Photographer: Jeremy Piper/Bloomberg

Peabody says the B word

April 13, 2016 Mark Drajem

The First Word Energy team draws on Bloomberg’s worldwide resources to cover all aspects of energy policy. Learn how Bloomberg Government can help your energy lobbying or policy analysis—contact Peter Hsu at yhsu24@bloomberg.net or 202-416-3035.

Today’s Agenda

Peabody Energy and the majority of its U.S. entities filed for Chapter 11 Bankruptcy overnight,   the most powerful convulsion yet in an industry that’s enduring the worst slump in decades. “Through this process, the company intends to reduce its overall debt level, lower fixed charges, improve operating cash flow and position the company for long-term success, while continuing to operate under the protection of the court process,” Peabody said in a statement dated April 13. All of the company’s mines and offices are continuing to operate in the ordinary course of business and are expected to continue doing so for the duration of the process, the company said. David Crane, the former CEO of NRG Energy, breaks down the woes of Peabody and teetering solar giant Sun Edison here.

Senate Democrats are blaming the Koch brothers  for tanking their effort to add clean-energy tax breaks to the FAA bill. Free-market groups, some backed by the Kochs, launched an intense lobbying campaign aimed at stopping what they termed “corporate welfare.” In the end, the ruckus they created is what Democrats are saying undermined the effort to attach the expansion of the investment tax credit to the FAA bill. And the FAA bill looks to be the last available tax train leaving the station before the election. Still, call them Pollyannaish, but leadership aides on both sides of the aisle say that ITC rework will get done; it isn’t a matter of if but when.

There’s still a chance that Senate leadership can attach the ITC extension to the FAA measure before stopgap funding expires in July, a Republican aide tells us. While that would require some tricky maneuvering, Democratic aides agree that it isn’t beyond the realm of possibility. There are a few ways it could play out: 1) Lobbyists persuade House Republicans to support the tax breaks by re-framing them as a boon for natural gas, and that chamber tucks the subsidies into its version of the legislation. That’s, shall we say, a long shot. 2) They ping-pong it: The House takes up the Senate-passed bill, amends it and sends it back, giving Senate leaders another chance to volley in the tax breaks. 3) The Senate’s FAA bill falls apart and everyone gets a re-do. (Let’s call that the nuclear option).

Far-fetched though those scenarios may seem, one thing is clear: the broad coalition of groups that have been fighting for this extension aren’t ready to lay down their arms just yet. Paul Bledsoe, a former Senate Democratic aide working with the carbon-capture advocates, says that tax break is likely to return, too, either in a lame duck session or next year. With both Peabody Energy and the Natural Resources Defense Council lobbying for them, “they are going to come back,” he told us.

Duke Energy is blowing up  its old coal plants. The company imploded three retired boiler units at its L.V. Sutton Plant Sunday. The company shuttered the plant in 2013 after a new natural-gas plant came into service. Duke “continues to remove older coal units as part of a plan to shift to cleaner, more efficient energy sources,” it said in a statement. To see a video of the demolition, click here.

Heather Zichal may be a part of this morning’s event sponsored by the American Petroleum Institute,  but don’t expect her to sing Hosannahs for the oil and gas industry. Zichal, the top energy aide in the White House while President Obama was championing an “all of the above” energy policy and a Hillary Clinton supporter, says the jump in oil and gas production in the U.S. since 2008 has “changed so much” in U.S. energy policy, but public knowledge of the issues hasn’t kept pace.The industry “has done a pretty poor job of trying to convince people that all will be OK if they just keep their hands off the regulation till,” she told us in an interview. “It has to do with whether communities trust you in how you are operating.” Zichal said she’s going to encourage the industry to accept more federal regulation — such as methane rules — to help establish that public trust. “A lot of this can be addressed with proper regulation,” she said.

But one person’s “proper regulation” is another’s overreach  from federal bureaucrats. For its part, API’s Jack Gerard is likely to highlight building new locks, dams and floodgates to help facilitate the barges transporting their product. The group’s priorities also include getting more access to energy resources on public land and “a common-sense regulatory structure.”Gary Sernovitz, the private equity investor who made the “liberal” case for fracking in the New York Times, wrote us with a slightly different take from Zichal: “There is a popular misperception that oil and gas is some cowboy industry, drilling wherever it pleases, which everyone in the business knows is far from true. I think an industry that both acknowledges how regulated it is and embraces the regulations as reasonable insurance against bad actors, and for the protection of families in oil and gas country, would do wonders.”

How unpopular is fracking? Prince George’s County, where no one wants to drill for gas, voted to outlaw the practice, according to the Washington Post.

EIA further cut its forecast for coal production and natural gas prices  for this year, while increasing its gasoline price forecast, all compared to its estimates of just a month ago. (Summer prices at the pump are still set to be at their lowest in 12 years, according to EIA.) Rice University professor Dan Cohan has been digging through EIA’s data, and hammering the point that the government agency consistently errors on the high side with its coal forecasts, while underestimating growth in natural gas and renewable generation. Read his full analysis of the STEO in Up for Debate below. Meanwhile, oil surged to a four-month high yesterday on optimism that the Saudis and Russians would agree to freeze their output, regardless of Iran’s position.

Drajem’s Daily Don’t Miss

A House Appropriations subcommittee is set to markup a $37.4 billion energy and water bill today, a measure that included the protection of Yucca Mountain as a nuclear depository site, a ban on new computer systems that don’t block pornography and funding to pump more water into California’s drought-stricken Central Valley. The water proposal has been a sticking point for the top Democrat on the Senate Appropriations energy and water panel, Dianne Feinstein, which could complicate the chances of an energy and water bill being enacted into law. The House markup is at 1:30 p.m. in 2362-B Rayburn. Click here for Congress Tracker’s take on the House draft.

The Senate is set to begin consideration of its version of that bill today, as well, and Sen. Lamar Alexander says it will come to the floor next week. House Majority Leader Kevin McCarthy says he’s optimistic that Feinstein will agree to the increase in water pumping. For her part, Feinstein said she’s still trying to get a standalone drought relief bill through the Senate and is trying to match last year’s spending with $100 million for drought programs. We’ll be watching at the hearing today at 2:30 p.m. in 124 Dirksen to see what happens.

Quotable

“While this decision is largely symbolic, it sends the wrong message,” Drew Combs, of the Maryland Petroleum Council, told the Washington Post. “Prince George’s County residents benefit year-round from natural gas safely produced in neighboring states.”

“The Koch brothers have clearly won as Republicans lost support for bipartisan renewable energy tax credits. We hope they will come to their senses,” Sen. Ron Wyden said after the ITC provision was pulled.

Contact Us

Send us your comments, tips and your plans for spending the $50 refund check from Pepco. (N.B. This applies to Maryland customers.) Shoot us an e-mail: Mark Drajem is the editor (mdrajem@bloomberg.net or @drajem), Catherine Traywick (ctraywick@bloomberg.net or @ctraywick) and Laura Curtis (lcurtis7@bloomberg.net or @LouKCurtis) cover Congress and regulation.Bloomberg Government subscribers can get this and any of our eight other newsletters in their inbox every morning. Click here to modify your subscriptions. Contact Peter Hsu at 202-416-3035 or yhsu24@bloomberg.net for more information or if you have colleagues that would also value access.

Chart of the Day

In its Short-Term Energy Outlook, the EIA forecast that U.S. coal consumption will fall 6.5% to 749 million short tons this year, the lowest level since 1983. Coal use is set to be down 30% since the peak in 2005, and this chart shows why: Falling natural gas prices are reducing the profit margins for coal plants. Because of the auction system for electricity prices, cheap natural gas means lower overall electricity rates and, thus, lower profits for coal. And, while EIA data shows that coal is still cheaper than gas nationwide, in some geographic areas it’s straight up cheaper.

Inside the Beltway

Senate Republicans to Subpoena EPA’s McCarthy   Senate Republicans plan to subpoena Environmental Protection Agency Administrator Gina McCarthy after the agency refused to provide a witness for a hearing on the Animas River spill, Sen. John Barrasso (R-Wyo.) said, according to Bloomberg BNA’s Ari Natter. The EPA only agreed to provide written testimony for the April 22 Phoenix field hearing, “Examining EPA’s Unacceptable Response to Indian Tribes,” being held by the Senate Committee on Indian Affairs, said Barrasso, the committee’s chair. EPA workers investigating mine-related leaks inadvertently triggered the release of waste from the Gold King Mine Aug. 5, unleashing a plume of wastewater and sludge into the Animas River watershed, which surged through three states, including American Indian lands.

Hundreds of Congressional Inquiries Flood EPA   In 2015, Congress sent the EPA 884 letters seeking a response, 60 separate document requests and received back more than 276,000 pages of documents, Bloomberg BNA’s Anthony Adragna reports. The data have inherent limitations because no historic information on document requests exists for comparison. But the volume of information sought raises the long-simmering question—considered by administrations of both parties—of where the line for legitimate oversight rests. “EPA is probably one of the few agencies that gets this many,” Jeffrey Lubbers, a professor of administrative law at American University, told Bloomberg BNA. “Because agencies have to take these requests very seriously, they have to spend a lot of time on them. These sorts of requests cut into the ability of the agency to fulfill its mission.”

Eight Areas Get Extension on Bush-Era Ozone Standards   Washington, Houston and six other metropolitan areas have been granted an additional year to come into attainment with the 2008 ozone standards of 75 parts per billion. Environmental Protection Agency Administrator Gina McCarthy on April 11 signed a final rule providing eight marginal nonattainment areas a one-year attainment date extension based on air quality monitoring from 2014. While the areas missed the July 20, 2015, deadline for demonstrating attainment, Section 181(a)(5) of the Clean Air Act allows the agency to push back that deadline by one year if certain conditions are met, Bloomberg BNA’s Patrick Ambrosio reports.

Outside the Beltway

Xcel Plans Big New Wind-Power Plant in Eastern Colorado: AP   Xcel Energy says it plans to build the state’s largest wind farm in eastern Colorado with enough turbines to generate 600 megawatts of electricity. The company announced the plan Tuesday but gave few details. David Eves, president of Xcel’s Colorado operation, said the wind farm would occupy land in several counties but declined to say which ones. He also declined to say how much it would cost. He said more details would come in May.

Hundreds of Baby Dolphin Deaths Tied to BP’s Gulf Oil Spill: Miami Herald   Researchers looking into the largest dolphin and whale die-off on record in the Gulf of Mexico following the 2010 BP oil spill have tied a spike in the number of dead babies and stillbirths to the massive spill. Since the spill, more than 1,400 dolphins and whales have been found dead in the northern Gulf of Mexico, the most ever documented.

Feds, State to Meet on Texas No-Drilling Zone: Fort Worth Star-Telegram   After appearing to be on a collision course over who controls drilling near Joe Pool Lake’s dam, the U.S. Army Corps of Engineers and the Texas Railroad Commission will meet next month to discuss a ban on hydraulic fracturing near the reservoir’s embankments. Fort Worth District Commander Col. Calvin C Hudson II is scheduled to meet May 13 with Texas Railroad Commission Executive Director Kimberly Corley at the corps’ downtown Fort Worth offices after Corley questioned the corps’ actions, officials said.

N.C. Court Hearing for Amazon Wind Farm Challenge Set for Wed.: Charlotte News & Obsverver   The future of the $400 million Amazon Wind Farm in northeastern North Carolina may hinge on the legal interpretation of “grandfather,” to be debated by lawyers Wednesday at the state’s Office of Administrative Hearings. Already nine months into construction and on schedule for completion this fall, Amazon’s energy project will be the largest wind farm in the Southeast. It’s also an economic engine for Perquimans and Pasquotank counties, generating $520,000 a year in county taxes and more than $600,000 a year for local landowners. Wednesday’s legal proceeding in Raleigh will focus on whether the Amazon Wind Farm is subject to a lengthy regulatory review under a 2013 state law, or whether the project is grandfathered and therefore exempted.

Oil and Gas

Market Wrap:  Oil extended declines from the highest level in more than four months as speculation swirled over the likely outcome of a meeting by major suppliers to discuss freezing output. U.S. industry data showed crude stockpiles expanded last week. West Texas Intermediate for May delivery fell as much as 90 cents to $41.27 a barrel on the New York Mercantile Exchange. The contract gained $1.81 to $42.17 on Tuesday, the highest settlement since Nov. 25. Natural gas futures for May delivery rose as much as 0.9% to $2.021/mmBtu and were trading at $2.012/mmBtu as of 10:33am Hong Kong time.

Oil, Gas Line Spending May Fall $8.4 Billion Below Forecast   Spending on pipelines that bring North America’s oil and natural gas supplies to market may fall as much as $8.4 billion a year below 2014 projections, a report by a gas trade group’s foundation shows. Capital spending on pipelines, storage fields and export terminals that handle oil, gas and liquids will total anywhere from $21.3 billion to $28.4 billion a year through 2035, according to the report Tuesday from the Interstate Natural Gas Association of America Foundation Inc.

Schlumberger to Pare Venezuela Services on Lack of Payments   Schlumberger Ltd. will reduce activity in Venezuela after the world’s largest oil services provider failed to collect enough payments from the national oil company.The reduction will take place this month in close coordination with all customers in Venezuela to continue servicing those with available cash flow, the Houston- and Paris-based contractor said in a statement Tuesday. Venezuela, which holds the biggest oil reserves of any country, has been battered by the collapse of prices in the oil market.

Up for Debate

EIA’s Cascading Coal Forecasts  

By Daniel Cohan

The monthly release of the Short Term Energy Outlook (STEO) has become a ritual of cascading coal forecasts. Of particular interest to observers of the Clean Power Plan is the downward trend in coal use for power generation. In its Annual Energy Outlook 2015 issued last April, Energy Information Administration forecast 2016 power sector coal consumption would be 837 million tons. By January, the STEO had dialed down that forecast to 768 million.

Yesterday’s release of the April STEO revised forecasts of coal for electricity yet again, this time to 689 million. With power plants burning more natural gas, that would put overall US power plant CO2 emissions 23% below their 2005 levels, a faster pace than needed to reach the Clean Power Plan’s 32% reduction target by 2030. However, there’s reason to expect the downward cascade of forecasts could continue. Coal consumption by power plants is down 16% so far this year, yet the latest STEO forecasts the decline will slow to less than 4% for the remainder of 2016 and reverse direction next year. As recently as last month, the STEO had predicted first-quarter consumption would be down only 10%.

Coal mine operators don’t seem to anticipate a rebound, as they’ve cut coal production more than 31% so far this year. That has helped reverse a trend of rising coal stockpiles, but will eventually compound the impacts of closing power plants in constraining coal consumption. Meanwhile, the coal power plants that remain no longer operate consistently as “baseload,” with capacity factors falling below 50% in several recent months. Low natural gas prices, growth in renewable power generation, and stagnant demand for electricity all act to limit demand for coal electricity. EIA forecasts have tended to understate each of these trends.

Too high forecasts of coal demand are not new. As its retrospective reviews have shown, EIA outlooks have tended to over-predict coal consumption in most recent years.

The unexpectedly steep downward trend in coal is great news for climate and air quality, since burning coal emits far more pollution than other sources of electricity. Progress toward Clean Power Plan targets would stall if coal indeed reverses its decline. Some of this winter’s unexpectedly large declines in coal demand may have resulted from warm weather, which would have the opposite influence on summertime electricity. Nevertheless, the longstanding pattern of downward revisions in coal outlooks suggests that any reversal of trends is far from certain.

(Daniel Cohan is a professor of civil & environmental engineering at Rice University.)