Texas Legislative Update, Episode 14: Tempers Heat Up as Time Grows Short

[Follow us on Twitter at @JasonModglin and @EnergyAbsurdity]

In Episode 14 of the Texas Legislative Update, David Blackmon and Texas Alliance of Energy Producers President Jason Modglin cover the energy-related events of the week ended April 28, 2023.

Topics Covered Include:

– Only 33 days remain in the 2023 Session

– Growing conflict between house, senate on taxes, education, grid, etc.

– Lt. Gov. Patrick says he can force a special session – how would that work?

– Will SB 6, SB 7 receive hearings in the House? Where has Gov. Abbott gone on this? David vents his frustrations about the specious arguments against SB 6 being advanced by power generators, renewables advocates.

– Any progress on CCUS legislation?

– What about the proposed re-frac incentive?

– SB 624 – Lois Kolkhorst bill mandating regulations governing the retirement of wind farms/solar arrays.

– Status of the GROW and STRONG bills, both of which would allocate a percentage of oil and gas severance tax revenues to help counties shore up infrastructure.

– Preview for next week.

End.

[Follow us on Twitter at @EnergyAbsurdity and @IPAAaccess]

IPAA is one of the industry’s oldest and most effective national trade associations, representing mainly the interests of small to mid-size independent producers.

Texas Legislative Update, Episode 14: Tempers Heat Up as Time Grows Short

David Blackmon [00:00:02] Hello. Welcome to the Texas Legislative Update I’m your host, David Blackmon, here with Jason Modglin the President of the Texas Alliance of Energy Producers. Jason, how are you doing today?

Jason Modglin [00:00:13] David, it’s good to be with you.

David Blackmon [00:00:15] Hey, man, it’s been a busy week in Austin, I imagine, and not just with the session, but with some pretty nasty weather down there in that part of the state. Did you all get hit fairly hard this week?

Jason Modglin [00:00:27] We were thankfully a little further south in Waco, but Waco really got hit very hard and very, very big sized hail and. Oh, man. Yeah, pretty nasty stuff.

David Blackmon [00:00:40] Did you see a video of the baseball size hail going in the pool and Hurford walking along Burford stair walk and long and behold, in the middle of that hailstorm? That was wild. Well, anyway, enough about that.

David Blackmon [00:00:54] Look, this is the week that ended. We’re recording on April 28th we’ve got 33 days left in the regular session and there is an awful lot of business that needs to get done in those 33 days. And so I guess, you know, before we started recording, you were talking about they’re working today on Friday and planning to maybe even work into the weekend next week, huh?

Jason Modglin [00:01:20] That’s right, yeah. So first full day calendar today they’ve been doing a couple of small items the past few Fridays, local bills and things of that nature. But but this is really the full first, full Friday with a very long calendar they’ll get out later this afternoon and then it’s anticipated next weekend they’ll work through Saturday, maybe even into Sunday but probably not.

Jason Modglin [00:01:52] And then deadline pretty quick approaching May 10th is the deadline for House bills to get past their second reading, which is kind of a gate. The bills have to get through they’ve got to be read three times in each chamber. And so second reading is a key checkpoint, if you will, for those bills to get passed. And so.

David Blackmon [00:02:20] That’s part of the bills that originate in the House, right, Or.

Jason Modglin [00:02:23] Bills that originate in the House. Yes. Good. Very good. Good clarification there and so that’s that’s quickly approaching. And the sounds of wailing and gnashing of teeth or house bills that are quickly seeing that date approaching.

David Blackmon [00:02:43] Well, you know, and that’s pretty common for a session of the Texas legislature. So, you know at all you know, every time, every session, it all gets kind of frantic around this point. And but then, you know, people have been involved in numerous sessions beforehand, realize that this is just kind of the way the process is set up.

David Blackmon [00:03:04] And so, you know, it helps to create in some respects, it helps to create that kind of anxiety to kind of force things, the process to work. So just jus way things go, man. And I guess the big news this week, or at least some of the big news, was how this new sense of growing urgency is creating quite a lot of conflict, I think public kind of rhetorical matches between the speaker and lieutenant governor Patrick, with all these issues up in the air now but again, that’s not really unusual either, is it?

Jason Modglin [00:03:46] No, it’s not unusual there is a bit of a delay, a bottleneck, if you will, in one of the legislative agencies that supports both the House and Senate is called the Texas Legislative Council. And essentially they’re nonpartisan attorneys that help draft legislation.

Jason Modglin [00:04:08] And the role has really been expanded over the last several sessions to take on more of the duties that staff typically did a decade ago. Right. Bill analysis. Rights Background and purpose. Right. Some of the explanations for what the bill does.

Jason Modglin [00:04:31] They did this for a variety of reasons, wanting kind of an attorney to look at it so that it would meet some of the rules requirements but that tends to delay things. Legislative counsel has a bit of a review process. And so rather than, you know, outsourcing this work to young 21, 22 year old on your staff to to to write this now, it goes through a couple of different layers.

Jason Modglin [00:04:59] And so Lieutenant Governor Patrick pointed out in a tweet, which is how we’re getting a lot of our news these days, that the House had over 1000 bills that have been successfully voted out of their House committee but have still yet to be filed in the Calendars Committee.

Jason Modglin [00:05:22] And while the chairman certainly can exercise some prerogative and hold that committee report a little bit, that’s probably not the case for over a thousand bills. More likely, staff have requested certain things from legislative counsel and they’re simply not back yet that that bill analysis is not back yet or their committee substitute is not back yet.

Jason Modglin [00:05:51] And so that’s creating a real bottleneck and then there also seems to be some differences, if you will, between the House parliamentarian and the legislative counsel. And that’s resulted in a number of points of order being called on the House floor that have slowed down the process a little bit as well.

Jason Modglin [00:06:15] These differences in interpretation come up every couple of sessions, and so it’s only adding to some of the difficulty in moving house bills out of the way and taking up Senate bills. And so I think the lieutenant governor bore some frustration on that this week. And apparently, some senators have voiced that to him. So, you know.

David Blackmon [00:06:41] Well, you know, and he I mean, in voicing that frustration, he said a comment that created got a lot of attention. He said, you know, he doesn’t have the authority to call a special session to deal with some of these issues. Only the governor has the authority to call a special session. But he did point out and it’s a parliamentary procedure he’s used in the past, that he could force the governor to have to call a special session to talk about how that would work.

Jason Modglin [00:07:11] Yeah. So I think most recently it’s been as a result of sunset bills. I think we’ve talked about the Sunset on Public Utility Commission and the Texas Commission on Environmental Quality every so often those agencies have to be reauthorized.

Jason Modglin [00:07:29] And so a couple sessions ago there were some key agencies that needed to be reauthorized. They were not included in what’s called the safety net bill. And so the Senate opted to not take up those bills and essentially allow them to die at the end of the legislative session.

Jason Modglin [00:07:54] And that forced the governor to call a special session specifically for those items. You’re absolutely right that both presiding officers, either the speaker or the lieutenant governor can’t dictate what a special session takes up. But there are a couple of duties that the legislature has.

Jason Modglin [00:08:17] They have to pass a budget they’re the only body that can authorize funds out to to be taken from the Treasury, the governor or even what’s called the Legislative Budget Board can’t authorize that that expenditure into the next biennium so that has to occur prior to September one.

Jason Modglin [00:08:43] And then these Sunset Bill those agencies will start to wind down starting September one unless they are reauthorized so that the threat is not direct. I can’t direct you to put this on the special session call. Only the governor can call a special session. But by holding some of those items back, you potentially force a special session.

Jason Modglin [00:09:11] And, you know, it’s a bit of a high stakes chicken may remember that game. And so I want you to act on this item. I’m going to hold the budget or I’m going to hold a sunset bill in hopes that we do have a special session and you add that to the call.

Jason Modglin [00:09:36] And so, you know, hopefully, I think I think, you know, everyone is hopeful, particularly right now, that they’ll get some time away from the building and away from Austin, be back with their families. And so and certainly weigh in on the desire to be Patty right now is hopefully eroding quickly as people are looking out the window and deciding they want to be outside rather than to the Capitol.

David Blackmon [00:10:11] Well, hopefully, you know, it gets hot in Austin in July and August. So, yeah, you don’t want to be out there. They don’t have to be, you know, one of the one of lieutenant governor’s big issues, of course. And Governor Abbott said it was a big issue for him, too, in his inaugural speech, was fixing the grid and dealing with the remaining illnesses the grid suffers from, for lack of a better way to put it.

David Blackmon [00:10:39] Two bills that passed through the Senate, they were part of a lieutenant governor’s emergency agenda were Senate Bill 6, Senate Bill 7 that are designed to deal with a shortage of thermal capacity on the grid, dispatchable thermal capacity, and some other reforms to how the market works to make it send the right market signals to build this capacity.

David Blackmon [00:11:06] And they were passed April 5th out of the Senate, sent to the House, took two weeks to get them referred to the State Affairs Committee. And I think one of the lieutenant governor’s frustrations is that there they languish without a scheduled hearing and no real indication that they’ll get a hearing. And I just wonder what you might be hearing around the Capitol?

Jason Modglin [00:11:34] Yeah. So what they did take up this past week was the PCM guardrails so that seems like that’s kind of the item of the package of bills to to strengthen the grid. The item that really got the most support out of that committee in the House. There’s certainly some very important things on Senate Bill seven that would help strengthen the grid.

Jason Modglin [00:12:06] But either the state-owned assets or the state-supported assets the criticism of that is really, I think, found a home in the house. And so hopefully, you know, there’s continued dialog on on areas to improve.

Jason Modglin [00:12:27] The House, I think has done a little bit more on on the transmission side of things just yesterday, they passed the grid resiliency bill. Part of the challenges that we have with the poles and wires or that they blow over that maybe.

Jason Modglin [00:12:48] And so the extent to which the legislature can express support for investing in more resilient lines, that might save us when we have wind events and that might be able to help us a little more on other types of events, whether it’s cold or whether it’s flooding down the road. You know, hopefully those folks will get together and really move forward with a package.

Jason Modglin [00:13:23] I think the legislature has to act to put in some guardrails on the PCM. And so both sides have to kind of work together on that front and I think that there’s support on both sides for that. It’s what else do you potentially add on to that or complement that to make sure that we’re continuing to attract investment to the state?

Jason Modglin [00:13:48] You’ve had a number of generators express that, you know, they will only build if the PCM goes into effect. And so that’s I think a couple of months ago when those announcements were coming out, it was it was nice. Okay, here’s the investment that potentially is coming to the state when the PCM is announced.

Jason Modglin [00:14:11] Now it’s being taken more as a threat. If, you know, if PCM doesn’t go into effect, we’re going to pull out we’re not going to invest in this type of investment in new generation. And so that’s.

David Blackmon [00:14:26] To be clear. To be clear, that threat is is coming from generators who have who have for more than a decade now, really pretty much failed to build thermal capacity. Period.

Jason Modglin [00:14:40] Right. Right. There’s been some.

David Blackmon [00:14:41] Replace. How much of a threat is that really? I mean, you know, I mean, it’s a threat to just go on about more of the same.

Jason Modglin [00:14:50] Right.

David Blackmon [00:14:50] Yeah. More of the same. So I. I got to tell you, man, I get very frustrated hearing that argument from power generators in this state. And, you know, the PCM is fine it’s been adopted by the PUC. It was recommended by ERCOT. I know that. I understand that.

David Blackmon [00:15:12] But I don’t think anybody in Austin believes that that PCM is going to result in the building of adequate new capacity to to deal with the problem that remains on the grid.

Jason Modglin [00:15:26] Right.

David Blackmon [00:15:26] . And it’s just really, really frustrating to me that members of the State Affairs Committee, I’m just going to be blunt about it, are going to accept that argument and do nothing again, nothing real to resolve an issue that everybody acknowledges is a problem for the grid and try to pass it off on this thing that’s not going to get the job done. So anyway, that’s my rant for the day.

Jason Modglin [00:15:55] And I’ll.

David Blackmon [00:15:56] Leave it there. But anyway,.

Jason Modglin [00:15:59] Understandable.

David Blackmon [00:16:00] Not necessarily endorsed by Jason Modglin

Jason Modglin [00:16:02] That’s right. Thank you very much It’s good to have you out there. And thank you for that. No, I hear you. And you hope that, you know, at the end of session, we’ll be able to point to some concrete things that are improving the grid and not, as I’ve heard a number of times this session, that the structure continues to incentivize large customers to get out of the grid, to come up with their own solutions.

Jason Modglin [00:16:39] And while that might seem nice and certainly the in the environmental community endorses those types of measures, remove yourself from the grid, create batteries or solar or, you know, just go extreme on your conservation efforts.

Jason Modglin [00:16:58] That doesn’t benefit, you know, the 30 million Texans. We want to make sure we have warm homes and can go to our place of business and things of that nature that really aren’t invested in the day-to-day generation of electricity. And so to hear very good prominent industrial customers in our state say, well, we’ll go it alone, that doesn’t benefit the overall state. And so I hear you on 100 percent.

David Blackmon [00:17:35] That was a much more constructive way to put it. I appreciate.

Jason Modglin [00:17:38] It. Thank you.

David Blackmon [00:17:40] So let’s move on. Let’s move on to carbon capture and utilization and storage. You know, we’ve talked several times about several bills that have been introduced that would clarify the poor space ownership and resolve some other issues, too, to kind of make Texas a more attractive environment to invest in those kinds of CCS projects. But I guess we didn’t have any real movement on any of that legislation past week, correct?

Jason Modglin [00:18:12] Yeah, not in the Senate. I think, again, can kind of be categorized in two different fashions. Senate had an omnibus bill that was filed in Senate Natural Resources. And it had a rough hearing. There were a number of landowner groups from the Forestry Association on down to the cattle Raisers and Farm Bureau and land and mineral owners. It really had some very strong objections to the legislation moving forward.

Jason Modglin [00:18:52] There was not a careful tweak this and maybe reorganize this section. We can get on board. I mean, it was a no. You got to start removing all sections of this bill to the point I mean, not heard the sponsor of the bill and he started listing off the committee substitute what was not in the bill. And I feel like he listed off everything that was in the bill is not made in the bill. And so I was struggling a bit with what’s still there.

Jason Modglin [00:19:27] The House has taken a little bit of a different approach in trying to pass some piecemeal items on liability, on tax incentives, on property appraisals as it relates to this type of emissions control and so those are moving to the Senate.

Jason Modglin [00:19:53] I think at the end of the day, there’ll be a few things there that the state will be able to point to and say we’re continuing to try to be a competitive place to attract this level of investment. I think our greatest gift, though, is large tracts of land, that being either the General Land office and the waters that we control off the coast or very large landowners in South Texas, like the King Ranch that have been able to come to the table with operators, come to the table with industrial customers that are trying to dispose of this CO2.

Jason Modglin [00:20:39] And put some pretty good projects together, that if they can get some regulatory certainty from EPA or if EPA will delegate that to the Railroad Commission. Right. These projects will be able to get up and go in a few short years.

Jason Modglin [00:21:00] But if we are needing to create big, large units of CO2 storage that have many different surface owners and lots of different potential legal liabilities, I think the legislature has basically said we’re not interested in intervening in that complexity just yet. Maybe that’s down the road. But for now, at least, the projects that are available today are going to be very large track landowners. And proximity or closeness to industrial CO2 that needs to be disposed of.

David Blackmon [00:21:50] And that’s the best model for a CCUS project. Anyway, you know, you need to be have that proximity to the emitters and the infrastructure to move the CO2, you know, or at least have it economic to build the infrastructure if it doesn’t exist.

David Blackmon [00:22:06] And you know, that’s why there’s been such a focus on areas like the Houston Ship Channel and the Golden Triangle and Corpus Christi and an offshore underground storage space that’s controlled by the Texas General Land Office. That’s been the big focus so far, these onshore projects.

David Blackmon [00:22:27] I think you’re right. Or, you know, without some clarifying legislation, it’s just going to have to be the big tract owners doing business, you know, in those you know, they have close proximity to the emitters and so it would be somewhat limited.

David Blackmon [00:22:43] But, you know, for the future, you’re going to have to clarify that to really expand it onshore. So anyway, it’s not something that’s do or die for the industry as a whole, and at least we’ve got that going for us.

Jason Modglin [00:22:59] That’s right.

David Blackmon [00:23:02] So we’ve talked in the past also about the bill that would have put in place a new incentive that would have incentivized second frac jobs going in and reentering horizontal shale wells and doing a second frac job on them. Has there been any project on that bill over the past week?

Jason Modglin [00:23:23] No. And unfortunately, that fiscal load has really stymied us.

David Blackmon [00:23:29] So, yeah, got to take back pretty considerably.

Jason Modglin [00:23:32] I can happily report, though, it did pass in North Dakota and so the Bakken, I think, will get some reinvestment over the next year and really start to try to get this to be proven out.

David Blackmon [00:23:51] Yeah,.

Jason Modglin [00:23:52] There’s quite a bit of R&D that will need to take place as part of this to make sure that those service companies can reenter those wells or run that lateral pretty considerably. Get get that perforation gun back down into those holes and re-stimulate them there’s not something off the shelf right now that can easily plug and play in. That’s part of the reason that that incentive needs to be put in place by the state to to attract that type of investment and prove it up.

Jason Modglin [00:24:32] But unfortunately, we got a fiscal analysis that makes an assumption that this is going to happen organically over the next two years and that the state would be at a loss for several tax dollars because this activity is going to happen naturally. And so.

David Blackmon [00:24:54] Right.

Jason Modglin [00:24:55] You know, on one hand, I’m excited if that proves out to be correct. I’d love to be wrong on this deal and see that level of investment in the state, particularly the amount of the production that the fiscal analysis projects a pretty solid increase in production. We had an independent analysis that came back into to several of the trades that are working on this bill. And they had a conservative half a million dollar, half a million barrels produced by re-stimulating just a small fraction of wells.

Jason Modglin [00:25:37] Because of the benefits brought it to adjacent wells and child wells that really would benefit from the same strata being we frac. So, you know, it it’s unfortunate. I think we’ve got one more kind of not even an ace. You know, we’re pretty low card that we’re playing here inside straight drawl or something, but we’re hoping that we can have some life on Monday that’s kind of our last chance out of House Ways and Means.

Jason Modglin [00:26:19] I think we’ll have some potentially some positive press, maybe some support from some of the railroad commissioners. But that being said, as we opened up with the clock is ticking and that 30 day time horizon and more closely that May 10th deadline to get off the House floor is really is coming quickly.

David Blackmon [00:26:45] Oh, well, gosh. Well, let’s let’s keep our fingers crossed for Monday we’re closing in on 30 minutes here already. Golly, time flies. What does next week look like? Any preview you have for us for next week?

Jason Modglin [00:26:59] So I think we talked last week about growing strong, being in House appropriations. They will be on the House floor on Monday. They seem kind of well together right now by the chamber. And hopefully, that’s the case where they’ll both get a hearing in Senate Finance if they can make it over there. Of course, grow is takes severance taxes generated by those counties and allows for those counties to apply to the state for a grant.

David Blackmon [00:27:33] These are counties with high oil, oil, and gas activity .

Jason Modglin [00:27:37] With grow is any amount of production. So any.

David Blackmon [00:27:41] Okay!

Jason Modglin [00:27:41] Oil and natural gas production, they can apply for a grant to shore up roads, hospitals, education, infrastructure, those sorts of things. Strong is a little bit different. It looks at the top 10 to 15% of counties and says that those counties can apply to the state for a grant for very similar purposes and also has some diversion, if you will, taking severance tax dollars, putting them back into the railroad Commission, putting them back in the Texas Commission on Environmental Quality.

Jason Modglin [00:28:16] So that has some appeal from appropriators as well and so we’ll see. I, I have every confidence the House will continue the practice and move both bills forward, and then we’ll see what the Senate wants to do, how they want to decide on this.

Jason Modglin [00:28:36] It would certainly be a great benefit to local communities if they could retain some amount of the service tax dollars generated in those communities. There’s no question they benefit from the property tax rolls and the added production in that area. The sales tax expanded in those areas. But but a portion of the severance tax dollars back to those communities would certainly be a nice shot in the arm.

David Blackmon [00:29:05] Sure would sure work and that’s you know, that’s always an issue that comes up any time you have a big oil and gas play in any location. Is it all the heavy truck traffic does impact the roads and other infrastructure. And so, yeah, I mean, that’s seemed like two really well-purposed bills. So hopefully they’ll continue to advance through the process with that unless you have anything else you want to add we can call this one good and then go on about our weekend.

Jason Modglin [00:29:36] That’s perfect.

David Blackmon [00:29:37] All right. Well, thank you, everyone, for joining us and we’ll we’ll talk to you again next week.