From Community to Commerce: Understanding HB 40

Yesterday, the Texas legislature effectively killed Denton’s fracking ban. Rather than see our political victory in November compounded by a victory in the courts, the industry used their influence in Austin to make an end run. They knew the ban was legal. So they changed the law. That’s the kind of thing you can do when you spend $21.3 million to buy politicians.

But HB 40 is not just a ban on fracking bans. It is far more nefarious and far-reaching than that. It puts dozens of local ordinances regulating oil and gas activity on the chopping block, exposing thousands of people to the harms of a uniquely invasive and secretive industry.

In an epic show of hypocrisy, politicians who sing the virtues of local control just sold out communities across Texas. HB 40 is paternalism through and through – it doesn’t matter what the people say, Big Austin knows best and will force fracking on us.

The Real Intent of HB 40

Through hours of hearings, Drew Darby (the author of HB 40) and other legislators honed a message about the purpose of HB 40: We need regulatory certainty! Oh, how horribly the industry would suffer if it were subjected to a patchwork quilt of local laws!

This might sound reasonable, until you consider that there are over 300 local ordinances already regulating oil and gas in Texas. Indeed, Texas communities have had ordinances in place for decades. Surely, this must have hampered productivity! But, to the contrary, Texas has been leading the U.S. in oil and gas production for a long time.

So, what’s the problem that HB 40 was supposed to fix?

Hold on to that question.

State Representative Myra Crownover said another intent of HB 40 was to actually “strengthen the ability of cities to enact common sense regulation of oil and gas activities.” For the first time, she continued, cities will have “specific authorization in state law to enact local ordinances.” Never before has there been statutory recognition of local ordinances.

This too might sound reasonable, until you find out that decades of common law court rulings have routinely upheld the constitutionality of municipal ordinances. There is no need for statutory recognition when the courts have provided ample grounds already for city authority. Of course, Representative Crownover doesn’t really care about local control – if she did, she would have supported some of the amendments for HB 40 instead of shooting them all down.

So what’s the real intent of HB 40?

Money.

Ok, if that’s too simplistic, here’s a more sophisticated answer. Darby, Crownover, and all the rest know perfectly well what HB 40 really does: it puts the industry in charge of determining which local laws are valid and which are invalid. HB 40 “expressly preempts” municipal ordinances (essentially renders them null and void) unless they can pass four tests. Any local ordinance:

  1. Must apply only to surface activity,
  2. Must be “commercially reasonable,”
  3. Must not effectively prevent an oil and gas operation from occurring, and
  4. Must not be pre-empted by another state or federal law.

The kicker, of course, is number 2. Yes, cities can still regulate this or that aspect of oil and gas production…as long as it is deemed reasonable by the industry’s standards. So, while Crownover tries to distract us with a meaningless first (statutory recognition) the important first goes unspoken: For the first time, local ordinances will be judged solely by the extent to which they might interfere with the industry.

In one fell swoop, HB 40 will erase a tradition of eighty years. Since 1935, Texas courts have applied a different kind of reasonableness standard to local ordinances: not “commercially reasonable,” but what we might call “community reasonable.” In case after case through the years, from Houston to Galveston to Fort Worth, the courts have ruled that local governments first and foremost are obligated to protect the health, safety, and welfare of their citizens. Of course, they cannot enforce laws that are “arbitrary and unreasonable.” But, the courts have used a highly deferential standard of reasonableness, that is, a standard that defers to the judgment of a local community (see section III B of this law review article).

That’s the “problem” that HB 40 is really designed to fix: too much deference to local communities getting in the way of profit maximization.

Representative Crownover said that defending Denton’s fracking ban in the courts “would almost certainly have been a losing battle.” No one familiar with case law history of municipal oil and gas regulations in Texas could honestly say that. Cities have beat the industry damn near every time in the courts. Why else do you think the industry worked so hard to find a legislative “fix” that would obviate the need to go through the courts?

The community reasonable test begins with the presumption that a local ordinance is reasonable and sets a high bar for the industry to make a case that it goes too far. That was the law of the land. That is the standard that Governor Abbott will erase soon with a stroke of his pen. The commercially reasonable test flips the script. It begins, not with health and safety, but with the bottom line. The test is simply: Can the industry make the profits it desires?

Like we said. Money.

The Implications of HB 40

We do not yet know what the fall out will be. But we do know it will be grim. And we know that the legislature just used its oil and gas money and its bully pulpit in Austin to overturn a grassroots democratic decision in Denton. That’s not going to sit well. We also know that Vantage Energy is even now preparing to hydraulically fracture as many as nine wells in the city limits of Denton off of 380 and Nail Road (see map for a close up look and a bigger picture to get a sense of the location). We can’t say for sure, but it’s a good guess that the people of Denton won’t just let that happen without at least bearing some sort of witness there to the demise of democracy.next frack

We also know that Devon Energy testified recently in Denton’s City Hall that they have 10,000 acres of minerals leased in the city and would like to put one well on every 20 acres. That’s 500 gas wells. They didn’t like the City’s plans for colocation of wells – a smart new regulatory regime that had cost us $700,000 to craft. It’s probably a safe bet that those rules won’t pass the new test. All that money out the window as we watch Devon get its way thanks to their friends in Austin.

Of course, this doesn’t just impact Denton. HB 40 subjects all citizens of Texas to a free for all. Things are quiet now with low oil and gas prices but just you wait. In short order, there is going to be a massive blitz of natural gas exports to Asia and Europe. Gas prices are expected to rise in the next twenty years from current levels of $2.50 per million BTU to nearly $8.00 per million BTU.

It’ll be another industrial boom even as more Texas land is gobbled up by fast-growing cities. And now that HB 40 has established a new standard, the industry will be able to scrape every last molecule of methane and drop of oil from under our neighborhoods. After all, anything less would be unreasonable.