Texas Natural Gas Regulated by PUCT?

The Railroad Commission of Texas (RRC) — also referred to as the Texas Railroad Commission — is the organization responsible for regulating the oil and gas industry. They also regulate gas utilities, safety in the liquefied petroleum gas industry, surface coal and uranium mining, and general pipeline safety.

As you can probably tell from the description above, the Texas Railroad Commission’s name doesn’t actually reflect its responsibilities or what it actually does for the state of Texas.

On April 29th, the Sunset Advisory Commission of Texas published a report that suggested that the jurisdiction of natural gas utility rate cases should shift from the Railroad Commission of Texas to the Pubic Utility Commission of Texas as all other utility types currently fall under their umbrella of responsibility. Their findings outlined many reasons why this shift (amongst others) should be considered moving forward.

If the motion is followed through, this would mark a significant change on the gas industry and its organizations for the state of Texas.

The Sunset Advisory Commission

This organization is an agency of the Texas Legislature. It is responsible for providing recommendations on the value of other state agencies.

Specific agencies within the state of Texas have a date on which it will be automatically disbanded or terminated. This holds true unless the Sunset Advisory Commission passes specific legislation that allows the agency to remain active. In order to be considered, agencies must provide the Sunset Advisory Commission committee with a self-evaluation report, and the committee will put together its recommendations as well as receive comments from the public. The committee will then hold a final public hearing before the Commission makes its final decision.

The final ruling can include the decision to:

• Allow the agency to continue as is
• Modify the agency’s functions
• Merge two (or more) agencies
• Disband the agency and move its functions to other existing agencies, or terminate its functions

The Texas Railroad Commission Report

Recently, the Sunset Advisory Commission of Texas completed a report on the Texas Railroad Commission. The recommendations provided indicate that the agency will potentially see a huge change in its responsibilities, and name.

Overall, the report outline 7 recommendations:

Recommendation 1: Extend the agency’s expiry date for twelve years using a name that reflects its actual function(s).

Through an examination of current functions, Sunset determined that this specific agency is still required, even though two of its functions should be transferred to other agencies. If the Railroad Commission continues to carry out its functions, than a name change is required to correctly identify and reflect their responsibilities. A suggested name change includes, Texas Energy Resources Commission.

Recommendation 2: Core agency functions should not include contested hearings and gas utility oversight.

This recommendation would have the biggest change on the way Texas currently handles natural gas regulations. Sunset determined that two other agencies, the State Office of Administrative Hearings (SOAH) and the Public Utilities Commission of Texas (PUC) specialize in functions currently performed by the Texas Railroad Commission. In addition, these agencies also have the expertise required to continue to run contested hearings (in the case of SOAH) and deal with gas utility oversight (PUC).

The PUC already regulates every other utility within the state except for gas. The agency itself has years of expertise in ratemaking, implementing an organizational structure and other similar systems for transparency and lower rates. Moving gas utility regulations to PUC ensures that a single agency becomes responsible for all state utilities and their regulations.

Recommendation 3: Improvements needed for monitoring/enforcing public safety and the protection of the environment.

In recent years, the Texas Railroad Commission has had difficulty managing data related to public safety and environmental protection. Sunset examined their current practices and processes, determining that what is currently in place is not yet effective enough. To help the agency improve in this area, they have recommended that for the Oil and Gas division, the Texas Railroad Commission develop a plan to track and measure monitoring and enforcement. They also recommend that the agency come up with a process regarding minor violations and expediting penalties. Another recommendation would require the agency to provide an accurate, annual report of any oil and gas violations. Additional recommendations include,

• Create a policy to file production reports electronically.
• Audit a select group of gas and oil transportation and production reports.
• Define repeat violations and indicate that number accurately online (website).

Recommendation 4: Backlog of abandoned wells

Since 2011, the backlog of gas wells that have been abandoned reached a total of: 9,715. While the Railroad Commission posed questions and comments in their report about funding, Sunset identified a situation with the bonding structure that indicates a problem. There is no risk accounted for regarding well abandonment. This places an unfair share of bond coverage for each well for producers that produce less than 19 wells.

Sunset recommended that the agency make changes to the blanket bond requirements to generate a better balance for all operators.

Recommendation 5: Pipeline infrastructure and public safety

Sunset recommended that the Railroad Commission be authorized to enforce requirements regarding damage prevention on interstate pipelines. This also includes the authorization for the agency to create permit fees for pipelines.

Recommendation 6: Continued attention to contracting procedures

Continued efforts to put policies in place to improve contract procedures will help the Railroad commission to carry out important functions such as state-funded well plugging, information technology improvements and site remediation. Sunset recommends that the Texas Railroad Commission centralizes their contract administration procedures by September 1 of this year.

Recommendation 7: Standard elements of Sunset reviews

Like all state agencies, the Railroad Commission has a governing statute. This statute does not include a standard element in regards to alternative dispute resolution. This element is required in order to help improve rulemaking and resolution processes for other disputes. Sunset also discovered that some Railroad Commission run committees have not met in years, like the Oil and Gas Regulation and Cleanup Fund Advisory Committee.

In order to resolve these issues, Sunset recommended that the Railroad Commission disband the above mentioned committee. They also suggested that they apply suggested changes to their alternative dispute resolution process.

What This Means for Natural Gas in Texas

Should the appropriate governing bodies and entities decide that regulation of gas utilities belong under the PUC’s jurisdiction, this could bring about a huge change to the way that residential customers consume energy. Currently, this group of consumers does not have the option to choose their natural gas supplier. They are restricted to the utilities or utility that provide this service as well as to the rates that the utility charges.

In comparison, the FUC is responsible for regulating electric utilities. In addition, the electricity market in Texas is deregulated. This means that residential customers have the ability to choose the entity, or retail energy provider who supplies their electricity. This approach ensures that customers pay fair rates and receive great service.

What Now? – Moving Forward

Sunset Advisory Commission has indicated that they are working hard to ensure that their recommendations are taken seriously by the Texas Railroad Commission. It is their hope that by doing so, they will not need to review the performance of the agency as frequently.

However, the Texas Alliance of Energy Producers are not convinced that some of the recommendations will benefit the agency or the state. They believe that the report generates several cost and operating issues, especially since the oil and gas industry has recently taken an economic hit.

On the other hand, should the Railroad Commission move forward with the recommended changes, Sunset estimates that the state would see a $4.1 million increase in revenue over five years.

Texas Railroad Commissioner Ryan Sitton has recently stated, “The Sunset staff report and our agency’s response are the beginning of an important process that confident will make this agency more efficient and effective.”

At the moment, the Texas Railroad Commission, who plans to prepare a formal response, is reviewing the report.