Craddick’s Energy Industry Update: 83rd Session
The 83rd Regular Legislative Session ended May 27th. And with the period for which bills can be vetoed by Governor Perry ending Sunday, the Legislature passed into law significant legislation related to energy production and regulation in Texas.
With immense growth within the energy industry, communities are seeing the effects of increased production. Key legislation will work to address the issues associated with oil and gas development arising across the state, including: further protection of Texas citizens and our natural resources, energy industry water usage during times of drought and road infrastructure impacted by increased traffic related to energy production and transportation.
Railroad Commission Budget and Regulation
One of the Railroad Commission’s top priorities this session has been to secure funding for the development of IT modernization efforts at the agency. The state’s budget bills include $24.7 million that will assist in overhauling the Railroad Commission’s IT department that is long overdue. The funding is part of $33 million in the state budget for the Railroad Commission that will provide for Geographical Information System upgrades, a Data Center Services cost increase, and provide for salary parity for oil and gas division employees, additional pipeline safety inspectors and general counsel enforcement employees to further address current industry growth. In response to requests for greater access to information housed by the agency, plans for the IT renovation will allow for improved efficiency, effectiveness and transparency within the Commission and make information more readily available to the public.
Among other legislation affecting energy regulation in Texas are efforts to increase pipeline safety standards and the safety of our state’s natural resources. SB 900 works towards safer transportation of fuels through state pipelines with the increase of monetary penalties for violating Commission rules on pollution and pipeline safety. In addition, HB 2982 provides the Commission the authority to regulate the safety of Class 1 and rural gathering pipelines and pipeline facilities; which, under current federal safety regulations, are not regulated. It allows the Commission to establish rules requiring operators to submit reports and information about their facilities, and grants the Commission the ability to respond to accidents, leaks, or complaints.
During the 83rd Session, the Railroad Commission worked in conjunction with the legislature to further protect Texans and Texas resources in developing new rules to address the state’s growing energy industry. The Commission established new regulations with amendments to oil and gas well construction (Statewide Rule 13) to further ensure the state’s water sources are properly protected during drilling and completion activities.
Energy Production in Texas
Increasing the number of vehicles using compressed natural gas (CNG) and liquefied natural gas (LNG) for fueling purposes has many economic and environmental benefits. Under current law, these CNG and LNG equipped vehicles must use a windshield decal to show that they have paid their motor vehicle tax. This necessitates expensive technology for monitoring the decal and license plate of these vehicles. HB 2148 would remove barriers to the growing number of vehicles using CNG and LNG by simplifying the administration of their taxes through the requirement of collection at the dealer level so that customers pay upon refueling, as they do with gasoline and diesel.
Current technology within the Texas energy industry has developed an option for energy producers to recycle production water and waste for the re-use of water or reinvestment into areas affected by energy production, such as the building of roads with waste materials. HB 2767 would make it the policy of this state to encourage the treatment of liquid and semiliquid oil and gas waste so that the treated product may be recycled for beneficial use. The bill would allow a person who holds a permit in good standing for on‐lease oil and gas waste reclamation to expeditiously receive a permit to treat and store the waste off-lease.
Additionally, during the session, the Railroad Commission approved amendments to recycling rules (Statewide Rule 8 Chapter 4 Subchapter B) to facilitate the recycling of both solid and fluid oil and gas wastes to encourage Texas operators to continue their efforts at conserving water used in the hydraulic fracturing process for the drilling of oil and gas wells.
In relation to eminent domain issues, much discussion has developed over public purpose and public use distinctions. Both Texas statutes and judicial decisions have often allowed eminent domain to be used for a public purpose despite constitutional language specifying the use of eminent domain for a public use. SB 655 addresses this issue by establishing provisions relating to the exercise of the power of eminent domain by certain authorized entities in order to reduce the amount of public purpose projects using eminent domain.
The State Water Plan passed under HB 4 works to address growing water demands within the state. In the next 50 years, the state’s water supply is expected to decrease 18%, while water demands are expected to increase by 27%. Furthermore, Texas could be short 8.3 million acre-feet per year by 2060, equivalent to almost 3 trillion gallons of water.
The health of Texas citizens and the state’s vibrant economy will be impacted without access to an adequate supply of clean water. Water shortages due to the state’s current drought already cost Texans billions of dollars in lost income every year, and those losses are projected to grow to $116 billion annually without long term plans in place for the future of Texas water. The State Water Plan is comprised of over 500 strategies with the potential to develop almost 9 million acre-feet of new water over the next 50 years.
Legislators worked to address the future of Texas water infrastructure with the passage of three key measures. HB 4 establishes a new Texas Water Development Board and creates the funding mechanism for the two water fund accounts: the State Water Implementation Fund of Texas (SWIFT) and the State Water Implementation Revenue Fund of Texas (SWIRFT). In addition, HB 1025 allocates $2 billion from the Rainy Day Fund to be put into the SWIFT and SWIRFT accounts to be invested for funding of $25 billion worth of projects over the next 50 years. Lastly, SJR 1 calls for the constitutional amendment to make permanent the two water fund accounts, but will first require the approval of Texas voters on the ballot in November. As November grows closer, I encourage each of you to stay up to date on developments with SJR 1 and reach out to your local elected officials for information about the State Water Plan in order to make an informed choice on election day.
While a number of bills filed this session attempting to regulate the energy industry’s impact on Texas’ annual water usage failed, the industry is proactively working to develop their own plans to conserve water through the development of water recycling and use of brackish and salt water with desalination technology.
With the many economic benefits that have come from Texas’ increased oil and gas production, these activities have had an impact on transportation infrastructure throughout the state. Communities are struggling to maintain roads, and resulting safety issues are a rising concern. This session, the legislature explored a number of options to address infrastructure and safety concerns in communities affected by oil and gas production. While the below measures will become law, transportation issues are currently continuing to be debated in the special session and legislators are working to further explore legislation to address transportation issues related to oil and gas production.
A key component is SB 1747, which would create a state fund for the purposes of distributing immediate relief through grants for transportation infrastructure under a program administered by the Texas Department of Transportation (TxDOT). The fund would establish criteria to effectively ensure that money received for transportation infrastructure and safety needs in areas touched by oil and gas exploration traffic are proportional to an area’s oil and gas activities. The fund would also create a long-term tool that county governments could use to repair their roads.
As a considerable portion of energy exploration and production in Texas occurs in rural areas where many of the roads and bridges were not designed for heavy traffic and overweight vehicles, a proposal for reinvestment zone funding would allow communities to rebuild and reinforce transportation infrastructure in highly affected rural areas. HB 2300 establishes county energy transportation reinvestment zones for the purpose of addressing damage done to roads and bridges associated with traffic resulting from the energy production boom in those specified areas.
Statewide Energy Town Hall Meetings
During my campaign and throughout my first 6 months in office, I have become increasingly aware of the need for energy education efforts throughout Texas, specifically in areas touched by the current boom in oil and gas production. Beginning this fall, my office will organize a monthly town hall throughout the state where my staff and I will invite local elected officials, community leaders, energy producers and others to serve as a resource for communities in responding to questions and concerns they may have about production in their area. Please look for upcoming announcements for town hall meetings throughout the state soon.
It remains my pleasure and honor to serve Texas as your Railroad Commissioner. My staff and I continue to welcome your concerns and questions involving oil and gas production in your community. May God continue to bless you and the Great State of Texas!