TEXAS MONTHLY editor Jake Silverstein received this letter from Elizabeth Ames Jones, a member of the Texas Railroad Commission, in response to my proposed budget cuts concerning the agency, which appeared in the story, “The Eighteen Billion-Dollar Man,” in the October issue of TEXAS MONTHLY. The letter represents chairman Jones’ personal views. She is not speaking for the Commission. My response appears below her letter. Dear Editor, I read Paul Burka’s suggestions regarding the monetary savings realized if the State of Texas were to do away with the Railroad Commission of Texas, which serves as Texas’s energy regulatory agency. I usually describe the Commission’s energy jurisdiction as being “from the ground below.” We regulate oil and gas exploration and production activities; intrastate pipeline safety; surface mining; safety for gas utilities, liquefied petroleum gas, liquefied natural gas and compressed natural gas; rates charged by investor-owned natural gas utilities; and the oil field clean-up fund. Although I am often asked, we do not regulate wind power and other so-called “renewables.” As an aside, the ever-improving technology put into practice over the last couple decades has cracked the code for extracting natural gas from shale rock (How Texas Struck It Rich Beneath Suburbia, WSJ, Saturday, 8/2/2008), and as a result, natural gas could almost be considered a “renewable” energy source. Besides that, the Railroad Commission has nothing to do with energy generated from the wind, sun, or waves. It looks like Mr. Burka used our Legislative Appropriations Request (LAR) as his reference, and that’s a good place to start for somebody who wants to see how money is being spent by our state agencies. However, it has wisely been said that “a little knowledge is a dangerous thing,” so I would humbly submit that much has been left out of the discussion, and one needs to drill a little deeper to get the full picture. With all due respect to our little sister state, Alaska, Texas is America’s number one producer of oil and natural gas. Over 30% of the natural gas produced in America comes from Texas. The Barnett Shale, located in about a 17 county region under North Central Texas, is the most well known of our gas fields, although we are home to the Haynesville Shale Field in East Texas and the new Eagle Ford Shale Field which is in South/South Central Texas, and there are many others. About 20% of all the crude oil produced in the United States is Texas onshore crude. Texas’s Permian Basin still remains the nation’s workhorse when it comes to crude oil production, producing 2/3 of Texas and 17% of American crude oil. The Railroad Commission also permits offshore wells out to 3 leagues (about 10 miles) from the shore, just as Sam Houston intended when he negotiated that Texas retain our seaward jurisdiction when our Republic joined the Union and became a state in 1845. The evolution of the Railroad Commission over its almost 120 year history is the story of Texas and of responsible government regulation of an industry vital to the state. The Railroad Commission has been there from the beginning, although our duties have morphed over time, as they should in reaction to changing technology, changing economics and statutory requirements, so being “different” today than we used to be doesn’t mean the RRC is unnecessary. The Commission was established in 1891 to regulate the rail industry, which we do no more; the same with trucking, which was deregulated in the 1990s, and therefore there is no need for our regulatory oversight. However, we still regulate the transportation of oil and natural gas by pipelines, and the mining of natural gas, oil, and coal. The efficient and responsive regulation of these industries is important to the economy of the State of Texas and the energy needs of our country. For every mcf of natural gas and for every barrel of crude oil, a severance tax is paid to the people of Texas, based on that fuel’s market price at the time. Billions of dollars are raised this way alone. In fact, over 70% of funds in the state’s Rainy Day Fund are generated by oil and gas severance taxes. Mr. Burka proposes to use some $4.5 billion from the Rainy Day Fund to close our state’s anticipated $18 billion budget gap. The skilled and experienced personnel at the Railroad Commission are really the only ones who can provide the sound stewardship of the energy patch that yields that contribution to the Rainy Day Fund, not to mention other benefits. These billions of severance tax dollars going into state coffers don’t include the hundreds of thousands of industry jobs, the sales taxes generated from the commerce around the industries we regulate, the property taxes that are paid on the value of production even when it is in the ground, and the direct royalties that are paid to the State of Texas from oil and gas production on state-owned lands. Additionally, our pipeline oversight of over 200,000 miles of intrastate pipes carrying the lifeblood of an economy safely to homes and businesses is critical. Since assuming responsibility over intrastate pipelines in 1971, the RRC has provided Texans with one of the top pipeline safety regulatory programs in the nation. We are in the process even now of raising the safety bar again for natural gas distribution companies. From the drill bit to the burner tip, the Railroad Commission has rules and regulations based on sound science and on our statutory obligation to prevent waste, to protect mineral owners’ rights to enjoy their private property known as correlative rights, and to protect the environment for the benefit of all Texans. Clear regulations and informed regulators are critical to the responsible extraction of hydrocarbons and to the commerce that is derived from our use of hydrocarbons. The Texas energy patch, which consists of over 240,000 currently producing wells, 270,000 miles of pipeline, 200 investor-owned natural gas utilities, and 14 operating coal mines, would be like La Guardia Airport at peak time with no air traffic controllers if the Railroad Commission weren’t there to keep things on track. Mr. Burka questioned the Railroad Commission’s stated goal to “Promote Energy Resource Development.” This is a misnomer. Tasks such as issuing drilling permits and conducting rule reviews are to ensure that new oil and gas wells are constructed and completed within the best interests of public safety and environmental protection. It is our job to “promote” compliance with our rules and regulations, which in turn will promote energy resource development. Thank you for bringing that ambiguous terminology to my attention. I think it needs to be changed to better reflect that strategy. But if nothing else, please remember that our actions speak much louder than words on a page. We do what the legislature tells us to do, and we do it efficiently. The development of Texas’ energy resources raises substantially more revenue for state and local coffers than it takes to run the agency, and Texans are the better for the sound oversight of the energy patch. That being said, I appreciate Mr. Burka taking the time in his article to delve farther into the actual agency budget submissions than members of the fourth estate are typically inclined to do. We invite review, and we will work to fix things that need fixing. In closing, the notion of a member of the fourth estate suggesting ways to cut government spending is music to the ears of this fiscal conservative. Sincerely, Elizabeth Ames Jones Commissioner * * * * My response: I appreciate the comments of commissioner Jones and the considered tone of her letter. The fact that Texas has been blessed with substantial oil and gas reserves does not, by itself, justify the continued operation of the Texas Railroad Commission. I tried to look at what the Commission actually does. One thing it does is take applications for drilling permits. When I interviewed a lobbyist who is familiar with the oil and gas business about this, he told me that the Railroad Commission is slow to act on permit applications. Meanwhile, producers are paying for the rigs, which can’t operate without a permit. When the price of natural gas falls, they lose money because they couldn’t drill when prices were higher, and the state loses severance tax revenue. The appropriations bill (2010-2011) calls for the Commission to process 57,400 permits in a biennium. Can you say with confidence that these permits are being issued in a timely manner? In the story, I also dealt with the issue of inspection of oil and gas facilities. I trust that commissioner Jones is familiar with this report that appeared in the American Statesman: [S]pokeswoman Ramona Nye confirmed that of late, there are 86 inspectors for 394,365 oil and gas wells, including 282,150 active wells. As of May 28, 2010, these included 740 bay and 341 offshore wells in state waters, which extend about 10 miles offshore. Overall, that makes the inspector/wells ratio about 1-to-4,586. Agency charts show the number of wells under the commission’s watch is up 11 percent from Jan. 24, 2003. The point that I made in the story is that the Legislatrue is allocating milliions of dollars for inspections that will never take place, because it is humanly impossible to do them. This is not the fault of the Railroad Commission. Budget writers regard this as a low priority. Nevertheless, that prioritization suggests that this money is ripe for a budget cut. If the inspections aren’t going to be done, why should the taxpayers be on the hook for them? Thank you very much for your letter and for allowing me to respond. Paul Burka
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