As Washington enters Inauguration week, confirmation hearings for nominees to the Trump Cabinet will be in full swing with plans to get about a half-dozen confirmed by the Senate by Inauguration day.
Among the cabinet hearings this week are confirmation hearings for three critical to energy policy: Oklahoma Attorney General Scott Pruitt for EPA Administrator; Congressman Ryan Zinke (R-Montana) to be Secretary of Interior; and former Texas Governor Rick Perry to be Secretary of Energy. Of the three, we expect Pruitt’s hearing to generate the most heat from Democrats but all of them should have easy confirmation votes in the Senate.
Scott Pruitt for EPA Administrator – January 18 Hearing in Senate Environment & Public Works Committee
When President-Elect Trump nominated Scott Pruitt for EPA Administrator, we said at the time that the pick was confirmation that Trump intended to follow through on campaign promises to reverse the Obama administration’s policies to decarbonize the economy.
Because there is so much at stake for the Obama climate legacy, Pruitt is sure to receive aggressive questioning from Senate Democrats on the Environment & Public Works Committee. Despite the expected fireworks, Chairman John Barrasso has promised a one-day hearing followed by a quick confirmation vote.
Investors should closely watch Pruitt’s responses for signals on policy changes that could have meaningful impacts on various sectors and companies. For example, farm-state Senators have expressed satisfaction in Pruitt’s answers in one-on-one meetings regarding his and President Trump’s support for the Renewable Fuel Standard (RFS).
But we also expect direct questioning during the hearing about Pruitt’s view on shifting the point of obligation for RFS compliance from refiners to blenders/retailers. Such a move would be a boost to merchant refiners like Valero, CVR Refining, PBF Energy, Philadelphia Energy Solutions, HollyFrontier, CVR Refining and Delta Airlines’ Monroe Energy. While we think Pruitt is inclined to change the point of obligation, we expect him to cite the on-going comment period on EPA’s rejection of the Valero petition as a way to avoid giving a direct answer.
Another area of interest will be his responses on how the Trump administration will handle rolling back the EPA Clean Power Plan through regulatory and legal maneuvers. This will be positive for coal and other energy sectors while creating some headwinds for the renewable energy sector.
A successful Senate confirmation vote for Pruitt could result in a bump in stocks of favorably affected industries.
Ryan Zinke for Secretary of Interior – January 17 Hearing in Senate Energy & Natural Resources Committee
Congressman Zinke from Montana will likely be questioned aggressively about climate issues as well. The Obama administration used interior regulations and executive orders to advance climate policy, and therefore, is likely to see these policies reversed and abandoned in the Trump administration under Zinke.
This is especially true for energy exploration on federal lands. The Dakota Access Pipeline developed by Energy Transfer Partners and federal interaction with Indian tribes on pipeline siting is sure to be a hot-button issue that Senate Democrats will focus on.
In addition, the Obama administration’s recent executive order banning new on off-shore drilling in the Artic and Atlantic will provide some fireworks especially from Committee Chair Lisa Murkowski from Alaska. Interior’s policies on coal leasing and a proposed rule on hydraulic fracturing on federal lands will also be examined.
A successful Senate confirmation vote on Zinke will be another positive indicator for the coal sector.
Rick Perry for Secretary of Energy – January 19 Hearing in Senate Energy & Natural Resources Committee
Former Texas Governor Rick Perry is likely to have the easiest confirmation hearing of all the Trump nominees this week. When he was nominated, it was originally thought he might attract the toughest hearing since he advocated for eliminating the Department of Energy. But by all accounts from private meetings with individual senators, Perry has walked back that position and is viewed as competent leader for the Energy Department.
He will certainly be asked about eliminating DOE for the record and will provide a well-rehearsed answer. His toughest questioning will again come from Senate Democrats who are concerned about climate change policies under a Trump administration. He will surely also get questions from Senators with individual DOE facilities/operations in their states.
