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Chu Uses Power Marketing Administrations to Implement Green Agenda

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Romina Boccia
March 20, 2012 at 5:25 pm

When it comes to finding alternate pathways to force their green agenda onto Americans, President Obama and his Administration know how to dream up creative solutions. In this latest installment, Energy Secretary Steven Chu is directing Power Marketing Administrations (PMAs) to invest in a smart electrical grid that also serves as test bed for cybersecurity technologies.

PMAs are federal agencies within the Department of Energy (DOE) that distribute and sell electricity from federal hydroelectric dams at cost-based prices, which allows them to sell the electricity at below-market rates. There are four PMAs split up by region: the Bonneville Power Administration, the Western Area Power Administration, the Southeastern Power Administration, and the Southwestern Power Administration. In the past, PMAs have relied heavily on taxpayer money to finance their capital investments.

In his March 16 memo, Chu instructs the PMAs to upgrade their transmission infrastructure, in part to enable more intermittent and unreliable “alternative” energy sources to travel over the grid. Chu also requests rate structure changes that provide incentives for energy efficiency programs, demand response programs, integration of variable resources, and preparation for electric vehicle deployment.

If the PMAs need such investments, then they should be made because it makes business sense—and funded through PMA revenues—not with taxpayer dollars because the President is running out of more transparent ways to advance his green energy agenda.

None of these are inherently bad ideas, if they were undertaken by the private sector on its own accord. Secretary Chu instructing the PMAs to “to take a leadership role in transforming our nation’s electric sector,” however, seems like a backdoor move to work toward the Administration’s agenda of incorporating more alternative energy sources in the power grid. This approach is bad policy for several reasons:

  • Without a law by Congress requesting that PMAs sell electricity at market prices, PMA customers will see their rates go up, while distortions in the price of electricity between PMA and market-based rates would continue to persist. PMAs should not exist to subsidize customers’ energy use through below-market rate electricity sales. However, raising these rates to bankroll the President’s economically unsustainable green agenda is also bad policy. Instead, the PMAs should simply sell their electricity at market rates and make whatever investments will help them meet their customers’ demands.
  • Taxpayers will likely be on the hook to subsidize the PMA spending on smart grid and cybersecurity technologies. In the memo, Chu announces reforms “necessary to ensure the borrowing authority programs are building the infrastructure this Nation needs while protecting and providing value to the taxpayer,” which suggests that taxpayers will subsidize the upgrades in one form or another.
  • The role of PMAs is to distribute and sell hydroelectric energy, not to be used as test beds for new grid technologies. They should make the upgrades necessary to allow proper functioning but should not serve as a testing ground.

Chu’s directing the PMAs to help carry out this Administration’s green energy aspirations on taxpayers’ and ratepayers’ dime is bad policy. Smart-grid initiatives should be led by the private sector—if they make sense—and the role of government should be in identifying and removing regulatory barriers to private-sector investments. PMA infrastructure that needs upgrading or replacing should be paid for by bringing MPA rates in line with market rates for electricity, instead of burdening taxpayers with additional spending.

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President Obama, Dr. Steven Chu and Their Fracking Whopper

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Maley’s Energy Blog

Posted on February 11, 2012

…[It] was public research dollars, over the course of thirty years, that helped develop the technologies to extract all this natural gas out of shale rock – reminding us that Government support is critical in helping businesses get new energy ideas off the ground.

– Barack Obama’s 2012 State of the Union Address

On Thursday, Energy Secretary Dr. Steven Chu visited the National Energy Technology Laboratory in South Park, PA:

Chu said the Department of Energy’s experiments between 1978 and 1992 helped develop the widespread practice of horizontal drilling and fracturing that made capturing natural gas from rock formations such as shale cost-effective enough that private industry could take over. (Source.)

This is some pretty serious revisionist history, and it’s all directed at justifying continued “investment” in green clean energy research*.

Nicolas Loris is an energy and environmental policy analyst at The Heritage Foundation. Mr. Loris gets it right:

Well before the government invested in natural gas technologies, it was the private sector that established and developed hydraulic fracturing (or “fracking”), a process by which producers inject a fluid, composed of 99 percent water, and sand into wells to free oil and gas trapped in rock formations.

Its roots go as far back as the 1860s. In the 1940s, Stanolind Oil and Gas Corp. began studying and testing the method, with a patent issued in 1949 and a license granted to Halliburton to frack on two commercial wells.

Government involvement came years later. The Department of Energy partly funded data accumulation, microseismic mapping, the first horizontal well, and tax credits to extract unconventional gas. But who was in the driver’s seat? George Mitchell, who invested millions of his own money in research and development for fracking and horizontal drilling.

The geologist for Mitchell’s company, Jim Henry, first identified Barnett shale as a possibility for more energy. Mitchell spent between $7 million and $8 million of his own money trying to extract shale gas successfully and eventually made it economically viable. He is behind the shale gas revolution, not the government.

Truth be known, DoE has never taken the lead in oil and gas research. The majors (“Big Oil”) historically had their own research labs and were loathe to share their proprietary research with the government or each other. The major service companies like Halliburton and Schlumberger also wanted to develop their own patents and protect their commerciality.

Much of the research that mattered was conducted by the Gas Research Institute, an industry consortium that spent private funds. The revenue base was a small fee on gas transported by the major interstate pipelines. DoE cooperated with GRI, and may have provided funding at some level. For two or three years in the early ’90s, I served as one of 2-3 dozen industry advisors, providing GRI with industry feedback for their research planning. There were always a couple of DoE staffers present at our meetings.

Some of the GRI-backed research was private, some at research universities, and some at national labs like Sandia and Lawrence Livermore. But it was privately directed and privately funded.

I remember from those days Mitchell Energy’s keen interest in unlocking the gas in the Barnett Shale. Mitchell has most of Wise County, TX under lease, and the Barnett was widespread. I thought at the time that Mitchell was particularly good at milking the Feds when it came to funding its research. Mitchell’s strategy was the exception, not the rule.

As ex-Mitchell VP Dan Steward recalls, Mitchell did drill the first horizontal shale well with DoE backing.

Money wasn’t given directly, but like on the horizontal well, Mitchell paid the cost of a vertical well, and government paid the rest. If the horizontal well cost $1.5 million, but the vertical was 800k, the DOE contributed the difference between the two. I don’t know exact numbers. But there was a contribution of money toward that well. …

Mitchell got the slickwater frack from UPR [Union Pacific Resources]. They developed it.

If there was a government program that was significant, it was the Section 29 production tax credit, which I blogged about back in 2010. Steward has this to say about the importance of the credit, but also the advantageous gas sales contract that Mitchell enjoyed:

Mitchell was selling his gas dollar and a quarter over the spot price. We would never have been able to do what we did in the Barnett without that. Mitchell had the money to invest in R&D. And he had the vision. He had people in the company saying this is bulls**t, this is wasting our money, you’re using our retirement money on something that’s no good. They’d say, “Dan, if Barnett is the best thing we have, then we don’t have s**t.” …

We had a gas contract with a natural gas pipeline that gave us a higher price. We had a basket of prices and gases and with the different categories we could keep our gas price. So you could say that those pricing scenarios, and the tight gas tax credit, created the possibility for shale gas.

Yes, the government played a role by providing the tax credit. DoE research, and support of private research, was significant but not central to the story.

Horizontal drilling and hydraulic fracturing are private sector successes.

In any case, there is no analogy in oil and gas to the kind of support that is being lavished upon alternative fuels and “green energy”. Where is the gas analog of a Solyndra, or a Fisker? They don’t exist. Government support for gas did not come in the form of $535 million loan guarantees. That kind of silly money is begging to be wasted.

But as the good Dr. Chu reminds it, there are more failures to come.

Chu: Expect more loan guarantee failures

Energy Secretary Steven Chu again warned Friday that more recipients of Energy Department green technology loan guarantees will likely collapse even as he touted the strength of the program overall.

* Factoid from President Obama’s 2012 SOTU address:
References to “Green Jobs” or “Green Energy”: 0
References to “Clean” Energy: 10

This change in terminology presumably reflects the Administration’s begrudging embrace of the promise of natural gas.

Cross-posted at RedState.com.

Energy secretary backs natural gas exports

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The low price of natural gas is hurting domestic job growth, and exporting a small amount of the fuel will boost the economy, U.S. Energy Secretary Steven Chu told a Houston audience Thursday.

Speaking at a town hall at Houston Community College, Chu said a modest increase in the price of natural gas wouldn’t significantly raise its cost to U.S. consumers who use it to heat their homes and manufacturers who need it to make products.

Natural gas futures closed at $2.55, up 17 cents, in trading Thursday on the New York Mercantile Exchange. It brings much higher prices in other countries.

“Exporting natural gas means wealth comes into the United States,” Chu said.

The Energy Department’s Office of Fossil Energy is reviewing several applications to export liquefied natural gas. The exports would relieve the glut of natural gas on the domestic market and raise revenue, but also potentially increase prices for domestic consumers.

Several U.S. energy companies have announced plans to close their natural gas wells and curb spending in natural gas fields, as its price has fallen from more than $13.50 in 2008.

In his State of the Union speech last week, President Barack Obama called for an “all-of-the-above” approach to domestic energy production, including investment in oil, natural gas and renewable energy sources.

Chu said it’s important that the United States be at the forefront of innovations and technologies in renewable energy.

“We have a choice. When all these things become cost-competitive, do you want to buy or do you want to sell?” he asked. “If we are buying, that is wealth out of the country. If we are selling, that’s wealth into the country.”

Before the hour-long session with students at the college, Chu met with oil and gas executives and explored the Texas Medical Center’s energy efficiency upgrade.

At the college, he answered questions about the Obama administration’s rejection of the Keystone XL pipeline and Iran’s threat to close the Strait of Hormuz, among other topics.

Chu said the administration is open to exploring alternate routes for the pipeline that would carry oil from Canadian tar sands to Gulf Coast refineries.

It’s become a touchstone issue for supporters who say it will create jobs and reduce U.S. dependence on oil from hostile nations, and opponents who argue it could threaten water supplies and promote use of an especially dirty form of oil.

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Photo: Melissa Phillip / © 2011 Houston Chronicle

 

Chu said he supports construction of pipelines nationwide, particularly to relieve the glut of oil at the hub in Cushing, Okla., a major price point for domestic oil.

“There is such a shortage of pipelines between Cushing and Houston,” Chu said. “There will be major construction of pipelines in the next decade or so. All the job creation from Cushing to Houston is being done now.”

Chu touted government investment in wind, solar and other renewable energy sources, as well. He said he expects the cost of solar power to fall by 50 percent within six to eight years.

Chu also dismissed Iran’s threats to close the Strait of Hormuz, a key oil shipment channel, in retaliation for international sanctions aimed at the nation’s nuclear program.

“I don’t think they can really shut down the Strait of Hormuz,” Chu said. “We certainly have capabilities to reopen it.”

simone.sebastian@chron.com @SimonesNews

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