A National Energy Plan: Should We Have One? Do We Have One? If So, Is It Working?
Before ultimately answering the questions posed in the title above on a National Energy Plan, in full disclosure it should be noted that I have been employed by and/or have been an investor in oil, natural gas, coal and solar. The same applies for two railroads, CSX and NS, which hauled a lot of the aforementioned products or their supply chain components to market. Therefore, with this background significantly informing my decisions on energy matters, I fully believe in and have worked and invested in an “All of the Above Energy Strategy.”
This is a strategy to which I typically add the phrasing “and All of the Below
Energy Strategy” to underscore my strong admonition against prematurely ruling out energy sources. Innovation, often quick to the rescue, along with the cumulative significance of continuous improvement, savvy capital and unleashed entrepreneurism, can make the old energy sources renewed and the new energy sources truly revolutionary. The natural gas industry’s Shale Revolution
, changing our current energy paradigm from scarcity to abundance, is such an example.
A little historical context will prove helpful to our review of energy policy. In 1973, during President Richard Nixon’s Administration, the Organization of Petroleum Exporting Countries (“OPEC”) strategically reduced oil supplies on the world market due to deflation of the dollars OPEC members were receiving in payments for their oil and the United States sending military aid to Israel during the Yom Kippur War.
The OPEC action created the 1973 Oil Crisis, inducing sharply higher oil prices and thereby spurring price inflation throughout the general United States’ economy. The situation slowed economic growth and simultaneously induced inflation—a situation many economists called stagflation. The Nixon Administration imposed price controls on gasoline and oil following the announcement, which had the effect of causing shortages and long lines at filling stations for gasoline. I remember this very well, as I graduated from high school in 1973 and the following year began the annual Spring Break pilgrimages, toting along gasoline cans as a precautionary measure. The lines were eliminated through the lifting of price controls on gasoline, although price controls on oil remained until President Ronald Reagan’s Administration.
During President Jimmy Carter’s Administration, 1977-1981, he told Americans that the energy crisis constituted "a clear and present danger to our nation" and was "the moral equivalent of war” (“MEOW”). In 1977, President Carter convinced the United States Congress to create the United States Department of Energy (“DOE”) with the ultimate goal of conserving energy, as he strongly believed that the world oil supply probably only would be able to keep up with Americans' demand for six to eight more years. A flurry of additional energy-related legislation was passed during the Carter Administration, which cumulatively seemed to constitute a national energy plan. The plan in 1977, as it was before and is currently, remains subject to debate as to whether we have a national energy plan sufficiently comprehensive to warrant the name.
In 1978, the United States passed the National Energy Act, which included the Power Plant and Industrial Fuel Use Act, restricting new electric generating power plants from using oil or natural gas, and stayed in effect until repealed in 1987. The National Energy Act, also incorporated the National Energy Conservation Policy Act, the Power Plant and Industrial Fuel Use Act, the Public Utilities Regulatory Policies Act, the Energy Tax Act and the Natural Gas Policy Act. President Carter used the bully pulpit to strongly encourage conservation efforts in homes, schools and public buildings.
Other results were sought through the acts such as opening electric markets to alternative power producers, taxing "gas-guzzlers" differentially higher and giving an income tax credit for alternative fuel use. Under the Carter Administration, natural gas wellhead price deregulation was phased in, but as noted above, the restriction of using natural gas in new power plants was not lifted until 1987, during the Reagan Administration. However, there was strong consensus of academicians and most several large integrated oil companies that the United States had very little recoverable natural gas and that we needed to preserve what we had for home heating and for industrial feedstocks.
As if the energy picture was not dire enough, on March 28, 1979, the Three Mile Island Nuclear Generating Station (“TMI”) experienced an incident near Harrisburg, Pennsylvania. It was the worst accident in U.S. commercial nuclear power plant history. The incident was rated a five on the seven-point International Nuclear Event Scale (“INES Scale”). Following the TMI incident, new nuclear capacity additions in the United States were viewed negatively, especially as to safety and economic viability. However, as sufficient time passed and climate change concerns increased, nuclear was gaining ostensible reacceptance, due to its superior energy density, power density and unmatched Greenhouse gas profile. On March 11, 2011, the acceptance of nuclear suffered a huge setback, when a major earthquake induced a 15-metre tsunami disabling the power supply and cooling capacity of three Fukushima Daiichi reactors in Japan. All three cores largely melted in the first three days. The accident was rated 7 on the INES Scale.
In addition to my strong admonition to not rule out or limit specific energy sources, as we did in the late 1970s prohibiting using natural gas in new electric generating facilities, I would add a complementary admonition—to not vilify energy sources, as coal has experienced for many decades, notably coming after coal came to the rescue. It should be remembered that it was President Carter, a member of Admiral Hymen Rickover’s Nuclear Navy, who advocated increasing reliance on steam coal after concluding (rightly or wrongly), but upon strong consensus advice, that we had very limited domestic oil and natural gas reserves remaining. This was further exacerbated by the incident at TMI, which prospectively curtailed new commercial nuclear development.
It needs to be remembered that the coal industry and the utilities did what was asked of them. The oil and natural gas industry in the United States, one of the few truly successful sectors even during the difficult times of the recent “Great Recession,” has certainly responded to all that could have been asked of its members as to extraordinary investment. However, natural gas, oil and natural gas liquids now also are being unjustifiably vilified in the court of public opinion and through a cacophony of under-informed public discourse. Renewables, including wind, solar, geothermal and hydro also are held in low regard, by some unaware of or unwilling to accept the ever improving economic and environmental performance by renewables.
Public policy does indeed count! New technological innovation along with continuous improvement supported by public/private/academic partnerships for applied and basic research, with other supportive public policy, can change energy optionality significantly and quickly. Just behold the confluence of these factors and the determination of entrepreneurs such as George Mitchell, who while not alone, was definitely in the lead, in proving the commercial viability of producing natural gas from the actual source rock (The Reservoir, Mother Lode of Supply), in the Barnett Shale in Texas in the early 2000s. George Mitchell successfully combined hydraulic fracturing with horizontal drilling and through trial and error perfected the correct formula for producing in that specific geology. These principles were adopted, continuously improved and modified for other shale formations, which are fortunately widely geographically distributed across the U.S. Great fortunes were risked, lost and made again to take the United States from near despair during the 1970s era of scarcity to our current status of abundance, evidenced by the United States becoming the number one producer of natural gas in the world and now allowed to effectively export liquefied natural gas (“LNG”) and oil.
No Regrets Policies
I believe the United States, through both public and private research and development and workforce enhancement, should continue to diversify and strengthen the domestic energy mix and delivery systems and support optimization of the supply chain, all while aggressively using less energy per unit of output year over year (“yoy”). These efforts should allow the United States to continually lessen its reliance on certain foreign sources of energy, while maintaining a robust foreign trade, with the United States now exporting natural gas, LNG and oil, as the ban was recently lifted.
There has been a true paradigm shift in the United States in recent years from energy scarcity to energy abundance, fostered by innovation, entrepreneurship and available capital, which at least for the foreseeable future leaves us in energy abundance and optionality. Prices of coal, oil, natural gas and several renewables all have dropped sharply. Therefore, there are huge productivity gains remaining to be realized in almost every energy sub-sector, especially in the unconventional shale plays, such as the Marcellus Shale and Utica Shale, and with several renewables, especially solar, since the original fuel—sunlight—is free.
West Virginia must do everything possible, as quickly as possible, to diversify its economy while seeking to infuse new technological advances in the extraction, processing and utilization of traditional core energy industries, while allowing the market to work for new disruptive energy technologies. I believe that the best way to accomplish the goal of economic diversification, including through energy, is by looking at energy resources through an approach of an “All of the Above and All of the Below Energy Strategy.” Energy prices are still historically low, at least in the short term, as is the case with many commodities, although trending upward at the time of this writing. While there are more productivity gains to come in several energy sectors, the planet is heading towards nine to 10 billion inhabitants. Therefore, while we should strive to use less energy per unit of output, diversifying our world economy, absolute energy use likely will increase worldwide across per capita and other metrics.
A National Energy Plan
The United States Department of Energy does indeed have in force an energy plan, namely, the “Strategic Plan – 2014-2018,”
with the overarching message of having its core being adherence to the President’s “all of the above” energy strategy. I highly recommend reading the 26-page Plan, along with the "West Virginia State Energy Plan 2013-2017."
The West Virginia Energy Plan is very thoughtfully done, updated often with significant public participation.
Therefore, as the title asks: “A National Energy Plan: Should We Have One? Do We Have One? If So, Is It Working?” As to having a national energy plan, I say a resounding yes! It may have been built by adding incrementally to the big bone legislative acts of many decades, modified by subsequent acts, and ultimately operative under the United States Department of Energy’s “Strategic Plan 2014-2018,” which itself is modified by various stages and levels of ongoing litigation. The Clean Power Plan is currently tied up in the courts.
I believe we should have a national plan with as much deference to the free markets as possible, while allowing the states to be the laboratories of experiment to test the best innovative breakthroughs and continuous improvements, born from the public, private and academic partnerships which have proved so very effective. Not all experts, infrequent contemplators, the professionally tasked analysts or the average person of intermittent interest would agree that we have an “Energy Plan” true to their strictest definition including comprehensiveness.
However, I would confidently submit to a candid world, that energy policies, regulations and legislation collectively (admittedly with some exceptions), at the federal, state and local levels, have fortunately allowed entrepreneurial wisdom, innovation, sweat equity and risk capital to combine in a winning formula. It is a winning formula, while open to continuous improvement, nonetheless, that has allowed the United States to be in a period of energy abundance and energy optionality. Therefore, the evidence says yes, we do indeed have a National Energy Plan.