Midpoint of the 86th Texas Legislative Session: A Snapshot of the Energy Industry
A few weeks ago, we passed the midpoint of the Texas Legislative session, begging the question: Is the legislative glass half empty or half full? It’s hard to tell for the oil and gas industry right now. The legislative process is designed to start off slow, ramp up to a fast pace, and then, with a set of self-imposed deadlines, slow down in the last two weeks. Nevertheless, it is a good time to look at where we are coming from and where we are going.
First, some interesting numbers about legislation. March 8th was the deadline for legislators to file bills in the Texas Senate and House. A total of 7,281 pieces of legislation were filed (with a great number - 2,830 - filed in the last week). This total is up 627 over 2017.
With the last day of the session being May 27th, here are five issues to watch that could impact your business in the energy world for the remainder of the session.
Taxes/School Financing: Property taxes and school finance are playing a major role this Legislative Session. Governor Greg Abbott, Lt. Governor Dan Patrick, and House Speaker Dennis Bonnen have discussed the need to reform the current system. Multiple concepts and policy changes have been floated around the capitol.
One idea is to buy down a portion of the property tax cut with a sales tax increase. Other more specific legislation filed includes altering the current tax code to remove long-standing exemptions such as the heavy equipment inventory. Legislation to phase out the High Cost gas exemption was also filed.
The oil and gas industry, a significant taxpayer in the state, will need to understand each of these proposals and determine how it may impact their business. If you aren’t paying attention to this, now may be the time.
Road Funding: Another key issue will be road infrastructure. As the industry continues to grow, more pressure is being put on local highway systems. Last session, the oil and gas industry supported several plans to focus more dollars on this critical infrastructure, with some limited success. Several bills have been filed.
Some policy decisions are a direct appropriation of $250-$500 million to these energy impacted communities. A piece of legislation was filed to carve off a portion of the severance tax before it enters the Economic Stabilization Fund (Rainy Day Fund).
Recently, we have seen the introduction of the Generate Recurring Oil Wealth for Texas (GROW Texas). This concept is to actually tap into the existing Rainy Day Fund to address the numerous challenges that energy communities are seeing, such as a strain on infrastructure, education, and affordable housing. Look for road funding to again be a key public policy issue this session.
Eminent Domain: The use of eminent domain will be one of the most important issues for the energy industry this session. Before the 2017 session, a group of large landowners formed “Texans for Property Rights” to address several issues they saw as wrong with the current process of utilizing eminent domain.
This session, the Senate version of eminent domain, SB 421, had an early hearing and was voted out of committee quickly. This Senate version contained language that will negatively impact the industry. This includes containing a 45% penalty to be included in the initial offer. It disallows the final offer to be reflective of the opinion of value provided by a certified appraiser. It allows the landowner to engage in prolific litigation due to the addition of numerous bureaucratic procedures. It also mandates a Notice of Intent that is impossible to comply without inviting litigation.
The oil and gas industry remains dedicated to working on compromise legislation, but as the Senate bill currently sits, that remains a challenge.
Water: Water is always a major policy debate in Texas. In this Legislative Session, it will be no different. We must watch this carefully, since water impacts our business in several different ways and is vitally important to continue our production and growth.
On the produced water side of the policy debate, efforts to look at water recycling will continue. These may include trying to identify and streamline any regulatory or legislative issues. We are also seeing an effort to offer some type of incentive to recycle the water. Several bills have been filed and are being heard as of this week.
Modernizing Texas to Address the New Energy Era: Over the past few sessions, Texas government has taken numerous steps to address this new era of energy production in Texas. This includes our regulatory bodies, the Railroad Commission, the Texas Commission on Environmental Quality, and the General Land Office. Each is updating its rules and regulations to address the incredible new opportunities. The legislature has passed new laws to address environmental and safety concerns. They added additional funding for critical infrastructure. But this is an effort that should take a holistic view of energy production and exportation.
For example, we should look at the ports of Texas. The Port of Corpus Christi is strategically situated to take full advantage of this new energy era. The Port is rapidly growing in only one direction, and that is into San Patricio County. $24 billion of the recent $26 billion of investment has occurred in San Patricio County. The Port now owns, through recent acquisitions, 4,500 acres in San Patricio County (the Port only owns 2,500 of land in Nueces County).
However, the governorship of the port has not changed. The Ports Commission has not grown with this exciting activity. The Port has seven appointed commissioners. Three are appointed by the City of Corpus, three from Nueces County, and only one from San Patricio County. The addition of two Port Commissioners from San Patricio is necessary to keep up with the representative growth in the county.
The oil and gas industry has given so much to this state: a strong economy, massive tax revenues and royalty payments, and a Rainy Day Fund that is the envy of most states. It is important to remain engaged and advocate to keep the oil and gas industry strong.
By: Chris Hosek
Energy Consultant in Austin Texas