Texas Senate lawmakers Monday overwhelmingly passed legislation that would abolish the three-member Railroad Commission of Texas (RRC) and replace it with the one-member Texas Oil and Gas Commission. The bill is headed for the House Energy Resources Committee, where a three-member commission is favored by Chairman Jim Keffer (R-Eastland).

The RRC is the principal regulator of the oil and gas industry in Texas and hasn't had anything to do with railroads for years. A review of the RRC by the Texas Sunset Advisory Commission late last year recommended the name change as well as more substantive modifications, such as replacing the three elected commissioners with a part-time appointed board (see Daily GPI, Nov. 22, 2010).

As passed, SB 655 would have the one commissioner initially appointed by the governor to cover the transition period to the new agency, but subsequent commissioners would be elected every four years. The bill, which was sponsored by Sen. Glenn Hegar (R-Katy), passed on a vote of 29-2 following the suspension of a rule requiring a third reading, which was opposed by three members. Sens. Steve Ogden (R-Bryan) and Kel Seliger (R-Amarillo) voted against passage of the bill.

"...I will say this, the members that typically ask me about the different legislation that I'm carrying...this is typically the one they want to talk about," Hegar told NGI's Shale Daily Tuesday. "There's a lot of members, in my opinion, that have a very strong opinion that the current system is dysfunctional; it's broke and is not representative of the 21st century and the need to have a stable environment and climate for oil and gas and also something that the people of the state of Texas can have confidence in."

Seliger told NGI's Shale Daily that he didn't see a need for SB 655. "I don't know that it accomplishes anything," he said. "You go from three commissioners to one. It strikes me as a solution in search of a problem. It's still better than...one proposal going around about one appointed commissioner so we'd have an energy czar. I can't imagine anything worse than that."

Still, he allowed that other Texas agencies that operate with one commissioner currently might not be better off if they had three. "Everything else [about SB 655] is good," he said. "Changing the name from Railroad Commission to Oil and Gas Commission is a great idea. They haven't dealt with anything in railroads for over a decade."

With the discovery and development of the Barnett and Eagle Ford shales within the last 10 years, natural gas development in Texas is back on the rise. After peaking at 26 Bcf/d in the early 1970s, Texas gas production sunk to less than 15 Bcf/d in the early 1990s. However, since shale development began, that number has been increasing, and is currently just north of 20 Bcf/d, according to RRC data.

The Senate and House legislation also would make the new commission entirely self-funded from fees assessed on the industries it regulates. The RRC has been getting about $25 million per year in general revenue from the state, but this year there is no money slated for the agency, Hegar said. "It's not part of the budget that was passed out of the House; it is not in the budget in the Senate.

"One of the complaints that I've heard that I think is a rightful concern from the industry is that the agency is not fully funded in the areas that it needs to be. And in order for the commission to do their job, then they have to have the resources able to deal with permits and the processing. I think the commission needs to be fully funded and have that flexibility...The industry is going to have to pay for it."

The legislation's provision to send contested cases to the State Office of Administrative Hearings (SOAH) is something that has been opposed by the Texas Independent Producers and Royalty Owners Association (TIPRO). Hegar said it would only affect a handful of cases annually and would not be as onerous as its opponents claim.

"Some of what you hear is, 'If you go to SOAH, oh my gosh, it's going to cost so much. Look at the electrical lines from the Public Utility Commission.' Well, those are very expensive and a tremendous number of stakeholders is involved in that, so you're really comparing apples and oranges," Hegar said.

When SB 655 is heard in Keffer's committee, which is expected to happen in the middle of next week, it will join Keffer's HB 3106.

"I know Rep. Keffer strongly believes in three [commissioners] instead of one," Hegar said. "And so I visited with him. He says, 'I prefer three than one.' How strongly is that? I don't know; that's just what he said. And then there's a few other legislators that I've talked to."

Keffer could not be reached for comment Tuesday.

TIPRO has been generally ambivalent about whether there is one commissioner or three; however, it wants the panel member(s) to be elected, not appointed (see Daily GPI, Jan. 31). "We feel that the economic benefit to the state and the importance of oil and gas to the state, both historically and today, is an important enough task that it deserves full-time and elected representation and oversight," TIPRO President Justin Furnace told NGI's Shale Daily earlier this year.