Christian: --Commission of Texas will come to order to consider matters
which have been duly posted with the Secretary of State
for November 30, 2021. Under our public participation policy,
anyone desiring to offer public testimony on any items
that are not noticed on today's agenda was required
to register in advance. We did not have anyone register
in advance for this meeting. The Commission will consider
the items on the agenda posted on the agenda. Before
we bring up our first agenda item, I'd like to say
a few words about the securitization order we adopted
our last meeting. I'd like to take a moment to clear
up some misconceptions about what we did in our last
meeting regarding the natural gas Texans used during
storm Yuri. During the storm, natural gas sold for as
high as $900 per MCF. A 3000% increase overnight. The
Railroad Commission has no jurisdiction over the price
of natural gas, nor do we have jurisdiction over the
use of natural gas to generate electricity. Our jurisdiction
is over natural gas utilities. These are the companies
that provide the gas Texans used to heat their homes
and cook their food. While more than 4.5 million homes
lost electricity during Storm Yuri, it is important
to note that more than 99.5% of natural gas utilities
provided continuous service to their customers. These
utilities purchase natural gas on the open market and
charge their consumers the same price that they pay
without a markup. It is illegal for natural gas utilities
to profit from the sale of natural gas. Let's be clear.
The Railroad Commission does not have jurisdiction
over the price of natural gas or electricity generation.
We have jurisdiction over natural gas utilities that
provide gas to homes. That's it. It is illegal for
these utilities to profit from the gas they produce
and purchase. These companies can get reimbursed from
the customers for the gas they purchased during the
storm. Our actions simply uses the credit worthiness
of the state to ensure this reimbursement is done over
a long period of time in small increments, rather than
having customers receive an extremely high, unexpected
bill in a single month. This process is not a jackpot
for big natural gas utility companies. It simply creates
a customer friendly way to pay them back. It is good
for the consumers, utilities and the state of Texas
which is why the Commission recently approved an order
on this matter. If you want to learn more, I was published
in the San Antonio Express News this weekend, that
you can look the facts over. Okay, lets go into
agenda Item number one. Matt Garner?
Garner: Can you hear me? Okay. Can everybody back there hear?
Christian: I can hear you.
Garner: All right. Great. Good afternoon
Chairman and Commissioners. My name is Matt Garner
with the Office of General Counsel. Today's item is
staff's recommendation to adopt new 16 Texas Administrative
Code, Section 3.65, relating to critical designation
of natural gas infrastructure and to amend section
3.107, relating to penalty guidelines for oil and gas
violations. The new section and amendments implement
changes made by House Bill 3648, and Senate Bill 3
from the 87th Texas Legislative Regular Session. Staff
also recommends adoption of related forms CID and
CIX.
On September 14, 2021, the Commission approved the publication
of the proposed rules and amendments in the Texas Register
for a 30 day comment period which ended on November
1, 2021. On September 28, the Commission also approved
proposed forms CID and CIX for publication on the Commission's
website.
Staff recommends that the Commission adopt the rule,
the amendments and the forms with changes that have
been made after consideration of public comments that
were submitted. Importantly, the changes address comments
concerning the number of facilities designated as critical,
the ability for facilities to apply for an exception,
and public comments regarding the inclusion of tiers
of criticality for load shed prioritization in section 3.65.
First, the Commission understands the concern that
the proposed rule initially designated too many facilities
as critical. Staff recommends a change to define critical
gas supplier and critical gas customer separately so
that critical customers are now a subset of critical
gas supplier.
The new subset of critical customer
will ensure only those critical facilities that need
electric power from a third party to operate will provide
information to their electric utilities, which will
help the utilities by limiting both the volume of information
that will be required to process the number of critical
facility, I'm sorry, stop there,
which will help the utilities by limiting both the
volume of information that they will be required to
process and the number of critical facilities that
they will have to prioritize as critical loads.
The revised definition of critical gas supplier will
also ensure even facilities that do not require electric
service to operate will end up being designated as
critical and subject to future weatherization rules
provided that said facilities are also included on the
electricity supply chain map.
Staff also recommends a revised list of critical gas
suppliers, which excludes leases producing below a
certain volume threshold. When aggregated statewide
these low volume producing leases and wells make up
over 54, 000 leases but represent less than 1.5% of
total production, which recognizes the marginal nature
of the contribution of these leases to the overall
supply of natural gas in the states.
Second, staff recommends narrowing the exception provisions
so certain critical facilities cannot
obtain an exception. Recommended revisions to the rules
specifically clarify that facilities on the Texas Electricity
Supply Chain Security and Mapping Committee map and
other highly critical facilities such as large volume
producers, underground storage facilities and pipelines
that directly serve a power generation plant or city
gate are not eligible to apply for an exception.
The revised rule also clarifies that the exception
is not automatically granted upon filing the form and
paying a fee. The option to make the bare assertion
that a facility is not prepared to operate during a
weather emergency is not available. An applicant must
provide objective evidence demonstrating a reasonable
basis and justification to support an application for
an exception.
The $150 amount for the exception fee is prescribed
by the Texas Natural Resources Code. While comments
received expressed concerns that the filing fee is
too low, the Railroad Commission does not have the
authority to increase that fee through a rulemaking.
Finally, with regard to public comments that we received
suggesting tiers of criticality be included in section
3.65, the Commission does not have any jurisdiction
over electric entities or load shed planning by electric
utilities. Accordingly, the Commission does not find
it appropriate to include tiers for load shed prioritization
in its rule in the manner in which the commenters have
suggested. However, concepts have been incorporated
in the revised rule that served to categorize certain
facilities that play such a significant role in the
natural gas supply chain that they are not being allowed
to apply for an exception.
With such facilities effectively having the highest
level of priority, other facilities that are critical
but may apply for an exception and facilities that
do not fall within the definition of critical because
they do not reach the volumetric thresholds set out
in subsection B of the rule.
Other recommended revisions are described in your notebook
materials. Staff also recommends the adoption of forms
CID and CIX, which operators will use to acknowledge
the critical designation or request an exception if
eligible. The Commission does not adopt proposed table
CCI, but has added the table CCI information to
form CID. And I will do my best to answer any
questions you may have?
Christian: And members, we have available to
answer questions, besides Matt here, Jason Modeling
with the Texas Alliance of Energy Producers and Adrienne
Shelly with Public Citizens. Are there any questions
of those two witnesses?
Hearing none,
I believe we have some questions for our Railroad Commission staff.
Craddick: Matt. Thank you. I want to thank you for all
the work that you and our general counsel and everybody
else at our agencies worked on. This has been a fast
rule with a lot of moving parts, and I appreciate that
you have read the statute and also tried to adapt the
rules of what the Legislature intended to
do. So I know that's been a little bit of a challenge
to, and I thank everybody for being
involved in this process, all the comments we've gotten
from all interested parties. This has been a, this
is an important rule for us, and it's clear to me that
your team and this agency as a whole have worked really
hard to make this the best possible rule we can. That
being said, it seems to me that a lot of this effort
could go to waste if the electric generation facilities
don't take the critical step of securing firm contracts
over interruptible contracts. Are you aware of any
changes that the generation facilities have made to
secure more firm contracts?
Garner: I'll answer your question
by saying, as gas transmission and gas supply matters
are private contracts between power generators
and their suppliers. I don't have any particular
insight into changes in practices that plant operators
may have implemented regarding their gas purchasing.
That's said, while there may be some additional cost
to contractinf for firm gas, good emergency preparedness
practices may indicate a need to go ahead and contract
for firm gas where it's available.
Craddick: Thank you. And
my second question, according to the rule published
on the PUC's website, which I think that they've done
the rule today and they've got a report due tomorrow
that requires the TSP s to provide a winter readiness
report that includes information on why they aren't
winter ready if that's the case. So that's my understanding
on their timing. I know it's not due till tomorrow
but do you have anything? Have you seen anything? Do
you have any information about that as well?
Garner: I also understand that the reports are due tomorrow and I'm
familiar with the requirements of the rule, including
that they, responding parties, provide an
explanation for any reason for which they are not winter
ready. But at this point, I have not seen any of those reports.
Craddick: Okay, Thank you. Thank you very much for all
your work. Thank you, Mr Chairman.
Christian: Commissioner Wright?
Wright: Thank you, Chairman. Matt, thank you. First, I
want to thank the staff here at the Commission for
their hard work on this rule throughout this process,
from the initial draft to the review of public comments
and finally to the proposal before us today, the staff
here has been working diligently to find solutions
and ensure that we are doing our part to ensure delivery
of natural gas is not impacted during extreme weather
events. It's worthwhile to remind folks what exactly
this rule does and what its intended purpose is as construed
under Senate Bill 3. This rulemaking is limited
to addressing critical designation of natural gas infrastructure
and or sources. Put simply in the event of a load shed
like that we experienced in February which natural
gas providers are substantially contributing to the
production of electrical power and therefore need to
stay on the grid to keep that gas available. The challenge
is this: we must keep operators who are supplying large
quantities of gas online. But if we list everyone as
critical and maintain their access to electrical power
during peak demand, it severely reduces the amount
of electricity available to residents and families
who need it. I believe the rule we are considering
today identifies these fundamental issues and comes
to a reasonable solution to narrow the universe based
on an operator's contribution to the natural gas supply
system and thereby to the overall electrical power
system. To arrive at that solution, we first had to
answer two important questions. You correct me if I'm
wrong in this, Matt. The first question is simply
how much gas is needed for people's homes and for power
generation during extreme winter conditions? That figure
as we understand and have verified is approximately
22 billion cubic feet, BCF, of gas per day, according
to market research firms and trade associations data.
The next question is how much gas does Texas produce?
Well, there are approximately 131, 000 leases in Texas
which produce a total of approximately 28.7 BCF of
gas per day. So we know that we have plenty of gas
to be utilized for homes and electricity. The Commission
was given a mandate from the Legislature to determine
which operators are critical at least as far as the
natural gas supply chain is concerned. After a lot
of analysis, it turns out there are three large groups
and I believe you said this earlier. The first group
which I called supercritical, is comprised of over
19, 000 leases and produces over 23 BCF per day, which
represents more than the amount of gas that we need
in Texas on a given day to send to people's homes and
for power generation. In addition to producers of natural
gas, this group includes pipeline operators, gas processing
facilities and natural gas storage infrastructure.
These leases and facilities are so important, so critical
that we will not be allowed, they will not be allowed
to opt out of the rule period. That's correct?
Garner: That's correct.
Wright: The second group is solely comprised of leases
that produce low volume or no gas at all. This group
only produces a little over 1% of the gas produced
in Texas on a daily basis. The leases are not critical
for production of gas. They are, however, excellent
candidates for electrical load shed. There would be
little benefit to keep electricity flowing to these
leases in a weather event since they do not
meaningfully contribute to the natural gas supply chain.
The third and final group is comprised of leases that
fall in between the first two groups. Like the first
group, they are also defined as critical. However,
the group is only comprised of marginal wells. In response
to comments that there are too many critical facilities,
a marginal well operator in this group is eligible
to apply to opt out of the rule, but they will be
required to present objective evidence of a reasonable
cause and justification for such a request. And each
of these requests will be scrutinized by the Commission.
These production figures do not account for the vast
amount of gas storage available, which plays an important
role in our ability to provide gas and peak demand
periods. As the Railroad Commission reported last month
Texas has about 478 BCF of working gas in underground
storage, with room for about another 75 BCF more of
additional storage. That 75 BCF of additional storage
alone could generate enough electricity for 8.6 million
homes for a month. We strongly encourage operators
to fully utilize the storage capacity for this coming
winter. Here's why storage is so important. The Railroad
Commission has no authority to require operators to
produce gas at a specific time or, for that matter
at all. The oil and gas industry is no different than
any other business in this regard. Let me let me give
you an example. Chick fil A is not required to be open
on Sunday. That is a business decision made by the
owner, correct? For gas producers, there could be any
number of reasons to shut down production or for safety
concerns, down power lines and frozen or inaccessible
roads are just some of the various reasons individual
operators may need to limit or shut down production
at any given time. One thing I can say and tell
you with certainty, if you want to eat a chick fil a
sandwich on Sunday, you're going to need to buy in
advance. The same is true for natural gas. Public perception
of who is to blame for the failures last February seemed
to be focused on supply shortage of available natural
gas for power generation. I don't believe that to be
fair or accurate, but I do believe it is important
to ask the following questions of natural gas generators.
Specifically, how much gas, how much gas do natural
gas fired power plants currently have in storage and
ready to deploy? What percentage of that storage represents
our gas needs during a peak power generation event?
And finally, how much of that gas is under firm supply
and delivery contract? The answer is less than you
would think. When it comes to human safety and protecting
people's lives, firm gas contracts or indoor storage
ought to be required for power generation, even if
it's just for the winter months. So again, storage
is a crucial component to address the underlying issues
in our electrical grid. It's an issue I have raised
with our counterparts at the Public Utility Commission
and I look forward to continuing those discussions
to address these concerns. I will say working with
Chairman Lake at the PUC over the past few months has
been a productive experience. I have found Chairman
Lake to be an individual who, like myself and my fellow
Commissioners, is devoted and committed to serving
the people of Texas and always acts with their best
interest in mind. I know the people of Texas will be
pleased with our committed collaborative efforts. I
am proud of the work the Railroad Commission has done
thus far to implement the requirements under Senate
Bill 3. I believe this proposed rule provides additional
clarity and will help limit future disruption of our
natural gas infrastructure. Thank you, Matt.
Christian: Thank you, Commissioner. Now if my fellow members will
indulge me for a second, I have a few
comments and then some questions from that also, if that's
okay. Over the weekend, a major Texas newspaper published
an article demanding I resign because I refused to
parrot their talking points and place blame for winter
Storm Yuri on natural gas. By not doing this, they
claim I've been misleading Texans. My response to their
claims has been written, and I will send it to them
after this open meeting, if they truly believe
their claims, I challenge them to print my response
in full and let Texans decide. While no form of energy
performed perfectly during winter storm Yuri, the
insistence that natural gas producers are the primary
culprit with the February blackouts is pure hyperbole.
But more than hyperbolic, it is hypocritical
to blame natural gas for electricity shortage during
a weather emergency while routinely applauding efforts
by the Biden administrations to kill natural gas.
You can't repeatedly write articles attacking natural
gas and then be upset when there isn't enough natural
gas to power our society. From the beginning, I've
been clear that the issue isn't the existence of wind
and solar energy, but in the world of finite resources,
preferential treatment and subsidies for unreliable
wind and solar power have stifled investment in reliable
natural gas generation. Need proof? According to the
US Energy Information Administration, Texas plans
to build power plants that will generate 11.6 gigawatts
of solar electricity, 8.4 gigawatts of wind electricity,
but only five gigawatts of natural gas, electricity
and zero nuclear or coal. Why build natural gas power
plants when politicians in Austin guarantee your wind
farm will be profitable no matter what? This is not
being misleading. This is the truth, the bold truth.
It's simple math. If you can't, if you add unreliable
wind and solar generation and subtract reliable natural
gas generation, that equals a less reliable electric
grid. Until we fix this fuzzy math, we're simply putting
a Band Aid on the problem. To be clear, I don't say
that this minimizes the failures of the oil and gas
industry during winter Storm Yuri. My agency is dedicated
to ensuring Texas oil and gas producers are prepared
to operate this winter. Matt, during winter Storm Yuri,
how many megawatts of ERCOT managed electric grid shortage
was Statewide?
Garner: I understand about 50, 000 megawatts
Christian: 50, 000 megawatts, so we were short 50, 000 megawatts.
How much of that shortage that ERCOT find was due to
limited fuel supply issues of natural gas?
Garner: I understand it was roughly 6000 MW.
Christian: 6000 MW. So 6000 of 50, 000 MW shortage
was due to limited natural gas supplies. It was this
6000 megawatts that a recent Federal Energy Regulatory
Commission, FERC, reportedly discussed in regards to
us. Is that correct?
Garner: Yes. The report stated that roughly
58% of those 60, 000 MW were due to failure to weatherize
oil and gas production facilities such as natural gas
wells.
Christian: So, be clear, take 'em together, this means about
7% or 3500 megawatts of the electrical shortage was
caused by unprepared natural gas wells.
Garner: I'll say yes
that's partially correct. And I'll also amplify
that by saying, from my personal experience of having
worked for two different operators prior to joining
the Commission, I can tell you that it's standard operating
practice for operators to take wells offline in anticipation
of severe weather. So while some of the wells that
were unavailable due to true freeze offs, you did have
a percentage of those wells that were also voluntarily
taken offline.
Christian: Our critical designation rule determines
which natural gas facilities are critical to electricity
generation. Any facility that is designated critical
must weatherize, so they are prepared to operate during
an energy emergency. Correct?
Garner: Yes, sir.
Christian: Okay. The media has written
extensively that any company that pays us $150 is exempt
from weatherization. Is this true?
Garner: It is not true
that facilities will be exempt from weatherization simply
by paying the $150 fee. The exemption is a provision
that was included in Senate Bill 3 by the Legislature.
It has been addressed in our rule and it will be handled
in a responsible fashion under the rule. And it is not
simply a get out of jail free card.
Christian: Okay, now is the
$150 fee that's been repeated in many different media
speeches, Legislative sessions, can you give me a little
bit of story behind $150 fee and where it came from?
Garner: Sure, it was originally created by the Legislature
in 1985, and at the time that it was created, it was
set at only $50. That statute was amended by the Legislature
in 2001, and it was increased to $150 at that time.
And while the statute has been amended subsequently,
the $150 amount has not been amended since it was set
at that level in 2001.
Christian: So it was not the Railroad Commission, but instead
the Texas legislature has set that $150 amount?
correct? Thank you, Matt, for clearing all that up.
And we've reached a sad time, folks, in politics where
blame and centralization or more commonplace than
nuanced reporting. I hope this question answers helped
clear up some of the common misconceptions for the
media and the public. People once set aside their political
differences after a natural disaster struck, they would
unite to help those suffering and sure everyone who
needed it got help and worked together to make sure
we're preparing for the next storm. Apparently, it's
now commonplace for a major newspaper to call for the
resignation of a democratic-elected government official
over differences of opinion. Instead of being used
as a learning opportunity about the importance of grid
reliability, the winter storm has been used as a weapon
by the media and the Far Left to attack fossil fuels
and any elected official that places any blame on wind
or solar unreliable energy. Instead of playing the
blame game, we need to come together, find real solutions
to fix the problems, and that's what I want people
to know. Over 800 families are represented at this Railroad
Commissioner Texas. It's been stated it is the most
respected organization in regulating oil and gas on
planet Earth. These are families that suffered during
the storm with all the folks of Texas, there is nobody
I think, in the Legislature, the administration at
any Commission, ERCOT, PUC, the Railroad Commission
of Texas that has anything but desiring to fix every
problem possible and make sure this does not happen
to the extent it did again. So we're here today, we're
interested in continuing to do the Railroad Commission's
work, and we thank you and the Railroad Commission
staff for the excellent work you've done by trying
to follow the legislative intent of the Legislature
and Senate Bill 3.
I believe we have done that. And are there any
further questions or comments? I move the adoption
of new 16 Texas Administrative Code, Section 3.65, related
to the critical designations of the natural gas infrastructure,
and amendments to section 3.107, relating to penalty
guidelines for oil and gas violations, adoption of
corresponding form CI-D CI-X. Is there a second?
Wright: Second.
Christian: Second by Commissioner, right. All in favor
say aye. Any opposed? The motion passes. That
item is approved. Let's move to agenda item 2. Agenda
Item two is our Executive Session item, which we will
not be going into today. 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.