Keffer

Texas Energy Policy With Common Sense

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A rare and surprising thing happened in Austin this spring. The Texas Legislature was in session, which typically is in and of itself reason enough to hold our collective breath and checkbooks. At least in this one instance, however, the Legislature acted decisively, expeditiously and almost unanimously on a substantive matter of economic significance to the entire state.

Rep. Drew Darby (R-San Angelo), Chairman of the House Energy Committee, authored and managed House Bill 40, which purported to reaffirm a legal doctrine that had been the operating assumption in the oil and gas industry for almost a century. Known as preemption, it simply stands for the proposition that the state is the level of government empowered to regulate the oil and gas business. Although this principle has rarely been questioned in the long history of exploration and development of oil and gas in Texas, it was suddenly thrust into the spotlight by the opposition to hydraulic fracturing that has manifested itself in various locations across the country. For example, Vermont enacted a statewide ban against hydraulic fracturing — and, of course, since there is no known oil or gas in Vermont, nobody cared. However, after years of indecision, New York, which does sit atop a significant share of the Marcellus Shale, also recently enacted a statewide ban against hydraulic fracturing — to the chagrin of its many economically stagnant communities and mineral-owning citizens.

Where statewide bans still seemed somewhat ambitious, individual communities in states like Pennsylvania, Ohio and Colorado pursued their own efforts to enact local ordinances to ban fracing or, in the alternative, to establish requirements so burdensome that drilling a well would be rendered economically or practically impossible. As unlikely — even heretical — as it might have seemed, that very kind of initiative was undertaken in the Texas city of Denton last year. By referendum, local voters declared hydraulic fracturing to be prohibited within city limits. Although other communities in the Barnett Shale of North Texas, like Flower Mound, had been making it progressively more difficult for oil and gas development to occur within their city limits, Denton was the first Texas city to flatly prohibit fracing; and since Barnett Shale gas is economic only because of fracing, the ban was effectively a prohibition on oil and gas development altogether.

Enter the state legislature, which meets only every other year; and 2015 happened to be that year. Although the Denton ban was already being challenged in lawsuits brought by the Texas Oil & Gas Association and the General Land Office, the Legislature uncharacteristically went on mission and never blinked in its objective to reaffirm its preemptive authority to regulate oil and gas activities. Unlike the perennial abdication of responsibility the Legislature has demonstrated in the area of school finance — repeatedly deferring to the state Supreme Court to divine the Legislature’s constitutional responsibilities — in this case it did not seem to hesitate in recognizing its task and getting it done. Perhaps it was the undeniable role that the recent surge in oil and gas activity had assisted in providing the so-called “Texas miracle” and protecting the state’s economy from the 2008 recession. Or it may have been the tremendous economic growth in areas historically unfamiliar with profitability, such as the Eagle Ford Shale, or renewed growth in areas like the Barnett Shale and the Permian Basin. Maybe it was the unmistakable contribution that oil and gas activity has made through severance taxes into the state’s Rainy Day Fund, making it possible to allocate billions of dollars to Texas’ water infrastructure and transportation needs. Or it could have been that rare moment in modern-day partisan politics when representatives and senators from all parts of the political spectrum were able to exercise collective common sense.

Whatever the explanation, Rep. Darby and his band of brothers and sisters were able to shepherd his bill through the House and Senate without any amendments and with overwhelming majorities. Quite frankly, it looked a lot like how the system is supposed to work.

But what of the ancient and revered chant of “local control?” Texans loathe federal mandates from Washington, D.C.; why is this not an equally loathsome exercise of Austin power over the local preferences of a municipality? There is a spirited debate that is yet the latest manifestation of constitutional illiteracy in our nation and state. The American system of government is premised on the proposition that the state government is the origin of all delegated power; the individual states delegated limited powers to the federal government in the U.S. Constitution (although that proposition seems to have been relegated to the “Museum of Curious Vestiges from Our Past”). Similarly, under our state constitution, local governments are created by the state government and have only those powers that the state has delegated to them. So, with respect to the oil and gas industry, the state has the authority to regulate it, and local governments can only regulate what the state allows it to. HB 40 reaffirmed this principle and essentially declared that while local governments are authorized to regulate activities that occur above ground (like zoning, noise, hours of operation, transportation routes, etc.), the state retains exclusive authority to regulate what happens below ground (like hydraulic fracturing). But HB 40 also makes it clear that a city’s above-ground ordinance has to be commercially reasonable and cannot have the effect of prohibiting oil and gas development.

 It remains the case that Texas and the U.S. are blessed with an abundance of natural resources, the responsible and efficient development of which can keep us on the path of being less dependent on undependable, even hostile, countries and becoming increasingly more independent — the short-term and long-term benefits of which are truly incalculable. Our greatest obstacle, to paraphrase the old comic strip character Pogo, is us. Unfortunately, we are perfectly capable of snatching defeat from the jaws of victory. The swift response of the Texas Legislature to the Denton ban with HB 40 is at least some current evidence that, when necessary, common sense can still prevail.

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About the author: Bill Keffer is a contributing columnist to SHALE Magazine. He teaches at the Texas Tech University School of Law and continues to consult. He served in the Texas Legislature from 2003 to 2007.

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