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New Name, Reforms Proposed for Texas Regulator

November 26, 2012
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With seemingly more oil and gas development going on in Texas than ever, perhaps it's time to finally change the name of the state's principal regulator of the industry to something that reflects its purpose, something other than Railroad Commission of Texas (RRC).

That's the first of a slate of recommendations put forth by the Texas Sunset Advisory Commission in its latest review of the RRC. Others include increasing funding for the RRC from industry fees and placing stricter controls on enforcement practices. The Sunset Commission regularly reviews the practices and effectiveness of state agencies and makes recommendations to lawmakers on how they could be improved. The state's 83rd Legislature is to convene Jan. 8.

The Sunset panel would have the RRC renamed Texas Energy Resources Commission. "Besides having a name sure to confuse people impacted by expanded drilling, voters may not understand the duties of the three statewide elected [RRC] commissioners running for these offices," the Sunset Commission said.

In a response to the recommendations, RRC commissioners said they agree with the proposal to change the name. However, proposed tweaks to the RRC go beyond its name. The RRC has labored under an appearance of conflicts of interest among commissioners, the Sunset panel wrote. For this reason, it also proposed changes to when RRC commissioners may solicit and receive political contributions.

The Sunset panel would allow commissioners to solicit and receive contributions during an 18-month period around the election, rather than throughout the six-year term that RRC commissioners serve. The panel also recommends prohibiting receipt of contributions from parties with contested cases before the RRC. Commissioners would also be required to resign upon becoming a candidate for another elected office. Also to bolster the image of impartiality, the Sunset panel would require the RRC to use the State Office of Administrative Hearings to handle contested gas utility and enforcement cases. RRC commissioners wrote that they opposed the proposed restrictions on campaign contributions and other measures that the panel said would address the appearance of conflicts of interest.

During its 82nd session, the state legislature changed the commission's primary source of funding from general revenue to fees and surcharges paid by the oil and gas industry to support the commission's oil and gas regulatory operations, which include permitting, inspecting and cleanup. As a result, the RRC received an appropriation of $74.7 million in fiscal year 2012, including about $46 million in revenue from fees and surcharges, and $15 million in general revenue.

This time around during the upcoming session, the Sunset panel is proposing tweaks to the funding mechanism. It said a $20 million cap on the state's oil and gas regulation and cleanup fund should be eliminated and the fund's advisory committee should be abolished. Under current law, if the fund exceeds $20 million, the RRC is prohibited from levying fees until the fund balance is reduced to below $10 million. "...Sunset staff found that the $20 million cap on the...fund likely will restrict the commission from providing sufficient funding for its regulatory and cleanup operations."

The panel found another revenue shortfall at the RRC: the pipeline safety fee, which it said does not cover program costs; it said the RRC should be authorized to create a pipeline permit fee to support the program. RRC commissioners said they agreed with the recommendations on lifting the cap on the cleanup fund and creating the pipeline safety fee.

In the area of enforcement, Sunset recommended that the RRC develop "an enforcement policy to guide staff in evaluating and ranking oil- and natural gas-related violations. In fiscal year 2012, the commission forwarded a little more than 2% of the 55,000 violations identified by inspectors for enforcement action. The lack of a policy that ranked violations prevented the commission from being certain that the most serious violations and repeat violations were being consistently forwarded for enforcement action and, as a result, contributed to a public perception of an unwillingness to pursue enforcement actions." Commissioners said they agreed with recommendations in this area but said some of the recommended changes had already been implemented.

A bill incorporating changes recommended by the previous Sunset review failed to pass the 2011 legislature, but the RRC addressed some issues raised by adopting penalty guidelines, in rule, that assign penalties based on risk posed by and severity of violations, the Sunset panel noted. A measure that would have abolished the three-member RRC and replaced it with the one-member Texas Oil and Gas Commission also failed to pass (see NGI, June 6, 2011).

Additional RRC recommendations of the Sunset panel for the upcoming session are to eliminate a program to promote propane use along with the associated fee that supports the program; authorize the RRC to enforce damage prevention requirements for interstate pipelines; adjust mineral pooling and field spacing hearing procedures to better protect the interests of mineral owners; and continue a requirement that the RRC submit its report on the Oil and Gas Regulation and Cleanup Fund to the legislature.

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