President-Elect Trump’s choice of Rick Perry to run the Department of Energy is good news for people who believe–or want to believe–that the federal government’s Department of Energy was formed at the end of the 1970s because voters were tired of our abject dependence on foreign oil and its associated entanglements.
It is likely to be a huge disappointment for those who are more comfortable with the DOE as it exists today, with very little in the way of energy production or innovative energy research attributable to the $30 billion taxpayers spend on its annual budget.
Perry is the former three-term governor of Texas, which arguably has earned the title of “The Energy State.” Texas has been a world-renowned energy powerhouse since the Spindletop gusher first came in on January 10, 1901. Not only has it been a major source of oil and gas for the past century, but it also has lignite deposits, a large and growing wind industry, and two major nuclear stations.
Texas has been home to independents, wildcats, majors and minors. Its Barnett Shale formation is the place where George Mitchell nursed his vision of combining horizontal drilling with hydraulic fracturing to release vast quantities of oil and gas from “tight” rocks.
The dirty little secret known to many inside the energy industry and few outside of the industry is that less than 1/5th (18%) of the Department of Energy’s nearly $30 billion/year budget is spent on programs in the “Energy” category. The other 4/5ths is spent on programs in the categories of Nuclear Security (43%), Science (18%), and Environmental Management (19%) plus a hodgepodge of “Other (2%).”
As Texas Governor, Perry might have had the opportunity to learn something about other areas of DOE responsibility. Texas is the home of the Pantex Facility in Amarillo, an important part of the Department of Energy’s nuclear weapons complex.
However, unlike his immediate predecessors, Perry isn’t a scientist. He has little experience with the national laboratories that trace their existence to the Manhattan Project and the Atomic Energy Commission that was created after the explosive end of World War II.
Perry’s Support For Oil And Gas
It almost goes without saying that a three term Texas governor supports the hydrocarbon industry and believes that fossil fuels will continue to be important tools for modern society for the foreseeable future.
During his tenure as governor, Texas natural gas production increased by 50% while its oil production soared by 260%, returning to levels not seen since the 1970s. During Perry’s last five years as governor, booming oil and gas exploration and extraction helped Texas to lead the nation in new job creation.
Other than the fact that Texas is where the gas is, it remains a popular place to poke holes partly due to a tax break that Perry signed into law in 2003. As a way to encourage frackers to invest in Texas drilling, the state created an exemption for “high cost” natural gas wells with a formula that can, in some cases, completely eliminate the 7.5% severance tax normally applied to Texas gas production.
Though the exemption is temporary and only lasts for the first 10 years of a well’s life, hydraulically fracked wells typically produce 80-90% of their lifetime gas volume within the first few years after they are completed. According to a study conducted at the request of the state legislature, the “high cost” gas well exemption allowed producers to accumulate an additional $10.6 billion in net revenue during the period from 2006-2014. Stated another way, if the exemption had not been in place and the same production had occurred, the state would have collected an additional $10.6 billion in severance taxes.
With the exemption in place, state collection of gas severance tax revenues has varied widely from year to year with changes in market prices and production levels, but over the past two decades the trend has been generally positive with collections increasing from about $700 million to $1.9 billion.
Supply siders and Libertarians could draw the conclusion that lower tax rates helped increase revenues, but it’s also legitimate to wonder what could have been done with the extra billion or so each year that would have gone into the state Treasury if political leaders like Rick Perry had not decided to incentivize production activities that probably would have happened anyway.
Though many environmentalists have expressed concerns that Perry’s selection provides more reasons to worry about a new boom in oil and gas drilling to the detriment of the environment, it is at least as plausible to believe that Perry’s experience taught him that too much drilling inevitably leads to a bust when prices fall as supply exceeds demand. Though part of the Texas economic bloom during Perry’s tenure came from innovations like fracking, a major portion was driven by globally high prices and the profit margins those prices allow.
Perry’s Involvement With Nuclear Energy
When the energy industry was talking about a Nuclear Renaissance, Texas was home to at least four serious development projects – Comanche Peak Units 3 & 4, South Texas Project Units 3 & 4, Victoria County Station Units 1 & 2 and Amarillo Power Units 1 & 2, with a total of eight new reactors.
Governor Perry, whose terms ran from Dec 2000-Jan 2015, was in office during the beginning of the Nuclear Renaissance optimism, for the build up of development efforts, and during the eventual petering out of immediate interest in building new nuclear plants. He was in office when the Nuclear Regulatory Commission staff ruled – in both December 2011 and May 2013 – that the investment structure created for the South Texas Project prevented issuance of a Combined License (COL) because they believed that it was dominated by foreign investors.
That decision was questionable and probably driven by antinuclear influencers. The license applicant in that case was–and remains–Nuclear Innovation North America (NINA). NRG, a US entity, owned 90% of NINA, but Toshiba, a Japanese company and a 10% owner of the project, was providing the financing for the licensing stage of the project. The monetary flows would have changed considerably during an actual construction project, but the NRC staff insisted that Toshiba was controlling the project since it was providing the money at the time.
Perry was still in office in April 2014 when the Atomic Safety and Licensing Board overruled the NRC staff’s initial decision. Presumably, he had a opportunity to learn about the costs imposed by the NRC staff objections, the significant legal and financial efforts invested to placate the staff, the way that groups opposed to nuclear energy pushed their interpretation of the restrictions on foreign ownership, domination and control to stymie development and the discouraging effect that the delay had on investor interest.
Perry was also in office during the issuance and renewals for numerous licenses required to operate the Andrews, TX low level waste repository and proposed site for a consolidated used fuel storage facility. He was there when the facility began receiving planned shipments after decades of delay. He had the opportunity to appoint all of the members of the TLLRWDC, the oversight commission for the facility. All indications are that the facility continues to operate smoothly and cost effectively, indicating that the commission members are doing their jobs.
On his watch, the Texas Commission on Environmental Quality approved a major expansion of the site’s capacity and allowed it to expand its customer base from two states (Texas and Vermont) to 36 states plus the Department of Energy.
While some have pointed to Perry’s selection as an indicator that the Trump Administration might attempt to reinvigorate the Yucca Mountain project, it seems more likely that Perry would favor a process that found hosts that are willing and eager to gain the benefits of solid, long-term infrastructure investments and job creation that come from agreeing to watch over well behaved and potentially valuable used fuel. Though there might be some who believe that Yucca would be the right way to go, the remaining $300 billion that would be required to build and operate the facility and infrastructure described in the current DOE license application should be a substantial deterrent.
Perry’s Texas Has Benefitted From Federal Wind Tax Credits
During Governor Perry’s tenure as governor, Texas’s wind energy production soared from almost nothing when he entered office to more than 35 million MW-hrs in 2014, his last full year in office. If Texas was a country, its wind energy production would rank 5th in the world.
Perry also worked hard to make sure that the wind power generated in the vast, lightly populated but windy areas of West Texas, could make it to power-hungry cities by supporting a $7 billion transmission corridor project called the Competitive Renewable Energy Zone. The network of more than 3,600 miles of new wires has helped Texas nearly eliminate the periods when congestion and high winds drove electricity prices in some areas to well below zero.
The project has received accolades from the people that like the jobs and revenues that the federally subsidized wind industry brings to the state.
“When we look back on the investment in CREZ, it will be one of the most visionary investments the state has ever made.”
Jeff Clark, executive director of the Austin-based Wind Coalition.
Perry’s Support For Coal Includes Carbon Capture And Utilization
Governor Perry has been sharply criticized by many environmentalists for his support for new coal fired power plants during the early part of his tenure as governor, but that support was given during a period when natural gas prices were sharply rising. Those rising gas prices were causing electricity prices in Texas to rise almost as fast. Gas producers might have been happy, but the negative effects of high cost electricity on the rest of the Texas economy were readily apparent to the Governor.
Perry has continued to support investments in developing the technology needed to economically capture CO2 from power plant smokestacks. He appears most interested in projects where the captured CO2 is used for such purposes as stimulating additional oil and gas production and is not just sequestered.
Conclusion: Perry Will Make Both Friends And Enemies As He Works To Develop Energy Strengths
Not surprisingly, there are detractors who mistakenly focus on a widely known, but unrepresentative televised episode when Governor Perry had a “senior moment.” He was participating in a presidential debate in November 2011 and attempting to list the three agencies of the federal government that he thought could be eliminated based on his experiences with them as Governor. He couldn’t recall that the Department of Energy was on his normal stump speech list.
The video clip of that embarrassing episode provides a better understanding of the episode than the snide summaries and references found elsewhere. Few people above the age of 40 have never had the experience of being in the middle of a talk or a conversation and drawing a complete blank on a word or phrase they know very well. They might have even temporarily blanked out on the name of good friends known for years. That behavior doesn’t indicate that someone is dimwitted, or a dufus, or experiencing the early onset of Alzheimer’s disease. It’s not an uncommon occurrence among busy people of a certain age, especially if they are sleep-deprived, stressed, nervous or distracted.
Another canard that’s being tossed around is that it isn’t appropriate to choose a person who once advocated for elimination of the Department of Energy as its appointed leader. For close observers of the way that the agency has performed its supposed focus of improving America’s energy supply, it’s not such a bad choice. Maybe an experienced politician who clearly recognizes the importance and value of energy production more than the basic science of particle physics can energize the agency that is supposed to help empower the country.
As a supporter of nuclear energy, natural gas, wind and carbon capture and utilization, Perry might help reduce CO2 emissions more effectively than someone whose major qualification is that they have faith in the summary conclusions of 97% of a sample of peer reviewed papers on climate science. Just because someone asks questions about actions, extent, urgency and special interests does not mean they deny that human CO2 production is changing the Earth’s climate in some way.
Note: A version of the above was first published on Forbes.com with the headline Special Interests Worried Rick Perry’s DOE Might Focus On Creating Sustainable U.S. Energy Policy. It is reprinted here with permission.