Texas Railroad Commission ‘under fire’ over new rules for natural gas companies
AUSTIN — Industry, watchdog and consumer groups are raising the alarm about a proposed regulation designed to prepare Texas for intense winter weather because they say it lacks teeth and has loopholes.
Weatherization standards the Texas Railroad Commission is set to approve Tuesday come more than a year and a half since failures at natural gas wells and pipelines contributed to deadly power outages during the 2021 winter storm.
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The rules the Legislature established after the storm should harden wells and pipelines. But the commission is facing criticism that the fee structure is too lenient for natural gas companies with violations, because they would rather pay a $5,000 fine than the cost of insulating their equipment. A group of Democratic lawmakers also wants the commission to regulate when companies can shut down and close a loophole allowing them to skirt categorizing outages as weather-related.
Equipment freezes at natural gas wells and in pipelines were a leading cause of massive reductions in power production during the freeze that shut down half of the state’s power production, according to the Federal Electric Regulatory Commission.
The scarcity of natural gas also triggered massive spikes in electricity and natural gas prices that led several power companies to declare bankruptcy, while pipeline companies that did stay online reaped billions of dollars in profits. Texans will be paying to cover those costs for years to come through their electric and gas bills.
Skepticism of the Railroad Commission’s effectiveness has surrounded its regulatory actions in the aftermath of the winter storm, such as a draft rule that included a provision letting operators pay a mere $150 fee to opt out of winterizing their equipment. It was only after public outcry and shaming from lawmakers at a Senate committee hearing that commissioners created stricter standards.
“Collectively the Railroad Commission is under fire and deservedly so,” said Ed Hirs, an energy fellow at the University of Houston.
“They’ve been not looking after the consumer in Texas and spending more time looking after the operators,” he added.
How much natural gas operators could be fined
Even the most egregious violations of weatherization standards could result in only $5,000 fines, according to input the Railroad Commission received from Texas Competitive Power Advocates, which represents several companies that operate natural gas power plants.
The proposed rule creates a table of violations, assigning point values for each one broken. The power plant advocacy group said it would be “almost impossible” for a company to accumulate enough points to be placed in the worst tier, where fees can reach $1 million a day.
“Thus any penalty is likely to be $5,000,” the organization said. “While we do not seek to make the penalty provision overly punitive, they should be designed in a way to incentivize compliance with the applicable weatherization requirements and deter operators from taking short cuts and failing to address non-compliant operations.”
Michele Richmond, executive director of Texas Competitive Power Advocates, said she was “cautiously optimistic” about the new regulation.
“The concern is that a $5,000 penalty could be seen as just the cost of doing business,” she said.
Virginia Palacios, the head of the Railroad Commission watchdog group Commission Shift, said that even if a company accumulated enough points to reach the worst level, commissioners still might only assess a $5,000 fee because of the wide range across the tiers.
The Railroad Commission intends to follow the same process it uses to regulate all of Texas’ oil and gas industry. Palacios said the system is notoriously lax.
For instance, the commission found 12 “major violations” of oil and gas regulations during fiscal year 2020. However, an analysis from Commission Shift found more than 14,000 major violations using the Railroad Commission’s own metrics.
“It’s ultimately up to the director of the oil and gas division to decide which ones were major,” Palacios said. “So you go from like 14,000 rule violations for the rules that are on that list, down to 12.”
A possible loophole
A coalition of 30 House Democrats has also taken issue with the proposed weatherization rule. In a letter to the Railroad Commission, the Texas Caucus on Climate, Environment and the Energy Industry said the rule does nothing to prevent natural gas well operators from shutting down production ahead of a winter weather event, which was also a contributing factor to power outages during the 2021 storm.
“While the rule directly attempts to address weather-related forced outages, it doesn’t attempt to address preemptive outages, which began on February 11th, over three days before the blackouts began,” House Democrats said.
However, the Railroad Commission “does not have jurisdiction to require a facility to operate,” according to the preamble to the rulemaking.
The Democrats also took issue with what they see as a large loophole in the regulation — that natural gas operators can avoid reporting weather-related outages by internally classifying them as unrelated or voluntary.
What natural gas operators want
While several industry and advocacy groups are calling for the Railroad Commission to set strict and definitive regulations, the Texas Oil and Gas Association suggests that many aspects of weatherization standards should be left up to natural gas operators.
The association also called for more time for implementation, and for violations to be assessed only when operators’ equipment fails during a rolling blackout.
“We want to make sure from a regulatory standpoint that there is clarity and sufficient response time, as far as being ready for the winter season,” said Todd Staples, president of the Texas Oil and Gas Association.
One consumer group balked at that suggestion.
“Gas supply chain facilities and pipeline operators have been aware since the 87th Legislative Session in 2021 that these requirements were on the horizon and so should comply with them promptly,” the ATMOS Cities Steering Committee said in its comment on the regulation. “Timely compliance with these requirements is critical to the welfare of the citizens of Texas.”
What the regulation does
The proposed regulation applies to natural gas wells, pipelines and other gas processing facilities that the Railroad Commission determined are part of a critical infrastructure supply chain that fuels Texas’ fleet of natural gas-fueled power plants.
The commission has refused to make public which facilities it designates as critical, citing security concerns.
The facility owners will be required to harden their wells and pipelines for severe winter weather and provide documented proof to the Railroad Commission by Dec. 1.
Critical operators must be able to function during major weather events, such as freezing precipitation or extreme heat, but exceptions are given for lightning strikes, tornadoes and hurricanes.
Companies must prepare for extreme weather with self-assessments, including testing equipment, training and creating emergency plans.
Standards for resiliency were based on data from the state climatologist, who created a county-by-county table indicating extreme temperatures that facilities should prepare for and freezing precipitation.
The Railroad Commission will conduct routine inspections as well as inspections of facilities that suffer weather-related outages. Companies will have to report outages at major production and pipeline facilities immediately while smaller outages are only reported if they last longer than 24 hours.
Enforcement will be left to the agency’s new Critical Infrastructure Division, which is made up of about 100 employees that are a combination of new hires and repurposed positions, a Railroad Commission spokesman said.
“We were pleasantly surprised that it is a fairly robust rulemaking,” said Richmond, head of the Texas Competitive Power Advocates.