On the south side of town sit the tawny-brick offices of perhaps the most powerful state regulatory agency in America.

Under construction next door is the Petroleum Building, a convenient location for oil interests to do business with the agency.

The agency is the inadequately named Texas Railroad Commission, which regulates everything from trucks and rails to coal and oil, and that cozy proximity fittingly symbolizes what critics see as an all too frequent and much-too-close relationship between the regulators and the regulated in Texas.

Enter Jim Hightower, a squinty-eyed populist who ran Fred Harris' 1976 campaign for the Democratic presidential nomination and who for the past three years has been editor of the Texas Observer, a nationally known antiestablishment bimonthly.

He has decided that the best way to take on and change the railroad commission is to get the people of Texas to elect him to it. "Muckracking without politics" he says, "is frustrating."

"There comes a time," he said in a farewell Observer column, "when writing about the bastards isn't enough."

So the 36-year-old Hightower has gotten himself an office that says "Hightower Campaign" on the door, $75,000 in campaign commitments, a committee of prominent Texas liberals behind him and an extraordinary challenge in front of him; cracking a state agency whose cloistered clubbiness is almost as revered as the Almo.

"Its going to be a scene," he said.

The three-member commission regulates production of 30 percent of the nation's oil and 34 percent of its natural gas, and in its heyday its use of production restrictions to regulate prices set the pattern for the Organization of Petroleum Exporting Countries.

It regulates strip mining in a state that will soon be the nation's eighth biggest coal producer. It sets natural gas prices for all rural communities and many cities of the nation's third most populous state. And in a state that stretches 773 miles east to west and 801 miles north to south, it regulates rates and routes for 35 railroads and 1,946 bus and truck operators.

The commission was established in 1891 to protect the public from the railroads, but as it took on new responsibilities and the federal government increased its regulation of the railroads, the commission's railroad activities were diminished greatly. But still they call it the railroad commission, and critics say that minimizes public interest in it.

The Commissioners traditionally have been appointed by the governor between elections and then have faced voter approval as incumbents heavily financed by utilities, oil and gas producers and the trucking industry.

The commission "has the power to really make a difference," Hightower said. "The railroad commission punches buttons and pulls levers. It's not a debating society. And it hurts people."

Hightower feels that one person could be so effective on the commission that last year the Observer endorsed one of the state's more erratic politicians for the job.

"Jerry Sadler is an independent cuss. . .[who] will shake things up." the Observer said, "and this is a commission that badly needs shaking up."

Sadler, who once tried to choke a political opponent, lost to John Poerner, whose campaign was heavily financed by the industries the commission regulates and their law firms. Ninety-five contributors, practically all of them with oil and trucking interests, gave $172,000.

Poerner had been appointed by then Gov. Dolph Briscoe to replace the retiring Jim C. Langdon. (The retirement was demoaned by the Oil and Gas Journal this way; "Langdon believed the public could benefit most under a commission that stayed close to industry and developed an understanding of its problems . . . Jim Langdon's teamwork approach hopefully will stay on at the commission in his absence. But the man with the big cigar will be missed.")

So Poerner joined the commission and was elected last year to finish Langdon's term. He is up for reelection next year to a full six-year term.

James E. Nugent's seat also will be on next year's ballot. Nugent, like Poerner, was named to fill a vacancy created by a resignation, and the remaining two years of that term will be filled in next year's November election. Hightower has not yet announced which job he is going for. 'll run against the one I feel most represents the established way of doing things," he said.

Neither Poerner nor Nugent has announced any intentions about the election, but they do have opinions about Hightower.

"Totally uninformed," says Nugent of Hightower, and of the intimation that Nugent is too closely tied to oil and gas interests he says; I'm not anybody's captive."

"We're a new breed of commissioners," adds Poerner, who has put his oil, coal and other mineral interests into a trust while he's on the commission. "We're independent. We don't do political favors. Everyone has got to win his case on its merit. Why are people we regulate unhappy with us?"

On Hightower; "I have no idea what he's up to." -- Nugent.

"I understand he's a very aggressive type campaigner, and I assume a far left type of approach. I think it would be interesting." -- Poerner.

I'm not antibusiness," says Hightower, "I'm antimonopoly." He has used a great deal of Observer ink to defend independent banks against Big Money, independent service stations against Big Oil and little recording companies against Big Music. His is a populist philosophy that says he who owns controls, and he how owns too much controls too much, including state agencies.

So, not coincidentally, the Observer in recent months has addressed itself to several issues in the domain of the Texas Railroad Commission -- strip mining for lignite, the utility companies, the abandoment of rail service to small communities. I April, as Hightower was consulting with possible supporters for a railroad commission campaign, he was writing critically in the Observer of the commission, particularly of Poerner and Nugent.

He acknowledges that of late the Observer "did take a keener interest in the railroad commission, but it's a legitimate issue. And nobody pays attention to it. The press isn't there." Besides, he adds, there's a "long tradition of newspaper people in Texas politics."

His interest in economic power has been consistent over the years, beginning with his days at the Agribusiness and Accountability Project in Washington, where he wrote the book, "hard Tomatoes, Hard Times."

Somewhat of a fidget, Hightower is an effective, tub-thumping stumper who can get a crowd worked up while denouncing big business and praising Texas. Texans and Texas traditions. He's a native Texan, and he's been trying to tell people here the state is being bought "by a moneyed establishment that has failed wherever they've been."

He laments the passing of Texas businesses to distant corporations selling stuff called Old El Paso, Austex and Texsun. He criticizes an oil industry that has convinced Texans it is their oil when it really belongs to corporations based in New York, Chicago or Europe.

He has sided in the Observer with labor, elderly activists, solar advocates, railroad passengers and striking farmers.They now will have a chance to side with him in next May's Democratic primary against Poerner or Nugent.

It is going to take time, money and work, meanwhile, for Jim Hightower to get his message across. The industries the commission regulates can be expected to contribute heavily to his opponent, as they gave to Poerner over Sadler.

But he sees Texas "not as a rightwing state but as a nonvoting state," and he is convinced that if he can identify his supporters and get them to the polls, a populist campaigning on pocketbook issues can win.

His cause may be helped if tens of thousands of conservative Democrats vote in the presidential primary to be held the same day next May.

Already he is thinking of campaign gimmicks, such as putting his headquarters in an abandoned gas station or campaigning with a solar- powered microphone. And, he said, "I can't wait for the mudslinging to begin."