Part 1.
RAILROAD COMMISSION OF TEXAS
Chapter 3.
OIL AND GAS DIVISION
16 TAC §3.78
The Railroad Commission of Texas proposes to amend §3.78,
relating to Fees, Performance Bonds and Alternate Forms of Financial Security
Required To Be Filed.
The Commission proposes the amendments to §3.78 under the provisions
of Texas Natural Resources Code, §85.167 and §91.142, which specify
fees to be collected by the Commission for reissuance of certificates of compliance
for oil leases and gas wells which have been canceled and organization report
fees; Texas Natural Resources Code, §91.103, §91.104, and §91.109,
which relate to bonds, letters of credit, cash deposits and alternate forms
of financial security; and Texas Natural Resources Code, §91.114, which
relates to acceptance of organization reports or applications for permits
and approval of certificates of compliance.
The proposed fee change amendments to §3.78(b) and §3.78(c) implement
statutory changes made to the Texas Natural Resources Code by House Bill (HB)
1195 and HB 942, 78th Legislature (2003).
Proposed amendments to §3.78(b) increase the fee for reissuance of
a certificate of compliance for an oil lease or gas well that previously has
been canceled from $100 to $300 for each severance or seal order issued for
the lease or well. Proposed amendments to §3.78(b) also provide that
if a check for this fee is not honored upon presentment, the reissued certificate
of compliance may be suspended or revoked.
Proposed amendments to §3.78(c) increase fees for filing an organization
report by an operator of one or more natural gas pipelines from $100 to $225.
The amendments to §3.78(c) also establish a separate organization report
fee category for operators of one or more liquids pipelines and increase the
organization report fee for such operators from $500 to $625. The amendments
to §3.78(c) also clarify that the total organization report fee that
must be submitted is a fee equal to the sum of the separate fees applicable
to each category of service activity, facility, pipeline, or number of wells
operated and increase the maximum amount of organization report fees that
must be submitted by an operator of wells from $1,000 to $1,125.
The proposed fee change amendments are necessary to conform §3.78
to increased fees prescribed or authorized by HB 1195 and HB 942, 78th Legislature
(2003) and to clarify existing provisions relating to organization report
fees. The increased fees implemented by the proposed amendments will financially
strengthen the Oil Field Clean Up Fund (OFCUF) and assist in plugging of abandoned
wells and cleanup of pollution.
The proposed amendments also amend §3.78(a) by deleting current paragraph
(7) defining "individual well bond" and by adding new paragraphs (10) through
(12) to provide definitions of "officers and owners," "letter of credit,"
and "bond," as these terms are used in §3.78. The definition of "individual
well bond" is no longer necessary in view of the proposed amendment deleting
current §3.78(m) pertaining to individual well bonds.
The proposed amendments to §3.78 also provide new or amended provisions
relating to the circumstances in which a person required to file an organization
report with the Commission may file financial security in the form of a nonrefundable
annual fee of $1,000.
Proposed amendments to §3.78(d) provide that the required determination
concerning the availability of individual and blanket performance bonds at
reasonable prices may be made by a designee of the Commission. Proposed amendments
to §3.78(e) delete paragraph (1) defining "officers and owners" because
this definition is included in the proposed amendments to §3.78(a). The
proposed amendments to §3.78(a) add to the definition of "officers and
owners" any person determined by a final judgment or final administrative
order to have exercised control over an organization.
The proposed amendments to §3.78(f) make changes in the criteria by
which an eligible operator wishing to file financial security in the form
of a nonrefundable annual fee of $1,000 can overcome the presumption that
bonds are obtainable by that operator at reasonable prices.
The proposed amendments to §3.78(f) also provide that an operator
may request an administrative determination, rather than a hearing, to determine
that individual and blanket performance bonds are not available to that operator
at reasonable prices.
The amendments to §3.78(f) provide that in order to support an administrative
determination that bonds are not obtainable by a requesting operator at reasonable
prices, the operator must submit declination letters establishing that three
companies from a list maintained by the Commission that have issued a bond
filed with the Commission in the past 12 months will not issue a bond to the
requesting operator or will issue a bond to the operator only for an annual
fee in excess of 6% of the face amount of the bond. Under the proposed amendments,
if an operator requesting this administrative determination has a bond as
its current financial assurance, one of the three declination letters must
be from that operator's current surety. The proposed amendments change the
current requirement that an operator establish that no fewer than three companies
will not issue a bond to the operator for an annual fee less than 12% of the
face amount of the bond.
The proposed amendments to §3.78(f) also provide that if an operator's
application for the nonrefundable annual fee of $1,000 is administratively
denied, the operator may request a hearing to determine the operator's eligibility
for this fee. Under the amendments, the Commission would be required to consider
cash or other collateral requirements, along with the premium and any other
surety requirements, in determining if bonds are available to the requesting
operator at a reasonable price.
The provisions of Senate Bill (SB) 310, 77th Legislature (2001), and Texas
Natural Resources Code, §91.104, as amended, and current §3.78 have
had the beneficial effect of increasing the percentage of operators who file
a bond, letter of credit, or cash deposit as financial security. As of May
23, 2003, 85.2% of the total number of active operators of all types had filed
an individual or blanket performance bond, a letter of credit, or a cash deposit
as financial security. This compares to only 8.6% that had filed one of these
forms of financial security as of January 18, 2001. The increase in the percentage
of bonded operators has decreased the risk to the OFCUF and furthered the
objectives of the Legislature, the Commission, and the industry to ensure
that inactive wells are plugged and pollution is cleaned up in order to protect
surface and subsurface usable quality water.
Under SB 310 and Texas Natural Resources Code, §91.104, as amended
effective September 1, 2001, operators with an acceptable record of compliance
were given the option of filing financial security in the form of an nonrefundable
annual fee of $1,000 if the Commission determined that individual bonds and
blanket performance bonds were not obtainable at reasonable prices. Experience
gained by the Commission in processing applications to file financial security
in the form of the nonrefundable annual fee of $1,000 has shown that while
bonds are generally available at reasonable prices to operators, bonds are
not readily available or obtainable by all operators. From January 2001 to
June 25, 2003, the percentage of operators with a bond, letter of credit,
or cash deposit has increased from 8.6% of all operators to 85.2% of all operators.
The total number of operators with organizational bonds has increased from
411 to 1368 over the same period. Further, from January 2003 through June
2003, 244 organization reports were filed (including name changes) by entities
that did not have active organization reports in the prior month. The majority
of these new filers (88%) filed a bond, letter of credit or cash deposit as
their financial assurance. More than 30% of the new filers (78 out of 244)
obtained and filed a bond as financial assurance. However, some smaller operators,
even those with an acceptable record of compliance, have been unable to obtain
bonds at any price, and others have been unable to obtain bonds for a reasonable
premium without posting cash or other collateral equal to the face amount
of the bond.
The presumption of §3.78(f) that bonds are generally obtainable at
reasonable prices by operators remains valid. However, Commission experience
with applicants for the nonrefundable annual fee of $1,000 over the past 18
months has shown that due to varying circumstances of operators, and varying
conditions in different parts of the state, bonds may not be readily obtainable
by all operators at all times. The current requirement of §3.78(f) that
operators seeking approval to file the nonrefundable annual fee of $1,000
must establish that no fewer than three sureties will not issue a bond to
the operator for an annual fee less than 12% of the face amount of the bond
is no longer deemed reasonable. The current provision does not adequately
address the situation where sureties are unwilling to bond an operator at
any price. In addition, where sureties are willing to bond an operator, the
bond premium is almost always substantially below 12% of the face amount of
the bond. Experience gained by the Commission in administering §3.78
since September 1, 2001, shows that the 6% standard proposed by the amendments
to §3.78(f) is more reasonable and realistic in the current bond market.
In current §3.78 there is no provision which expressly authorizes
consideration of cash or other collateral requirements imposed by surety companies
as a condition to the issuance of a bond to a requesting operator. The cost
to the operator of posting collateral may be a relevant factor in determining
the reasonableness of the total bond price to the operator attempting to obtain
the bond. The proposed amendments to §3.78(f) are necessary to address
this issue and do so by requiring Commission consideration of collateral requirements
if an operator requests a hearing following administrative denial of an application
for approval to file the nonrefundable annual fee of $1,000 as financial security.
Under strict application of the current provisions of §3.78, only
a few applications for approval to file financial security in the form of
a nonrefundable annual fee of $1,000 have been approved. Pursuant to SB 310
and Texas Natural Resources Code, §91.104 as amended effective September
1, 2004, all operators, except those that are engaged only in activities exempt
from financial assurance, will be required to file as financial security a
bond, letter of credit, or cash deposit. Alternate forms of financial security
will no longer be permitted. In view of the experience gained by the Commission
since September 1, 2001, pertaining to bond availability, the proposed amendments
to §3.78(f) are necessary to provide more flexible and less burdensome
standards and procedures for eligible operators to obtain approval to file
the nonrefundable annual fee of $1,000 as financial security. This will enable
these operators to continue to operate in the interim period prior to September
1, 2004, and to prepare for meeting the more stringent financial security
requirements which will take effect on that date.
The filing of a bond, letter of credit, or cash deposit will continue to
be the preferred form of financial security in the interim period prior to
September 1, 2004. Operators will be permitted to file the nonrefundable annual
fee of $1,000 only if they possess the required acceptable record of compliance
with Commission rules and orders and establish that bonds are not available
to the requesting operator at reasonable prices. Under the proposed amendments
to §3.78(f), an operator having a bond on file who seeks approval to
file the nonrefundable annual fee of $1,000 will be required to submit a declination
letter from the operator's current surety to affirm that bonds are not available
to the requesting operator at a reasonable price.
The Commission anticipates that most operators will continue to file bonds,
letters of credit, or cash deposits as financial security. This eliminates
the requirement that an operator seek plugging extensions and pay the associated
fee for inactive wells and enables operators to accept transfers of wells
from other operators, which are benefits not available to operators filing
alternate forms of financial security. Any risk to the OFCUF as a result of
the proposed amendments to §3.78(f) will be ameliorated by the short
time which remains before bonds, letters of credit, or cash deposits become
the only permitted form of financial security and by the fact that the option
to file the nonrefundable annual fee of $1,000 will continue to be available
only to those operators who possess an acceptable record of compliance with
the Commission's rules and orders.
The Commission acknowledges that §3.78(f)(1) and §3.78(f)(2)(A)-(B)
were declared invalid by ruling of the 261st District Court of Travis County,
Texas, announced June 11, 2003, in Cause No. GN202946,
Ross H. Hardwick Oil Company, et. al. v. Railroad Commission of Texas
,
based on the Court's determination that the Commission failed to comply with
Texas Government Code, §2006.002. The proposed amendments amend §3.78(f)(2)(A).
Current §3.78(f)(2)(B) and §3.78(f)(1) remain unchanged. The analysis
required by Texas Government Code, §2006.002 for proposed §3.78(f),
including the portion determined to be invalid by the Court's ruling, is provided
by this notice.
The proposed amendments also amend §3.78(j) pertaining to the amount
of bonds, letters of credit, or cash deposits which must be filed by persons
filing one of these forms of financial security. These amendments are necessary
in order to implement the provisions of HB 942, 78th Legislature (2003), effective
September 1, 2003. The proposed amendments to §3.78(j) eliminate the
requirement for a person whose only activity is as a first purchaser, survey
company, salt water hauler, gas nominator, gas purchaser, or well plugger
to file financial security. The proposed amendments to §3.78(j) also
clarify that a person who engages in more than one Commission regulated activity
or operation is not required to file a separate bond or alternate form of
financial security for each activity or operation. Under the proposed amendments,
a person with multiple activities or operations is required to file a bond
or alternate form of financial security in the greatest amount applicable
to any of its activities or operations, except that a separate bond must be
filed for commercial facilities activities subject to the financial security
requirements of §3.78(o).
The proposed amendments to §3.78 also delete current subsection (m)
pertaining to individual well bonds. The Commission has determined that small
operators have had difficulty in obtaining individual well bonds. In addition,
the Commission has determined that the individual well bond requirement of
current §3.78(m) has made it impractical for many small operators to
file an alternate form of financial security, including the nonrefundable
annual fee of $1,000. In some cases, the total amount of individual well bonds
required under current §3.78(m) in order to obtain plugging extensions
for wells that have been inactive for 36 months or more has exceeded the amount
of individual or blanket performance bonds, letters of credit, or cash deposits
required under §3.78(j)(1)-(2). Inability to file an individual or blanket
performance bond, letter of credit, or cash deposit as financial security,
coupled with the inability to file an alternate form of financial security
because of individual well bond requirements, has prevented some small operators,
even those with an acceptable record of compliance, from renewing their organization
reports.
The Commission has determined that the individual well bond requirement
of current §3.78(m) can be eliminated without posing a significant risk
to the OFCUF, particularly since effective September 1, 2004, all operators
will be required to file an individual or blanket performance bond, letter
of credit, or cash deposit as financial security covering all operations.
The proposed amendments also amend current §3.78(n) by re- lettering
it as subsection (m) and adding new paragraph (4) providing that an operator
who has accepted a transfer of operatorship of any well or lease on or after
September 1, 2001, with Commission approval based on filing of an individual
or blanket performance bond, letter of credit, or cash deposit, is deemed
to have elected to file one of these forms of financial security and shall
file one of these forms of financial security for each successive year during
which the operator remains the designated operator of any such well or lease.
The amendments in proposed §3.78(m) are necessary to give effect to
Texas Natural Resources Code, §91.107. In conformity with this section
of the Code, current §3.78(n), proposed to be re-lettered as subsection
(m), currently provides that the Commission shall not approve a transfer of
operatorship submitted for any well or lease unless the operator acquiring
the well has on file with the Commission an individual or blanket performance
bond, letter of credit, or cash deposit. For these provisions to have their
intended effect, the amendment in proposed §3.78(m) is necessary to ensure
that an operator who has accepted a transfer of operatorship of a well or
lease with Commission approval, based on the operator's filing of an individual
or blanket performance bond, letter of credit, or cash deposit, is bound to
continue filing one of these same forms of financial security for so long
as the operator remains the designated operator of the well or lease.
The proposed amendments also re-letter current §3.78(p) to subsection
(o) and eliminate the current provision that the owner or operator of a commercial
facility may reduce the amount of financial security required under §3.78(p)
by $25,000 if the owner or operator holds only one commercial facility permit.
This amendment is necessary because the provision being eliminated assumes
that the operator of the commercial facility is required to file a bond in
the amount of $25,000 under other provisions of §3.78, when in fact the
amount of financial security required under other provisions may be a lesser
amount. The proposed amendments in proposed §3.78(o) clarify that the
owner or operator of one or more commercial facilities may reduce the amount
of financial security required under §3.78(p) for one such facility by
the amount, if any, it filed as financial assurance under §3.78(j)(3).
These amendments in proposed §3.78(o) are necessary to ensure that operators
of commercial facilities have adequate financial security on file to cover
commercial facilities operations.
The proposed amendments to §3.78 also add a new subsection (p) relating
to the effect of outstanding violations. This proposed new subsection provides
that the Commission shall not accept an organization report or an application
for a permit or approve a certificate of compliance for an oil lease or gas
well submitted by an organization if the organization has outstanding violations,
or an officer or director of the organization was, within seven years preceding
the filing of the report, application, or certificate, an officer or director
of an organization and during that period, the organization committed a violation
that remains an outstanding violation.
Proposed §3.78(p) also creates an exception to the above provisions
by providing that the Commission shall accept a report or application or approve
a certificate of an organization if the conditions that constituted the violation
have been corrected or are being corrected in accordance with a schedule agreed
to by the organization and the Commission; all administrative, civil, and
criminal penalties and all plugging and cleanup costs incurred by the state
relating to those conditions have been paid or are being paid in accordance
with a schedule agreed to by the organization and the Commission; and the
report, application, or certificate is in compliance with all other requirements
of law and Commission rules. Proposed §3.78(p) also provides that all
fees tendered in connection with a report or application that is rejected
under §3.78(p) are nonrefundable.
The proposed amendments adding new subsection (p) to §3.78 are necessary
to conform §3.78 to Texas Natural Resources Code, §91.114, as amended
by SB 1484, effective September 1, 2003.
Leslie Savage, Administrative Planner, Planning and Administration, Oil
and Gas Division has determined that for the first year of the first five
years the proposed amendments will be in effect, there will be no net fiscal
implications for state government as a result of enforcing or administering
the amendments. The fee increases implemented by the proposed amendments will
be deposited into the OFCUF. Ms. Savage estimates that the proposed amendments
implementing statutory changes will increase the revenue to the OFCUF by approximately
$1.8 million in fiscal year 2004 and $1.67 million in fiscal year 2005. The
increased revenue to the OFCUF will be used to cover the cost of plugging
additional abandoned wells and for the cleanup of pollution.
The Commission also anticipates that the statutory increase in the fee
to reissue a certificate of compliance that has been canceled as a result
of violations will encourage operators to come into compliance in a more timely
manner, thus reducing the amount of Commission field staff time and resources
to achieve compliance. Currently, an operator can allow a lease to acquire
multiple severance orders, but is required only to pay $100 to have the certificate
of compliance reinstated once all rule violation issues have been resolved.
If a lease has been severed by multiple sections of the Oil and Gas Division,
then each of those sections must verify compliance and resolve cancellation
issues. At times, this verification and resolution also requires a lease inspection.
It is, therefore, appropriate that the fees required for reissuance of the
certificate of compliance reflect the existence of multiple violations. Raising
the reinstatement fee and charging for multiple severances on the same lease
or well, as required by HB 1195, will encourage more timely compliance with
the violation notices that precede severance imposition.
During the first year of implementation of the proposed amendments (fiscal
year 2004), the Commission will expend money from the increased revenues for
relatively minor document revision, process analysis and computer programming
to implement new fees and changes to financial security requirements. The
Commission anticipates that the statutory increase in the fee for reissuance
of a certificate of compliance that has been canceled as a result of violations
will encourage operators to come into compliance in a more timely manner,
thus reducing the amount of Commission field staff time and resources to achieve
compliance. The Commission believes these reductions in staff time and resources
will offset the relatively small incremental expense of the proposed amendments
in the first year of implementation. Any incremental increase in expenditures
by the Commission for the first year of implementation will be funded through
the OFCUF. As incremental expenditures decrease in subsequent years, increased
revenues generated by the fee increases implemented by the proposed amendments
will be available for well plugging and cleanup activity.
There will be no fiscal effect on local governments.
Texas Government Code, §2006.002 requires a state agency considering
adoption of a rule that would have an adverse economic effect on small businesses
or micro-businesses to reduce the effect if doing so is legal and feasible
considering the purpose of the statutes under which the rule is to be adopted.
Before adopting a rule that would have an adverse economic effect on small
businesses, a state agency must prepare a statement of the effect of the rule
on small businesses, which must include an anlysis of the cost of compliance
with the rule for small businesses and a comparison of the cost with the cost
of compliance for the largest businesses affected by the rule, using cost
for each employee, cost for each hour of labor, or cost for each $100 of sales.
Ms. Savage has estimated that the cost of compliance with the proposed
amendments to §3.78(b) and (c) for individuals, small businesses, or
micro-businesses will be an increase in the fees for filing organization reports
and fees for reissuance of certificates of compliance which have been canceled.
The fee increases contained in the proposed amendments are statutory and reflect
recent amendments to statutes enacted by the 78th Legislature (2003). The
statutory provisions make no distinction in fees required to be paid based
on an operator's status as an individual, small business, or micro-business.
Because these fees are statutory, the Commission does not have authority to
change the amount of the fees or to create exceptions to the imposition of
the fees.
The proposed fee increase for reissuance of a certificate of compliance
that previously has been canceled is in the amount of $200, assuming one severance
or seal order. The proposed increase in the organization report fee for natural
gas pipelines and liquids pipelines and the proposed increase in the aggregate
organization report fee that must be paid by well operators who also have
other activities is, in each case, $125.
Because operators are not required to make filings with the Commission
reporting number of employees, labor costs, amount of sales, or gross receipts,
the Commission cannot determine whether a particular operator may be a small
business or a micro- business. However, the Commission has determined that
it is likely that some operators would meet the definitions of these terms
in Texas Government Code, §2006.001. Assuming that an individual, small
business, or micro-business operator incurs, during a given year, an additional
$200 in fees for reissuance of a certificate of compliance, the annual cost
of the proposed increase to such an entity would be $200 per employee if the
entity has one employee, $10 per employee if the entity has 20 employees,
and $2.02 per employee if the entity has 99 employees. Operators may avoid
this fee by compliance with Commission rules.
Assuming that an individual, small business, or micro-business operator
incurs, during a given year, an additional $125 in organization report fees,
the annual cost of the proposed increase to such an entity would be $125 per
employee if the entity has one employee, $6.25 per employee if the entity
has 20 employees, and $1.26 per employee if the entity has 99 employees.
Comparable annual cost per employee of the proposed increase for the largest
businesses affected by the proposed amendments required to pay one increased
fee for reissuance of a certificate of compliance would be $0.40 for an employer
of 500 persons and $0.20 for an employer of 1,000 persons. Assuming a requirement
to pay one increased organization report fee during a given year, the annual
cost per employee of the proposed increase would be $0.25 for an employer
of 500 persons and $0.12 for an employer of 1,000 persons.
The number of wells operated, production, and gross receipts of small business
and micro-business operators vary greatly from operator to operator. Most
small business and micro-business operators have wells that are marginal producers.
The Commission cannot specifically identify the universe of small business
and micro-business operators from records maintained by the Commission, for
the purpose of relating cost of compliance with the proposed amendments to
the factors listed in Texas Government Code, §2006.002(c)(2).
However, most, if not all, applications filed with the Commission since
September 1, 2001, for approval to file the nonrefundable annual fee of $1,000
as financial security have been filed by operators believed by the Commission
to be in the small business or micro-business categories. Based on experience
derived from processing these applications and production reports filed with
the Commission for 2002, the Commission believes that the average micro-business
operator who has filed such an application produces about 4,000 barrels of
oil annually. Using the 2002 average domestic first purchase price of $21.84
per barrel of oil, 4,000 barrels of annual production generates gross sales
of $87,360.
Assuming that the average micro-business operator incurs, during a given
year, an additional $200 in fees for reissuance of a certificate of compliance
as a result of the proposed fee change amendments, the cost of compliance
to the operator would be about $0.23 per $100 of gross sales. It is not likely
that micro-business operators will be affected by the proposed $125 increases
in the organization report fee for operators of natural gas pipelines and
liquids pipelines and the maximum organization report fee required of well
operators with multiple Commission regulated activities.
Assuming further that the average small business operator has annual production
and gross sales five times greater than the average micro-business producer,
the cost of compliance to the average small business operator resulting from
the need to pay, during a given year, an additional $200 in fees for reissuance
of a certificate of compliance would be slightly more than $0.04 per $100
of gross sales. If the same small business operator were required to pay,
during a given year, an additional $125 in organization report fees, the cost
of compliance would be slightly less than $0.03 per $100 of gross sales. If
a small business operator is an operator of one or more liquids pipelines
as well as operator of other service activities or facilities, the proposed
establishment of a separate organization report fee category for operators
of liquids pipelines could result in an increase in total organization report
fees of up to $625 annually. Based on the same assumed annual sales for the
average small business operator, the cost of compliance would be $0.14 per
$100 of gross sales.
The Commission does not have access to information regarding the gross
sales of the largest operators affected by the proposed fee change amendments,
most of whom have operations beyond the state. For comparative purposes, however,
the cost of compliance with the proposed fee change amendments to these large
operators would be a fraction of one cent per $100 of gross sales.
Ms. Savage has determined that the cost of compliance with the proposed
amendments to §3.78(f) for individual, small business, or micro-business
operators will be in the nature of employee or administrative expense associated
with submitting a request to the Commission for a determination that bonds
are not obtainable at a reasonable price, obtaining declination letters, establishing
that the operator is otherwise eligible to file a nonrefundable annual fee
of $1,000 as financial security, and participating in any Commission hearing
that may be necessary in the event the operator's request is administratively
denied.
Texas Natural Resources Code, §91.104 provides the various forms of
financial security which may be filed by operators subject to the Commission's
jurisdiction. Under §91.104, an operator may file financial security
in the form of a nonrefundable annual fee of $1,000 if the Commission determines
that individual and blanket bonds are not obtainable at reasonable prices
and the operator can demonstrate to the Commission an acceptable record of
compliance. The statute requires that the Commission make these determinations,
and the Commission has no authority to exempt individual, small business,
and micro-business operators from the standards of §91.104.
The Commission has determined that the proposed amendments to §3.78(f)
provide standards and procedures for requesting Commission approval to file
financial security in the form of the nonrefundable annual fee of $1,000 which
impose only a minimal regulatory burden on operators. Operators will be required
to determine from sureties or their agents whether bonds are obtainable at
a reasonable price and obtain the required declination letters for submission
to the Commission, but an operator's request to file the nonrefundable annual
fee of $1,000 will be processed administratively, in most cases without the
need for a hearing. The requesting operator may choose to submit evidence
of its acceptable record of compliance, but the operator's record of compliance
can also be determined from Commission records. A hearing will be required
only in the case where the operator's request is administratively denied,
and in the event a hearing is needed, the operator may request that the hearing
be conducted by telephone.
The Commission has estimated that no more than eight hours will be spent
by employees and administrative or managerial staff of operators in meeting
the standards and procedures provided by the amendments to §3.78(f),
even if a telephone hearing following administrative denial of the operator's
request is necessary. Assuming that individual, small business, and micro-
business operators incur average hourly personnel cost of $25 per hour, the
estimated cost of compliance with the proposed amendments to §3.78(f)
should not exceed about $200 annually. The $1,000 nonrefundable annual fee
is not deemed to be a cost of compliance with the proposed amendments to §3.78(f)
because the fee is provided for by Texas Natural Resources Code, §91.104
and §3.78(d), and the fee provisions of §3.78(d) are not proposed
to be amended.
Assuming that an individual, small business, or micro-business operator
incurs expense in the amount of $200 to comply with the proposed amendments
to §3.78(f), the annual per employee cost of compliance would be $200
for an operator with one employee, $10 for an operator with 20 employees,
and $2.02 for an operator with 99 employees. Assuming further, based on the
previous analysis, that the average micro-business operator has annual gross
sales of $87,360, the estimated cost of compliance for the micro-business
operator per $100 of gross sales would be $0.23. Assuming that the average
small business operator has annual gross sales five times greater than the
average micro-business operator, the estimated cost of compliance for the
small business operator per $100 of gross sales would be $0.04.
The largest of the businesses regulated by the Commission tend to file
financial security in the form of individual or blanket performance bonds,
letters of credit, or cash deposits, and may not be affected by the proposed
amendments to §3.78(f) relating to the nonrefundable annual fee of $1,000.
Should a large business operator choose to request approval to file the nonrefundable
annual fee of $1,000, the annual cost of compliance per employee would be
$0.40 for an operator with 500 employees and $0.20 for an operator with 1,000
employees. Although the Commission does not have information as to the company-wide
gross sales of the largest operators regulated by the Commission, the annual
cost of compliance with the proposed amendments to §3.78(f) to such largest
operators would be a fraction of one cent per $100 of gross sales.
The cost of compliance with the proposed amendments to §3.78(f) will
be temporary since effective September 1, 2004, all operators, except those
exempt from financial security requirements, will be required to file financial
security in the form of an individual or blanket performance bond, letter
of credit or cash deposit, and filing of a nonrefundable annual fee of $1,000
will no longer be permitted by statute.
The Commission has also determined that the cost of compliance with the
proposed amendments to §3.78(f) will be offset by savings to operators
realized through obtaining approval to file the nonrefundable annual fee of
$1,000 as compared to other more costly forms of financial security permitted
by statute.
Ms. Savage has determined that there will be no cost of compliance with
the proposed amendments in §3.78(j)(4) exempting certain classes of operators
from financial security requirements. For these classes of operators the current
cost of compliance with current financial security requirements will be eliminated
by the proposed amendments.
Ms. Savage has also determined that there will be no cost of compliance
with the proposed amendment eliminating the individual well bond requirement
of current §3.78(m). Some individual, small business, and micro-business
operators will realize significant cost savings as a result of elimination
of the requirement to file individual well bonds or individual letters of
credit in order to obtain plugging extensions for wells that have been inactive
for 36 months or more. For some of these operators, these cost savings will
exceed the cost of compliance with the proposed fee increases.
Ms. Savage has also determined that there will be no cost of compliance
with any of the clarifying amendments. These amendments reflect current Commission
practices and policies and do not impose different or additional obligations
on operators.
The nature of the proposed amendments to §3.78 are such that they
will not have a materially adverse net economic effect on individual, small
business, or micro-business operators.
James M. Doherty, Hearings Examiner, Oil and Gas Section, Office of General
Counsel, has determined that for each year of the first five years that the
amended section will be in effect, the public benefit will be the implementation
of fee changes required or authorized by the Legislature, which will assist
the Commission in plugging of abandoned wells and cleanup of pollution in
the areas of greatest need. The public will also benefit from the greater
flexibility and lesser regulatory burden resulting from proposed changes in
standards and procedures for persons seeking approval to file a nonrefundable
annual fee of $1,000 as financial security for their operations. These changes
will enable operators with an acceptable record of compliance who are unable
to obtain a bond at a reasonable price to continue production of oil and gas
to the public's benefit. The public will also benefit from elimination of
the regulatory and financial burden of posting financial security by certain
classes of operators whose operations pose no significant risk to usable quality
surface or subsurface water. The public will also benefit from the clarifying
amendments by making the amended section more understandable and more reflective
of current Commission policies and practices.
Comments may be submitted to Rules Coordinator, Office of General Counsel,
Railroad Commission of Texas, P. O. Box 12967, Austin, Texas 78711-2967; online
at www.rrc.state.tx.us/rules/commentform.html; or by electronic mail to rulescoordinator@rrc.state.tx.us.
The Commission will accept comments for 30 days after publication in the
The Commission proposes the amendments to §3.78 pursuant
to Texas Natural Resources Code, §§81.051, 81.052, 85.042, 85.201,
85.202, 86.041, 86.042, 91.101,141.011, and 141.012 which provide the Commission
with jurisdiction over all persons owning or engaged in drilling or operating
oil, gas or geothermal wells, persons owning or operating pipelines, and persons
engaged in other service activities related to production, storage, transportation
or distribution of oil and gas or oil and gas wastes, and the authority to
adopt all necessary rules for governing and regulating persons and their operations
under the jurisdiction of the Commission; and pursuant to Texas Government
Code, §2001.006, which authorizes the Commission to promulgate rules
that implement legislation that has become law but has not taken effect.
Texas Natural Resources Code §§81.051, 81.052, 85.042, 85.167,
85.201, 85.202, 86.041, 86.042, 91.101, 91.103, 91.104, 91.1042, 91.109, 91.114,
91.142, 141.011, and 141.012 are affected by the proposed amendments.
Issued in Austin, Texas on July 17, 2003.
§3.78.Fees, Performance Bonds and Alternate Forms of Financial Security Required To Be Filed.
(a)
Definitions. The following words and terms, when used
in this section, shall have the following meanings, unless the context clearly
indicates otherwise:
(1) - (6)
(No change.)
[(7)
Individual well bond A bond or letter
of credit issued:]
[(A)
on a Commission-approved form;]
[(B)
by a third party surety, insurance company, or financial
institution approved by the Commission; and]
[(C)
to secure the timely and proper plugging of a specified
well and remediation of the wellsite, in accordance with Commission rules.]
(7)
[
(A)
located in or on a lake, river, stream, canal, estuary,
bayou, or other inland navigable waters of the state; or,
(B)
located on state lands seaward of the mean high tide line
of the Gulf of Mexico in water of a depth at mean high tide of not more than
100 feet that is sheltered from the direct action of the open seas of the
Gulf of Mexico.
(8)
[
(9)
[
(10)
Officers and owners--Any persons owning
or controlling an organization including officers, directors, general partners,
sole proprietors, owners of more than 25% ownership interest, any trustee
of an organization, and any person determined by a final judgment or final
administrative order to have exercised control over the organization.
(11)
Letter of credit--An irrevocable letter
of credit issued:
(A)
on a Commission-approved form;
(B)
by and drawn on a third party bank authorized under state
or federal law to do business in Texas; and
(C)
renewed and continued in effect until the conditions of
the letter of credit have been met or its release is approved by the Commission
or its authorized delegate.
(12)
Bond--A surety instrument issued:
(A)
on a Commission-approved form;
(B)
by and drawn on a third party corporate surety authorized
under state law to issue surety bonds in Texas; and
(C)
renewed and continued in effect until the conditions of
the bond have been met or its release is approved by the Commission or its
authorized delegate.
(b)
Filing fees. The following filing fees are required to
be paid to the Railroad Commission.
(1)
(No change.)
(2)
An application for a permit to drill, deepen, plug back,
or reenter a well will be considered materially amended if the amendment is
made for a purpose other than:
(A)
to add omitted required information;
(B)
to correct typographical errors;
or
(C)
to correct clerical errors.
(3) - (9)
(No change.)
(10)
If a certificate of compliance
for an oil lease
or gas well
has been canceled, the operator shall submit to the Commission
a nonrefundable fee of
$300 for each severance or seal order issued for
the well or lease
[
(11) - (13)
(No change.)
(14)
A check or money order for any of the aforementioned
fees shall be made payable to the Railroad Commission of Texas. If the check
accompanying an application is not honored upon presentment, the permit issued
on the basis of that application, the allowable assigned, the exception to
a statewide rule granted on the basis of the application, the extension of
time to plug a well,
the certificate of compliance reissued,
or
the Natural Gas Policy Act category determination made on the basis of the
application may be suspended or revoked.
(15)
(No change.)
(c)
Organization Report Fee. An organization report required
by Texas Natural Resources Code, §91.142, shall be accompanied by a fee
as follows:
(1)
(No change.)
(2)
for an operator of one or more natural gas pipelines,
$225
[
(3)
(No change.)
(4)
for an operator of one or more liquids
pipelines, $625;
(5)
[
[(5)
for an operator of wells who also operates
one or more service activities, facilities, or pipelines as classified by
the Commission, the sum of the fees that would be separately charged for each
category of service activity, facility, pipeline, or number or wells operated,
provided that such fee shall not exceed $1,000; or ]
(6)
for an operator with multiple activities,
a total fee equal to the sum of the separate fees applicable to each category
of service activity, facility, pipeline, or number of wells operated shall
be submitted, provided that the total fee for an operator of wells shall not
exceed $1,125; and
(7)
[
(d)
Financial security and alternate forms of financial security.
Any person, including any firm, partnership, joint stock association, corporation,
or other organization, required by Texas Natural Resources Code, §91.142,
to file an organization report with the Commission must also file financial
security in one of the following forms:
(1)
an individual performance bond;
(2)
a blanket performance bond;
(3)
a nonrefundable annual fee of $1,000, if:
(A)
the Commission
or its designee
determines that
individual and blanket performance bonds as specified by this section are
not obtainable at reasonable prices as provided for under subsection (f) of
this section;
(B) - (C)
(No change.)
(4) - (5)
(No change.)
(e)
Eligibility for nonrefundable $1,000 fee.
[(1)
For the purposes of this subsection,
"officers and owners" include directors, general partners, owners of more
than 25% ownership interest, or any trustee of an organization.]
(1)
[
(2)
[
(3)
[
(4)
[
(5)
[
(A)
the existing record of compliance for each entity that
is a party to the merger qualifies;
(B)
the records of compliance for the officers and owners
of the surviving or new entities qualify; and
(C)
the number of surviving or new entities eligible does
not exceed the number of parties registered with the Commission at the time
of the merger.
(6)
[
(f)
Availability of bonds.
(1)
In determining the applicability of the $1,000 nonrefundable
fee as provided for under this section, the Commission presumes that individual
and blanket performance bonds are obtainable at reasonable prices.
(2)
An operator may request
an administrative determination
[
(A)
that [
(B)
that the operator is otherwise eligible under this section
to file a $1,000 nonrefundable annual fee.
(3)
If an operator requesting a determination
that bonds are not available to it has a bond as its current financial assurance,
one of the three declination letters must be from that operator's current
surety.
(4)
If an operator's application for the
$1,000 nonrefundable fee is administratively denied, the operator may request
a hearing to determine eligibility for the $1,000 nonrefundable fee. The Commission
shall consider cash or other collateral requirements, along with the premium
and any other surety company requirements, in determining if bonds are available
to the requesting operator at a reasonable price.
(g) - (i)
(No change.)
(j)
Amount of bond, letter of credit, or cash deposit.
(1)
(No change.)
(2)
A person operating wells may file a blanket bond, letter
of credit or cash deposit to cover all wells for which a bond, letter of credit
or cash deposit is required in an amount equal to the sum of:
(A)
A base amount determined by the total number of wells
operated, as follows:
(i)
a person who operates 10 or fewer wells [
(ii) - (iii)
(No change.)
(B) - (C)
(No change.)
(3)
A person [
(4)
No bond, letter of credit, cash deposit
or alternate form of financial security is required of a person who is not
an operator of wells if the person's only activity is as a first purchaser,
survey company, salt water hauler, gas nominator, gas purchaser and/or well
plugger.
(5)
A person who engages in more than one
activity or operation, including well operation, for which a bond or alternate
form of financial security is required is not required to file a separate
bond or alternate form of financial security for each activity or operation
in which the person is engaged. The person is required to file a bond or alternate
form of financial security only in the amount required for the activity or
operation in which the person engages for which a bond or alternate form of
financial security in the greatest amount is required. The bond or alternate
form of financial security filed covers all of the activities and operations
for which a bond or alternate form of financial security is required. The
provisions of this paragraph do not exempt a person from the financial security
required under subsection (o) of this section.
(6)
[
(k) - (l)
(No change.)
[(m)
Individual well bonds.]
[(1)
An operator who has filed an alternate form of financial
security with the Commission and who applies for a plugging extension for
a well that has been inactive for more than 36 months is required under §3.14
of this title (relating to Plugging) to file an individual well bond or individual
well letter of credit in the face amount of the estimated plugging cost of
the well for which a plugging extension is requested. The Commission shall
presume that the estimated plugging cost for wells for which a plugging extension
is sought is as follows:]
[(A)
for land wells, the product of the total depth of the
well multiplied by $3 per foot;]
[(B)
for bay wells, $60,000; and,]
[(C)
for offshore wells, $250,000.]
[(2)
An operator may rebut the presumed estimated plugging
costs for a specific well for which a plugging extension is sought at hearing
by clear and convincing evidence establishing a higher or lower prospective
plugging cost for the well. The operator, Commission staff, or any owner of
the surface or mineral estate on which the well is located may initiate a
hearing on the prospective plugging cost for a well for the purpose of setting
the amount of an individual well bond by filing a request for hearing.]
[(3)
If an individual well bond is required, it shall be
continuously maintained until the well is plugged or returned to active operation,
as defined under §3.14, unless the operator files financial security
as provided by this section.]
(m)
[
(1)
The Commission shall not approve a transfer of operatorship
submitted for any well or lease unless the operator acquiring the well or
lease has on file with the Commission one of the following approved forms
of financial security in an amount sufficient to cover both its current operations
and the wells being transferred:
(A)
an individual performance bond, letter of credit or cash
deposit; or
(B)
a blanket performance bond, letter of credit or cash
deposit.
(2)
Any existing financial security or individual well bond
covering the well or lease proposed for transfer shall remain in effect and
the prior operator of the well remains responsible for compliance with all
laws and Commission rules covering the transferred well until the Commission
approves the transfer.
(3)
A transfer of a well or lease from one entity to another
entity under common ownership is a transfer for the purposes of this section.
(4)
An operator who has accepted a transfer
of operatorship of any well or lease on or after September 1, 2001, with Commission
approval based on filing of an individual or blanket performance bond, letter
of credit, or cash deposit is deemed to have elected to file one of these
forms of financial security and shall file one of these forms of financial
security for each successive year during which it remains the designated operator
of any such well or lease.
(n)
[
(o)
[
(1)
Application.
(A)
New permits. Any application for a new or amended commercial
facility permit filed after the original effective date of this subsection
shall include:
(i)
a written estimate of the maximum dollar amount necessary
to close the facility prepared in accordance with the provisions of paragraph
(4) of this subsection that shows all assumptions and calculations used to
develop the estimate;
(ii)
a copy of the form of the bond or letter of credit that
will be filed with the Commission; and
(iii)
information concerning the issuer of the bond or letter
of credit as required under paragraph (5) of this subsection including the
issuer's name and address and evidence of authority to issue bonds or letters
of credit in Texas.
(B)
Existing permits. Within 180 days of the original effective
date of this subsection, the holder of any commercial facility permit issued
on or before the original effective date of this subsection shall file with
the Commission the information specified in subparagraph (A)(i)-(iii) of this
paragraph.
(2)
Notice and hearing.
(A)
New permits. For commercial facility permits issued after
the original effective date of this subsection, the provisions of §3.8
or §3.57 of this title (relating to Water Protection; and Reclaiming
Tank Bottoms, Other Hydrocarbon Wastes, and Other Waste Materials), as applicable,
regarding notice and opportunity for hearing, shall apply to review and approval
of financial security proposed to be filed to meet the requirements of this
subsection.
(B)
Existing permits. Notice of filing of information required
under paragraph (1)(B) of this subsection shall not be required. In the event
approval of the financial security proposed to be filed for a commercial facility
operating under a permit in effect as of the original effective date of this
subsection is denied administratively, the applicant shall have the right
to a hearing upon written request. After hearing, the examiner shall recommend
a final action by the Commission.
(3)
Filing of instrument.
(A)
New permits. A commercial facility permitted after the
original effective date of this subsection may not receive oil field fluids
or oil and gas waste until a bond or letter of credit in an amount approved
by the Commission or its delegate under this subsection and meeting the requirements
of this subsection as to form and issuer has been filed with the Commission.
(B)
Existing permits. Except as otherwise provided in this
subsection, after one year from the original effective date of this section,
a commercial facility permitted on or before the original effective date of
this subsection may not continue to receive oil field fluids or oil and gas
waste unless a bond or letter of credit in an amount approved by the Commission
or its delegate under this subsection and meeting the requirements of this
subsection as to form and issuer has been filed with and approved by the Commission
or its delegate.
(C)
Extensions for existing permits. On written request and
for good cause shown, the Commission or its delegate may authorize a commercial
facility permitted before the original effective date of this subsection to
continue to receive oil field fluids or oil and gas waste after one year after
the original effective date of this section even though financial security
required under this subsection has not been filed. In the event the Commission
or its delegate has not taken final action to approve or disapprove the amount
of financial security proposed to be filed by the owner or operator under
this subsection one year after the original effective date of the section,
the period for filing financial security under this subsection is automatically
extended to a date 45 days after such final Commission action.
(4)
Amount.
(A)
Except as provided in subparagraphs (B) or (C) of this
paragraph, the amount of financial security required to be filed under this
subsection shall be an amount based on a written estimate approved by the
Commission or its delegate as being equal to or greater than the maximum amount
necessary to close the commercial facility, exclusive of plugging costs for
any well or wells at the facility, at any time during the permit term in accordance
with all applicable state laws, Commission rules and orders, and the permit,
but shall in no event be less than $10,000.
[
(B)
[
(C)
[
(D)
[
(E)
[
(5)
(No change.)
(p)
Effect of outstanding violations.
(1)
Except as provided in paragraph (2) of this subsection,
the Commission shall not accept an organization report or an application for
a permit or approve a certificate of compliance for an oil lease or gas well
submitted by an organization if:
(A)
the organization has outstanding violations; or
(B)
an officer or director of the organization was, within
seven years preceding the filing of the report, application, or certificate,
an officer or director of an organization and during that period, the organization
committed a violation that remains an outstanding violation.
(2)
The Commission shall accept a report or application or
approve a certificate filed by an organization covered by paragraph (1) of
this subsection if:
(A)
the conditions that constituted the violation have been
corrected or are being corrected in accordance with a schedule agreed to by
the organization and the Commission;
(B)
all administrative, civil, and criminal penalties, and
all plugging and cleanup costs incurred by the state relating to those conditions
have been paid or are being paid in accordance with a schedule agreed to by
the organization and the Commission; and
(C)
the report, application or certificate is in compliance
with all other requirements of law and Commission rules.
(3)
All fees tendered in connection with a report or application
that is rejected under this subsection are nonrefundable.
This agency hereby certifies that the proposal has been
reviewed by legal counsel and found to be within the agency's legal authority
to adopt.
Filed with the Office of
the Secretary of State on July 18, 2003.
TRD-200304357
Mary Ross McDonald
Deputy General Counsel
Railroad Commission of Texas
Earliest possible date of adoption: August 31, 2003
For further information, please call: (512) 475-1295
Subchapter C. RAIL SAFETY PROGRAM
16 TAC §5.301
The Railroad Commission of Texas proposes new §5.301,
relating to Rail Safety Program Fee, in Chapter 5, new subchapter C, relating
to the rail safety program. The purpose of the proposed new section is to
provide a reasonable fee to be assessed annually against railroads operating
within the state, as required by Section 11, House Bill (HB) 3442, 78th Legislature,
Regular Session (2003), which adds new Section 2 to Article 6448a, Revised
Statutes.
The statute provides that the Commission may consider gross ton miles for
railroad operations in the state to provide for the equitable allocation among
railroads of the cost of administering the Commission's rail safety program.
The larger railroads generate more gross ton miles per year than the smaller
railroads. Because a fee based on gross ton miles will ensure that a smaller
railroad will pay a smaller fee than a larger railroad, in proportion to the
each railroad's annual gross ton miles, the Commission finds that assessing
the fee based on gross ton miles will assure that the fees are equitably allocated
among the railroads.
Proposed new §5.301(a) provides that each railroad operating within
the state must pay an annual fee.
Proposed new §5.301(b) provides that each railroad operating within
the state must report to the Commission, no later than July 1st of each calendar
year, the railroad's gross ton miles for the preceding calendar year. The
report must be in writing, signed by a duly authorized officer of the railroad,
and must be verified.
Proposed new §5.301(c) defines the term "gross ton miles" to mean
either the combined weight of all rail cars and their contents, exclusive
of locomotives, multiplied by the number of miles traveled in the state within
a calendar year; or, if a railroad has reported its calendar year gross ton
miles on a Form R-1 filed with the United States Surface Transportation Board
(USSTB), that portion of the reported gross ton miles that are for operations
within the state; or, if a railroad is not required to file a Form R-1 with
the USSTB, and if determining that railroad's actual calendar year gross ton
miles is unduly burdensome, the railroad's good-faith estimate of gross ton
miles as defined in proposed new §5.301(c)(1).
Proposed new §5.301(d) provides that the Commission must determine
the annual fee for each railroad operating in the state as follows: (1) each
railroad's gross ton miles will be divided by the total gross ton miles of
all railroads operating in the state; and (2) the result will be multiplied
by the amount estimated by the Commission to be necessary to recover the costs
of administering the Commission's rail safety program for the next state fiscal
year.
Proposed new §5.301(e) provides that the Commission must, no later
than September 1 of each calendar year, notify each railroad operating in
the state of the amount of that railroad's fee that is due and payable.
Proposed new §5.301(f) provides that each railroad operating in the
state must, no later than November 1 of each calendar year, pay its assessed
fee to the Commission. The payment must be made payable to the State of Texas
and will be considered by the Commission to be timely made if it is received
by the Commission on or before November 1 of the same calendar year in which
notice has been given pursuant to proposed §5.301(e), or is sent to the
Commission by first-class United States mail in an envelope properly addressed,
stamped, and postmarked on or before November 1 of the same calendar year
in which notice has been given pursuant to proposed §5.301(e), and received
by the Commission not more than 10 days later. A legible postmark affixed
by the United States Postal Service will be prima facie evidence of the date
of mailing.
Proposed §5.301(g) provides that if a railroad does not timely report
its gross ton miles, the Commission may make a good-faith estimate of the
railroad's gross ton miles and assess the railroad's fee based on that estimate.
Failure by a railroad to timely report its gross ton miles will constitute
a waiver by the railroad to object to both the Commission's estimate and the
fee based on the estimate.
Proposed §5.301(h) provides that fees collected under this section
must be deposited to the credit of the general revenue fund to be used for
the rail safety program.
Proposed new §5.301(i) provides that its provisions will control during
the period beginning on the effective date of this section and ending on May
10, 2004. The definition of "gross ton miles" in proposed new subsection (c)
applies to subsection (i).
Proposed §5.301(i)(1) requires each railroad operating within the
state that is required to report its gross ton miles to the USSTB to report
to the Commission, no later than October 15, 2003, the railroad's gross ton
miles for calendar year 2002. The report must be signed in writing, signed
by a duly authorized officer of the railroad, and must be verified. The Commission
will then determine the annual fee of each such railroad operating in the
state as follows: each such railroad's gross ton miles for calendar year 2002
will be divided by the total gross ton miles reported by all railroads under
proposed §5.301(i)(1) for calendar year 2002, and the result will be
multiplied by 95% of the amount estimated by the Commission to be necessary
to recover the costs of administering the Commission's rail safety program
for the state fiscal year that begins on September 1, 2003. The Commission
must, no later than November 1, 2003, notify each such railroad of the amount
of the railroad's annual fee that is due and payable. Each such railroad must,
no later than December 31, 2003, pay the fee to the Commission as provided
in proposed new §5.301(f), except that the Commission will consider the
payment to be timely made if it is received by the Commission on or before
December 31, 2003, or is sent to the Commission by first-class United States
mail in an envelope properly addressed, stamped, and postmarked on or before
December 31, 2003, and received by the Commission not more than 10 days later.
A legible postmark affixed by the United States Postal Service will be prima
facie evidence of the date of mailing.
Proposed §5.301(i)(2) requires each railroad operating within the
state that is not required to report its gross ton miles to the USSTB to report
to the Commission, no later than February 1, 2004, the railroad's gross ton
miles for calendar year 2002. The report must be in writing, signed by a duly
authorized officer of the railroad, and must be verified. The Commission will
then determine the annual fee of each such railroad operating in the state
as follows: each such railroad's gross ton miles for calendar year 2002 will
be divided by the total gross ton miles reported by all railroads under proposed §5.301(i)(2)
for the calendar year 2002, and the result will be multiplied by 5% of the
amount estimated by the Commission to be necessary to recover the costs of
administering the Commission's rail safety program for the state fiscal year
that begins on September 1, 2003. The Commission must, no later than March
1, 2004, notify each such railroad of the amount of the railroad's annual
fee that is due and payable. Each such railroad must, no later than April
30, 2004, pay the fee to the Commission as provided in proposed §5.301(f),
except that the Commission will consider the payment to be timely made if
it is received by the Commission on or before April 30, 2004, or is sent to
the Commission by first-class United States mail in an envelope properly addressed,
stamped, and postmarked on or before April 30, 2004, and received by the Commission
not more than 10 days later. A legible postmark affixed by the United States
Postal Service will be prima facie evidence of the date of mailing.
Jerry Martin, Director, Rail Division, has determined that for each year
of the first five years the proposed new section will be in effect, there
will be no fiscal implications for state or local governments as a result
of enforcing or administering the new section. Currently there are 41 railroads
operating within the state. Due to this limited number of railroads that will
be required to report gross ton miles and pay the fee, the Commission does
not expect to incur any additional expense in determining and assessing the
fees because current Commission resources, e.g., offices, staff, and fees
received under the proposed rule, will be adequate for the Commission to meet
its undertaking pursuant to proposed new §5.301.The fees collected, estimated
to be approximately $1,574,552 for the fiscal year beginning September 1,
2003, will total the estimated cost of administering the Commission's rail
safety program. There are no fiscal implications for local governments.
Mr. Martin has also determined that for each year of the first five years
the new section is proposed to be in effect, the public benefit will be continued
rail safety oversight throughout the state at the expense of the railroads
operating in the state.
There are some anticipated costs to small businesses and micro-businesses
required to comply with the new section. As a result of the proposed rule,
each railroad operating in the State of Texas will be required to report its
annual gross ton miles to the Commission and to pay a fee based on gross ton
miles. The Commission estimates that the three largest railroads operating
in Texas, which are neither small businesses nor micro- businesses, will pay
approximately 95% of the total fees. These railroads currently report their
national gross ton miles annually to the federal government; they also break
out their annual gross ton miles for Texas. The smaller railroads do not currently
report gross ton miles to any regulatory agency and may incur an administrative
cost in calculating and reporting that figure to the Commission. However,
the smaller railroads will pay a significantly smaller fee; the Commission
estimates that the 38 smaller railroads will together pay only approximately
5% of the total fee. Further, if determining annual gross ton miles is too
burdensome for a smaller railroad, it may make a good faith estimate of its
gross ton miles or may allow the Commission to make an estimate.
The Commission considered establishing a flat fee for the smaller railroads,
but due to the diversity in size of the smaller railroads, the Commission
determined that a flat fee would be unduly burdensome on the smallest railroads.
The Commission considered a complete exemption from proposed new §5.301,
but determined that an exemption would not comply with Section 11, HB 3442,
78th Legislature, Regular Session (2003), which calls for an equitable allocation
among the railroads of the cost of the rail safety program.
Pursuant to Texas Government Code, §2006.002(c), the Commission cannot
determine the cost for each small business or micro-business operating a railroad
in the state because a railroad's costs associated with compliance will vary
depending on the railroad's gross ton miles. The Commission assumes that there
are railroads that meet the definitions of "micro-business" and "small business"
set forth in Texas Government Code, §2006.001(1) and (2), respectively;
however, the Commission does not have data showing the expense for each employee,
the expense for each hour of labor, or the total sales revenue for each railroad
in the state. Therefore, the Commission is not able to determine the exact
cost of compliance based on the cost for each employee, the cost for each
hour of labor, or the cost for each $100 of sales pursuant to Texas Government
Code, §2006.002(c). However, the proposed rule provides that the amount
of the fee to be paid annually by a railroad will be proportional to the amount
of gross ton miles reported by that railroad versus the total amount reported
by all railroads. Proposed §5.301(i) will also grant smaller railroads
additional time to file their first annual report of their gross ton miles
and to pay their first annual fee. Further, Section 11 of HB 3442, 78th Legislature,
Regular Session (2003), requires that the fees be reasonable, that the total
amount of the fees collected shall not exceed the amount estimated by the
Commission to be necessary to recover the costs of administering the rail
safety program, and that the Commission provide for the equitable allocation
of the cost among the railroads. These statutory requirements ensure that
small business and micro-business railroads will pay significantly smaller
fees than the largest businesses required to pay the fee. Therefore, the statute
reduces the adverse effect the proposed new rule could have on individuals,
small businesses, or micro-businesses. The proposed rule also allows the smaller
railroads to estimate their annual gross ton mileage, thus reducing to some
extent the cost of compliance that is not the fee itself. Because the fees
are statutory, the Commission does not have authority to further reduce the
adverse effect of the proposed rule on small or micro- businesses. Thus, pursuant
to Texas Government Code, §2006.002, the Commission finds that, considering
the purpose of Section 2 of Article 6448a, Revised Statutes, as enacted by
Section 11 of HB 3442, 78th Legislature, Regular Session (2003), any adverse
effect the proposed new rule could have on individuals, small businesses,
or micro-businesses has been reduced by the proposed rule to the extent authorized
by the statute.
Comments on the proposal may be submitted to Rules Coordinator, Office
of General Counsel, Railroad Commission of Texas, P.O. Box 12967, Austin,
Texas 78711-2967; online at www.rrc.state.tx.us/rules/commentform.html; or
by electronic mail to rulescoordinator@rrc.state.tx.us. The Commission will
accept comments for 21 days after publication in the
Texas Register
; comments should refer to Rail Docket No. 3762.RUL.
The Commission encourages all persons to submit comments no later than the
deadline. The Commission cannot guarantee that comments submitted after the
deadline will be considered. For further information, call Mr. Martin at (512)
463-7001. The status of Commission rulemakings in progress is available at
www.rrc.state.tx.us/rules/proposed.html
The Commission particularly encourages comments on the proposed methodology
for calculating the annual fee for the smaller railroads. The comment period
is limited to 21 days because the Commission has a fiscal responsibility to
have a rule in place before the fiscal year that begins September 1, 2003.
To provide actual notice of the proposed rule to all members of the affected
industry, the Commission plans to deliver a copy of the proposed rule to every
railroad operating in the state, on or about July 17, 2003. The proposed rule
will also be posted on the Commission's web site on approximately July 17,
2003, well in advance of publication in the
Texas
Register
. In addition, the Commission mailed a letter on July 9, 2003,
to every railroad operating in the state informing the railroads that the
Commission may consider the proposed rule that establishes a fee based on
gross ton miles. Persons may submit comments to the Commission prior to the
date the proposal is published in the
Texas Register
.
The Commission proposes new §5.301 under Section 2, Article 6448a,
Revised Statutes, as enacted by Section 11, HB 3442, 78th Legislature, Regular
Session, 2003, which requires the Commission by rule to adopt reasonable fees
to be assessed annually against railroads operating within the state and further
requires that the total amount of fees estimated to be collected may not exceed
the amount estimated by the Commission to be necessary to recover the costs
of administering the Commission's rail safety program. The legislation provides
that the Commission may consider gross ton miles for railroad operations within
the State of Texas to provide for the equitable allocation among railroads
of the cost of administering the rail safety program and that collected fees
be deposited to the credit of the general revenue fund to be used for the
rail safety program. Finally, the Commission proposes this new rule under
the authority of Texas Government Code, §2001.006, which authorizes the
Commission to promulgate rules to implement legislation that has become law
but has not taken effect.
Statutory authority: Section 2, Article 6448a, Revised Statutes,
as added by HB 3442, 78th Legislature, Regular Session, 2003; Texas Government
Code, §2001.006.
Cross reference to statute: Section 2, Article 6448a, Revised Statutes,
as added by HB 3442, 78th Legislature, Regular Session, 2003.
Issued in Austin, Texas on July 17, 2003.
§5.301.Rail Safety Program Fee.
(a)
Each railroad operating within the state shall pay an annual
fee as provided by this section.
(b)
Each railroad operating within the state shall report to
the Commission, no later than July 1 of each calendar year, the railroad's
gross ton miles for the preceding calendar year. The report shall be in writing,
signed by a duly authorized officer of the railroad, and shall be verified.
(c)
As used in this section, "gross ton miles" means:
(1)
the combined weight of all rail cars and their contents,
exclusive of locomotives, multiplied by the number of miles traveled in the
state within a calendar year; or
(2)
if a railroad has reported its calendar year gross ton
miles on a Form R-1 filed with the United States Surface Transportation Board
(USSTB), that portion of the reported gross ton miles that are for operations
within the state; or
(3)
if a railroad is not required to file a Form R-1 with the
USSTB, and if determining the railroad's actual calendar year gross ton miles
is unduly burdensome, the railroad's good-faith estimate of gross ton miles
as defined in paragraph (1) of this subsection.
(d)
The Commission shall determine the annual fee for each
railroad operating in the state as follows:
(1)
each railroad's gross ton miles will be divided by the
total gross ton miles of all railroads operating in the state; and
(2)
the result will be multiplied by the amount estimated by
the Commission to be necessary to recover the costs of administering the Commission's
rail safety program for the next state fiscal year.
(e)
The Commission shall, no later than September 1 of each
calendar year, notify each railroad operating in the state of the amount of
that railroad's fee that is due and payable.
(f)
Each railroad operating in the state shall, no later than
November 1 of each calendar year, pay its assessed fee to the Commission.
The payment shall be made payable to the State of Texas and shall be considered
by the Commission to be timely made if it is received by the Commission on
or before November 1 of the same calendar year in which notice has been given
pursuant to subsection (e) of this section, or is sent to the Commission by
first-class United States mail in an envelope properly addressed, stamped,
and postmarked on or before November 1 of the same calendar year in which
notice has been given, pursuant to subsection (e) of this section, and received
by the Commission not more than 10 days later. A legible postmark affixed
by the United States Postal Service shall be prima facie evidence of the date
of mailing.
(g)
If a railroad does not timely report its gross ton miles,
the Commission may make a good-faith estimate of the railroad's gross ton
miles and assess the railroad's fee based on that estimate. Failure by a railroad
to timely report its gross ton miles constitutes a waiver by the railroad
to object to both the Commission's estimate and the fee based on the estimate.
(h)
Fees collected under this section shall be deposited to
the credit of the general revenue fund to be used for the rail safety program.
(i)
This subsection controls during the period beginning on
the effective date of this section and ending on May 10, 2004. The definition
of "gross ton miles" in subsection (c) of this section applies to this section.
(1)
This paragraph applies to each railroad operating within
this state that is required to report its gross ton miles to the USSTB.
(A)
Each railroad shall report to the Commission, no later
than October 15, 2003, the railroad's gross ton miles for the calendar year
2002. The report shall be in writing, signed by a duly authorized officer
of the railroad, and shall be verified.
(B)
The Commission shall determine the annual fee of each railroad
operating in the state as follows:
(i)
each railroad's gross ton miles for calendar year 2002
will be divided by the total gross ton miles reported by all railroads under
this paragraph for calendar year 2002; and
(ii)
the result will be multiplied by 95% of the amount estimated
by the Commission to be necessary to recover the costs of administering the
Commission's rail safety program for the state fiscal year that begins on
September 1, 2003.
(C)
The Commission shall, no later than November 1, 2003, notify
each railroad of the amount of the railroad's annual fee that is due and payable.
(D)
Each railroad shall, no later than December 31, 2003, pay
the fee to the Commission as provided in subsection (f) of this section, except
that the Commission shall consider the payment to be timely made if it is
received by the Commission on or before December 31, 2003, or is sent to the
Commission by first-class United States mail in an envelope properly addressed,
stamped, and postmarked on or before December 31, 2003, and received by the
Commission not more than 10 days later. A legible postmark affixed by the
United States Postal Service shall be prima facie evidence of the date of
mailing.
(2)
This paragraph applies to each railroad operating within
this state that is not required to report its gross ton miles to the USSTB.
(A)
Each railroad shall report to the Commission, no later
than February 1, 2004, the railroad's gross ton miles for calendar year 2002.
The report shall be in writing, signed by a duly authorized officer of the
operator, and shall be verified.
(B)
The Commission shall determine the annual fee of each such
railroad operating in the state as follows:
(i)
each railroad's gross ton miles for calendar year 2002
will be divided by the total gross ton miles reported by all railroads under
this paragraph for the calendar year 2002; and
(ii)
the result will be multiplied by 5% of the amount estimated
by the Commission to be necessary to recover the costs of administering the
Commission's rail safety program for the state fiscal year that begins on
September 1, 2003.
(C)
The Commission shall, no later than March 1, 2004, notify
each railroad of the amount of the railroad's annual fee that is due and payable.
(D)
Each railroad shall, no later than April 30, 2004, pay
the fee to the Commission as provided in subsection (f) of this section, except
that the Commission shall consider the payment to be timely made if it is
received by the Commission on or before April 30, 2004, or is sent to the
Commission by first-class United States mail in an envelope properly addressed,
stamped, and postmarked on or before April 30, 2004, and received by the Commission
not more than 10 days later. A legible postmark affixed by the United States
Postal Service shall be prima facie evidence of the date of mailing.
This agency hereby certifies that the proposal
has been reviewed by legal counsel and found to be within the agency's legal
authority to adopt.
Filed with the Office of
the Secretary of State on July 17, 2003.
TRD-200304332
Mary Ross McDonald
Deputy General Counsel
Railroad Commission of Texas
Earliest possible date of adoption: August 31, 2003
For further information, please call: (512) 475-1295
Chapter 25.
SUBSTANTIVE RULES APPLICABLE TO ELECTRIC SERVICE PROVIDERS
Subchapter Q. SYSTEM BENEFIT FUND
(8)
] Bay well--Any well under the
jurisdiction of the Commission for which the surface location is either:
(9)
] Land well--Any well subject
to Commission jurisdiction for which the surface location is not in or on
inland or coastal waters.
(10)
] Offshore well--Any well subject
to Commission jurisdiction for which the surface location is on state lands
in or on the Gulf of Mexico, that is not a bay well.
$100
] before the Commission may reissue
the certificate pursuant to §3.58 of this title (relating to Oil, Gas,
or Geothermal Resource Producer's Reports) (Statewide Rule 58).
$100
];
(4)
] for an operator of all other
service activities or facilities, [
including liquids pipelines,
]
$500;
(6)
] for an entity not currently
performing operations under the jurisdiction of the Commission, $300.
(2)
] A person filing an organization
report for the first time in order to perform any Commission-regulated operations
is a new organization and is not eligible to file the nonrefundable fee of
$1,000.
(3)
] A person who filed an initial
organization report less than 48 months prior to the current filing is not
eligible to file the nonrefundable fee of $1,000.
(4)
] A change in name, without
any other organizational change, of a person registered with the Commission
does not indicate a new organization. If the Commission determines that only
a name change has occurred, then a person operating under a new name may file
the nonrefundable fee of $1,000 if the person meets all other eligibility
requirements.
(5)
] An individual registered with
the Commission as a sole proprietor or who is a general partner of a partnership
that is registered with the Commission and who reorganizes his or her oil
and gas operations under a new legal entity or establishes a new and separate
entity will be considered to have satisfied the 48-month eligibility requirement
for filing the nonrefundable fee of $1,000.
(6)
] A surviving or new corporation
or other entity resulting from a merger under the Texas Business Corporation
Act, Part Five, may file the nonrefundable fee of $1,000 if:
(7)
] In any Commission enforcement
proceeding, if a person is determined not to be the responsible party for
a violation and is dismissed from the proceeding for that reason, that violation
shall not be considered in determining whether that person has an acceptable
record of compliance.
a hearing to determine
] that individual and blanket performance
bonds are not
available to that operator
[
obtainable
]
at reasonable prices. In order to support
an administrative
[
a
] determination that bonds are not obtainable
by a requesting
operator
at reasonable prices, the operator must
submit declination
letters to the Commission's P-5/Financial Assurance Department establishing
[
show
]:
no fewer than
] three companies
from a list maintained by the Commission that
[
which
] have
issued a bond filed with the Commission in the past 12 months will not issue
a bond to the requesting operator
or will only issue a bond to the operator
for an annual fee
in excess of 6%
[
less than 12%
]
of the face amount of the bond; and
or performs
other operations
] shall have a base amount of $25,000;
operating wells and
] performing other
operations
who is not an operator of wells and who is not a person whose
only activity is as a first purchaser, survey company, salt water hauler,
gas nominator, gas purchaser or well plugger choosing
[
, who chooses
] to cover all operations by a blanket performance bond, letter of credit
or cash deposit shall file a bond, letter of credit or cash deposit in
the amount of $25,000
[
an amount determined by the total number
of wells, but not less than $25,000. Only one blanket performance bond, letter
of credit or cash deposit is required for a person performing multiple operations,
unless the person is operating a commercial facility subject to the financial
security requirements of subsection (p) of this section
].
(4)
] Financial security amounts
are the minimum amounts required by this section to be filed. A person may
file a greater amount if desired.
(n)
] Well or lease transfer.
(o)
] Reimbursement liability. Filing
any form of financial security does not extinguish a person's liability for
reimbursement for the expenditure of state oilfield clean-up funds pursuant
to the Texas Natural Resources Code, §89.083 and §91.113.
(p)
] Financial security for commercial
facilities. The provisions of this subsection shall apply to the holder of
any permit for a commercial facility.
(B)
The owner or operator of a commercial
facility may reduce the amount of financial security required under this subsection
by $25,000 if the owner or operator holds only one commercial facility permit.
]
(C)
] The owner or operator of
one or
more [
than one
] commercial
facilities
[
facility
] may reduce the amount of financial security required under
this subsection for one such facility by
the amount, if any, it filed
as financial assurance under subsection (j)(3) of this section
[
$25,000
]. The full amount of financial security required under subparagraph
(A) of this paragraph shall be required for the remaining commercial facilities.
(D)
] Except for the facilities
specifically exempted under subparagraph
(D) of this paragraph
[
(E)
], a qualified professional engineer licensed by the State of Texas
shall prepare or supervise the preparation of a written estimate of the maximum
amount necessary to close the commercial facility as provided in subparagraph
(A) of this paragraph. The owner or operator of a commercial facility shall
submit the written estimate under seal of a qualified licensed professional
engineer to the Commission as required under paragraph (1) of this subsection.
(E)
] A facility permitted under §3.57
of this title (relating to Reclaiming Tank Bottoms, Other Hydrocarbon Wastes,
and Other Waste Materials) that does not utilize on-site waste storage or
disposal that requires a permit under §3.8 of this title (relating to
Water Protection) is exempt from subparagraph
(C)
[
(D)
]
of this paragraph.
(F)
] Notwithstanding the fact that
the maximum amount necessary to close the commercial facility as determined
under this paragraph is exclusive of plugging costs, the proceeds of financial
security filed under this subsection may be used by the Commission to pay
the costs of plugging any well or wells at the facility if the financial security
for plugging costs filed with the Commission is insufficient to pay for the
plugging of such well or wells.
Chapter 5.
RAIL DIVISION
Part 2.
PUBLIC UTILITY COMMISSION OF TEXAS