HB 40 Webinar: What the oil and gas bill means for cities

Last month, the Texas Municipal League (TML)  held a webinar on HB 40 and what it means to cities. Below is the text about the seminar edited with italics and strike-though by me to reflect reality and not the TML spin:

During the 2015 legislative session, House Bill 40 was introduced in response to a ban on hydraulic fracturing enacted by the voters of one Texas city.  It was strongly supported by the oil and gas industry, and strongly opposed by cities, environmental groups, and others.  What finally became law was the result of a compromise deal made between cities TML and the industry.  Portions of the bill only benefits cities, and other portions benefit the industry.  Learn more about what the law actually does, and what it means for your city in this one-hour webinar that includes time for Q&A.

Dan Raichel, NRDC, kindly shared his notes with me.

Notes on 10.13.15 HB 40 Webinar

Authoritative interpretation of HB 40 to date: none.

• No lawsuits
• No AG advisory opinions
• Only many unanswered Questions

Pre-HB 40 Background

• Industry had been trying to pass something like HB 40 for at least the last 10 years
  • Predecessor bill was shopped around by Chesapeake back in 2006.
    • Would have been even more restrictive than HB40.
  • HB40 wasn’t just something thought of overnight.
• Even before vote on the ballot initiative, TML knew there would likely be state legislative action, so consulted with TXOGA.
  • Tried to focus on issue on just outright ban, but TXOGA clearly saw as opportunity to get something more passed.
• Forces in Support of HB 40
  • O&G (most powerful lobby in TX).
  • Many cities came out opposed to the ban – particularly those who had seen revival because of shale boom.
• Accordingly, HB40 was one of highest priority bills of the session, and immediate predecessor bills were even worse.
• Even before HB40, TML was worried about potential decision by TX Sup. Ct. on the Denton and how it would affect municipal rights—TML did not trust court to favor muni rights.

Testimony at HB 40 Hearing

• Legislators generally praised Ft. Worth ordinance as prototype of “good” commercially reasonable ordinance.

HB 40 Itself

• Very broad definition of O&G operations, and gives exclusive jurisdiction to the state.
• Grandfathering:
  • For ordinances on the books five years or more.
  • Only excuses from “commercially reasonable test;” must still be restricted to surface, not effectively prohibit, and not otherwise preempted.
  • Not full grandfathering, only “prima facie” commercially reasonable.
    • O&G industry has indicated that they consider this a fully rebuttable presumption. (See my blog post: What is the true intent of HB 40)
• Express municipal authority: the small silver lining
  • For the first time, TX munis have some express statutory authority over O&G.
  • Restricted to above ground activities: setbacks; emergency response; traffic; light; noise. (only if commercially reasonable, etc.)
  • TML lobbied for inclusion of as many of these as it could get, but didn’t get everything it tried for (e.g. authority over disposal wells).
• The “commercially reasonable” test
  • As originally drafted, this test would have required an individualized consideration for each operator/site (i.e., what was CR for Exxon might not have been CR for Joe Bob’s drilling). (See my blog post: What is the true intent of HB 40)
    • Standard ultimately chosen, however, was an objective “prudent operator” standard.
  • Sill many unanswered questions, however.  For example: would it be reasonable to ask driller to stop drilling at 10:00 at night if they’re using expensive rented equipment (e.g., a 50k a day drill bit).
• What does it mean to “effectively prohibit” an O&G operation?
  • Would 2000 foot setback effectively prohibit an operation?
• Disposal wells
  • Local bans on disposal wells used to be generally respected by RRC.
  • Now unclear.
• If RRC regulates the activity you may see pushback by industry.
• Final chapter has not been written.

City of Mansfield Example

• City passed regulations on O&G drilling.
• Barnett Shale group took issue with three elements of new local regs, submission requirements for: (1) an AQ Mangament plan; (2) gas analysis; and (3) a produced water analysis.
• Industry sent letter expressing opinion that regs were preempted and city had sit down meeting with 12 operators.
• When asked why they thought was not preempted—not CR?; effectively prohibiting O&G development?; not surface based?—Industry answered: none of the above.
  • Industry felt these were “preempted by other law” because all were areas already regulated by the RRC and purpose of HB40 was to clarify and protect RRC regs.
  • Industry opinion is that HB40 clarifies exclusive auth by RRC, and the only auth given back are only in areas not already regulated by RRC.

Rockdale Example

• Industry objected here too re: regulations governing above ground storage tanks.
• Industry opinion is that list of muni rights in HB40 list was exhaustive, and because this does not include tanks, there is no muni authority.
  • Even if list is not exhaustive, this is preempted as technical regulation.

TX Sunset Commission

• Will be reviewing RRC authority as part of this process next year.
• Will be an opportunity to revisit some of these issues and remedy problems.
• Could keep spotlight on these issues.

Who Has the Onus of Determining What Is Commercially Reasonable?

• Speakers say should be on industry.
• Would not advise their clients to cede ground in areas that are ambiguous.
  • Would also look to Ft. Worth and other ordinances (Corpus Christi, Midland) mentioned during leg hearing as models to get sense of what types of regs are worth fighting over.

FYI Readers:  The money in politics issue extends to our court system.

Consumer Group: Supreme Court Favors Businesses

In the last 10 years, the majority of Texas Supreme Court decisions have favored corporate interests over consumers, and the panel of judges has repeatedly overstepped its authority by overturning jury verdicts and interpreting the law to benefit the rich, according to a scathing report set to be released today by consumer advocacy group Texas Watch.

Big Business Taking over State Supreme Courts: How Campaign Contributions to Judges Tip the Scales Against Individuals