We're liveblogging the sessions from the 2014 Texas Tribune Festival's Energy track. The sessions include panels on the state's power grid, the potential impact of energy reform in Mexico on Texas, the debate over hydraulic fracturing and a deeper look at the state's drilling boom.
Featured speakers include U.S. Reps. Blake Farenthold, Bill Flores and Gene Green; Texas Railroad Commission Chairman Christi Craddick and Commissioner Barry Smitherman; Texas Public Utility Commissioner Brandy Marty; Railroad Commission candidates Steve Brown and Ryan Sitton; state Sens. Juan "Chuy" Hinojosa and Carlos Uresti; and state Rep. Jim Keffer.
Look below for highlights of the weekend's sessions, which are being held on the University of Texas at Austin campus.
With: Doyle N. Beneby, Gene Green, James Marston, Brandy Marty, Barry Smitherman and Jim Malewitz (mod.)
First energy panel of the day starting now! Remember our hashtags: #TribuneFest and, for this track, #TTFenergy
Malewitz starts out with a question about the grid as it relates to the EPA's newly proposed carbon regulations. Smitherman says Texas regulators have been "eerily prescient" in preparing for these. He cites CREZ and other investments in grid that he says have made state better equipped to absorb hit of regulations. But he says that despite advancements, state hasn't been given credit for preparing its grid.
Is Texas getting credit? Marston says grid deserves credit, but he says these new rules are good for Texas. "I still shake my head about why our officials oppose it," he says, describing it as a "big hug" for Texas, which could benefit because of rise of natural gas.
Marty says people could make a lot of money off new regulations but that, as a state regulator, she's more interested in their effects on everyday Texans (i.e., ratepayers). Green says it's in Texans' "DNA to complain about the EPA." He says there are a lot of options but that it's going to take work with agencies to meet these ambitious goals. "We can do things great in Texas, but don't make it too hard for us."
Beneby says that while the regulations may look daunting, the EPA could be influenced to change. Texas, he says, is also getting a foothold in conservation and, for instance, demand response. There are several ways Texas can make these regulations work, he says, and a sit-down between regulators and generators may help.
Have the generators not been at the table? Beneby says there's plenty of time to do that, but it hasn't happened yet. Marty says she has met with many. Texas has a unique market, and the EPA doesn't understand the state, she says. She adds that Texas is on board with clean air and that the marketplace is already making room for these advancements.
Smitherman says the building blocks of the EPA regulations don't accommodate Texas' unique competitive market. Marston challenges Smitherman's characterization of what's actually required in the new rules. It may not be a requirement, Smitherman says, but because of Texas' unique market, it's limited in the tools it can use to meet EPA's rules.
Beneby says one of the missing pieces here is the invisible hand. Many utilities, he says, have already moved toward low carbon initiatives because of competitive pressures. Under new rules, there will be winners and losers, he says.
Green says we've already started shifting from coal to natural gas, and that the EPA will need to give Texas more flexibility. Of the rise of natural gas, Marty says that because the state needs a diverse energy portfolio, it could be a problem if the state shifts too heavily to natural gas.
Smitherman says Texas has reduced its CO2 levels more than any other state. The EPA's regulations fly in the face of what the market has done in Texas, he says. He adds that if you're running an old, inefficient plant in Texas, you won't get dispatched — and that's the design of the state's free market.
Is there frustration at utilities that haven't prepared for new regulations/moved toward cleaner energy and are now complaining about meeting the new rules? Beneby says we have a couple decades to meet these requirements and to make sure that Texas' system isn't hurt. In the municipal world, he adds, we're looking out for everyday ratepayers.
Of the market, Smitherman says we've talked about supply side but not demand side. Empowering customers in the state to get off the grid when prices are too high is a positive development, he says. Of demand response, Marty says the state has created certainty for the market to accomodate things like smart meter deployment. Marston says they all agree on many things, including encouraging use of demand response. Beneby says CPS has the most demand response in the state.
Question from the audience: Could Texas chart a path on regulations that dovetails with the market? What about pricing emissions to create market certainty? Smitherman: The Legislature would have to make that change. He says that, or a trading system with other states, may be what the EPA was pushing for with its new regulations.
Second question from the audience, about the connections between water use and the rise of natural gas plants. Marston: Another benefit of EPA proposal is that more natural gas use means less water use. Green, however, says that because of the market, he doesn't know of any coal plants being built.
Howdy – and welcome back to the energy liveblog! We're starting our second panel, which takes a look at what Mexico's sweeping energy reform means for us in Texas, just across the border. Mexican President Enrique Peña Nietos signed into law the last month, which opens the door to private investors – including those in the U.S.
With: David Alameel, Malachi Boyuls, Javier Treviño Cantú, Antonio Garza, Juan “Chuy” Hinojosa, Luis Farías Martínez and Jorge Piñon (mod.)
Mexican Congressman Javier Treviño Cantú is explaining what all the overhaul encompasses. It includes opening up the market to private investors: "That's important. That's unheard of." It also strengthens the business regulatory capabilities of the Mexican government, creates a Mexican petroleum fund to sock away funds for the future and creates a framework for environmental regulations. He says there were two competing visions for Mexican energy before the reform: Those that wanted the government-run status quo, and those that recognized changing economics and politics that required the state to evolve in order to be competitive.
Jorge Piñon, our moderator, asks State Sen. Juan “Chuy” Hinojosa, D-McAllen, how reform will impact Texas. He notes Texas' long border with Mexico. He says Texas will be able to lend its expertise, and also educate Mexico on some of the challenges, that Texas faces in places such as South Texas' Eagle Ford. "We didn't have the roads in place...the community didn't have the housing in place. We didn't have the social services." But there are tremendous possibilities for Mexico and Texas. The collaboration has already begun, he says. Texas has already been laying pipe to transport gas into Mexico. "The benefits...are just too much to ignore," and reform will help transform the broader Mexican free market.
U.S. Ambassador Antonio Garza says we keep hearing the word "transformative" to describe the broad reform in Mexico in the past year – beyond just the energy sector – that we sometimes forget to truly appreciate it. "What they have done in the past several years in Mexico is absolutely extraordinary." He says Texas needs to update itself on "who are neighbor is, and the potential of that neighbor." Garza says that government functions best when it gets out of the way, and this reform makes Mexico more competitive. He says there is good reason for folks to be worried about corruption, but he's seen great commitment from transparency because "we've seen so many eyes on the process."
Boyuls, an oil and gas investor, says the fact that oil prices have stayed relatively stable amid conflict in the Middle East shows North America's large impact the global market. Bolstering Mexico's market can only strengthen its power. He says the regulatory component will be very important in attracting investment, and touts the Texas Railroad Commission as a model. "We as investors are very excited about the mid-term and long-term future." But, he adds, Mexico still needs to answer many questions – such as conflicts between drillers and landowners–before investors risk large amounts of resources.
Luis Farías Martínez, Senior Vice President of Energy and Sustainability at CEMEX, says we should not forget about how Mexico's electricity reforms – what he calls the "silent reform"– will impact prices and impact the economy. Hinojosa also reminds us that the reform includes boosting Mexico's solar and wind capabilities.
David Alameel, a Democratic candidate for U.S. Senate, says that Texas and Mexico already have so many things in common. "Imagine what this vast opportunity of oil and gas, that they have given us the opportunity to partner with, will do for the economy," he says. He says that Texas will benefit through job growth and cheaper energy prices. He says that a close partnership could translate into a better overall relationship with Mexico – even on issues such as immigration. "Geopolitically, this is extremely important."
Javier Treviño Cantú says that "energy will be the most important element that will bring North America together." He says that the North American Free Trade Agreement (NAFTA) negotiations did not include labor mobility and energy reform, but now is that time to think about those partnerships.
An audience member asks how the public can be assured that this reform will do more to address inequality in Mexico than NAFTA promised. Cantú says that NAFTA was important engine of economic growth in North America, and that this reform will build on it – even if it's not the only reform needed to boost folks out of poverty. Boyuls says Mexico should look to the economic transformation in historically poor communities in South Texas' Eagle Ford Shale could foreshadow what Mexicans could expect. Garza says NAFTA did create economic opportunities for Mexicans.
An audience member asks Treviño Cantú what he and others are doing to make sure everyday Mexicans understand the benefits of energy reform. The Congressman says Mexico must very quickly provide tangible results – putting money in folks' pockets and lowering electricity bills.
Boyuls cautions that it might take time for some of the benefits to hit, so it is still important to manage expectations. Treviño Cantú says it might take a couple of years to see tangible results.
With: Steve Brown, Ed Ireland, Ryan Sitton, Chris Watts, Michael Webber and Jim Malewitz (mod.)
Malewitz starts with a basic question – what is fracking?
Webber explains that the words matter. Fracking is short for hydraulic fracturing. There's drilling, then there's completion. Hydraulic fracturing is the way to complete the well. He said it was adopted as a pejorative word by its detractors.
"It's actually an 'F' word."
The hydraulic fracking process takes only a week, not months are years, according to Ireland.
Brown, the Democratic nominee for Texas Railroad Commissioner, is asked about how he feels with managing the interaction between the government and communities effected by hydraulic fracking. He said that although there may be people not familiar with the technologies, we've gone too far with assuming we know all the answers. A lawmaker needs to make sure the members of the community know what's going on, and give them a voice at the table.
Sitton, the Republican nominee, responds. Less than five percent know that the Texas Railroad Commission manage oil and gas issues in Texas. It is up to the commission to keep up with new technologies and keep a tab on changes in the industry.
Webber's interpretation of the fracking boom — it is the intersection of policy, demand and technology that led to the sudden boost in production and interest.
Malewitz turns to Watts, the mayor of Denton. Denton could the be first city in the state to ban hydraulic fracturing. Now drilling may start happening in people's backyards, how do we deal with that? Watts said he believes regulations are starting to catch up with the technology advances.
The urban boom is an important part of this, said Webber. "That's a big change."
Sitton said many of the complaints found in cities in Denton — such as too much noise or dust — may be the byproduct of the drilling process, not the hydraulic fracturing process.
Ireland adds, "It's called a ban on fracking, but it's actually a ban on drilling."
The fact that the citizens of Denton had to resort to this effort to have a say in the fracking practice in their city is a weakness of the commission, said Brown. People have to feel like they are empowered to have a say in these decisions.
Watts addresses the potential domino effect of Denton's ban. He agrees with Webber that the main crux here is the growth of urban drilling. A set of resolutions have to be developed that can evolve with these changes as they effect more and more cities.
Each locality is different, said Watt. He said he does not think a statewide drilling ordinance is not the answer. Each locality has to be able to address the issue in their way.
Brown agrees a statewide policy may not be manageable, but there should be a process that allows every stakeholder to have a say on rules that effect that specific locality.
Ireland said Denton's permitting process in the beginning was unique. Denton did not have a permitting office — its permits were handled by the fire department. If a company got a permit to use a pad site, it was valid forever. At the time there was nothing around them. Then houses were legally built around them, leading to pad site owners and homeowners both exercising their property rights and clashing.
Most oil and gas drillers operate within the ordinances of Denton said Watts. But there are a few who push limits. Ireland adds that banning an entire industry due to a few bad actors isn't the answer.
Sitton said there is the perception that industry does not want regulation, but instead they want good, science-backed rules in place.
Malewitz asks about concerns with water conservation and water quality in areas of fracking.
Webber said that issues with water tend to be at the surface level, not below ground, and many of those incidents have to do with issues like mishandled water pits, or accidents with trucks carrying polluted water, and not with the fracking itself.
Sitton brings up how some organizations are making efforts to recycle the water they are using.
Malewitz asks about the industries trajectory toward water recycling.
Brown suggests using a portion of the Rainy Day Fund — a state collection financed with oil and gas receipts — to pay for research efforts to bring experts to the table. What steps can be taken to go in that direction in a more deliberate fashion?
Ireland said the markets are working. A lot of research into waterless fracking, and fracking with brackish water. He said he believes the industry will gradually move into using less water.
Webber said he sees oil and gas companies becoming oil, gas and water companies in the future based on trendlines in investments.
Sitton said the water issue has to be considered on a bigger scale than just in the realm of oil and gas. He cites a statistic that only .4 percent of water in the state is used on hydraulic fracturing.
First question — what can we do to create the biggest test bed of these new regulations in Texas?
Webber agrees with the questioner — we have plenty of water, it just is not all usable. We have the resources to use. Once water becomes wastewater, it is always wastewater, even if it's completely purified.
"Our policy has been to pray for rain. And so far that's worked. But praying for rain may need another layer of policy on top of it."
Another question — what is the a plan for educating people about the fracking process?
Sitton tells a story of a campaign telephone conference he held, where he spent 45 minutes answering questions about fracking. People do want to know what's happening.
Brown said that some of the confusion is structural. Again points out how calling the commission the Texas Railroad Commission makes it difficult to make the connection between oil and gas management and the commission.
Last question — there are organizations pushing for the outlawing of fracking. Do any of the panelists think this will continue to gain traction?
Ireland agrees that is potentially a problem. He said it's actually an anti-fossil fuel movement, and it has moved from the national level to the local level. In Alpine, TX, the city council is adopting a ban on hydraulic fracking, adding another city to the list.
One effect the issue in Denton has had is elevation of the discussion on hydraulic fracturing, said Watts. He said this is a great opportunity to address some of these issues, specifically in the context of urban environments.
With: Mike Collier, Christi Craddick, Blake Farenthold, Bill Flores, Jim Keffer, Carlos Uresti and Russell Gold (mod.)
And we're off. Thanks for joining us for another panel. This one, called "Deconstructing the Boom," piggybacks on our previous panel, extending the conversation about the nation's Texas-led drilling surge, and its sweeping impacts. Our moderator is Russell Gold, who reports on energy for the Wall Street Journal. He is the author of the book The Boom, which dives deeply into the history and impacts of hydraulic fracturing, the once-obscure oilfield technology that has revolutionized the U.S. energy sector.
Gold directs his first question is to Christi Craddick, Chairman of the Texas Railroad Commission: How do we make sure this boom doesn't go bust – like we saw some 20 years ago. Craddick says she doesn't like the term "boom." She would rather call it "sustained economic growth." She says new technology has helped us energy from the boom-and-bust cycle.
Has the boom – or whatever you want to call it – made Texas, as a state government, too dependent on the industry's success – like the old days, Gold asks Keffer? Keffer says Gov. Rick Perry has done a good job to diversify the economy. "We certainly do understand the importance of the oil and gas industry to some of these communities, but we're going to be judicious. But Keffer adds that "we ain't seen nothing yet," and that we could see this surge for as many as 30 years.
Gold asks the Congressmen on the panel: Should we start exporting oil? U.S. Rep. Bill Flores said the economics are here, and we could help drive down prices. But, he said, perhaps policymakers should wait until they can explain the true impacts to average citizens. U.S. Rep. Blake Farenthold says we're ready now. Mike Collier, the Democratic nominee for comptroller, agrees.
Collier said that if you had to pick a state to be a CFO, you'd pick Texas. But running for CPA of such a state is more worrisome: You want to make sure not to squander those great resources. "We really don't know what it's going to look like and feel like in Texas when we have the first big price collapse.
Gold asks Craddick about the issue of local vs. state control: Should municipalities have the ability to adopt more drilling regulations? Craddick describes the typical powers of the state v. the city on drilling (more info here). But she said the state should be the ultimate authority on these matters. She points out that our mineral interests trump service rights in this state.
The panelists are now discussing the industry's huge impacts on roads in local communities – 18-wheeler trucks tearing up roads ill-equipped to handle them. Last year, the Legislature decided to send more money to communities to bolster infrastructure. Keffer said it was a good start, but the issue won't be solved quickly.
Gold asks Craddick whether her commission needs more resources. "We'll hire you tomorrow," Craddick tells any jobless engineers in the crowd. The commission has plenty of openings, she says, but it's hard to fill them. About 30 percent of the agency has reached retirement age, she said. But it's hard for the commission to compete with the high-paying oil and gas industry when it comes to recruiting labor. Craddick says the commission primarily needs more people to inspect wells as they proliferate across the state.
Plenty of experts have suggested that the problem with U.S. energy policy is, we have none. Gold asks Flores what a federal energy policy should looks like. "We need to rely on free-market principles," he said. "Washington regulations have been organized around scarcity for at least four decades now. We're in a period of abundance." The U.S. should also make sure not to squander the cash that the boom brings in, he said – perhaps by creating an endowment to keep energy revenues for future use.
Are there areas in which Texas needs to be more involved to make sure that the positive impacts of the boom aren't overwhelmed by the negative, Gold asks? On the issue of water use, Craddick said companies are finding more economic ways to recycle water. And the Railroad Commission has past rules to ease the permitting process. Keffer said "the goal is to get away from using water for fracking – all together."
An audience member asks: How should we prepare for an era where there's just too much oil across the globe, driving down prices? Collier said Texas must train itself to use its $8 billion-plus Rainy Day fund. Flores suggested that companies must become more efficient to be able to keep operating.
Should we be more skeptical about the consensus that this boom's going to last so long, an audience member asks? Flores says this is "different than the old wild-catter mindset," but rather a "factory process" that keeps growing more efficient. Craddick agrees with the factory premise. She said the cost of drilling home wells have plummeted millions of dollars per well, according to new data that she's seen.