This meeting, the Rail Road Commission of Texas will come to order to consider matters
which have been duly posted with the Secretary
of State for June 18, 2019. The Commission
will consider items on the agenda as posted
on the agenda. Under our public participation
policy, anyone desiring to offer public testimony
on any items that are not noticed on today's
agenda will need to fill out a testimony form found in the back of the room and submit
it to Commission Secretary Kathy Way. Reminder
to turn off your cell phones. You're already up.
Good morning. Item number one, Christina.
- For the record, my name is Christina Poole, and I'm
with the Oversight and Safety Division. The agenda
item before you is Gas Utility Docket 10830,
the application of Texas Gas Service for the
Test Year 2018 Annual Interim Rate Adjustment
for its West Texas service area. This is the
third interim rate adjustment TGS has fallen
for this area since the company's last rate case, GUD Number10506.
This adjustment represents an incremental revenue
increase of $4,083,000 of which $325,489
will be recovered from the customers subject
to the order in this docket. Staff recommends
approval of the interim rate adjustment as revised.
I can answer any questions. - Thank you. Are there any questions? I move we
approve the examiners recommendation. Is there a second? Second by Commissioner Sitton.
All those in favor say aye. Motion passes, item's approved. Thank you. Item
number two. Morning, Frank. - Madam Chairman and Commissioners. Good morning. I'm Frank Thomas with
the Oversight and Safety division. The next item this morning is Gas Utilities
Docket Number 10833, which is an application made by CenterPoint Energy Entex for a
Test Year 2018 Annual Interim Rate adjustment
in incorporated areas of municipalities with
ceded jurisdiction in its South Texas service
area. This is the first interim rate adjustment
since the company's last rate case in GUD Number 10669 which set the base interim rate
adjustment components and identified under these
factors. The company has determined an annual
test year incremental rate requirement of approximately $3,882,248, sent quickly, of
which $1,263,266 will be recovered from the
environs and ceded jurisdiction of customers
rate adjustment. The company did provide responses
to staff request for information. Staff's
review of the filing has found it to be compliant with provisions of the group
statute and staff is recommending approval.
And I can address any questions at this time.
- Thank you. Are there any questions? I move we approve the
examiners recommendations. Is there a second? Second by
Commissioner Christian. All those in favor say
aye. Motion passes. Item's approved. Thank
you. Item number three. Good morning.
- Good morning. Good morning, Chairman and Commissioners.
For the record, my name is Claudia Godoy. I'm representing the Gas Services department
of the Oversight and Safety Division. Before you
today is Gas Utilities Docket Number 10834,
the application of CenterPoint Energy for Test Year 2018 Annual Interim rate adjustment
for the unincorporated Beaumont, East Texas division
and the cities that have ceded jurisdiction
to the Commission. This is Centerpoint's sixth
interim rate adjustment since the company's last
rate case, GUD Number 10182. The adjustment represents an incremental increase
of $3,836,876 of which 1,163,481 is allocated
to the customers subject to the order of this
docket. Staff recommends approval of interim
rate adjustment. I'm available for questions.
- Thank you, Claudia. Are there any questions?
I move we approved the examiners recommendation.
Is there a second? Second by Commissioner Sitton.
All those in favor say aye. Motion passes.
Item's approved. Item number four. - Good morning, Commissioners. For the record, my
name is Sarah Montoya Fogelsong. I'm representing
the Market Oversight section of the Oversight and
Safety Division. Before you today is Gas Utilities
Docket Number 10835, the application of CenterPoint
Energy for the Test Year 2018 Annual Interim
Rate adjustment for the unincorporated portion
of the Houston division and the cities that have ceded jurisdiction to the Commission.
This docket is the second interim rate adjustment
the company's filed for the portion of the
Houston Division jurisdictional to the Commission.
Since the final order was issued in the most
recent statement of intent, GUD Number 10567. This adjustment represents an incremental
increase of $7,749,138 of which $3,904,183 is recoverable from customers impacted
by this order. Staff recommends approval of
this interim rate adjustment as revised. I'm
available to answer any questions.
- Thank you. Any questions? I move we approve the examiner's
recommendation. Is there a second? Second by Commissioner Christian.
All those in favor say aye. Motion passes,
item's approved. Thank you. Item number five.
- Morning Chairman and Commissioners, Amy Bruce with the
Market Oversight section of the Oversight and Safety Division. Before you today is Gas
Utilities Docket Number 10836, the application
of CenterPoint Energy in Texas for the Test
Year 2018 Annual Interim rate adjustment for
the unincorporated portion of the Texas Coast
Division and the cities that have ceded jurisdiction to the Commission. This docket
is the second interim rate adjustment the company has filed for the environs in the
Texas Coast Division since the final order was issued and Gas Utilities Docket Number
10567. This adjustment represents an incremental
increase of $4,605,943 of which 1,617,942
is allocated to environs customers. I recommend approval of the interim rate adjustment
as proposed and I'm available to answer any questions.
- Thank you. Are there any questions? I move we approve
the examiners recommendation. Is there a second?
Second by Commissioner Sitton. All those in favor
say aye. Motion passes. Item's approved. Thank you. Item number six.
- Good Morning, Chairman, Commissioners. For
the record, Veronica Roberto, Administrative Law
Judge with the Hearings division. Item number
six is an application by Texas Municipal Power
Agency, or TMPA, requesting a multi phase
release of reclamation obligations on an aggregate
971.2 acres within Gibbons Creek Lignite
Mine Five, Permit number 38D, located in Grimes
county. The multi phase release consists
of 0.6 acres for Phase One, Two, and Three, and
970.6 acres for Phase Two and Three. The 976
acres were previously granted Phase One release
by Commission orders in 2010 and 2018. The
post mining land uses within the subject area
are pasture land and develop water resources.
Evidence in the record supports TMPA has satisfied all requirements for full release
of the subject area. After notice, no comments or
requests for a hearing were received. TMPA and
staff are the only parties to the proceeding.
No exceptions were filed. No changes to the
current bond are requested in this docket. It
is recommended that the multi phase release of
reclamation obligations for the subject 971.2 acres be approved and TMPA be eligible
to reduce the amount of bond for the permit. I'm available for questions.
- Are there any questions? I like the cows in the
pictures. I move we approve the examiner's recommendation.
Is there a second? Second by Commissioner Christian. All those in favor say aye. Motion
passes. Item's approved. Thank you. Item Number seven. Good morning.
- Good morning, Chairman, Commissioners. For the record, My
name is Peter Buhva, Technical Examiner with the Hearings
division. Item number seven is the application of OWL SWD Operating, LLC, pursuant
to Statewide Rule 46 to inject fluid into a reservoir productive of oil and gas for
the Cronos SWD Lease Well Number One in the Grice Delaware field in Loving County,
Texas. The application is for noncommercial new disposal well. OWL requests authority
to dispose a maximum of 20,000 barrels per day
of produced water into the Delaware formation
from a depth of 5000 feet to 6200 feet and maximum surface injection pressure at 2500
psiG. The application is protested by Z and T Cattle Company LLC, who is an adjacent
landowner and contends that the proposed injection
well is not in the public interest and could
potentially pollute the groundwater. The applicant
provided evidence that the ground water would
be protected and the injection fluid would be contained. The protestant failed
to show this well would be against public interest
or is the pollution threat. The examiners
recommend approval of the application. Exceptions and
replies have been filed. I'm available for questions.
- Thank you. Are there any questions? I move we approve
the examiners' recommendation. Is there a second? Second
by Commissioner Sitton. All those in favor say aye. Motion
passes. Item is approved. Thank you, Peter. Number eight.
Good morning, Commissioners. I'm John Moore,
Technical Examiner in the Hearings division.
Item eight is the application of Western Disposal
Systems Inc to amend the daily injection volume
of their existing disposal permit from 2000
barrels per day to 5000 barrels per day, a 250%
increase in injection volume. The application
is protested by an offset operator, CrownQuest
Operating LLC. CrownQuest drills through the injection formation to their target
horizon and alleges that increasing the injection
volumes would impact their drilling program
in terms of operational costs and risks. Protestant
failed to show that increasing the injection
volume by 3000 barrels per day would harm are injure any horizon productive of oil
or gas. Protestant continues to successfully
develope their lease. However, in the hearing
protest that presented a prior Commission final order from 2015, wherein the Commission
recognized that a nearby plugged and abandoned wellbore was a potential conduit for the
vertical migration of fluids. In the underlying
proposal for decision, Finding of Fact Number
Five stated the Marian Number 11 Well, which had been previously plugged and abandoned
in 2005, may be a conduit for migration between
the injection interval in the base of usable
quality water. Pursuant to Finding of Fact Number Five regarding the plug and abandoned
well, the Commission ordered a special condition:
that a cement squeeze be performed on the
casing annulus and the well replugged. The third party disposal well was never drilled,
and there's no evidence that the cement squeeze
and replugging of the nearby well ever occurred.
There's no evidence of any material change to the plugged an abandoned well bore, which
would alter the circumstances supporting the Commission's Finding of Fact Number Five
and special conditions adopted in 2015. With
proper safeguards, the amendment to Western's
disposal application meets statutory requirements.
The examiner's recommend approval of Western's
application with the addition of a special condition to perform a cement squeeze and
replug the nearby plugged and abandoned well, identical to the special condition the
Commission ordered previously on this well.
Exceptions and replies were filed. Might I answer
any questions?
- Thank you, John. Are there any questions? - I have a question. John, we have
over the last couple of years, in fact, a lot
of, more, probably, two or three years ago,
we were beginning to hear a lot about potential
over-pressurization of the San Andreas. Specifically,
as it was affecting the ability of operators to drill through the San Andreas. The
evidence in the record seems pretty clear that the conclusion was, in fact, I know
some commentary from the representative from
the protestant, that there's some combination
of natural conditions that are causing issues as well as potential causes
that could be from additional disposal.
My question is this is, is as y'all were hearing
this case, is there any ability to, because we continue to hear about this concern, any
ability to drawing in other information from other producers, what's happening in other
drilling operations? I'm concerned that we're
looking at every one of these siloed and saying,
in this case, it's $523,000 additional per well to drill through this because of flow
back issues, and there are other issues that
they mentioned, as opposed to looking at the
system is an aggregate. So my question to you
is, do you have any ability or did you have
any ability during this case to look at the aggregate issues that we're dealing with in
San Andreas or simply siloed to just this one instance?
- The simple answer would
be no, nothing was entered into the record.
We'll say that when Crown Quest started doing
it's drilling effort, typically in a horizontal
program, they'll drop a vertical well first
to identify the horizons. They stuck that well.
And they stuck that well, allegedly by CrownQuest,
close to where the San Andreas was. But at that point in time, this particular
salt water well, salt water disposal well, was only injecting on the order of 700
barrels a day, well below its permit. So there are inherent problems, and
what drillers have got to contend with is adjusting not only their drilling programs,
but their completion programs. In this particular
area, you're going to drill through what it
could be helite and then hydrite before you get to the San Andreas. So you can't
necessarily drill with just clear water because you're gonna dissolve this helite. But
then, if you load up your mud weight, you're gonna break through the Clear Fork because
you want to hold back the San Andreas, so it's always a compromise. But I do share your
concern that these are looked at in a silo. And I think it would probably be
recommended that a study be done by the Commission to understand what effect these
injection wells are having. The people that are in the saltwater disposal business
are going to look for the the formations that are
highly porous and will accept these volumes.
This is a relatively small volume. We see applications that go on the order of 20 to
30,000 barrels a day, but you can't have the horizontal drilling without some place
to put the water.
- I'm not arguing (inaudible) as far as the wells,
it was more, you answered my question, and it
is that we continue to look at these on a one off basis, and at some point, we're gonna
have to figure out how to take a look at a more broad basis across the San Andreas to
figure out if there are issues that, when you
look at the aggregate, we see that we don't
see looking siloed, but you answered my question. Thank you, John.
- Thank you, sir.
- Any other questions? I move we approve the examiners'
recommendation. Is there a second? Second by Commissioner
Christian. All those in favor say aye. Motion passes, item's approved. Thank you, John.
Item number nine. - Good morning, Chairman. Good Morning, Commissioners. For the
record, Christie Reeve, Administrative Law Judge
with the Hearings Division. Item number nine
is the application of Exco Operating Company
LP for a two year exception to Statewide Rule
32 to flare its casing head gas due to a lack
of available pipeline. And when the pipeline
becomes available, for temporary upsets, maintenance
and line pressure issues. The application
is protested by Williams MLP Operating LLC and Mockingbird Midstream Gas Services
LLC, collectively Williams, the operator of the
connected gas gathering system. OGC America,
now CNOOC Energy LLC and U S Energy Development
Corporation appeared as interveners and aligned
with Exco. Exco and Williams do not currently
have an agreement to transport Exco's gas.
Exco provided evidence showing it is uneconomical
to utilize the Williams system at the price
Williams is currently seeking to charge. Exco
stated that it's only alternative to flaring
is shutting in the wells. Exco and Williams
both agreed shutting in the wells would result
in an ultimate reduction of recovery from the wells, as shutting in the wells would
cause damage to the reservoir, which is an unconventional reservoir. The wells produced
approximately 9000 barrels of oil each day.
Exco showed that even if it is able
to reach an agreement with Williams allowing it to use the pipeline, Exco would still
need an exception to Statewide Rule 32 for
temporary upsets, maintenance and line pressure
issues. As historically, Williams has been unable to take approximately 30% of Exco's
produced gas. The examiners recommend the
application be approved. Exceptions and replies
were filed. I'm available for questions.
- Thank you, Christie. Are there any questions?
- I do have some questions. In fact, first of all, let me say, there's a bit of,
this is a case of first impression, in this
instance of, as I understand, Christie, first time
we've had an operator who is mechanically connected to a gathering system. While they
don't have a contract in place, so they can't
use it today, there is the potential, and so
this really draws, I think, into the question what exactly is waste? That seems to be
the fundamental issue here. I'm ignoring or going beyond the issues of upset conditions
and the volumetric issues that we have simply
to, what's the requirement from the Commission?
So I am inclined today to pass this case
because I want to make sure we give some real
thought to how we consider waste and some of the economic issues and everything else.
However, I'd still like to ask some questions
about your logic and help me understand. Broadly,
Christie, based on your your analysis, what do
you think the Railroad Commission is charged
to do when it comes to prevent waste? - So we kind of have two ideologies, if you will,
that kind of merge in a potential conflict, I would say. The Commission is tasked with
promoting development of the resources. And,
in this case, you have oil and you have gas
and they're produced simultaneously, and in
the past, when you have areas where you reach
your development before there's infrastructure,
then we've seen flaring in those cases so
that the oil can be produced, and then, so that the infrastructure can come in. So you
could argue that the gas that's being flared,
it's being unused. To go back to my time in
Enforcement, we have the theory that if any oil was produced and hit the ground,
it was waste because it could not be utilized.
And I think that logic could certainly be
applied to this. But when you also look at this you're in this kind of conundrum of, if
not one, then not the others well. So if there
is really damaged to the reservoir and the
reservoir, and you're risking producing the oil by not producing it all now, then you
could argue that's waste. There's also an argument here about the economics and whether
or not you should include the value of the or the revenues from the oil as well as the
revenues from gas. And historically, we've only ever looked at the revenues from the
gas. But when you add in the revenues from the oil, then there was argument in this
case that you lower the or you shorten the timeline for the life of that well because
you changed the wedge of recovery. So the well can only economically produce
for so long when you're offsetting the gas
production with the oil production. So I really
think it's a conundrum, and I don't know that there's a a clear answer either
way. It's certainly conflict I felt in listening
to this and in writing this PFD. This isn't
just a first impression for connection to a pipeline. We've never had a contested Rule
32. So this is a case from first impression
on that stand as well. And we've been issuing
authorities for permits to flare going back
to 2008 or before. Really saw a huge increase
in 2011. And so this has been going on for quite a while, so I don't, direction would
be lovely, but yes, it's it's a conundrum.
- A couple points you make. I just want to clarify.
Right there at the end, you talked about the fact that this may, by allowing that, you
talked about the impact on the oil production,
first of all, may shut in the wells, and then
which would cause a negative impact on the production of the wells. Also, it may make
the wells as they decline in production, it
may make them, we shut them in sooner because
the economics of the wells, even if they're economical today at a net
$146,000,000 loss, whatever that you wouldn't
produce them is long. So you're there's an
argument, I hear what you're saying about which which molecules do we prevent waste.
The oil molecules or the gas molecules?Ssince
we're having a conversation of philosophy here,
one of the, you talked about the difference between the economics, and as I've explored
this, even looking back through the Natural
Resources Code, and then our rules, trying to get a
handle on, is waste an economic question or is it a molecular question? Which do you
believe it is? - I look at it from a molecular standpoint, but I think
I could certainly argue the other way as well.
That's the problem with being an attorney.
We can typically argue both sides. - Cause I might argue it's also an
economic question. And it seems to me, we're forcing which, historically,
wer'e pretty free market, sitting up here, I think, philosophically, all three of us.
To me, this would be forcing a contract which we've never done. And I think that would
be new for us, although I will say I would hope these parties get it figured out in the
next timeliness. And I think that's an opportunity we've always given parties, is
to get their product to market. And we believe
the market works at some point to which is
important. So I think this is an interesting conundrum. Do you have any questions?
- No, I just want to share my concern on this
issue with staff that, I think it's good to
give this deep consideration. I agree with the
other two Commissioners that this is, I'm
concerned with the, visiting with the EPA, current EPA director, nationally, and one of
their big concerns is the escaping gas in the environment. We're hitting that and his
concern specifically was, his argument was, well, we're going to take all these waste,
as fast as possible, stop flaring, stop this, because it becomes economic to put
it in pipelines. And when we start going against
that, we start having danger in working. So I
think that's a concern I have. - If I can speak to that, because there's
a confusion. You're right when we hear a lot today big concerns about flaring. But
in the end, you know when you burn a methane molecule, CH4 turns into C02 and water.
And whether it's burned at a flare or it's burned
in a gas plant or it's burned in a power plant,
those are still the byproducts, so I think there's a lot of confusion out in the
world about whether or not a flare has any any negative or any differential impact on
the world versus capturing that molecule, which draws into the question about what is,
if there's more gas in the world today than the world can use, and it's got no value,
what's waste? And it's the question, I agree
with Christie, is an economic one. I'd like,
do we have parties here representing? Do we have
the attorneys here representing the parties in this case?
- They signed in. Hang on, let's, so are all of
y'all here? Let me make sure everybody's here
before we allow one to get up. Because just
out of fairness. One second. Double-checking
who all is listed. We have William - You stood up really quickly. That was nice. - Yeah, that's quick. Well, cause
you realize they have another case behind.
Okay. Okay. David? Here? Yes. Brian? Here. Okay.
Yeah, they're all here if you'd like to talk to them. Their
next case starts at 11 o'clock on this. We're gonna be
finished, so y'all can start timing me and go fix this problem.
- Why don't we start with the applicant? And
the question that I'm gonna ask each of you to address is the question of waste
so as the applicant, how do we, as a Commission, ensure that we are preventing
waste? When I look at the Natural Resources
Code and what we're charged with, specifically,
our role in preventing waste. The Commission's
shall exercise its authority to prevent waste
when the presence or imminence of waste is supported by a finding based on the
evidence introduced a hearing after proper notice. So how do we know we promote that
in your mind? - Thank you for the opportunity, Commissioner. My name's David Nelson.
- David, before you start, look, we're not going to
re-argue this, okay? So you'll each have two minutes
because, and I'm real serious about this, you go
argue the next one next. Okay. So I appreciate
all have rule opinions, but let's stick to the question. I'm gonna give you
two minutes because y'all can go argue your next
case at 11 o'clock. Okay? - Thank you so much.
- Don't run after two minutes. I may have questions.
- The issue in this case, for us, with respect
to ways to be specific, and answering your
question, goes to what Ms. Reeve has explained
to you. And that is the fact that there is
evidence in this record to show that if these
wells are shut in, if it's if that is the option that is available, those wells are
shut in, there is potential damage to the
reservoir. That damage could result in a reduction
in the total amount of oil ultimately produced
from that reservoir. That's what we refer
to as physical waste, the waste of that oil
reserve. So more than anything, we're concerned
about that happening in this situation. That
is a real problem. It's been addressed, it's
been presented and I don't think that the record is in question there, that that
can happen and if it does happen that you would have physical waste. It's not only true
in this case, I think there are a lot of instances
where reservoirs can be damaged if the wells
were shut in for an extended period of time, which creates the conundrum we're talking
about. But to answer your question, that is the physical waste that we're addressing.
- So, if I said to you, great, you're right,
I'm concerned about the physical damage and
the wasted oil, and so therefore, you have to
continue to produce. Then, do I solve the problem?
- Well, yeah, if you tell me that I have to continue to produce, what you're also
telling me is then I have to continue to produce
under terms that are dictated by the pipeline
with respect to how we deal with the gas portion
of this. And you can appreciate the leverage
the pipeline has then in dictating the terms. If they know that the only option we have
is to produce that oil along with the gas. And that's why we're having a hearing in an
hour to go and determine what a fair and reasonable
rate would be for that, and hopefully that
will resolve that issue. - So in the end, it still comes back to an economic issue. Yes,
Commissioners, you may tell me that I can't shut these wells, and I have to continue to
maximize my oil and gas production, the end of
the day, we may lose money, so the issue still
goes back to economics. My question is, if it's always an economic issue, then
why do I regulate flaring at all? - Well, the reason you regulate flaring is to balance
the issues between the economic waste and the
physical waste, hopefully with the emphasis
most on the physical waste to be sure that you maximize the production of the reserves
in this state. And I think that's the primary obligation that you have. - So if I were
not to regulate flaring, do you think that then the operators would not try to maximize
the physical production of their molecules? - Well, if you if you didn't regulate flaring,
I think that to start with, nobody wants to flare. That's not an option that
people are looking for. It's one that they have
to deal with as long as the pipeline
development lags behind the production of the
oil and gas. And we're just unfortunately,
in a situation in places where that doesn't
happen simultaneously. So you're always gonna
have situations where flaring may be necessary until that catches up. - Because it's not economical
to capture the gas without a gathering system? - Correct. - So I go back to, then, why do I
need to regulate flaring? In other words, if I can depend on the companies
to maximize their capture of physical resources,
why do I need to regulate it? Why not just
let them flare any time that they want to? Because we can assume that they're going to
maximize their economics. - Well, you do that on a regular basis, the only reason that you
ever allow for flaring is where it's shown that that physical connection is not
available or that the economics don't just defy it because you don't have access to the
pipeline. If you did, if you had that situation every time, then no one would flare.
Right, so I still haven't gotten an explanation why
I need to regulate that because they're not gonna,
doesn't seem like they would want flare anyway. But we're going in circles. The issue
I have in this case is if there is this much gas, and there is, it's uneconomical.
Okay. Well, what point do we need to step in? Why would we regulate it all? And if I
don't have an explanation for that, then I
feel like, well, then I don't understand what
our definition of waste is. Because if it's
an economic issue, then do I need to include
the revenues from oil? Do I need to include
the economics around all production? Because
if its basic economics, then I should include the entire operation, right? - Well, that's
a philosophical question. I don't know if I have a good answer for that. I would just
tell you that, historically, the Commission
has never included oil revenue in determining
the economics and whether it's necessary to
include that in deciding whether flaring can
occur. That came up in this hearing. It's been
discussed, and obviously, if the Commission
is going to make a decision to include oil revenue and deciding whether it's economic
to do it, there won't be any more flaring applications. Everybody would have enough
revenue from the oil production probably to
justify that, but the Commission's just never
taken that position before. - That's well said, I'm not sure I agree that that's true, that
there would always be enough revenue from oil to justify any flaring. But I appreciate
the point you're making. - And let me qualify that. I would say, in the vast majority of the cases,
that would be revenue, and certainly in the areas in South Texas
and the Eagleford and places like that. It would eliminate a lot of flaring because the
economics from the oil would would be sufficient.
This Commission's just never done that.
Okay, thank you. I don't have any other questions. - Thank you, David, Brian. And will y'all all please
fill out a form in the back with Kathy, I'd appreciate it.
- Commissioners Brian Sullivan on behalf of CEU.
We are a non-operating working interest owner, and I support everything David
says. Let me add just a couple of little things. First economics or, excuse me, waste
has always been a molecular waste at the Commission
and before the courts. Economic waste has
always been a one-off. For example, the Exxon
and Schlachter cases that deal with existing
well bores. Those are the only economic cases
where the court will actually say, okay, this
doesn't meet our ordinary waste being molecules,
its economic waste, to drill another well at
a location. So I think waste has traditionally
been just that, molecules. Second thing, when
a pipeline company builds a gas pipeline, they do it exclusively on gas revenue. That's
why the Commission historically has only looked at gas revenue. It's never once, at
least in my history here, ever looked at oil
revenue to support a pipeline. So all of that
being said, I have a solution for you that's in the record. We asked during the hearing
that you set an interim rate, and we gave them numbers that would require the pipeline
to take the gas, essentially, to recover its
OpEx, which we know is in the 77 to 99 cent
area. We asked for that interim rate, I think the examiners appropriately said,
You know, maybe that's a little stretch for this
here, but that would be a solution. Thank you.
- Brian, I have a question for you. You said that it's
always the molecules. If I go out and drill a new oil well
and there's no gathering system installed yet,
and we allow flaring, now, I could capture
all that gas without a gathering system. I
install a compressor when I build my oil well
and build a contained facility and wait until
the gas system is hooked up and then I still
send all that gas. Why don't we do that? - Two things. In a traditional reservoir, you're
exactly right. And the Commission historically
has done that because there's no damage to
a traditional reservoir when you shut it in.
You can shut it in. You can wait, the gas is
in solution, and it comes with the oil. There's
no damage, but we know, in the Eagleford
and other types of tight gas reservoirs, that
when you shut them in, you lose oil production.
You lose ultimate recovery because of the nature of the rock and the completion. So
in this case, you are actually going to cause damage and its undisputed in this record,
if you shut in those wells to wait on the gas infrastructure - I'm not, I mean, not even
talking about shutting in the wells. Just, as you're
installing your well, if the gas infrastructure
is not there, require some other way to capture the gas. I could build a compressor and
a storage containment facility right there on
site and capture the gases the well's operating
from Day One. No one does it cause it's not economical, right? - If its economic to do
so, yes, sir, you could do that. - So my question is, if it's always about the molecules, then
why am I allowing people to flare when it's not economical? - Because you're saving
the molecules of the oil. Those molecules of oil get capture that would otherwise not
get captured. - If I build a compressor and a self contained storage facility right next
to my well, I can do that without waiting on the gathering system and the pipleline.
So I don't waste any oil molecules, it just cost a fortune to capture that gas. - Yes, sir.
I agree with your economics. - Okay, so then it's about economics and not molecules?
I just have to tell you, the courts have always
stressed it's about the molecules, and I think what
they've done is exactly the same as the court
has done, overall. The analysis that you are
providing, I am not sure I've ever seen a court
have that argued to them. So I'm telling
you what I believe the courts have decided.
I'm not saying you don't have a good argument.
I'm saying that arguments never been presented to a court to give us some guidance.
- Thank you, Brian. John? - Madam Chairman and Commissioners, I am John Hayes here, today, representing Williams
Pipeline. The pipeline has been installed for a long time. When the flaring application
was made, they put on it that it was not connected.
Well, it came out at hearing, it's very clear that
it's connected. The valve is closed because of a dispute over the price, but it's like
saying that your kitchen faucet is disconnected
because you turned off the faucet. No, and
the faucet is still there. But the pipeline was put in a cost of around $1,500,000,000
to gather this gas down in the Eagleford. Exco
bought into the wells knowing what the price
was, they could have put in their own pipeline.
There's no reason they couldn't. They haven't
moved. But on the economics question, Mr Solomon
tries to minimize the role of economics, but
the whole industry is driven by economics.
We know that. And two minimalize the flaring,
to say it's about the molecules, well, we're flaring,
flaring is waste. That's why the Legislature,
so many years ago, actually with the Texas Constitution, that was amended to give the
Commission the authority to stop waste. And we have case after case, in the early
days, the Commission, Commission saying, no, stop
waste. One of the earliest, if not the earliest
US Supreme Court case from, I believe it was 1899,
dealing with oil and gas, where they talked
about the major ownership was a flaring case
coming out of believe Indiana, where the operator
tried to argue that, well, it's confiscation if you
don't let me flare because then I can't produce
oil. And the U S. Supreme Court said No, you
can wait until the pipeline is there to drill
the wells and to produce the oil. And here,
all we've tried to point out is that, if the
test is as Exco and Seen Up, Mr Sullivan's client, would have it, namely, that if any
time the revenues from the gas alone, exceed
or less than the costs, or any time there's
a negative cost to capturing the gas, meaning
that you don't get as much as you get otherwise,
then you should be able to flare. Well, we've
simply suggested that if that were the standards,
there's no need for the flaring statue because
any time revenues are positive, the operators
would have the gas gathered, and negative, the Commission
can give an exception. And it's true, the Commission
has never really grappled with the issue framed this
way. We've had thousands of flaring applications
and every single one of them were unprotested,
and we know what happens when we tend to have
unprotested case. This is the first one that's
protested, and part of the reason for that is that the
gatherers don't get notice of the flaring application
so they don't even know about it. But what
we've suggested is this is an appropriate case
for the Commission to step back and really
carefully think through these issues and what the standard is gonna be, because it just
doesn't feel right, quite frankly, to have a
standard that says any time there's an application,
you get an exception, then why have the statute in the first place? And that's
what we pointed out time and again would be like saying that airline shouldn't handle
baggage if they don't charge baggage fees,
somehow cover the cost of handling bagge. No,
it's part of the package. When you drill a well, and these wells are drilled for oil,
we know that. Not for the gas. The gas is a byproduct, just as produced water is a
byproduct and as we heard earlier today in the injection cases, it has to be properly
handled and properly taken care of, and gas, if
they want to treat it is a byproduct, that's
fine, but it has to be handled and properly taken
care of, and we suggest that the Legislature
has said, you know, you really need to capture.
We have no quarrel with having, at all, the
situation where if they're temporary upsets, if the pipeline goes down, yeah, those
are good reasons for short term plans - I'm gonna cut you off for a minute because I've got a question and you've exceeded
your two minutes that Christi gave you. You're
making a big deal out of the fact that it's
about ensuring that we capture all the molecules and that if we ignore the economics,
or if we only use economics, then there's no
reason to have a flaring statute and there's
no reason to have flaring rules. My question
is this. If I say that, okay, well, then our
objective needs to be to capture every molecule.
Why don't I just force every oil producer
to be connected to a gathering system before they can produce a well? - That would
be a solution. I think there's some countervailing
factors times, like if we don't have as many
wild cats these days because of the nature of the resource plains, but if someone is
drilling in an area where they don't even know what's there and they might, that
situation, probably wouldn't pay to put in a pipeline
before you drill. But whenthere's a pipeline
already there, that's a whole different kettle of fish. - Pipeline or gathering system?
- Well, the gathering system to gather it to take it to the transmission pipeline. - So I've got a someone
building a, drilling a new oil well in the Permian
Basin or in East Texas or in the Eagleford, and
there's a pipeline within a couple of miles, but
there's no gathering system. Is your contention
that our mission at the Railroad Commission is to capture every molecule, so therefore,
I should require everyone to be connected to a
gathering system before they start producing
their oil well? - Not to capture every molecule, but to capture the vast majority of them. Because
we've heard, like in this case that, well, some oil might be wasted. And I say might
be because the testimony of the record was
very tenuous on that. It was more speculation,
and there's no way in here of what's the energy
value of the gas that would be flared versus
this theoretical, marginal dimunition in the oil production. No evidence in the record
and analysis of that whatsoever. That would
be another way to go about doing it. Do it as
basically an energy balance, but. - My question is more philosophical. If you believe,
or if we were to believe, philosophically, that our mission is to capture the molecules
first and not to consider the economics, then
why do why do we allow anybody to flare, ever,
except in upset conditions? Why not require all
new oil wells to be connected to a gathering
system before they start to operate? - Yeah, I think the answer is practicality. In that...
- Practicality sounds a whole lot like economics to me. - Well, there's a heavy overlap. Yes,
really is, and that if, again for short term flaring situations, for a new well that's,
say, a couple of miles from a gathering system
to give them time to get a gathering system
in there where the operator can either build to the existing gathering system or cut
a deal where it comes to them, those makes some real sense. But where you have, and
that's one reason this case is unique, where you have an existing gathering system that
has been hooked up and taking gas for years,
and we're talking about, believe it's 161 wells here,
and we responded, again, to the applicants' arguments that, well, you gotta look at the
economics. And we just said, okay, it makes
some sense to look the economics, but if you're
gonna do it, you gotta look at the full picture.
You've got to consider the oil revenues as
well as the gas revenues. And we dare say the oil revenues vastly swamp any cost
of the gas. - You answered my questions.
- You have any questions? - Madam Chairman, economics. Looking at it, I know in this
situation, you said well, they could have built their own pipelines system or their
own system, gathering system. That concerns me in the government appropriate has always
kind of watched toward monopolistic control of anything. And while this may be a mini
one case scenario here, you have the getting system pipeline there. And so it concerns
me because I don't like for government getting
the business of negotiating dollars and cents
to any large extent, even though we do it on
natural gas, here a times. But I'm concerned
about the fact that you have the monopolistic
control here in this one situation, and are
we shooting for a reasonable market price on using your system? Or is this, my concern
is, is it a closed fist thing? Hey, it's ours, and you gotta use us. And this is our dollar amount.
- That's that's part of what the case is all about. The rate case that's going
on. It's a discrimination rate case that convenes at 11 o'clock this morning. So that's
part of it. Also, in response to something that
you noted earlier in terms of the environmental
aspects. And I appreciate what Commissioner Sitton has pointed out is natural gas is
it's pure methane when it's burned, we get C02 and water. But this gas is high hydrogen
sulfide content. We're talking 32,000 parts per 1,000,000 on the average out here and
the flaring and potential incidents, and we
have testimony in the record from one of the
experts about the potential for incedents
if there's a flaring upset of the high H2S.
Also changed this calculation. We've got several things here that make this a unique
situation. - Plus, it smells special too. Thank you, John, I appreciate it.
- We got chicken houses in East Texas too. - So David, Brian and John, before you leave here, will
you please sign a form with Kathy, so we have it on the record. All right. - One other
note is there was no capital cost up front to the producer for this gathering system.
- Okay. Thank you. Does anybody have any other questions for Christie? - I'd like to pass this case.
- We're gonna pass. Thank you. - Thank you very much. - Good morning, Chairman. Commissioners.
For the record, Joe Menifee, Paralegal, Hearings
division. I'll be presenting items 10 and
11, both of which are good news. Item 10, subsequent
to filing a motion for rehearing, Advantek
Waste Management Services LLC has come into compliance. Therefore, it's recommended the
motion be granted and the underlying docket
dismissed as moot. I'm available for questions.
- Thank you. Are there any questions? We always like
good news, Joe. I move we approve the examiners'
recommendation. Is there a second? Second by Commissioner Sitton. All those in favor
say aye. Motion passes, item's approved. Number 11. - Item number 11 also is good news.
Subsequent to filing a motion for rehearing, Lee
Walker Mineral LLC has come into compliance.
Therefore it's recommended the motion be granted and the underlying docket dismissed as moot.
I'm available for questions. - Thank you. Are there any questions? I move we approve the
examiners' recommendation. Is there a second? Second by Commissioner Christian. All
those in favor say aye. Motion passes, that item is approved. Thank you. All right,
we're at the Oil and Gas Consent Agenda. There are
items number 12 through 61. There are 50 items
on this. I move we approve items 12 through 61.
Is there a second? Second by Commissioner
Sitton. All those in favor say aye. Motion passes, items are approved.
Rule Inactive Well items. Items 62 through 82.
But we've got, number 70 is in compliance.
All right, so I move we approve items 62 through
82 with the exception of item 70. Is there
a second? Second by Commissioner Christian. All
those in favor say aye. Motion passes. Those items
are approved. Master Default Orders. There are 36 of these. Items 83 through 118. I
move we approve items 83 through 118. Is there a second? Second by Commissioner Sitton.
All those in favor say aye. Motion passes.
Items are approved. And Agreed Enforcement Orders.
There are 252 Agreed Enforcement Orders, items 119 through 370. I move we approve items 119 through
370. Is there a second. Second by Commissioner Christian. All in favor, say
aye. Mission passes. Those items are approved.
Thank you. That that concludes our Hearing
section. We'll now take up Administrative. Good morning, Wei. - Good morning, Chairman, Commissioners.
Wei Wang, Executive Director. Glad to report today
that we're making huge progress in training
and retaining, hiring new employees, our head
count today is 797. It will be the highest it's been in years. - Highest since I've been ever here.
- Our HR department has been very busy this
month, and we have 164 Oil and Gas inspectors
and 63 pipeline inspectors. And just last week, we completed the third and final new
Oil and Gas inspector training for the year. We
trained, so far, 51 Oil and Gas inspectors. These
are new inspectors, been with the Commission for
less than two years. Now, on the well plugging
front, as of last Friday, we have physically
plugged 1378 wells. So we're making good progress
on that front as well. - Great. Thank you. Great progress. Thank you, Wei. Any questions of Wei? All right.
Thank you. 372. Good morning.
- Good morning, Vanessa Burgess, Assistant General Counsel. For the record, I'll
be handling items 372 through 374. We have nothing to report on item 372. I would
request to pass item 373, and then, item 374 on the agenda pertains to Commissioner
approval of certain contracts pursuant to the Commission's delegation of authority
in sections 2261.254 and 2155.088 of the Texas Government. The Commission's
internal delegation of authority requires Commissioner approval of contracts and
associated amendments greater than or equal to $500,000. Section 2261.254 of the
Government Code requires approval of contracts and associated amendments greater
than $1,000,000. And finally, Section 2155.088 requires Commissioner consideration
of material changes to contracts, including any increase is greater than 10
percent. At issue today are contracts for well plugging, site remediation, and
IT services. Approval of this item today will insure agency operations remain on
schedule, and the necessary approvals will be in place pursuant to the Commission's
delegation and state law. A summary of these agreements, including requisition
numbers and amounts, were included in your notebooks. Staff asked the Commission
approve these agreements pursuant to the Commission's delegation and state law.
- Thank you. There any questions? I move we approve the staff's recommendation.
Is there a second? Second by Commissioner Sitton.
All those in favor say aye. Motion passes.
Item's approved. Thank you. 375. Good morning, Clay.
- Good morning, Chairman, Commissioners. For the record,
my name is played Clay Little. I'm the Assistant Director
of Oil and Gas for Field Operations. Item 375, for your
approval, is the Commissions Oil and Gas Monitoring
Plan and Enforcement Plan for Fiscal Year 2020. A draft
of this plan was before you on April 23rd and was then
available for public comment until May 23rd. During that
period, the Commission received a total of four comments
from the public and industry groups. The final version
of the plan includes items that support the goals of
demonstrating the Commission's oil and gas monitoring and
enforcement activities and the strategic use of Commission
resources to ensure public safety and protect the environment.
This plan must be posted through the Commission's
website no later than July 1st. That deadline will be met
with your approval today. May I answer any questions?
- Thank you. Are there any questions? I move we approve
staff's recommendation. Is there a second?
Second by Commissioner Christian. All those in
favor say aye. Motion passes. Item's approved. Thank you for your work. Item 376 is
mine. So before we get too into it, I'd like a make a
few remarks, if you don't mind. I'd appreciate it.
So it's been a tremendous honor to serve as chairman for the past two and half years
as we're now beating numbers from the 1970s in production
numbers. And we're leading the country, which
I think continues to be important. From the
Permian Basin, the Gulf Coast and all every place in between, the oil and gas industry
really has roared back. And it's nice to beat OPEC occasionally, isn't it? And when you
look just on the national world, Secretary Perry's now saying we're sending LNG,
which is a lot of our LNG, to 36 countries on
five continents in the next year. So that's
amazing, I think, and Texas is leading the way
with my home area of West Texas being the
largest oil field in the entire world, I think, at this point. So what amazing
progress we've made in how amazing we've come a long way in the last two and half years.
At the Commission, we've gotten through sunset since I've been here. Finally. Done two
phases Oilfield Relief Initiative, which is an ongoing process. And we're saving
time and money for customers and as well as
saving time and money for our agency. And we've
also worked hard, and I appreciate staff's help on this on our budget. Our budget,
having consistent dollars, that we finally get access to our own money and being able
to pay our people appropriately, first and foremost, has been important. 796, Wei, is a
huge win for us. I think it's the highest number since I've been at the Commission.
So now we've got to keep 'em, right? Putting us on track. Not just for that, but IT, so
Brandon got a big, big thing to move forward,
right? But IT and getting off of mainframe
has been a big process for us, and I'm excited
to see what we do in the future. $27,000,000
is not insignificant as we go forward for the
next biennium to work on that, and frankly,
well plugging has been huge. So Clay, you've
been a great lead for that. And I think we'll
have a great project continuing, too, which I'm
excited about. But I want to say thank you
first, most importantly to the staff. You all have done a lot, and we've
brought this agency, we're slowly pulling it into the 21st century, not just with IT,
but we're training more people were keeping people. And y'all are the front lines in
our customer service, I think is really, really
important. So I'm really proud of that and
thank you for what you do and being engaged with us and really being a customer
service agency, I think that's important for us.
So I want to say thank you to the Legislature as
well. They've been nice to us. They finally understand what we do. It's only
taken seven years since we've been here on. Hopefully, that
will last. It will continue. And thank you, my fellow Commissioners. I appreciate
the support since I've been up here, and so that being said, I move we elect Wayne
Christian as the new Chairman of the Railroad Commission. Is there a second?
Second by Commissioner Sitton. All those in favor say
aye. Motion passes. Item's approved. Congratulations.
- Does this mean that I get SO12 back? - No! Nobody has to move license plates. They changed the rules.
- That was the whole point. - Question. Can I get double the budget like they do-- - No! It doesn't work that way.
(applause)
- Wow, this is the first time I'll speak as the
chairman. And the first thing I want you to know
that the Chairman is totally dependent on the other two Commissioners who have just
as much authority, just as much speak, just much pay as Chairman does. And Chairman
Craddick has done an outstanding job and I've
been humbled to serve under her and her knowledge
and her leadership and her friendship through
this has been inspiring. Even though I did
work for a Craddick over in the House, she's a lot
better over here at the Railroad Commission. And
I've been humbled and appreciate so much the
knowledge of Commissioner Sitton, and he has
helped me to understand many issues. And his expertise is invaluable on this Commission
because he understands things much more than a
former legislator and politician and finance
guy from deep East Texas, and I appreciate
your knowledge and listening for your remarks
and respect your opinions on the different issues. There's three things that kind of
close to my heart, just in my comments, many of
you know, the employees in this organization
think that we're up in what, Wei, the great job
that he and his staff have done and all the
employees across state. It's amazing to be in a
position where you look at Forbes Magazine, it
says the most respected regulatory agency on
planet Earth is the Texas Railroad Commission,
and that's not three Commissioners. That's all of the folks out here that Wei leads and
across this state that have respect worldwide
of doing the business right. And I appreciate
and respect them and hope that we can honor all the employees of the Commission in our
service here. And trying to get employees in this business is a major problem. I've
had a task force working on that. I appreciate
the great work that Commissioner Sitton has
done inspiring young people with encouraging
them. And Commissioner Craddick has been great
as an example to young ladies across the state that
there is no discrimination in this organization,
and in the industry, and it's humbling to work
there, trying to get people understand at
Higher education, other places, that there is
a place in the booming economy that's about
to happen in this state like none other. Two
other things. The environmental issue, I think,
is a great threat to our landowners, to our industry to the future of our nation. We
have just achieved not only energy independence
but economic independence. But it's national
security, and that's important. And we in Texas
lead the fight, and just real quickly, you
look back in World War Two, East Texas, the largest discovery of oil in the history of
the world. That sound familiar? But we use a little inter and the big incher, and we
furnished two-thirds of the oil and gas to World War
2 to our troops and helped defeat Hitler. What are
we giving now? Fast forward, the largest discovery
of oil in the history of the world, West Texas.
And with that comes the sobering responsibility, I
think we in the industry and we at the Commission
need to understand. We look back on that generation
and how they handled that gift from God and
became the greatest generation and look how
they developed the largest economy. The most
successful, independent, free market opportunity
in the history of planet Earth, and we commend
them is the greatest generation, and I feel
what's our responsibility equally now with his
next gift of God? And I hope that we at the Commission as an industry understand that
responsibility and our honorable to it. So those
are my remarks. My hope, Chairman Craddick left
this here, and I only do mine in Crayola.
We may be here rest of the day trying to figure
to get out of here if I don't understand what's
going on here. But I item 377 is our Public
Participation item, and it seems no one has
turned in cards indicating they wish to speak
on these non-posted Items. Item 378 is our Executive
Session item, which we will not be going into
today on. Are there any other duly posted matters to be brought before the Commission
at this time? Hearing none, this meeting of the
Railroad Commission of Texas is adjourned.