Regulatory Reform at the Texas Railroad Commission (Part II in a series)

“Retribution-and-restitution regulations should be favored over command-and-control. Wherever possible, regulated entities should have the flexibility and authority to find ways to prevent bad outcomes, while still assuring liability for bad outcomes or behaviors.”

Regulations that are overly complex, outdated, and obscure typically favor large well-connected entities over smaller entities and the general public. Regulations that have been on the books for decades are obvious targets to be modernized, clarified, and in some cases eliminated. Texas Railroad Commission regulations are certainly in such a state. The Commission has been promulgating oil and gas regulations for a century now. A good house cleaning is certainly in order.

Regulatory reform should start by establishing a culture of review and regular procedures for ensuring continuous re-evaluation. A sunset review policy could target something like 10% of all regulations per year, starting with the oldest ones first. Such a policy would not preclude changing regulations when serious needs arise. It would simply require that all regulations undergo a regular process of re-consideration.

What exactly should reconsideration entail? What should be the criteria for changing or eliminating regulations that are already on the books? Here are a few guidelines to consider.

• Every regulation should have a clear objective in terms of public good. That objective should be clearly stated in publicly available documentation.
• The rationale for efficacy behind every regulation should be clearly and publicly stated. Merely requiring some action without such an explanation is not sufficient. Clear and simple explanations of what each regulation is expected to accomplish should replace bureaucratic and legalistic verbiage.
• Dispersed public goods should be properly weighed against concentrated adverse effects on regulated entities. It is far too easy to make “greater good” arguments without considering adverse effects on individual liberties, property, and free commerce.
• Where feasible, industry standards should substitute for written regulations. Building codes fall into this category. Industry associations such as the American Petroleum Institute already promulgate best practices for their industry. If industry best practices are insufficient, documentation as to where they are deficient provides both a rationale for regulations as well as input for industry associations to consider.
• Retribution-and-restitution regulations should be favored over command-and-control. Wherever possible, regulated entities should have the flexibility and authority to find ways to prevent bad outcomes, while still assuring liability for bad outcomes or behaviors.

Regulatory decision-making should not only be transparent, it also should be devolved. To adequately deal with the complexities of our modern world, we need to let go of our illusion of control. And then let go of our fear of individual and local power.

Here are a few suggestions for doing so.

• Diminish the power imbalances that currently exist between large commercial entities and individuals. For example, the dominance of mineral rights over surface rights, along with eminent domain authority given to common carrier pipelines, create power imbalances that all too often leave individual land and home owners powerless to protect their property.
• Where there are principally local effects, allow principally local control. This issue will be addressed in more detail in the section below on local fracking bans. There should always be very compelling reasons for higher levels of government to preempt local control. Such reasons would certainly include protection of personal liberties and property rights. Anything beyond those reasons should be considered with great suspicion.
• When in doubt, move authority downward. Where some governmental action is deemed necessary, action at local levels should be preferred. The more local the government, the more responsive it is to voter action. In Texas, local initiatives and referendums are key ways for voters to influence their local governments. These procedures are not available at the state level.

It goes without saying that devolution should not apply to our fundamental liberties and property rights. The US Constitution’s Bill of Rights enumerates many basic rights that neither lower levels of government nor individuals should be allowed to diminish. Even though we consider certain rights to be inviolate, exactly what those basic rights are should continue to be the subject of intense political debate.

This post is taken from chapter 4 of my energy primer, Oil & Gas and the Texas Railroad Commission: Lessons for Regulating a Free Society. Posts next week will review two particular areas involving the TRC: earthquakes related to wastewater injection associated with oil and gas drilling, and common-carrier pipelines that have eminent domain authority over private property. (Yesterday’s post was Fossil Fuels: Abundant, Chemically Stable, Energy-dense).