2021 Texas Legislative Session a Success for Oil and Gas

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The Permian and the Eagle Ford: In the Lead Again
Texas flag on clouds

The 87th Texas Legislature has concluded its regular session. It started slowly with many members and their staff not even coming to the Capitol due to the COVID pandemic. SHALE Magazine reported on the top issues leading into session and lawmakers despite the slow start. It largely addressed all those issues: eminent domain reform, expansion of gun rights, prohibiting the defunding of police and passing a budget without raising taxes.

On the latter, lawmakers were greeted by positive news from Comptroller Glenn Hegar that tax revenues exceeded last summer’s expectations and would not result in a budget shortfall. Avoiding another potential flashpoint, lawmakers were also informed that national census data would be delayed until after they adjourned, preventing them from taking up a partisan redistricting fight in the regular session. For the first several weeks of the session, the legislature’s business moved at a lackadaisical pace, giving the appearance that little would be accomplished.

Then came a Valentine’s Day storm that brought devastation across Texas. The cold was deadly, and the failures of the electric grid and subsequent interruptions of water utilities across the state created untold misery for millions of Texans. Loss of life, property damage and the failure of the energy capital of the world required action.

Governor Greg Abbott immediately called for the legislature to investigate the grid failures and ensure Texans never again experience power outages on the same scale. Both the House and Senate swung into action with multi-day hearings and an all-hands on deck approach by combining multiple committees of jurisdiction over electricity, natural gas and emergency response to find solutions to prevent the complex failure of our electric system. Committee hearings went on for days, hearing testimony from the energy regulatory bodies including the Public Utility Commission, the Railroad Commission and the Electric Reliability Council of Texas (ERCOT), electricity companies of all types, oil and gas companies and industrial energy users, among hosts of others.

Despite a few calls from environmentalists who have hoped to shut down natural gas production in Texas before and after the storm, lawmakers agree natural gas was essential to heat, power and recovery and that increasing the amount of natural gas to customers that need it should be a top priority. During the storm, natural gas surged 450% to meet the power needs of this state while the gas utilities reported they were on maximum withdrawal of their reserves to keep 99.95% of the 4.3 million residential gas meters in the state supplied with gas. For the more than 13 million Texans in homes behind those meters, that gas made the difference in providing life-saving heat when the electricity was shut off.  Contrary to the media narrative, natural gas met the moment, and more should be done to ensure Texas does not become overly dependent on the sun shining and the wind blowing. Those energy sources are unreliable in high heat or extreme cold.

Shortly after the storm, Lieutenant Governor Dan Patrick named his priorities for session, and House Speaker Dade Phelan unveiled his priorities for electricity reform. With this, the Legislature kicked into high gear and, within a couple of weeks, had filed thousands of bills. It quickly became one of the more consequential legislative sessions for the energy sector in decades.

After the storm, the session took on a whole new feel and was at a frenetic pace through the finish of session on May 31st.

The Legislature passed several key bills in response to the storm to reorganize how the state manages the power grid. Legislation required regulators to adopt rules on electricity providers to prevent lengthy rolling blackouts, potentially issue fines to utilities that are not prepared for severe weather events and create a statewide power outage alert system so that Texans can react to potential outages. Reform of the Public Utility Commission membership and the ERCOT governing board also became key priorities to expand membership, requiring they live in-state, all with the goal of attracting top talent invested in the performance of the state’s grid.

Consumer protection was also a top priority by banning wholesale indexed pricing plans whose customers were met with astronomical bills and providing a funding mechanism to winterization to reduce consumers’ bills and keep gas prices level. Finally, mapping the Electricity Supply Chain and mandating redundancy and improvements to that system, including the protection of the natural gas pipe system will bring greater coordination between the two sectors. These bills will lead to months and months of studies and rulemakings at multiple state agencies.

Already this summer, ERCOT has issued multiple alerts when electricity supplies are tight due to expected high demand and interruption or disruption by electricity producers. The fast growth of the state will necessitate lawmakers continue to find solutions to incoming residents needing roads, water and power. For the better part of a decade, lawmakers have tapped collections from severance taxes raised by the oil and gas industry to address these growth needs without raising taxes on the general population. These are wise and prudent investments that the energy industry has supported and advocated for.

Overall, this legislative session was beneficial for the oil and gas industry. Industry advocates, associations and our allies were able to successfully work with the legislators working on the storm response legislation to take a measured approach to intervention in oil and gas operations. Initial proposals would have resulted in less gas production, and these were changed to prioritize reliability without harming marginal wells, forcing tens of thousands of wells to shut in or plug due to uneconomical mandates. Outside of the storm, some important bills passed that will advance the industry and the overall positive business climate in Texas.

First, eminent domain reform was passed by the Legislature. This effort has taken multiple sessions and will result in productive reforms to the eminent domain process to benefit landowners on the front end with more information and higher initial offers. At the same time, it provides certainty to critical infrastructure builders of pipelines, roadways and water and electric infrastructure that those projects will not be derailed. Leaders in both the House and Senate, including Representatives Joe Deshotel and Dewayne Burns and Senator Lois Kolkhorst, deserve the credit for bringing parties together to complete this decade-long project.

The second was an important effort to reform state investments and contracting by preventing state agencies from rewarding tax dollars and investments to entities that proactively harm the oil and gas industry. This was an important effort, championed by Lieutenant Governor Patrick, Senator Brian Birdwell and Representative Phil King. These common-sense and prudent measures will be applied to these companies that take state tax dollars, largely generated by the oil and gas industry, and prevent them from turning around and boycotting projects, harming contractors, and discriminating against energy providers. We have seen other states go the opposite direction by banning fossil fuel investments, and this is a message back to those entities to stop messing with Texas.

Finally, the Legislature took care to stop cities and local jurisdictions from adopting radical climate change agendas that attempt to block their citizens from installing natural gas services and appliances in new developments. Representative Deshotel, Representative Jay Dean and Senator Birdwell led this effort for their respective chambers. Energy diversity is a good thing and denying one type of service would harm Texans and would have made Winter Storm Uri far more catastrophic. This legislation ensures customer choice and access and allows Texans to utilize the energy sources of this state.

Considering the COVID limitations at the start of session, it is remarkable the number of successes and robust workload lawmakers took on. Despite that, the legislative session ended on a sour note with some work undone that was anticipated to pass. Governor Abbott made bail reform, preventing violent offenders from attaining personal recognizance bond releases, and election security measures as two top priorities for the session. In fact, he named them emergency items at the start of the session. This allowed lawmakers to start work on these issues before most legislation. Though both bills looked to be successful, they failed to ultimately pass on the day before the final day of session when House Democrats staged a walkout and broke quorum during debate on the omnibus election reform bill. The failure of both bills passing prompted an immediate announcement from Governor Abbott via Twitter: “I will veto Article 10 of the budget passed by the legislature. Article 10 funds the legislative branch. No pay for those who abandon their responsibilities. Stay tuned.” This promises to be a contentious special session, and the decennial redistricting process is still looming as well.

In addition to the Governor’s priorities that fell short this session, there are several other priority issues of both the Speaker and the Lt. Governor that did not pass, such as the prohibition on cities adopting mandatory paid sick leave ordinances and stopping big tech from censoring its users by allowing those who have been censored on social media platforms to sue these tech companies. With his bid for re-election coming up soon, it is possible that the Governor could also be inclined to add some of these red-meat issues to a special session call as well.

These looming policy-based special sessions notwithstanding, this year is also the year that the state must reapportion its legislative and congressional districts due to the new census numbers. Because the census data is not expected until August of this year, the legislature will be meeting after that census information is received from the federal government to take up redistricting in a special legislative session. Additionally, lawmakers will be monitoring the performance of the electric grid as we enter the hot summer months; it is possible that the Governor adds electric-related charges to the special session.

With the map drawing not being finalized until later this year, there is a distinct possibility the primary elections calendar could be pushed back substantially. Texas’ primary elections are typically held in March, but we could see the primary pushed back as late as May or June of next year. That exact scenario occurred in 2012 following a redistricting session where final maps were delayed by litigation, and the primary was held at the end of May.

The 87th Legislature passed many substantial pieces of legislation improving the energy landscape for both Texans and energy producers. There will be much more work and debate ahead as agencies take up the work of implementing the requirements to reform the electric grid and ensure redundancy, resilience and reliability are built up to meet the growing demand in a state quickly approaching 30 million people. It is often a thankless job, but the men and women serving Texas this session have earned and deserve our praise.

 

About the Author: Jason Modglin serves as the President of the Texas Alliance of Energy Producers. 

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