I wanted to take a few minutes to update you on the Railroad Commission's tremendous success with our budget and the Sunset process during the recent 77th Legislative Session. As always, I look forward to receiving your comments on the Commission and our activities.
One of the critical items in the Commission's budget request was technology advancement to provide our employees with the tools to accomplish their tasks. By securing funding to migrate our Oil and Gas data from our legacy mainframe system to an open systems environment, the Commission will be able to more quickly and efficiently access information and answer inquiries. The current mainframe system severely limits our employees' ability to use and access oil and gas databases to perform routine job functions. This project will take four years to complete and will include migration of the current mainframe computer system that consists of 18 major database systems with approximately 300 defined applications made up of 2.5 million lines of code.
The Sunset review process for the Railroad Commission officially started on August 16, 1999 when the Self Evaluation Report was submitted to the Sunset Commission. For 21 months the process continued with numerous meetings, field tours, submissions of information, public hearings, and visits with Sunset and legislative staff. From the very beginning, the Railroad Commission approached the process as an opportunity to demonstrate our great public service and proficiency in the oil and gas regulatory arena.
This was our opportunity to shine. And I'm happy to report that we were successful - the Commission was extended an additional 12 years, given additional responsibilities, and provided with increased funding.
ABANDONED OIL AND GAS WELLS
In the problem area of abandoned oil and gas wells, it was recognized that the Commission has been fighting an uphill battle. Legislative changes in 1991 had weakened the Commission's ability to require adequate financial assurance for oil & gas operators. That has been corrected. Beginning on September 1, 2001 the price of alternatives to bonding has been increased. While the "Good Guy" un-bonded option has been continued, the annual fee has been raised from $100 to $1000. While the percentage of bond option has been continued, the percentage has increased from 3% to 12-? %. In addition, a higher bonding requirement will be established for all bay and offshore wells. After a three-year transition period, both of the un-bonded options will be eliminated on September 1, 2004. At that time, all oil & gas operators must be bonded
Another problem with abandoned wells has been the practice of transferring shut-in or minimal producing wells to marginal operators, who may salvage the wells and then leave them for the state to plug and cleanup. That has been corrected. During the transition period to universal bonding, no well can be transferred to a new operator unless the new operator has a blanket bond or the individual wells are bonded.
OIL FIELD CLEAN UP FUND
While the above actions should substantially slow the growth of abandoned wells, a huge backlog of wells and sites still need to be plugged or cleaned up. This has also been addressed. Statute changes have been implemented to allow the Commission to place a lien on any abandoned well faster to avoid theft of salvageable equipment. More importantly, there was the recognition that the revenues to the Oil Field Cleanup Fund need to be increased. Under current fee structures, revenues to the fund would be about $12 million per year; with the newly authorized fees, revenues to the fund should approach $20 million per year, a 67% increase. The revenue increase comes from increased drilling and other permit fees, from an increase in the production fee on oil and gas, and a new fee that must be remitted with each P-5 renewal. These increased revenues will be used to accelerate our plugging and site remediation activities.
The Sunset bill authorizes a more extensive voluntary cleanup program. This includes giving the Commission authority to grant releases of liability to parties who enter into agreements to cleanup sites that are not their responsibility. Hopefully, this will encourage more sites to be cleaned-up without using state funds. Additionally, the statute now specifically recognizes that risk assessment standards will be applicable to determine the extent of a cleanup project. The Commission's development of these risk-based standards is progressing and should be proposed in rule form shortly.
The Commission's initiative to require integrity testing of pipelines was affirmed and strengthened through new statutes. The legislature gave the Commission authority to require public notice of major new pipeline construction projects. Hazardous liquid pipelines that are within 1000 feet of a school must prepare and present to the school board an emergency action plan for the school. Testing of natural gas piping in schools was extended to include private schools, and testing of piping in LP-Gas fueled schools, both private and public, will be instituted beginning with the 2002-03 school year.
In the gas utility area, the Commission's authority was significantly expanded to allow cities to cede their original jurisdiction over gas utility rates to the Commission. Utilities were granted the option to provide electronic billing via the Internet. Contested cases involving gas utility rates can now be heard at the State Office of Administrative Hearings, but the Commission retains final authority on the decision order.
The Sunset bill did not significantly affect most other divisions within the Commission. An attempt to require the Surface Mining Division to locate and identify all pits and quarries in the state without additional resources was successfully defeated. In recognition of their quality training products, AFRED is now permitted to enter into agreements to sell these products to other states.
In summary, both the budget request and Sunset review resulted in positive steps forward for the Commission. I am convinced that the Commission emerged as a stronger, more efficient, and better-recognized agency as a result of the 77th Legislative Session.