tezak m director - northeast gas · by: christine tezak disclosures the opinions, forecasts,...

NATIONAL PERSPECTIVE ON THE

ROLE OF NATURAL GAS Northeast Gas Association

May 4, 2017

CHRISTINE TEZAK

MANAGING DIRECTOR

ClearView Energy Partners, LLC is a Washington, D.C.-based research firm that identifies and quantifies non-fundamental energy risks for financial investors and corporate strategists. We rely on firsthand experience and proprietary models to examine investment-altering outcomes.

We regard spreadsheet data as a starting point. We filter economic catalysts through political constraints, validating and building on early conclusions by actively vetting our ideas with decision-makers in public forums and via proprietary channels.

We are analysts, not lobbyists. We do not represent corporate or partisan interests in any fashion.

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OUR FIRM

We focus exclusively on U.S. and international energy and environmental policy.

Our coverage of fuels, technologies and issues includes:

– Electricity

– Energy transportation

– Fuels, vehicles and refining

– Geopolitics

– Oil, gas and coal

– U.S. energy policy, economics and tax policy.

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OUR FOCUS

RISKS AND DISCLOSURES

RisksLegislative, regulatory and diplomatic agendas are subject to change.

Analyst CertificationsI hereby certify that the views expressed in this presentation accurately reflect my personal views as of the date of this presentation. I further certify that no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this presentation.

By: Christine Tezak

DisclosuresThe opinions, forecasts, recommendations, projections and interpretations of macro events contained in this report are those of the analysts preparing this report and are based upon information available to them as of the publication date of this report.

The analysts preparing this report based the opinions, forecasts, recommendations, projections and interpretations of macro events contained herein on sources they believe to be accurate and reliable, but completeness and/or accuracy is neither implied nor guaranteed.

The opinions, forecasts, recommendations projections and interpretations of macro events contained herein are subject to change without notice.

The analysts preparing this report are not registered lobbyists and do not advocate or lobby for any particular policy action on behalf of clients.

Although this report may mention specific companies by name and/or specific industries and industry sectors, this report was not prepared, is not intended and should not be interpreted as a research report regarding the equity securities of any company.

(c) 2017 ClearView Energy Partners, LLC.

Any reproduction or distribution of this report, in full, or in part, without the prior written consent of ClearView Energy Partners, LLC is prohibited.

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“TRUMPITUDE” TAKEAWAYS

More of an “-itude” than an “-ism”

– Case-by-case and situational decisions more than fixed doctrine

– Takeaway: internal consistency may guide Trump energy policy more than it constrains it.

Laws ≠ traditions

– Trump’s campaign did not break the “laws of politics,” it abandoned established traditions.

– Establishment surprise appears to stem from actions and decisions that are untraditional, not unlawful.

– Takeaway: Tradition seems unlikely to unduly constrain Trump’s policy decisions.

Source: ClearView Energy Partners, LLC

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TRUMPITUDE TAKEAWAYS

Chokepoints vs. checks and balances

– Twitter subverts Washington’s linear, information flow and established decision hierarchy.

– A network of “senior advisors” within energy-relevant, Cabinet-level agencies seems likely to do so, as well.

– Takeaway: Senior Advisor (and son-in-law) Jared Kushner may serve as an “energy czar,” too.


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TRUMPITUDE AND ENERGY POLICY

May 2016 speech at Williston Basin Petroleum Conference:

– Our key takeaway: held in North Dakota, not Texas.

– Introduced concept of “renegotiating” Keystone XL pipeline.

America First Energy Plan on White House website:

– Freedom from “dependence on foreign oil”

(CVEP read: production)

– Eliminate “harmful and unnecessary policies”

(CVEP read: deregulation)

– “Increasing wages by $30 B over next 7 years”

(CVEP read: growth)

– “Reviving America’s coal industry”

(CVEP read: manufacturing) Source: ClearView Energy Partners, LLC

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Recent Actions:

– Withdrawal from the Trans-Pacific Partnership (1/23/2017)

– Presidential memoranda on Keystone XL, Dakota Access and on U.S. steel for constructing American pipelines (1/24/2017)

– Executive Order on Energy Independence and Growth (3/31/2017)

– Presidential Memorandum to Secretary of Commerce (4/20/2017), Executive Order on Buy American-Hire American (4/18/2017)

– Executive Order to revisit Antiquities Act designations (4/26/2017)


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Preliminary Assessment of Organizing Principles In the Absence of Formal Policy Documents

CVEP RANKING

(AS OBSERVED) OBAMA ADMINISTRATION TRUMP ADMINISTRATION

1 GHG Emissions Reductions Economic Growth

2 Manufacturing Renaissance Manufacturing Renaissance

3 Multilateralism and Linkages Deregulation

4 Economic Recovery Bilateralism and Independence

5 Regulatory Caution Climate Skepticism

Despite notable differences: Trump’s priority set also appears to frame the goal of domestic production as a benefit to end-use sectors in a way that is similar to what we described as Obama’s “manufacturing first” energy policy orientation.

Formal policy details began to emerge during 1Q2017:- The President’s appearance before a joint session of Congress- The White House Budget Request to Congress

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TRUMP ADMINISTRATION ENERGY TEAM

Energy-relevant, top-level roles confirmed:

– Secretary of State: Rex Tillerson

– Secretary of Transportation: Elaine Chao

– Secretary of Commerce: Wilbur Ross

– Secretary of Energy: Governor Rick Perry (R-TX)

– Secretary of Interior: Rep. Ryan Zinke (R-MT)

– Secretary of Treasury: Steven Mnuchin

– EPA Administrator: State AG Scott Pruitt (R-OK)

– OMB Director: Rep. Mick Mulvaney (R-SC)


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Consistency: despite diverse backgrounds,

ideologically speaking, top-level, energy-relevant

nominees seem to have much in common:

– All appear pro-growth, pro-production and pro-

deregulation. Nominees appear to vary in their

degree of climate skepticism, but none appears to

be a climate activist.

– Apparent protectionist stances from Mnuchin

(Treasury) and Ross (Commerce) contrast with

apparent internationalism on the part of Tillerson

(State).


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Several important uncertainties remain:

– Identities and preferences of sub-cabinet nominees

for energy-relevant roles, including National

Economic Council, National Security Council,

Deputy Secretaries and Deputy Administrators.

– Process flow, especially the degree of autonomy

Department and Agency heads will have in making

energy-relevant policy decisions.

– States rights v. market principles, which will wind

up guiding power market polices (and by

extension commodity fuel demand)


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FERC NOMINATIONS

Kevin McIntyre – Potentially to be Chairman,

industry attorney (Jones Day)

Neil Chatterjee – Senior energy advisor to Senate

Majority Leader Mitch McConnell (R-KY)

Rob Powelson – State commissioner (PA)

Timing – Unknown (sometime between May and

end September?) Once formal nominations made,

two to four weeks in Senate depending on

Democrat cooperation.


THE GOP - POLICY PRIORITIES IN TENSION?

Pro-markets

Pro-states’ rights

Pro-landowner

Anti-subsidy

Anti-regulation

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THE DEMS – PIVOTING TO THE PEOPLE


Minority in House

Minority in Senate

Obama Administration rules could prevail in judicial challenges

The potential value of the court of public opinion

Attack the throughput mechanism

– Environmentalists attack pipelines versus individual wells

– Minority lawmakers can clog up the legislative process

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THE DEREGULATORY AGENDA: MECHANISMS

President Obama implemented much of his energy policy using Executive Branch authorities, especially:

– Formal regulations (e.g., the Clean Power Plan)

– Guidance (e.g., National Environmental Policy Act reforms)

– Executive decree (e.g., offshore drilling withdrawals)

– Enforcement discretion (e.g., LNG export approvals)

The degree to which the Trump Administration can modify or rescind Obama’s energy policies generally depends on three things:

– Authority used for implementation (as above)

– Regulatory status (e.g., finalized, pending, proposed, etc.)

– Mechanism of modification (Executive or Legislative)


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THE DEREGULATORY AGENDA: KEY POINTS

Ultimately, enforcement discretion may prove to be the Executive Branch mechanism Trump uses most frequently on an ongoing basis, though not necessarily for major Obama legacy items.

Despite much discussion of CRA rollbacks, the energy sector as seen a handful (we do not anticipate more than three or four energy-related efforts.

Senate Republican leaders plan to use CBA reconciliation twice in 2017: once for health care, once for tax reform. This could prove more difficult than it seems.


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ACTIONS TAKEN TO ROLL-BACK REGULATION


Energy Independence Executive Order (EIEO)

– Clean Power Plan

– Carbon Pollution Standard

– GHG Guidance for Federal Agency NEPA Reviews

Voluntary review / granted reconsiderations

– 2015 Ozone Nat’l Ambient Air Quality Standards

– Supplemental Finding on Mercury & Air Toxics Standards

– Startup, Shutdown, Malfunction rules

– Effluent Limitation Guidelines for power plants

– Cooling water and coal ash too?

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THE GO-FORWARD POLICY APPROACH


Courts give EPA more time

Drag out process

– No rule is a good rule?

– Indulge commenters with more time

– Long (and potentially gentle) compliance intervals

– Sue me!

Develop a more limited rule/approach

– Provides certainty

– A narrow approach to rulemaking may be easier to defend in Chevron context

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PROBLEMATIC FUNDAMENTALS


Low-cost capital markets help keep natural gas producers producing

Relaxed regulation deters exit

Most models assume increases in demand

Most models assume increases in prices

Distortions (state programs, tax policy)

Weather

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POWER MARKET POLICY CHALLENGES


State priorities seek results the markets aren’t providing

New wholesale market participants

– Demand response

– Distributed generation

– Storage

Transmission policy for large scale resources

Realities of the legacy regulatory compact

Tax reform

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POWER MARKET POLICY TRENDS


“Cooperative federalism” puts states in lead (but green states tend to get greener)

States favor “close-to-home” policies

Net metering

– Grandfathering and gradual transitions

The PURPA Put

Cultural/societal shifts

– Carbon pollution (instead of GHG emissions)

– Continued throughput-centered activism

– Voter interest (particularly among Millennials)

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CONCLUSIONS

Trump Administration energy policy appears to prioritize economic growth.

Trump team appears poised to deregulate, subject to limits of available time, staff bandwidth and political will.

An unintended consequence of the deregulatory agenda could be a faster rebound in U.S. supply than U.S. demand.

Tax reform represents another critical component of the Trump economic agenda and could impact energy, this effort doesn’t promise to be either quick or easy.


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CONCLUSIONS

State policy objectives are not aligned with what the “competitive electric” markets are telling them to do. They want something other than gas.

Climate activists’ focus on throughput and capital isn’t likely to disappear, but it is likely to “go local” even as global efforts remain largely intact.

Actions taken under Executive Branch authority can be reversed, and the environmental pendulum swings both ways.


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QUESTIONS?