"If You Find Yourself In A Hole, The First Step Is To Stop Digging Deeper" Featuring Jim Matheson, NRECA

C.O.B. Tuesday

For today’s discussion we were pleased to host Jim Matheson, CEO of the National Rural Electric Cooperative Association (NRECA). Jim’s distinguished background includes roles in both the public and private sectors. Prior to joining the NRECA in 2016, he served in the public policy practice at Squire Patton Boggs based in Washington, D.C. Jim was elected as a U.S. Representative for Utah from 2001 to 2015 and has significant experience in the energy industry. The NRECA is a vital national service organization representing over 900 consumer-owned electric cooperatives, collectively serving 42 million people across 48 states in the US. We were excited to visit with Jim and gain valuable insights into the cooperative landscape.
Jim first provides background on the unique structure of electric cooperatives, how they are owned by the members they serve, and focus on consumer interest rather than shareholder interests (a detailed overview of US electric co-ops is linked here). We explore how electric co-ops approach decision making regarding power systems to balance cost, reliability, and emissions reduction, the evolving generation mix, the shrinking margin of error in meeting peak demand and the increasing risk of outages, and the US’s struggle to keep up with building new power plants while also shutting down existing ones prematurely. Jim shares his perspective on the need for increased resiliency in the electric grid, particularly through the expansion of transmission infrastructure, and concerns with the feasibility and economic impact of recent EPA regulations targeting emissions reduction from coal and natural gas plants (details linked here). We discuss potential bipartisan efforts to revise permitting and streamline processes, growing awareness among the public on power issues, election year dynamics, the benefits of natural gas as a fuel source for electricity generation, the need for continued vigilance around cybersecurity measures in the electricity sector, the possibility of bipartisan efforts to prioritize energy security and reliability, and more. We greatly appreciate the work Jim and the team at NRECA are doing.
Mike Bradley kicked us off by highlighting that markets have been choppy this past week but managed to get by with modest gains. The 10-year bond yield has plunged to ~4.45%, down from ~4.7%, just one week ago. Bond yields dropped despite the FOMC leaving interest rates unchanged, mostly because Chairman Powell signaled the next rate move would likely not be a rate hike. WTI price this past week had collapsed ~5/bbl due to a large increase in US crude oil inventories, less concern over Mideast chaos, and WTI trading through important technical trading levels. Crude oil traders seem to firmly believe that OPEC will not announce they’re putting barrels back into the market at their June 1st meeting, especially at sub-~80/bbl. Natural gas is trading at its highest level since early January, mostly due to the monthly futures contract roll. The US natural gas storage surplus is still high, but lower 48 natural gas production is falling faster than expected and recently averaged less than 99bcfd. Most S&P companies have reported Q1 results, and so broader markets will need to look elsewhere for direction. Broader markets have rallied recently as they’re less worried today about higher interest rates and higher commodity prices. He further noted that broader markets recently have had a nice bounce because they were technically oversold, and volatility had spiked but are now moving towards overbought territory again. He ended by flagging most energy companies have reported Q1 results and this week will be a heavy dose of SMID-cap E&Ps, Global Oil Majors