Railroad Commission of Texas
Encyclopedia
The Railroad Commission of Texas
(RRC) is the state agency that regulates the oil and gas industry, gas utilities, pipeline safety, safety in the liquefied petroleum gas industry, and surface coal and uranium mining (despite its name, it no longer regulates railroads).
Established by the Texas Legislature
in 1891, it is the state's oldest regulatory agency and began as part of the Efficiency Movement
of the Progressive Era
. From the 1930s to the 1960s it largely set world oil prices, but was displaced by OPEC (Organization of Petroleum Exporting Countries) after 1973. In 1984 the federal government took over transportation regulation for railroads, trucking and buses, but the Railroad Commission kept its name. With an annual budget of $79 million it now focuses entirely on oil, gas, mining, propane
, and pipelines, setting allocations for production each month.
Senator John H. Reagan
(1818-1905), the first head of the TRC (1891-1903), had been the most outspoken advocate in Congress of bills to regulate railroads in the 1880s. He feared the corruption caused by railroad monopolies and considered their control a moral challenge. His advocacy of legislation was based on an emotional response to real and imaginary evils. However as chairman of the TRC, he changed his views when he became acquainted with the realities of the complex forces affecting railroad management. Reagan turned to the Efficiency Movement
for ideas, establishing a pattern of regulatory practice that TRC used for decades. He believed that the agency should pursue two main goals: to protect consumers from unfair railway practices and excessive rates, and to support the state's overall economic growth. To find the optimal rates that met these goals he focused the TRC on the collection of data, direct negotiation with railway executives, and compromises with the parties involved. The agency did not have the legal authority to set rates, nor did it have the resources to spend much of its time in court battles. The carrot was far more important than the stick. Freight rates continued to decline dramatically. In 1891, a typical rate was 1.403 cents per ton mile. By 1907 the rate was 1.039 cents – a decline of 25%. However the railroads did not have rates high enough for them to upgrade their equipment and lower costs in the face of competition from pipelines, cars and trucks, and the Texas railway system began a slow decline.
.
A crisis for the petroleum industry was created by the East Texas oil boom of the 1930s
, as prices plunged to 25 cents a barrel. The traditional TRC policy of negotiating compromises failed; the governor was forced to call in the state militia to. Texas oilmen decided they preferred state to federal regulation, and wanted the TRC to give out quotas so that every producer would get higher prices and profits. Pure Oil Company opposed the first statewide oil prorationing order, which was issued by the TRC in August 1930. The order, which was intended to conserve oil resources by limiting the number of barrels drilled per day, was seen by small producers like Pure as a conspiracy between government and major companies to drive them out of business and foster monopoly in the oil industry.
Ernest O. Thompson
(1892-1966), head of the TRC from 1932 to 1965, took charge of the agency and indeed the oil industry by appealing to a mythic ideal of Texas's role in the global oil order--the civil religion of Texas oil. He cajoled, harangued, and browbeat recalcitrant producers into compliance with the TRC's prorationing orders. The New Deal
allowed the TRC to set national oil policy. As late as the 1950s the TRC controlled over 40% of United States crude production and approximately half of estimated national proved reserves. It served as a model in the creation of OPEC
.
Within the oil and gas industry, it took into account production in other states, in effect bringing total available supply, (including imports, which were small) within the principle of prorationing to market demand. Allowable oilfield production was calculated as follows: estimated market demand, minus uncontrolled additions to supply, gave the Texas total; this was then prorated among fields and wells in a manner calculated to preserve equity among producers, and to prevent any well from producing beyond its Maximum Efficient Rate (MER). Scheduled allowables are expressed in numbers of calendar days of permitted production per month at MER.
and Commissioners David J. Porter
and Barry Smitherman. All three members are Republican
s. There is currently one vacancy resulting from Michael L. Williams
's resignation from the commission in March 2011 until Governor Rick Perry appointed Smitherman to Williams' seat in July 2011.
Effective October 1, 2005, as a result of House Bill 2702 the rail oversight functions of the Railroad Commission were transferred to the Texas Department of Transportation
. The traditional name of the Commission was not changed despite the loss of its titular regulatory duties.
, also known as Houston E. & W. Ry. Co. v. United States, 234 U.S. 342 (1914) arose from the Railroad Commission's setting railroad freight rates unequally. Because of the low intrastate rates, shippers in eastern Texas tended to ship their wares to Dallas (in Texas), rather than to Shreveport, Louisiana
, despite that Shreveport was considerably closer to much of eastern Texas. The Railroad Commission's (and the railroad's) position was that only the state could regulate commerce within a state, and that the federal government had no power so to do. The Supreme Court ruled that the federal government's ability to regulate interstate commerce
necessarily included the ability to regulate intrastate "operations in all matters having a close and substantial relation to interstate traffic" and to ensure that "interstate commerce may be conducted upon fair terms".
The Railroad Commission has also figured prominently in two major U.S. Supreme Court cases
on the doctrine of abstention
:
.
Texas
Texas is the second largest U.S. state by both area and population, and the largest state by area in the contiguous United States.The name, based on the Caddo word "Tejas" meaning "friends" or "allies", was applied by the Spanish to the Caddo themselves and to the region of their settlement in...
(RRC) is the state agency that regulates the oil and gas industry, gas utilities, pipeline safety, safety in the liquefied petroleum gas industry, and surface coal and uranium mining (despite its name, it no longer regulates railroads).
Established by the Texas Legislature
Texas Legislature
The Legislature of the state of Texas is the state legislature of the U.S. state of Texas. The legislature is a bicameral body composed of a 31-member Senate and a 150-member House of Representatives. The Legislature meets at the Capitol in Austin...
in 1891, it is the state's oldest regulatory agency and began as part of the Efficiency Movement
Efficiency Movement
The Efficiency Movement was a major movement in the United States, Britain and other industrial nations in the early 20th century that sought to identify and eliminate waste in all areas of the economy and society, and to develop and implement best practices. The concept covered mechanical,...
of the Progressive Era
Progressive Era
The Progressive Era in the United States was a period of social activism and political reform that flourished from the 1890s to the 1920s. One main goal of the Progressive movement was purification of government, as Progressives tried to eliminate corruption by exposing and undercutting political...
. From the 1930s to the 1960s it largely set world oil prices, but was displaced by OPEC (Organization of Petroleum Exporting Countries) after 1973. In 1984 the federal government took over transportation regulation for railroads, trucking and buses, but the Railroad Commission kept its name. With an annual budget of $79 million it now focuses entirely on oil, gas, mining, propane
Propane
Propane is a three-carbon alkane with the molecular formula , normally a gas, but compressible to a transportable liquid. A by-product of natural gas processing and petroleum refining, it is commonly used as a fuel for engines, oxy-gas torches, barbecues, portable stoves, and residential central...
, and pipelines, setting allocations for production each month.
Origins
Attempts to establish a railroad commission in Texas began in 1876. After five legislative failures, an amendment to the state constitution providing for a railroad commission was submitted to voters in 1890. The amendment's ratification and the 1890 election of Governor James S. Hogg, a liberal Democrat, permitted the legislature in 1891 to create the Railroad Commission, giving it jurisdiction over operations of railroads, terminals, wharves, and express companies. It could set rates, issue rules on how to classify freight, require adequate railroad reports, and prohibit and punish discrimination and extortion by corporations. George Clark, running as an independent "Jeffersonian Democratic" candidate for governor in 1892, denounced the TRC as, "Wrong in principle, undemocratic, and unrepublican. Commissions do no good. They do harm. Their only function is to harass. I regard it as essentially foolish and essentially vicious." Clark lost the 1892 election to Hogg but a federal judge ruled the TRC illegal; the judge in turn was overruled by the U.S. Supreme Court. The governor appointed the first members but in 1894 it became elective, with three commissioners serving six-year, overlapping terms. The TRC did not have jurisdiction over interstate rates, but Texas was so large that the in-state traffic it regulated was of dominant importance.Senator John H. Reagan
John Henninger Reagan
John Henninger Reagan , was a leading 19th century American politician from the U.S. state of Texas. A Democrat, Reagan resigned from the U.S. House of Representatives when Texas seceded from the Union and joined the Confederate States of America. He served in the cabinet of Jefferson Davis as...
(1818-1905), the first head of the TRC (1891-1903), had been the most outspoken advocate in Congress of bills to regulate railroads in the 1880s. He feared the corruption caused by railroad monopolies and considered their control a moral challenge. His advocacy of legislation was based on an emotional response to real and imaginary evils. However as chairman of the TRC, he changed his views when he became acquainted with the realities of the complex forces affecting railroad management. Reagan turned to the Efficiency Movement
Efficiency Movement
The Efficiency Movement was a major movement in the United States, Britain and other industrial nations in the early 20th century that sought to identify and eliminate waste in all areas of the economy and society, and to develop and implement best practices. The concept covered mechanical,...
for ideas, establishing a pattern of regulatory practice that TRC used for decades. He believed that the agency should pursue two main goals: to protect consumers from unfair railway practices and excessive rates, and to support the state's overall economic growth. To find the optimal rates that met these goals he focused the TRC on the collection of data, direct negotiation with railway executives, and compromises with the parties involved. The agency did not have the legal authority to set rates, nor did it have the resources to spend much of its time in court battles. The carrot was far more important than the stick. Freight rates continued to decline dramatically. In 1891, a typical rate was 1.403 cents per ton mile. By 1907 the rate was 1.039 cents – a decline of 25%. However the railroads did not have rates high enough for them to upgrade their equipment and lower costs in the face of competition from pipelines, cars and trucks, and the Texas railway system began a slow decline.
Segregation
From the 1890s through the 1960s, the Texas Railroad Commission found it difficult to enforce fully Jim Crow segregation legislation. Because of the expense involved, Texas railroads often allowed wealthier Blacks to mix with whites, rather than provide separate cars, dining facilities, and even depots. In addition, West Texas authorities often refused to enforce Jim Crow laws because few African Americans resided there. In the 1940's, the railroad commission's enforcement of segregation laws began collapsing further, in part because of the great number of African American soldiers that were transported during World War II. The trains were integrated in the early 1960s.Expansion to oil
The agency's reach expanded as it took over responsibility for regulating oil pipelines (in 1917), oil and gas production (1919), natural gas delivery systems (1920), bus lines (1927), and trucking (1929). It grew from 12 employees in 1916 to 69 in 1930 and 566 in 1939. It does not have jurisdiction over investor owned utility companies; that falls under the jurisdiction of the Public Utility Commission of TexasPublic Utility Commission of Texas
The ' is a state agency that regulates the state’s electric and telecommunication utilities, implements respective legislation, and offers customer assistance in resolving consumer complaints....
.
A crisis for the petroleum industry was created by the East Texas oil boom of the 1930s
East Texas oil field
The East Texas Oil Field is a large oil and gas field in east Texas. Covering and parts of five counties, and having 30,340 historic and active oil wells, it is the largest oil field in the United States outside of Alaska, both in extent and in total volume of oil recovered since its discovery in...
, as prices plunged to 25 cents a barrel. The traditional TRC policy of negotiating compromises failed; the governor was forced to call in the state militia to. Texas oilmen decided they preferred state to federal regulation, and wanted the TRC to give out quotas so that every producer would get higher prices and profits. Pure Oil Company opposed the first statewide oil prorationing order, which was issued by the TRC in August 1930. The order, which was intended to conserve oil resources by limiting the number of barrels drilled per day, was seen by small producers like Pure as a conspiracy between government and major companies to drive them out of business and foster monopoly in the oil industry.
Ernest O. Thompson
Ernest O. Thompson
Ernest Othmer Thompson was a general in the United States Army during World War I, a mayor of Amarillo, Texas, an attorney, a businessman , and a 32-year member of the Texas Railroad Commission. He was recognized as a world authority on petroleum and natural gas production and conservation...
(1892-1966), head of the TRC from 1932 to 1965, took charge of the agency and indeed the oil industry by appealing to a mythic ideal of Texas's role in the global oil order--the civil religion of Texas oil. He cajoled, harangued, and browbeat recalcitrant producers into compliance with the TRC's prorationing orders. The New Deal
New Deal
The New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call...
allowed the TRC to set national oil policy. As late as the 1950s the TRC controlled over 40% of United States crude production and approximately half of estimated national proved reserves. It served as a model in the creation of OPEC
OPEC
OPEC is an intergovernmental organization of twelve developing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings...
.
Operations
Regulation was a practical rather than ideological affair. The TRC typically worked with the regulated industries to improve operations, share best practices, and address consumer complaints. Radical activities like rate setting to favor shippers or producers or consumers, and heated court battles, were the exception rather than the rule.Within the oil and gas industry, it took into account production in other states, in effect bringing total available supply, (including imports, which were small) within the principle of prorationing to market demand. Allowable oilfield production was calculated as follows: estimated market demand, minus uncontrolled additions to supply, gave the Texas total; this was then prorated among fields and wells in a manner calculated to preserve equity among producers, and to prevent any well from producing beyond its Maximum Efficient Rate (MER). Scheduled allowables are expressed in numbers of calendar days of permitted production per month at MER.
Recent history
The three-member commission was initially appointed by the governor, but an amendment to the state's constitution in 1894 established the commissioners as elected officials serving overlapping six-year terms. No specific seat is designated as Chairman; the Commissioners choose who among them will serve as Chairman. As of June 2011, the commission’s members are Chairman Elizabeth Ames JonesElizabeth Ames Jones
Elizabeth Ames Jones is one of the three members of the elected Texas Railroad Commission, a regulatory body that oversees the oil and natural gas industries in Texas — as opposed to railroads, as its name suggests...
and Commissioners David J. Porter
David J. Porter
David Jerome Porter , a Certified Public Accountant, is a member of the Texas Railroad Commission. Formerly in a private CPA practice in Midland in Midland County, Porter has since relocated to Giddings in Lee County, Texas.-Background:...
and Barry Smitherman. All three members are Republican
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...
s. There is currently one vacancy resulting from Michael L. Williams
Michael L. Williams
Michael Lawrence Williams is a former member of the elected Texas Railroad Commission, a regulatory body over, not railroads, but the oil and natural gas industries. Williams is the first African American to hold a statewide elected executive office in Texas history. He was appointed to the...
's resignation from the commission in March 2011 until Governor Rick Perry appointed Smitherman to Williams' seat in July 2011.
Effective October 1, 2005, as a result of House Bill 2702 the rail oversight functions of the Railroad Commission were transferred to the Texas Department of Transportation
Texas Department of Transportation
The Texas Department of Transportation is a governmental agency in the U.S. state of Texas. Its stated mission is to "work cooperatively to provide safe, effective and efficient movement of people and goods" throughout the state...
. The traditional name of the Commission was not changed despite the loss of its titular regulatory duties.
Court cases involving the Commission
The Shreveport Rate CaseShreveport Rate Case
Houston E. & W. T. Ry. Co. v. United States, 234 U.S. 342 , also known as Shreveport Rate Case, was a decision of the United States Supreme Court expanding the power of the Commerce Clause of the Constitution of the United States...
, also known as Houston E. & W. Ry. Co. v. United States, 234 U.S. 342 (1914) arose from the Railroad Commission's setting railroad freight rates unequally. Because of the low intrastate rates, shippers in eastern Texas tended to ship their wares to Dallas (in Texas), rather than to Shreveport, Louisiana
Shreveport, Louisiana
Shreveport is the third largest city in Louisiana. It is the principal city of the fourth largest metropolitan area in the state of Louisiana and is the 109th-largest city in the United States....
, despite that Shreveport was considerably closer to much of eastern Texas. The Railroad Commission's (and the railroad's) position was that only the state could regulate commerce within a state, and that the federal government had no power so to do. The Supreme Court ruled that the federal government's ability to regulate interstate commerce
Commerce Clause
The Commerce Clause is an enumerated power listed in the United States Constitution . The clause states that the United States Congress shall have power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." Courts and commentators have tended to...
necessarily included the ability to regulate intrastate "operations in all matters having a close and substantial relation to interstate traffic" and to ensure that "interstate commerce may be conducted upon fair terms".
The Railroad Commission has also figured prominently in two major U.S. Supreme Court cases
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
on the doctrine of abstention
Abstention doctrine
An abstention doctrine is any of several doctrines that a court of law in the United States of America might apply to refuse to hear a case, when hearing the case would potentially intrude upon the powers of another court...
:
- Railroad Commission v. Pullman Co.Railroad Commission v. Pullman Co.Railroad Commission v. Pullman Co., 312 U.S. 496 , was a case in which the United States Supreme Court determined that it was appropriate for United States federal courts to abstain from hearing a case in order to allow state courts to decide substantial Constitutional issues that touch upon...
, a 1941 case in which the U.S. Supreme Court ruled that it was appropriate for federal courts to abstain from hearing a case to allow state courts to decide substantial constitutional issues that touch upon sensitive areas of state social policy. - Burford v. Sun Oil Co.Burford v. Sun Oil Co.Burford v. Sun Oil Co., 319 U.S. 315 was a United States Supreme Court case in which the Court created a new doctrine of abstention.-Facts:...
, a 1943 case in which the U.S. Supreme Court ruled that a federal court sitting in diversity jurisdiction may abstain from hearing the case where the state courts likely have greater expertise in a particularly complex and unclear area of state law which is of special significance to the state, where there is comprehensive state administrative/regulatory procedure, and where the federal issues cannot be decided without delving into state law.
Offices
The agency is headquartered in the William B. Travis State Office Building at 1701 North Congress Avenue in AustinAustin, Texas
Austin is the capital city of the U.S. state of :Texas and the seat of Travis County. Located in Central Texas on the eastern edge of the American Southwest, it is the fourth-largest city in Texas and the 14th most populous city in the United States. It was the third-fastest-growing large city in...
.
See also
- Oil and gas law in the United StatesOil and gas law in the United StatesOil and gas law in the United States is the branch of law that pertains to the acquisition and ownership rights in oil and gas both under the soil before discovery and after its capture, and adjudication regarding those rights.- Overview :...
- History of TexasHistory of TexasEuropean conquistadors first arrived in the region now known as Texas in 1519, finding the region populated by various Native American tribes...
External links
- Railroad Commission of Texas home page
- "Hazardous Business: Industry, Regulation, and the Texas Railroad Commission" from Texas State Library and Archives Commission
- Conversion of EBCDIC files