LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 77th Regular Session
March 28, 2001
TO: Honorable Ron E. Lewis, Chair, House Committee on Energy
Resources
FROM: John Keel, Director, Legislative Budget Board
IN RE: HB3018 by Chisum (Relating to the continuation and
functions of the Railroad Commission of Texas.), As
Introduced
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* Estimated Two-year Net Impact to General Revenue Related Funds for *
* HB3018, As Introduced: negative impact of $(565,900) through the *
* biennium ending August 31, 2003. *
* *
* The bill would make no appropriation but could provide the legal *
* basis for an appropriation of funds to implement the provisions of *
* the bill. *
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General Revenue-Related Funds, Five-Year Impact:
****************************************************
* Fiscal Year Probable Net Positive/(Negative) *
* Impact to General Revenue Related *
* Funds *
* 2002 $(290,650) *
* 2003 (275,250) *
* 2004 (275,250) *
* 2005 (275,250) *
* 2006 (275,250) *
****************************************************
All Funds, Five-Year Impact:
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*Fiscal Probable Probable Probable Change in *
* Year Revenue Savings/(Cost) Savings/(Cost) Number of State *
* Gain/(Loss) from Oil Field from General Employees from *
* from Oil Field Cleanup Revenue Fund FY 2001 *
* Cleanup Account/ 0001 *
* Account/ GR-Dedicated *
* GR-Dedicated 0145 *
* 0145 *
* 2002 $8,327,000 $(6,884,000) $(290,650) 15.0 *
* 2003 8,347,000 (9,055,000) (275,250) 23.3 *
* 2004 8,347,000 (8,305,000) (275,250) 23.3 *
* 2005 8,347,000 (8,305,000) (275,250) 23.3 *
* 2006 8,347,000 (8,955,000) (275,250) 23.3 *
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Technology Impact
The bill would require new personal computers for the additional FTEs.
Fiscal Analysis
The bill would continue the Railroad Commission (RRC) for 12 years. The
bill would also do the following:
* Raise rates on oil regulatory fees from 5/16 of a cent to one cent per
barrel of 42 standard gallons.
* Raise rates on gas regulatory fees from 1/13 of a cent to 1/10 of a
cent per thousand cubic feet.
* Raise extension of time to plug a well application fees from $100 to
$300.
* Increase the fee for new drilling permits to raise annual revenues
of $1.5 million above what the RRC currently projects.
* Allow for only two methods of bonding, individual bond or blanket bond.
* Raise the Oil Field Cleanup Account (OFCU) cap from $10 to $20 million
and raise the floor from $6 million to $10 million.
* Require the RRC to establish specific performance goals for site
investigations and environmental assessments; abandoned wells to
be plugged; and surface locations to be remediated.
* Require the RRC to perform risk assessment and prioritization of high
risk wells and periodic testing high risk wells.
* Require the RRC to establish a Voluntary Cleanup program and to assist
and to provide technical oversight.
* Require the RRC to set organization report fees to cover cost of
administration in an amount not to exceed annual revenue more than $3
million.
* Require the RRC to adopt rules requiring Mandatory Unitization.
* Require the State Office of Administrative Hearings (SOAH) to conduct
contested hearings.
* Establish a program to assist low income customers in paying for gas
utility.
Methodology
The RRC estimates revenue gains and losses to the OFCU that would result
in an annual net gain to the OFCU of approximately $8.3 million annually.
The breakdown is as follows:
* Rate raises on oil regulatory fees would generate an additional $3.3
million;
* Rate raises on gas regulatory fees would generate an additional $2.5
million;
* Increases for the well plugging extension fee (W-1X) and provisions
for its expiration in three years in conjunction with the requirement for
universal bonding would actually result in a decrease of $1.3 million to
the OFCU even with the fee increase because the actual number of permits
will drop with the elimination of the "Good Guy" option;
* Increases in fees for new drilling permits to raise annual revenues of
$1.5 million above what is currently projected would generate an
additional $1.5 million;
* Bill provisions which allow for only two methods of bonding:
individual bond or blanket bond (annual fee equal to three percent of the
bond) would result in a decrease of $713,000 million annually;
* Voluntary Cleanup fees would generate $40,000 in FY 2002 and $60,000
in FY 2003;
* Increase in organization report fees would generate an additional $3
million.
The cost to the OFCU for accomplishing additional well plugging and site
cleanups, for which revenue would be available as a result of the
increased rates and fees, is estimated by the RRC to be approximately
$4.9 million in 2002 and $7.1 million in 2003.
RRC estimates that they would be able to plug an additional 610 well in
FY 2002 and an additional 865 wells in FY 2003. The RRC estimates that
they would require contractual services of $2.7 million for well plugging
in FY 2002 and $3.9 million in FY 2003. The contractual amount is based
on $4,473 per well plugged.
RRC estimates that they would be able to perform an additional 70 site
cleanups in FY 2002 and an additional 94 sites cleanups in FY 2003. RRC
estimates that they would require $1.5 million for contractual services
for site cleanup in FY 2002 and $2.1 million in FY 2003. Each
contractual site cleanup is projected to cost $22,000. The site cleanups
will also require $84,845 and $196,094 of temporary employee services
for FY 2002 and FY 2003 respectively.
According to the RRC, the additional well plugging and site cleanup would
require 7 new FTEs (Engineer Specialists) in FY 2002 at a cost of
$245,000 and 15.25 new FTEs (Engineer Specialists) in FY 2003 at a cost
of $534,00. The new FTEs would require field equipment, vehicles and
computer equipment. There would also be operating and travel expenses.
RRC estimates that in FY 2004-05 the number of wells plugged will be
reduced by 108 and the number of sites cleaned will be reduced by 12 for
a total of $750,000 decrease out of OFCU each year as a result of greater
emphasis that will be placed on integrity testing of wells in those
years. In FY 2006 the RRC estimates that an additional 96 wells will be
plugged and additional 10 sites will be cleaned for an increase of
$650,000 in expenditures out of OFCU.
RRC estimates that the requirement that the RRC perform risk assessment
and prioritization of high risk wells and periodic testing of high risk
wells would require 3 FTEs and would cost approximately $1.9 million each
year. RRC anticipates that it will require 3 FTEs (Engineer
Technicians), at a cost of $100,000. These FTEs would periodically test
the high risk wells by conducting a fluid level or pressure test. The
additional FTEs will also require field equipment and vehicles estimated
to be $100,000. There are approximately 17,000 abandoned wells in the
state and it is estimated that 3 FTEs can perform 2,833 fluid level tests
per year. In addition, the RRC estimates that it will require
contractual services of $1.7 million per year to perform the more
expensive pressure tests. It is estimated that one-half of the wells will
require pressure tests at a cost of $1,200 per well for a total of $1.7
million.
RRC estimates that the costs for establishing a Voluntary Cleanup program
in order to assist and provide technical oversight would require 1 FTE
each year and would cost approximately $84,000 in the first year and
approximately $55,000 each subsequent year.
RRC should be able to implement rule requiring mandatory unitization and
a program to assist low income customers in paying for gas utility with
existing resources.
SOAH estimates that the annual costs resulting from the transfer of all
contested case hearings related to gas utilities from the RRC to SOAH
would be $290,650 for the first year after the transfer. According to
information SOAH received from RRC, hearings examiners in the Gas
Services Section of the RRC's Office of the General Counsel recorded
3,000 hours in contested case hearings in calendar year 2000. The
hearings generally last from three to four weeks and are conducted in
the local areas. Total annual travel expenses for these hearings is
about $1,500. A 150-day statutory deadline exists for final RRC action
on a rate increase. According to SOAH judges typically are able to
devote about 1,500 hours each year to case related matters. Therefore,
SOAH estimates that it would need two Administrative Law Judges (ALJs)
at a cost of $135,036, one legal assistant at a cost of $31,320, and one
secretary at a a cost of $29,232 to handle the additional workload plus
benefits. Additional space would be needed for the new personnel and
furniture and equipment ($15,400) would be needed in the first year.
Because the amount of State-owned space is unknown at this time, annual
rent ($13,586) has been included for the additional office space that
would be needed and annual operating expenses ($9,264) have been
included. There will not be any savings to the RRC because they will
need to retain staff in the office of general counsel since they will
still be a party to the rate cases.
Local Government Impact
No fiscal implication to units of local government is anticipated.
Source Agencies: 360 State Office of Administrative Hearings, 352
Texas Bond Review Board, 455 Railroad Commission of
Texas, 304 Comptroller of Public Accounts, 116
Sunset Advisory Commission
LBB Staff: JK, CL, SK