CHRISTINE TEZAK MANAGING DIRECTOR NATIONAL PERSPECTIVE ON THE ROLE OF NATURAL GAS Northeast Gas Association May 4, 2017
OUR FIRM 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. M A Y 4, 2 0 1 7 2
OUR FOCUS 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. M A Y 4, 2 0 1 7 3
RISKS AND DISCLOSURES Risks Legislative, regulatory and diplomatic agendas are subject to change. Analyst Certifications I 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 Disclosures The 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. M A Y 4, 2 0 1 7 4
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. M A Y 4, 2 0 1 7 5
TRUMPITUDE TAKEAWAYS Chokepoints vs. checks and balances Twitter subverts Washington s linear, information flow and established decision hierarchy. A network of senior advisors within energyrelevant, 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. M A Y 4, 2 0 1 7 6
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) M A Y 4, 2 0 1 7 7
TRUMPITUDE AND ENERGY POLICY 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) M A Y 4, 2 0 1 7 8
TRUMPITUDE AND ENERGY POLICY 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 Formal policy notable details differences: began to Trump s emerge priority during set 1Q2017: also appears to frame the goal of domestic production - The President s as a benefit appearance to end-use before sectors a joint a session way that of is Congress similar to what we described as Obama s - The White manufacturing House Budget first Request energy to policy Congress orientation. M A Y 4, 2 0 1 7 9
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) M A Y 4, 2 0 1 7 10
TRUMP ADMINISTRATION ENERGY TEAM Consistency: despite diverse backgrounds, ideologically speaking, top-level, energy-relevant nominees seem to have much in common: All appear pro-growth, pro-production and proderegulation. 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). M A Y 4, 2 0 1 7 11
TRUMP ADMINISTRATION ENERGY TEAM 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) M A Y 4, 2 0 1 7 12
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. M A Y 4, 2 0 1 7 13
THE GOP - POLICY PRIORITIES IN TENSION? Pro-markets Pro-states rights Pro-landowner Anti-subsidy Anti-regulation M A Y 4, 2 0 1 7 14
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 M A Y 4, 2 0 1 7 15
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) M A Y 4, 2 0 1 7 16
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. M A Y 4, 2 0 1 7 17
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? M A Y 4, 2 0 1 7 18
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 M A Y 4, 2 0 1 7 19
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 M A Y 4, 2 0 1 7 20
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 M A Y 4, 2 0 1 7 21
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) M A Y 4, 2 0 1 7 22
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. M A Y 4, 2 0 1 7 23
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. M A Y 4, 2 0 1 7 24
QUESTIONS? M A Y 4, 2 0 1 7 25