Our Legislature Fails (Again) The Texas Railroad Commission … couldn’t they at least get the name fixed?

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by Mark Miller

The Texas Railroad Commission is perhaps the most important, and yet least transparent, agency in Texas government. Its dishonest and misleading name has nothing to do with its actual duties (which is to regulate the state’s ever so important oil and gas industry). And even though at least one Commissioner seat is on the ballot every two years, fewer than 5% of Texas voters are aware of its duties.

The Railroad Commission finally passed Sunset Commission review in the 85th Texas Legislature. The Legislature tried twice before starting in 2011, but finally a bill was passed and signed by the Governor in 2017. Though the sunset process could have resulted in important changes at the agency, alas it did not. The Railroad Commission got a pass with essentially no real reform.

The League of Independent Voters of Texas is committed to governmental transparency as well as protection of the state’s precious groundwater resources. The Texas Legislature, as it often does, failed to take much needed actions in these two areas. For the purposes of this article, we will highlight three things the Legislature could easily have accomplished that would have been good for voters and good for the state.

Change the Name

The last three Sunset Commission staff reports list as their most important recommendation changing the name of the Texas Railroad Commission to the Texas Energy Resources Commission. This particular recommendation is such a sane and obvious one that it’s amazing that Legislature again failed to act in 2017.

Though at least one Commissioner seat is on the general election ballot every two years (there are three rotating six-year terms), fewer than 5% of voters know that they are voting for Commissioners to regulate the state’s important oil and gas industry. That needs to change.

Voters are going to be appalled and disgusted if and when the Legislature ever gets around to renaming the Railroad Commission. Voters are bound to be angered by the fact that this important agency has, for decades, had a misleading and dishonest name. Having a Commission with an avowed dual role as industry champion as well as regulator is already a recipe for voter confusion and anger. The Legislature could have helped bring this agency in from the cold by re-naming it to something voters could understand.

Transfer Contested Hearings to State Office of Administrative Hearings and Gas Utility Oversight to the Public Utilities Commission

Another Sunset Commission staff recommendation also went unaddressed by the legislature – a recommendation to focus the Railroad Commission on its core responsibilities and transfer its hearings to more appropriate agencies.

The Railroad Commission, as with many regulatory agencies, is often criticized for being a state-within-a-state. A single agency creates regulations, executes, and then adjudicates them. This tripartite responsibility is troubling in its own right, but is particularly troubling for an agency that is largely hidden from public view and prone to the worst aspects of regulatory capture.

Moving contested hearings out of the Railroad Commission to the independent State Office of Administrative Hearings (SOAH) would have helped blunt public concerns about the Railroad Commission’s neutrality in such hearings. Other agencies in Texas government already are organized in this way.

The Railroad Commission has jurisdiction to rule on natural gas utility rates in certain areas outside of municipalities and for utilities that deliver gas to a distribution utility (city-gate). Jurisdiction over other natural gas utility rates falls under the Texas Public Utility Commission (PUC).

Moving the Railroad Commission’s rate-setting responsibilities to the PUC is another obvious good-government move. The PUC already regulates nearly all private monopolies that provide various utility services around the State. It clearly has the requisite expertise and knowledge to deal with rate-setting issues involved with regulated private monopolies.

It should be noted that while Public Utility Commissioners are appointed, Railroad Commissioners are elected. Railroad Commissioners have a long history of receiving campaign donations from people with ties to companies involved with this regulatory function. Need we say no more?

Orphaned Wells

When an oil and gas company goes out of business, it sometimes leaves behind wells that have not been properly “plugged and abandoned”. The abandonment process requires, among other things, filling a well with cement in a manner such that the well does not provide a future migration path for hazardous subsurface waters into near-surface groundwaters. This process is required of all operators and is highly regulated by the Texas Railroad Commission. The methods used have proven to be safe and effective – but they need to be done.

Companies are required to plug and abandon wells no longer in operation. Wells that are left in an un-plugged state by a bankrupt company are called orphaned wells. During every major downturn in the industry the number of orphaned wells, as might be expected, grows.

The Texas Natural Resources Code requires Plug and Abandonment Surety Bonds to cover the cost of plugging and abandoning new wells. Because of the backlog of wells in existence before the bonds were required, the value of the required bonds has been insufficient to cover the cost of plugging all the orphaned wells in the state. The responsibility for plugging orphaned wells has been delegated by the Legislature to the Railroad Commission.

There is around a 10,000-well backlog (a moving target that changes with economic conditions and industry activity) that potentially threatens the state’s groundwater resources – and that should be dealt with as quickly as possible. In fiscal year 2016, the Railroad Commission was only able to plug 544 wells. There's obviously much to be done – and insufficient funding.

The Texas Legislature failed to provide funding to more quickly deal with this backlog. Perhaps the state should have used some of the money from the BP Gulf of Mexico oil spill settlement. The Rainy Day Fund, financed by oil and gas severance taxes, is also an obvious choice for a source of funding to deal with this important and urgent problem.

Mark Miller is a retired professor and oil and gas engineer who ran for Railroad Commission on the Libertarian ticket receiving the endorsements of Texas major newspapers in 2016.

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