By: Dan Hinkle
September/October 2010

The Texas Legislature will be back in session in January 2011 and it doesn’t look like it’s going to be a fun time for anybody. So grab the women and children and put them in a safe place. Go get Herbert and Thibodaux cause they ain’t never seen no wreck like this one. And keep in mind that if you are not at the table, then you are probably on the menu. So what’s for dinner in 2011?

The money
When the Legislature shows up in January and if we are “lucky” we will have a budget shortfall of $18 billion. Some say it may be more than $18 billion. I hope not.

Will we see a scalpel or a chainsaw? What does it mean for AESC members?

When you are $18 billion short and have a constitutional requirement to have a balanced budget, some say you have problems and some say you have opportunities. In either case you only have two choices or a combination of the two. That is, you have to cut, cut, cut and keep cutting. In the alternative, you have to do things to increase revenues, which is code for doing something with taxes.

The good news for Texans is that the Legislature, over the last few years, has built up a savings account that we call the Rainy Day Fund and we should have about $8.5 billion in it by January. My guess is that given our conservative Legislature they will only use about half of the Rainy Day Fund to solve the problem.

That means that they only have to solve a $14 billion problem. From there we will see if scalpels or chainsaws come out for the cutting. Can they cut $14 billion? Yes, but will they? Probably not. So that means they will have to do something about taxes.

Will they pass a tax bill? Probably not, but they will be looking at current tax exemptions. Getting rid of a tax exemption is a lot better politically than voting for a new tax or a tax increase. In fact, House Ways and Means has spent the interim looking at all of the current tax exemptions and you have to believe they will have a list that has been checked twice.

So, what does that mean for AESC members? First, it means that we have to be prepared to defend whatever tax exemptions we have. Next we have to be ready to defend whatever tax exemptions our customers have. Let me give you an example. There is concern that the High Cost Gas Program may be on the list. So if you are doing anything with customers in the shales, then you have an interest in protecting this program because the anecdotal stories coming out of the companies indicate that without the High Cost Gas Program you may see up to a 30 percent decline in drilling of the shale wells in Texas. That is a lot!

Redistricting
Ahhh, this issue is one that all of the hard core political types love. In short, it is a re-alignment of all of the congressional, state senate and state representative districts based upon the new census data. It is as partisan as it gets because if you get the right voters, you win for the next 10 years. Who wants to vote on budget cuts or taxes when you do not know who your voters will be in the next election? For rural Texas it will be particularly tough because rural Texas has been losing people which means that rural Texas will lose state rep districts as the suburban and urban areas of Texas grow. All this really means is that most members will wake up each day with redistricting on their minds and they will get grumpier and grumpier as they head toward decisions on redistricting and the budget.

Sunset review
The next big issue for the legislative session and the one that Herbert and Thibodeaux will want to see is what they call Sunset Review. Texas is one of the few states that reviews all of their agencies on a 12-year cycle to see if they are: (1) doing the job they have been given; (2) should some of what the agency is doing be done somewhere else and; (3) are there things that other agencies are doing that would fit better in the agency under review. The kicker is we have all the key agencies for the oil and gas industry up for Sunset Review — Railroad Commission, Texas Commission on Environmental Quality, Public Utility Commission and a bunch of the rest. Here is the kicker of all kickers, if the legislation to continue them does not pass, then the agency does not continue. Get legislative approval of your agency or watch it ride off into the sunset. That is why they call it Sunset.

What makes the process wild and woolly is that these bills have to pass and when they get to the floor every amendment dealing with the agency is germane. That means you can’t use the rules to kill the amendment. It has to be considered and a vote taken. So, you just have to cowboy up and go for the ride.

Here is the real Sunset concern for oil and gas. The Railroad Commission and the Texas Commission on Environmental Quality have taken some real hits in the Barnett Shale. Legislators in that area and around the state have taken notice because their phones have been ringing. There are also concerns by some legislators that the Railroad Commissioners have been spending too much time running for “higher office” rather than paying attention to the business of the agency. Let me sum up the problem this way. At a recent EPA hearing in Arlington, 15 people testified that Texas was better off turning over the functions of the Railroad Commission and the Texas Commission on Environmental Quality to the EPA. So keep an eye out for this donnybrook.

AESC issues
With all of the above, you will hear some political insiders say it is going to be a great session to kill bills. It is always easier to explain a no vote than a yes vote on a bill. These points have an element of truth in them, but history says that over 6,000 bills will be introduced and about 1,500 of them will pass. So sitting on the sidelines is not an option.

Also keep in mind that every one of these issues will be relevant to the Railroad Commission Sunset Bill, so we have to be prepared for that. That is, we may kill a bill in committee or in some other part of the process, only to see it as an amendment to the Railroad Commission Sunset Bill.

Disposal wells
In 2009, we had 13 bills that dealt with disposal wells in some manner. We killed them all, but you can count on some of them coming back. They fell into three categories. The first was the groundwater districts wanting to have standing in the permitting process. They argue that they need to be part of the process in order to protect the freshwater aquifer. I won’t get into all of the arguments, but it should be noted that the Railroad Commission, the Texas Commission on Environmental Quality and operators go to great lengths to make sure that freshwater aquifers are protected. The next was about notice. How did we give notice of the disposal well permit application and who got that notice? The last one dealt with where you can have a disposal well. Can you put one inside a city? Can you limit the reservoirs or zones that you can inject into? A lot of these issues where generated out of the Barnett Shale area, but we saw legislators from other areas of the state filing similar bills.

Truck traffic
Concerns on the number of trucks were not limited to the urban areas; we saw a number of legislators voicing the concerns of the county judges on the truck traffic. Those concerns were not limited to those hauling produced water. If it was an oilfield truck moving down the road, they voiced a concern about it. We had two bills last session on the need to file traffic plans with the county and have them approved before you could operate.

Truck weights/county roads
It is an age-old problem, but it is a current problem given the activity in the shales. We have all heard it from the county folks: “Your trucks are covering the local folks in dust and your overweight trucks are destroying our county roads.” So, the issue becomes: “Should service companies pay for re-constructing county roads?” We know this issue is coming. In fact, the Senate Transportation Committee had the issue on its interim hearing list, county judges from around the state came and testified at the hearing and we shall see what the committee has to report.

There are other issues and legislation that will come out of the woodwork, but the above will keep us plenty busy. So protect the women and children. Give Herbert and Thibodeaux a call. Don’t be part of the menu.