needed to the RRC's contracting procedures, the Sunset staff review found. Contract administration should be centralized with updated "best practices" and quarterly reporting to the three RRC commissioners, the review said.

Finally, the Sunset review said its alternative dispute resolution recommendation should be applied across the board within the RRC and that an apparently inactive oil and gas regulation and cleanup fund advisory committee should be allowed to expire.

The Sunset commission will hold a hearing later in the year to determine which recommendations should be forwarded to the state legislature.

While most Texas state agencies are placed under review about every dozen years, this is the third review of the RRC by the Sunset Advisory Commission since 2010. A bid in the 2015 state legislature to delay the review until 2021 was thwarted. Legislation to change the RRC's name and institute other changes died three years ago (see Daily GPIMay 16, 2013).

"The recommendations in this report aim to better prepare and position the agency to achieve its important mission," Sunset commission staff said. "Enactment of a bill in the next legislative session to reauthorize the commission for 12 years would be a start."

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