The Energy Question Episode 61 Jason Modglin, President of the Texas Alliance of Energy Producers

 

David Blackmon [00:00:08]  Before we go into our Interview today, I wanted to let everyone know we have a new sponsor for our Energy Question Podcast. The US Oil and Gas Association or USOGA for short. First established in 1970, USOGA has been an effective and creative voice for the Industry for more than a century now. USOGA is dedicated to educating the Public, Policymakers, and Legislators at the Federal State, and Local levels about the value of the Domestic Oil and Natural Gas industry.

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David Blackmon [00:01:06] Hey, welcome to the Energy Question Podcast, I’m David Blackmon, your Host. And with me today is Jason Moglin, the President of the Texas Alliance of Energy Producers, one of my frequent guests. We had our weekly podcast during the legislative session. Now we’re going to be doing this monthly as part of our regular Energy Question lineup. And Jason, thank you so much for being with us today.

Jason Moglin [00:01:31] David, it’s great to be with you Happy Summer, and Welcome to the monthly update. Now that things have slowed down a little bit,.

David Blackmon [00:01:41] A little bit.

Jason Moglin [00:01:42] Legislative Session.

David Blackmon [00:01:43] Yeah, but there’s still a lot to talk about. Man, I was going through this list. It’s an and it’s not a really long list, but everything on it’s pretty important, starting with these Methane Regulations that will be coming soon from a federal government near you. Talk about what’s going on there.

Jason Moglin [00:02:00] Well, quite a bit. So this month here in July, and I know this will be released here in a few weeks, but we got some part W updates coming out of the EPA. So you will recall very vividly subpart W is how operators and frankly any producer mover of natural gas or even downstream will report their methane emissions and other types of greenhouse gas emissions to the Federal Government. It’s a voluntary process right now, but generally, most people over a certain threshold report those volumes.

David Blackmon [00:02:42] Yeah.

Jason Moglin [00:02:42] And how it’s calculated has been based on levels that were set in 1990, sometimes earlier than that. It’s largely formulaic, not based on actual emission volumes. And so there’s been a need for a long time to recognize that some part W is dated now that needs to be tweaked, needs to actually take into account actual emissions and not just some formula based on the risk that was set in 1990.

Jason Moglin [00:03:20] So that process is underway lots of trade associations, including ourselves and many operators are watching that will provide comment on that because that forms the basis of everything that the EPA is is going to build on top of that in October, we’re going to have the final methane monitoring and reporting rules.

Jason Moglin [00:03:50] Those are the quarto A, B, and on their heels see the deal with how Methane will be monitored in the field eventually, how it will be monitored by the State Regulator, and then how any violation of methane beyond a certain limit will be reported to the Regulator those rules come back in October.

Jason Moglin [00:04:18] And then you’ll recall very vividly because we celebrated a one-year anniversary of it this week, that the Inflation Reduction Act and it had a Methane Tax. And the Methane tax says that if you are not compliant with the methane rule, which is not final yet and you report your volumes in subpar w, then you are subject to a Methane tax and it’s all parts of the industry upstream, midstream, downstream that would be subject to this tax if you are not in compliance with the monitoring rule and if you report your volumes and subpart W.

Jason Moglin [00:05:00] So, you know, as I said, it’s all built on subpart W and so that’s the deluge that’s hitting everybody right now, reading through subpart W updates, which I think is north of 300 pages. And then we’ll have the meeting rule here in a month or two. And that and then the tax process on the first of next year.

Jason Moglin [00:05:27] So I’ve had lots of operators calling me how can I, how can I read this stuff? And it’s not final yet, but I can give you, you know, worst case scenario and there are lots of good environmental consultants out there that are trying to frame for people. Here’s the worst-case scenario, here’s your best case uh, try to try to thread in between,.

Jason Moglin [00:05:54] But it’s a scary process and, A there’s this bit of a what IT double A  and your good friend Lee Fuller described is this donut period where the tax will be in effect, but states haven’t adopted the final monitoring rules in place.

Jason Moglin [00:06:15] And so you will be subject to the tax because you technically can’t be compliant with a rule that’s not final yet. And how will that work? How will you calculate your tax? So, you know, ultimately consumers are going to pay for this one way or another.

Jason Moglin [00:06:37] And so that’s concerning given our power demand needs and the need to continue growing a natural gas fleet and natural gas or any number of things, whether it’s petrochemicals or heating and electricity needs. So stay tuned on that but it’s coming very soon.

David Blackmon [00:07:04] Just remember, folks, when you’re when your electricity bill starts going up because of that tax, you have Senator Joe Manchin from West Virginia to thank for it and the rest of the Democrats in the U.S. Senate.

David Blackmon [00:07:17] Joe Manchin, was the deciding vote on that so anyone who keeps talking about him as some sort of friend and booster for the energy business in this country needs to rethink that thought. Anyway, that’s just my editorial opinion let’s go to the lizard listing. Let’s move along to the doomed sagebrush lizard.

David Blackmon [00:07:39] And the recent announcement by U.S. Fish and Wildlife that they plan to list this very abundantly populated lizard out in the Permian Basin as an endangered species. Talk about the potential impacts that could have on the world. I mean.

Jason Moglin [00:07:55] Obviously, you had a great podcast interview with Congressman August Pfluger.

David Blackmon [00:08:02] He’s yes, he was terrific on this.

Jason Moglin [00:08:04] And so I encourage people to definitely go listen to that. He’s introduced a fantastic piece of legislation with Push Back. But you’re absolutely right, Fish and Wildlife Service, after 21 years, I believe, where this has been a processed that environmentalists have pushed for the listing of the Dune Sagebrush Lizard, a pretty ubiquitous lizard throughout West Texas. But at the same time, what lizards do best, they run and hide and so it’s hard to go out there and help them.

Jason Moglin [00:08:42]. They proposed the listing as endangered due to a variety of factors. One was kind of diminishing habitat, and so there’s lots of disagreement in that, particularly as it relates to oil and gas, because traditionally and you know, throughout oil and gas, 100-year history, you do have quite a bit of activity right at the start of drilling.

Jason Moglin [00:09:15] But then largely you leave and there’s maybe a pumpjack, maybe a lease road, but there are very few surface disruptions as part of that ongoing operation. Contrast that with the wind or solar where you’re taking up a lot more surface acreage.

Jason Moglin [00:09:39] You’ve got to really be out there to clean the panels, you know, grease the turbine it’s just a very different land application. Oil and gas are different there’s temporary disruption and then and then the lizards return because they don’t like to be around people.

Jason Moglin [00:09:57] So so they claim diminishing habitat they also claim that because the nature of frac sand it is to refine and break the sand down a little bit, get to more of a finer course that these lizards are allergic to the finer sand it bothers them that makes them not want to breed and not want to do lizard things.

Jason Moglin [00:10:24] So I thought that was pretty comical in the listing that Fish and Wildlife said that the lizards were allergic to sand it’s literally in their names. And then finally, the panacea that is all things is that the lizard will be diminished because of climate change.

David Blackmon [00:10:45] Yeah. Yeah.

Jason Moglin [00:10:46] I don’t know if you’re familiar with lizards, you know, but they’re cold-blooded. They like warm, they like heat. In fact, when there’s more heat, there are more lizards. So I.

David Blackmon [00:11:01] Yeah, that one charge, I’m.

Jason Moglin [00:11:03] Struggling a little bit with some of the reasoning, but I think the bottom line what people are looking at is currently in Texas, the habitat is six counties that are right in the heart of the Permian Basin capture some of the Delaware or some of the Midland Basin. This will certainly most definitely harm existing conservation efforts there’s been progress over the past 20 years in setting aside acreage, investing in the science of propagating this species, and growing it.

Jason Moglin [00:11:41] I think this listing will put a damper on that, but then it’ll undoubtedly harm future investment in that area. And the area is of question because the listing allows the Secretary to draw a bigger map.

David Blackmon [00:11:59] Of course.

Jason Moglin [00:12:00] And so where would the lizard potentially like to go? Well, David, you and I know that, but, you know, lizards like to migrate and the Secretary is certainly in tune with that. And so she will draw a map that I would suspect is bigger than six counties.

David Blackmon [00:12:22] I suspect it will be. Yes, I think we can count on that.

Jason Moglin [00:12:26] And so, you know, that’s a little bit concerning because, in the listing, the only problem industry was Oil and Gas. There was no mention of alternative energy sources, no mention of roads, no mention of houses it’s just oil and gas is the problem. And so that’s pretty concerning for folks out there and it should be concerning for folks across the country.

Jason Moglin [00:13:00] I mean, the Permian Basin is the source of our Energy Security right now. Well over 40% of our oil, over a quarter of our natural gas, when you take into account New Mexico as well. And the idea that we would potentially put a cap on it, any growth out of that area is just very disturbing and so appreciate Congressman Pfluger with the Lizard Act. I’m forgetting the acronym, but it’s got zealots in there So that’s.

David Blackmon [00:13:37] Yeah. Yeah, I wish I wish I had written it down so I could recite it that’s an acronym.

Jason Moglin [00:13:42] And then other efforts, you know, the Supreme Court in the 1970s said there’s no economic test on endangered species. And certainly, when we think about bald eagles or whales, you know, we’d say absolutely, there should be no economic tests on those. But that’s not where quarts have gone lately.

David Blackmon [00:14:05] Right?

Jason Moglin [00:14:06] I’ve said that as long as you’re mitigating climate change, you can put a price on an eagle or put a price on a whale. And so that that’s a little bit of a.

David Blackmon [00:14:18] But.

Jason Moglin [00:14:19] That’s a very different standard, particularly if you’re going to target the oil and gas industry and say that they are the cause of climate disruption, but then allow for anyone else in that area to just put a bounty if you kill an eagle, well, it’s going to cost you $50,000.

David Blackmon [00:14:39] Right? But only if you’re in the oil and gas business Wind Farms can kill all the eagles at once.

Jason Moglin [00:14:44] Say, Well, that’s right.

David Blackmon [00:14:44] That’s right. Ever take a permit.

Jason Moglin [00:14:46] For you want to kill a whale?

David Blackmon [00:14:48] Whales on the East Coast? Sure. No problem. It’s wind. But if an Oil and Gas Operator had a platform out there in the Atlantic Ocean and a whale washed up on shore adjacent to that, all hell would break loose.

Jason Moglin [00:15:01] I’m struggling with the logic.

David Blackmon [00:15:04] It is. It’s crazy.

Jason Moglin [00:15:06] If they’re trying to. Protect the species They’ve got to protect the species. Not. Not pick and choose who could potentially disrupt. So there will undoubtedly be court cases on this, I think we’ve mentioned, which the Permian Basin Petroleum Association has been a phenomenal leader on this for a long time. Ben Shepherd. And so to the extent that we start to see other private or state litigation, I wouldn’t doubt it.

David Blackmon [00:15:40] Yeah. And that’s not the only effort by the Biden administration to diminish activity in the Permian Basin. We also have this ongoing and apparently renewed threat from the EPA to hold this sparsely populated region of Texas and New Mexico and somehow nonattainment of ozone standards. Congressman Pfluger mentioned he was hearing more and more talk about that moving forward as well. What are you hearing?

Jason Moglin [00:16:11] Yeah, so just this week, an audio recording of the end of July, Sue and Settle were back and I thought we got rid of that. Yeah, they did with the Trump administration but Sue and Settle are back so.

Jason Moglin [00:16:27] A group in California led by the Sierra Club and the Environmental Defense Fund sued the EPA to say, Hey, guys, you really haven’t looked at ozone standards in quite a while for power plants. And you really need to to to go back and look and see if those limits need to be revised. And EPA, you know, I’m sure had about a five-minute conversation on it and decided to me they got us we got to settle guys. And so they went to the core federal court in California and said they got us and we agreed to a settlement.

Jason Moglin [00:17:10] And so EPA’s going to roll out new Nox standards for power plants, specifically natural gas power plants. They’re going to be rolling those out over 20, 24. And so they’ve been in this process now of revisiting both Ozone and Nox standards.

Jason Moglin [00:17:29] And as they continue to ratchet those down, you continue to grab rural parts of America that are just caught up in these types of standards. The other one that frequently catches agricultural communities is particulate matter.

David Blackmon [00:17:47] Yeah.

Jason Moglin [00:17:48] Getting back to the Wizards are allergic to dust and sand well, you know, you drive down a country road and if it hasn’t been abused or sprayed or treated in any way, you’re going to have a dust cloud behind you.

David Blackmon [00:18:05] That we’re going to have to outlaw Khaleesi pretty soon, I guess.

Jason Moglin [00:18:08] And so as that particulate matter standard gets lower or as Nox standard or Ozone standard, you just start to grab parts of rural America that have nothing to do with industrial activity. But just because of the background level of activity would qualify as non-attainment.

Jason Moglin [00:18:32] And so there was a brief reprieve, if you will, last year when EPA staff kind of threw this into an agenda and then it went away. But if they lower the standard every area and not just the Permian Basin will have to be revisited to see if it meets attainment or not attainment.

David Blackmon [00:18:57] Yeah. Well, okay, so enough about that. That’s that’s plenty. Let’s talk about let’s come back to Texas and talk about the Legislature, which after it only took two special sessions or well, one for one and part of another for the House and Senate to finally agree on a property tax cut, which we talked about every episode that we did during our weekly podcast during the session. So where did we end up finally on the property tax?

Jason Moglin [00:19:32] We ended up with not quite the level of compression, but I think everybody was wanting but homeowners and particularly those with a homestead on their property saw a pretty substantial increase in homestead exemption or school property taxes.

Jason Moglin [00:19:52] So instead of the $0.18 that I and others were advocating for, it’s going to be a school tax reduction of approximately $0.10, maybe $0.11, or some districts that homestead exemption on your school property taxes goes from 40,000 up to 100,000 that’s the minimum. There are some districts in the state that have higher homestead exemptions, so you might not see it in some districts if they’ve already raised that homestead exemption but it’s something to keep in mind.

Jason Moglin [00:20:33] The House did get kind of an interesting item in there that they wanted to have appraisal cap appraisal caps in the discussion. And what they ultimately were able to do is get a temporary 20% cap on properties under $5 million.

Jason Moglin [00:20:55] So these could be small business properties this could be investment homes or second homes that aren’t covered by homestead exemptions. But something under $5 million could potentially have a 20% appraisal cap moving forward for the next five years that’s intriguing for a lot of people, particularly small businesses.

Jason Moglin [00:21:22] What they did do, though, is specific to small businesses take about a $1.2 million cap that was existing with the state business tax, and they doubled that. So they took that up to nearly 2.5 million in annual revenue if you’re under that threshold, you’ll be exempt from the state franchise tax.

Jason Moglin [00:21:47] So, you know, it’s a little bit of everything. Yeah. What’s entirely clear is that the lieutenant governor stood firm and got a lot of what he and the senators were pushing for. Senator Betancourt out of Houston, as has put out a lot of press since then, that the average home in Texas will save approximately $1,300 on their property tax bill but that’s a bold statement.

David Blackmon [00:22:25] That is a bold statement. That’s a hundred bucks a month.

Jason Moglin [00:22:27] But there’s no question there will be a reduction in property tax obligations. But it’s always tough to commit to a number because you throw it right back in your face.

David Blackmon [00:22:42] That’s right. Yeah, that’s a risk.

Jason Moglin [00:22:43] This but the key part of this, they took $18 billion out of that budget surplus, which was provided by oil and gas and business in the state surplus tax collections, and are returning approximately 18 billion back to taxpayers in the form of property tax cuts.

Jason Moglin [00:23:03] So it’s not what we wanted entirely, but, you know, it’s a good thing. It’s not necessarily new spending it’s a return to the economy. Government shouldn’t have more money than they need to run their operations. And so returning a portion of that back to the economy, back to homeowners is a good thing.

David Blackmon [00:23:27] Yeah. Yeah. And, you know, and that’s something that wouldn’t have happened. Okay. In many other states most other states, certainly not in California, New York, or any state in the Northeast.

David Blackmon [00:23:42] And so, you know, it’s just when you have an enormous surplus like that, they have a legislature that focuses on giving the majority of that to the taxpayers is a rare thing in the modern world and that’s just part of being in Texas and I think it’s something we should all be thankful for.

David Blackmon [00:24:04] The grid is the other big issue here in Texas, of course, in a hot summer, which is not nearly as hot as 1980, by the way so don’t believe the propaganda in the media about that but it is a hot summer. There have been some days when ERCOT was not quite sure it was going to have enough resources to get us through, but they’ve managed through it. And, you know, that’s a pretty good performance, I think, so far by the grid. What do you think?

Jason Moglin [00:24:31] I agree with you. They haven’t managed through it. We continue to have added demands. And really, as we’ve talked about quite a bit over the last few years, really the only new additions to the grid have been Solar and Battery, and then the third category would be Wind.

Jason Moglin [00:24:54] There have been some additions of Natural Gas, but by and large Coal has largely started to be phased out and closed. We haven’t had reinvestment in nuclear to kind of shore up some of that baseload power. And so we rely heavily on the sunshine and the Wind blowing and when those don’t perform. Our backstop is Natural Gas.

Jason Moglin [00:25:26] And so ERCOT has managed through that process, hopefully, that that continues. We got kind of one more month of summer and August and September is always a hot time here in Texas. So then that leads right into hurricane season. And so that always is is a disruption, particularly for the poles and wires companies that, you know, have to get back out there and make sure that the wires are back up so that they can move power around.

Jason Moglin [00:25:58] So they’ve done a great job and we’ll see and as we continue to perform, what level of investment the PUC can attract into this market so that we can have some more natural gas resources if coal or nuclear can join the party, that would be fantastic.

Jason Moglin [00:26:24] Keeping in mind that we’re still going to add Wind and Solar, but that doesn’t offset the need for Natural Gas. When those go to zero, you have to have a backstop. And so it is counterintuitive. You know, people are always pointing to look at all the money that Wind and Solar are saving us, and for the end consumer that is true.

Jason Moglin [00:26:48] But bearing in mind you’re building two simultaneous systems. you’re building both Wind and Solar and a backstop at the same time to make sure that when those go to zero, a battery can kick on for 15 minutes or natural gas can kick on and run for several hours until demand decreases. So it’s they’re managing to get by right now, that’s for sure.

David Blackmon [00:27:17] Yeah. And it’s so yes. And so every time somebody tells me how cheap Wind and Solar are. I asked them and anybody else who wants to chime in. Has anyone’s utility rates gone down since we started following all this wind and solar into our grid? No. Your rates have gone up dramatically the more renewables we put on this system, the higher the rates go.

David Blackmon [00:27:42] So I guess that measured one way and in an isolation rate without considering in context the overall impact to the grid. Yeah, they’re technically cheap, but when you consider the overall impact on the grid reliability and sustainability, they’re not cheap at all, man this is really costing us a lot and it all gets passed on to the consumers.

David Blackmon [00:28:06] And, you know, but thankfully and congratulate. I mean, we should give kudos to the folks at ERCOT for managing through this summer and to the folks at the PUC and in the legislature for enacting the reforms to the system that needed to be made, and Governor Abbott, for approving them and pushing them. Lieutenant Governor, The Speaker Everybody involved.

David Blackmon [00:28:29] You know, two years ago, if you’d asked me if we’re going to get through a summer like this, I’d have laughed. And it looks like we may get through without any significant blackouts and so, you know, they all deserve our gratitude and congratulations for that. I think that’s.

Jason Moglin [00:28:46] That’s Right. That’s right.

David Blackmon [00:28:47] And with that little bit of pontification, we will shut this sucker down for this month Jason.

Jason Moglin [00:28:54] Perfect. Looking forward to the next one and thank you very much for having me.

David Blackmon [00:28:59] Hey, man. Thank you. Always appreciate it always great talking with you. Thanks. Also to our Extraordinaire, Producer Eric Burrell, to the Sandstone Group for hosting our Podcast, and to the good folks at the U.S. Oil and Gas Association for being our sponsor. I’m David Blackmon and that is all for now.

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