Oklahoma is an important state for the US oil and gas industry. Excluding federal offshore areas, Oklahoma was the nation's fifth largest crude oil producing state in 2016. It is one of the top natural gas producing states in the nation, accounting for 7.6% of U.S. gross production and 8.7% of marketed production in 2016. Over the last ten years crude oil production has more than doubled to 533,000 barrels per day. However, the ramp up in oil and gas production has also brought environmental concerns. The state is also a major player in renewable energy. In 2017, Oklahoma became the second largest producer of wind energy in the U.S., generating around 30% of its net electricity.
On a new episode of Columbia Energy Exchange, host Jason Bordoff sits down with Mike Teague, Oklahoma’s Secretary of Energy and Environment. Mike, who was appointed to this role in 2013, is responsible for coordinating over 30 state agencies, boards, compacts, and commissions in advancing policies that encourage energy production and environmental stewardship throughout Oklahoma. Prior to his appointment, Mike served in the US Army for 30 years.
Mike and Jason caught up recently to talk about the outlook for the oil and gas industry in Oklahoma and the important role that renewables could play in meeting energy demand in the state in the coming years. Mike also touches on his career transition from being a Colonel in the Army to leading Oklahoma’s Office of Energy & Environment. Other topics include environmental issues associated with shale production in Oklahoma, notably seismic activity.
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Jason Bordoff: The shale revolution is transforming the oil and gas outlook in the United States even as renewables are the fastest growing sources of energy in the country. Oklahoma is at the forefront of these energy transformations. On the frontlines of the shale revolution, it's one of the top oil and gas producing states in the country. Oklahoma also has the second largest wind capacity of any state in the nation. So we wanted to look at what the role for policy is in energy development in a state like Oklahoma and how does the state balance the competing policy objectives of energy production with environmental protection.
That's the topic of today's conversation on Columbia Energy Exchange a podcast from the Center on Global Energy Policy at Columbia University. I'm your host Jason Bordoff. I sat down recently with Mike Teague Oklahoma's Secretary of Energy and Environment to discuss this and much more. Mike was appointed to this role in 2013. He's responsible for coordinating over 30 state agencies, boards, compacts, commissions in moving policies forward that encourage energy production and environmental stewardship throughout Oklahoma. Prior to his appointment Mike spent three decades serving our nation in the U.S. Army. We sat down recently in Aspen Colorado and we talked about the outlook for the oil and gas industry in Oklahoma. The important role that renewables can play in meeting energy demand in the state in the coming years his career transition from a colonel in the army to leading Oklahoma's Office of Energy and Environment.
We also discussed the environmental challenges associated with shale production most notably in Oklahoma concerns with earthquakes and seismic activity that have resulted from the disposal of the wastewater involved in shale activity and in some cases well completion itself. Here's that conversation.
Mike Teague thanks for joining us on the Columbia Energy Exchange.
Mike Teague: Absolutely. I appreciate the invitation.
Jason Bordoff: So a lot of things talk about Oklahoma is a really important state for the role of oil and gas in the U.S. economy. Also wind energy and renewables. A lot of the challenges of trying to think about how to support domestic development but do it safely and responsibly and address environmental issues. You've been on the frontlines of Oklahoma. I want to get to all of those things. But first I just want to start for our listeners with your story a little bit and how you came to this job almost three decades in the U.S. Army.
Mike Teague: Correct.
Jason Bordoff: How does that prepare someone to become the secretary of energy and environment. How did that happen?
Mike Teague: The how it happened and how does that prepare you I think are two pieces, a little bit differently but I was an Army Corps of Engineer officer and so spent most of my career in tactical units where everybody is in uniform. And then my last assignment was as the Tulsa district commander. And so in a corps of engineers district. So in Tulsa for instance there's about 700 people, there's only five in uniform. The rest of that organization is all department of the Army civilians. And the other piece...
Jason Bordoff: You're from where originally? You grew up...
Mike Teague: Originally from New England. And so...
Jason Bordoff: Hence the Boston Red Sox hat.
Mike Teague: That's right the Red Sox hat.
Jason Bordoff: On this podcast people cannot see but...
Mike Teague: The people in New York may not appreciate my Boston Red Sox hat. I don't know. Yes. So I think in a corps of engineer district you're running lakes and waterways systems and dams and flood control and Oklahoma water supply and you do that with all of these different stakeholders. And so as far as preparing me I think that has been just key for this type of a job. To how I got here, Governor Fallin in the summer of 2013 combined energy and environment into one cabinet position. And so for Oklahoma _____ [00:03:58] limited to 15 members and so you have to bundle different organizations underneath each cabinet secretary. So she made the decision. Those two had traditionally been separate and she put the two of them together. Quite honestly the environmental groups in Oklahoma didn't think that was a great idea. And then she appointed this army guy.
Jason Bordoff: Let me just stop you there. I mean talk about that for a minute. You know I'm... obviously I worked in the first term of the Obama administration after the Deepwater Horizon spill one of the changes that was made was to take the office Mineral Management Service and split it into two. Now an office that's responsible for developing the resource and a separate agency that's responsible for environmental protection BOEM and BSEE. So and the reason was because people thought these were different missions and could potentially come into conflict. So you did the opposite. Oklahoma merged environment and energy.
Mike Teague: No.
Jason Bordoff: Okay.
Mike Teague: So she merged the Cabinet position but not the agencies. And I think that's one of the pieces that's key to how we're organized in Oklahoma and so I am the secretary of both energy and environment but I'm not the energy regulator or the environmental regulator. Those are two separate agencies. They run on their own. But my job is to get them to work together. And so I think that you know that experience of coming from the Corps of Engineers and working with different stakeholders particularly around water applies to what this job is where whether it's a wildlife issue or a utility issue or an oil and gas in earthquakes or disposal wells and BEW. I mean all of those different agencies at the state you need those agencies to work together and so back to you know to the federal example having those agencies separate with their own task, their own agenda missions. But somebody at the top needs to make sure that they're coordinating in what they're doing. And so that that's actually a pretty good example from a federal level back to the state of what how we're organized.
Jason Bordoff: And I just want to ask you about the Army Corps generally since you spent time there before taking this cabinet position. Obviously the U.S. Army Corps of Engineer permitting role gets a spotlight with high profile cases like Dakota Access Pipeline and other things. But on a pretty regular basis and I think it's true in Republican and Democratic administrations and it's true for oil and gas pipelines and it's also true for transmission lines to support clean energy development. There is always criticism that Army Corps takes too long, is a block to moving infrastructure faster. I mean you've been there. Do you think that's a fair critique?
Mike Teague: I think it's a fair critique across the country but I think you have to look locally. And so forty five different districts. Each district has their boundaries that they operate within. So for instance in Tulsa, the Tulsa district and those boundaries are generally defined by watersheds. And so the Arkansas River halfway through Kansas and the Red River or northern part of Texas is all the Tulsa districts area. But an agreement from previous district commanders was you know why would we split the state of Kansas between two districts for regulatory. Why don't we just agree that anybody in the state of Kansas needs a permit should call the Kansas City district. And so they did that work very very well. In Oklahoma the Tulsa district has 11 people that covered the entire state of Oklahoma and the Panhandle of Texas. And their approach to permitting is to go talk to folks of this is the process, this is how we do this very proactive. But the disadvantage of 45 different districts is that they're not all homogeneous and in different parts of the country as well. Some will get much more attention and permit decisions get a lot more scrutiny either from environmental agency or organizations or from the folks who are you know developers. So I think that across the country the Corps does get that criticism and I think it's fair that it's slow but that process is there for a reason. I mean that is part of Clean Water Act. And I do believe Congress did that on purpose. And the fact that EPA writes the rules and the Corps as a separate agency implements those. I think that's a good structure. But I do think and I've told the folks at the Corps of Engineers too. So not a surprise to them. They've got to get better about consistency. Coast to coast and top to bottom. So...
Jason Bordoff: And let me come back to what you said a minute ago merging these roles and so your role, you're not merging the energy and environment functions but your role is to oversee both and make sure they're coordinated. Oklahoma has been at the forefront of both, right. Forefront of the shale revolution. Roughly I think tripling oil and gas production in the last decade and at the forefront of environmental concerns that are raised by the shale revolution. Earthquakes probably being the most prominent and maybe in many ways more unique to Oklahoma than other places. So I want to talk about those things in detail but first just talk at a high level about how you do build that kind of coordination, reconcile those different interests. What lesson... It seems as a country it's getting harder rather than easier to bring people together and try to find common ground and balance the objectives of domestic economic activity and energy development with environmental protection. I mean what's your experience been trying to do that in Oklahoma.
Mike Teague: I think that it has gotten harder and it's also probably never been more important. And so I told you the governor combined energy and environment should not make that decision based on earthquakes. But the first day that I started working for the state I brought together these different agencies and we didn't have an office yet. So we were actually using the governor's conference room. We brought these agencies together and I said just tell me what you do. Tell me the top three things that you're working on right now. And so the first person was the Corporation Commission which for us regulates oil and gas and public utilities and some other stuff. And that person said I'm working on earthquakes. While the earthquakes are generally north central Oklahoma and we live in Tulsa and so personally I don't feel them and at the time certainly didn't feel them. So I was, didn't understand why the Corporation Commission be working on earthquakes. But what was really stunning was three other agencies at that table said we're working on earthquakes too. And I said So you're working together. No and so again earthquakes is not the reason the governor made this decision to combine but it's probably become the poster child of the value of bringing together those agencies. And you know so those agency directors we meet every single month. Actually we did, we met every single month for probably the last three years. Now those agency directors know each other and their staffs get to know each other better and so they actually came back and said I don't think we need to do this every month. Can we do it every other month because our agencies are working well together. And so I think it's hard. But again it's so important to get everybody to work together because I mean these are big issues that have to be solved.
Jason Bordoff: And how do you view the way in which people have engaged these issues, the way stakeholders engage in terms of the priorities kind of placed on these issues within the state? So people aren't following Oklahoma on a regular basis. We'll see Oklahoma because Senator Inhofe is kind of widely perceived as one of the primary people questioning climate science. Obviously now our EPA administrator hails from Oklahoma and challenged almost every environmental regulation. It seems that the EPA put out not just for climate change but issues of methane emissions and how to do shale development safely, the BLM rules on federal lands, royalty issues a bunch of things that are now EPA is trying to undo. So how important were the environmental issues for the state and for you and the governor?
Mike Teague: I think the environmental issues are incredibly important. But it goes. It's the value of putting energy and environment together. Right. I mean it's difficult in a state like Oklahoma when energy is so big and not just oil but oil and wind and Cushing and pipelines. I mean energy is just kind of at the heart of you know the economy energy and agriculture. Well you can't really talk about an energy issue that doesn't have some kind of an environmental impact. You really can't talk about any of the environmental issues in Oklahoma without some kind of an energy impact. And so the idea that you know put them together and have these conversations. And so you know what are we doing to reduce our emissions and better air quality? What are we doing to improve water quality? And you know I think there's only one other state that has taken more streams off the impaired waters list with EPA than Oklahoma and that's because landowners care and you know folks care about their water and they care about the air at top of them and...
Jason Bordoff: And as a state regulator how do you think about the right balance of state versus federal authority and what's your reaction to what administrator Pruitt is doing now.
Mike Teague: So you know a lot of folks talk about corporate federalism. It's almost become the bumper sticker and when people ask me that I tell, I try to remind them that the important wording corporate federalism is not federalism. It's the cooperation part of this. The fact that yesterday afternoon as we're sitting here but yesterday afternoon I stepped out to take a phone call on a water quality issue on the Illinois River that involves Arkansas and Oklahoma. And therefore EPA Region 6 and the regional administrator and my counterpart in Arkansas and I get on the phone every other week to talk about what we're doing to improve the water quality in that river. I mean it's that relationship piece that you need. Right. Oklahoma wouldn't have the disposal well program if it wasn't delegated from the EPA. And as all the earthquakes you know really were hidden and we focused that you know the correlation on disposal, EPA was a fantastic partner and then reviewing our programs. Were we doing the right things and they came back and said now you need to do some more on seismicity and they were right. And so it's that cooperation back and forth and I think it's incredibly important.
Jason Bordoff: Well you've shifted to being a good politician because you answered the first not the second part of my question.
Mike Teague: No. What was the second one?
Jason Bordoff: The second one was just... coming from Oklahoma and having having been in office when the administrator was attorney general just your thoughts on what you see him doing now at EPA both from a regulatory standpoint and then kind of all the scandals and other questions being raised recently.
Mike Teague: I won't be able to really talk that on that part of it. I mean we both were in office in Oklahoma at the same time. We had very different positions and different roles. Clean Power Plan. You know I mean he was the attorney general for the state. Attorney general filed lawsuits and that's what he did. I was the secretary who's trying to get energy and environment folks to work together. And so we were working with our utilities and an EPA at the regional level and at EPA headquarters of what would a Clean Power Plan look like and how would Oklahoma implement it. And what was interesting was you know as the draft Clean Power Plan was out there we actually would have already met all of the targets under the Clean Power Plan without having to take another action in the state. And that was because of great work that was done with our utilities and our corporation commission and the previous secretaries and so very different roles between the AG and the secretary.
Jason Bordoff: What are the... Like many parts of the country or some parts of the country but in Oklahoma especially the history of oil and gas development there over the last century has been one of boom and bust. And so we had a boom now. Talk about... people see the upside of that jobs and economic activity, a lot of challenges that go along with that. Two strains on roads and infrastructure and traffic and safety and accidents. And then they'll at some point there will be a bust again because history teaches that the rule is. And that causes a collapse of the local economy, the school funding base and other things. Is part of your role thinking about how to make an economy more resilient to that and how are you doing that?
Mike Teague: It is. And so not only the local impacts that you just described but at the state level too. And so if you look at what our state budget spent over the last three or four years when our state revenues plummeted because we had such a reliance on production taxes for oil and gas. And so you've really seen even over the last two years and Governor Fallin has been very vocal about we need to be able to spread that revenue across all of the industries to mitigate that boom and bust at the state level. At the local level...
Jason Bordoff: If I remember correctly there was a press release by her sort of thanking OPEC for cutting production.
Mike Teague: There was.
Jason Bordoff: Now we're at a point where we're kind of... Some people at the White House seem to think we want make sure they put more production on the market so...
Mike Teague: Yeah, it's okay that production was coming out the scoop and stack a little bit more. But we see that like you described not only at the local level but at the state level as well. And I do think we are involved because we're trying to think of the long term strategies that balance that out. Should you take a portion of the revenue from production tax and put it into some kind of a minerals trust where the legislature and you let it grow. So the legislature can spend the interest or the interest and a portion of it but primarily the principal needs to stay so that you can use that. Governor Fallin talk all the time and when she took office the rainy day fund for the state had and I think the quote is two dollars and 38 cents. And we had to use a bunch of that over the last two years and she will leave office at the end of this year with some around $300 million in that account. And so I think it takes folks trying to think long term and it's hard sometimes to address problems that aren't there yet. Right. And so the example I gave is electric vehicles. We probably have less than 2000 electric vehicles in the state of Oklahoma. I mean just we're driving a lot of pickup trucks but our distances are pretty long. And so they haven't had a great input you know growth into the market yet. But when they do who funds roads and bridges because right now we pay that at the pump. And so where the state has had a great push on natural gas vehicles and so we've got infrastructure across the entire state now for fueling CNG and is spending what we put that tax at the pump for CNG just like we do gasoline diesel. Well what happens when electric vehicles show up and people aren't at the pump anymore. And that may be way way down the road but you should fix those issues structurally now before you have a problem.
Jason Bordoff: So I do want to turn now again we mentioned in the beginning that when people talk about the concerns raised by shale development Oklahoma often gets comes up when people talk about seismic activity and earthquakes. So just help our listeners understand like first what the facts are there with the earthquakes in Oklahoma. How many, how much of an increase we've seen. I think there's been a decrease recently so if there has been how much and why and what we know about the connection between fracking and earthquakes.
Mike Teague: And the disposal too.
Jason Bordoff: That's why, so I'm using that term broadly. This is part of the confusion as people often kind of you use the term broadly or narrowly so I'm using that term to refer to the whole cycle of hydraulic fracturing development including wastewater disposal. But that's a good clarification.
Mike Teague: So I keep track of earthquakes above a 3.0 generally that's what people can feel although there certainly are areas in Oklahoma that because of the depth of these earthquakes and the geology underneath folks can feel probably down to a two and a half. But just for the sake of a set of metrics I keep track of it. Anything above a 3.0 and background for Oklahoma is probably a dozen or less in a single year.
Jason Bordoff: And those can be felt just so people understand.
Mike Teague: Right that 3.0 earthquake you can feel it in your home. And so background historically in Oklahoma less than a dozen a year. In 2013 we had 110. 2014 was 579. 2015 was the peak at 903 in a single year. I mean that's almost three earthquakes a day. And there's no way you can look at that problem and say that's natural.
Jason Bordoff: But many in industry did. Is that right.
Mike Teague: They did. At that time 2013, 2014 and so I started this state the very end of 2013 and there were a lot of folks actually I would describe that there were folks on both ends of the spectrum who were trying to capture this issue for their message. There was a group that was saying ban fracking because it's causing earthquakes. There was another group that said it's got nothing to do with the oil and gas industry. You can't prove it. Stop talking about it. And but when you have 900 in a single year it really was time to take some action.
Jason Bordoff: From 12 or less than 12.
Mike Teague: Right. And so we brought together we call it a coordinating council. That group meets every single month and it was all of those agencies I said at the beginning that were working on earthquakes and not necessarily working together. And it was industry. There were some folks in the media that thought that was a little bit of that you know fox in the henhouse. And my answer back was industry knows best what's you know underneath the ground in Oklahoma. They've been stomping around for a hundred years for oil and gas. They should be part of this. Brought universities in. Because even around and do seismicity there was a ton of work being done at Cornell, Stanford, CU Boulder, UT Austin and not all consensus. And so that actually was an interesting piece of this was how do you decipher as a civil engineer multiple differing opinion very technical papers from seismologists. And so our answer was you bring our three universities in and you let their professors help sort through that and the Ground Water Protection Council. And so Ground Water Protection Council which also is headquartered in Oklahoma City. So they were local but they did the FracFocus database. And so they been very helpful about transparency. And so they've been great partners so we brought this group together and in the very first meeting the state seismologist said we don't understand where all the faults are underneath the state. We don't have a complete fault map and the industry folks that were in the room. So we have two trade associations and so we had a couple of members from each of them and the industry folks were in the room said give us a copy of the map. And there were these five big red circles where he needed more data. They went and got the data from industry and helped fill in the gaps in a fault map and is where we started to paint the picture of what is the cause and what is going on. And then out of those agencies the regulators are in that room too. And so then what is the action that they're going to take as regulators and so the Coordinating Council is not to...
Jason Bordoff: So just to help people understand why where the fault lines matters. I mean just explain what it is that triggers this seismic.
Mike Teague: Right and so you know it was a little bit of the research and the industry help having better data. And so the conclusion was it's the disposal of produced water. And so as you're well aware and you bring oil and gas to the surface, oil, gas and water and interplay in the Mississippi Lime you're probably getting 19 to 20 barrels of water for one barrel of oil which made an awful lot of sense at $100 oil and not so much anymore. But what are you going to do with that water it's very heavy salts. There's stuff in there we don't know what it is. And the answer is dispose of it back into a deep well disposal. We had primarily put that into the Arbuckle Formation which is a very deep formation in Oklahoma. But that formation was great for taking all this water because it's very porous but it sits on top of the basement.
Jason Bordoff: And just to be clear that's not unique to shale. Conventional oil and gas has developed wastewater that needs to be disposed. But the pace of activity and the volumes have increased so dramatically.
Mike Teague: And not just because of well maybe they're connected it's probably in your area more than mine but the connection of that increase in technology and the horizontal drilling and the fracking and the new technology and a $100 barrel. So I know that those two are connected. But those two pieces together meant we were drilling a bunch and we had a ton of water to dispose. And so in 2014 we disposed of 1.5 billion barrels of produced water in a single year. So that's you know one and a half times. If you're familiar in Oklahoma with Lake Thunderbird which is a huge water supply for the city of Norman, Midwest City and Dell City. That's a lot of water.
Jason Bordoff: And so what's happened to them? How have regulators addressed the issue and what's happened to earthquake?
Mike Teague: So the consensus around the research was that the trigger was the volumes in these areas. And so as we got that part of it then the regulators started restricting the volumes. And so we really were learning as we went. I mean we started with there'd be an earthquake, we would draw a ten mile circle around it and we would look to see where the disposal wells are in there and we'd reduce those wells. And then we find out that still wasn't enough. And so we finally went to a 15,000 square mile area of interest is what we call it part of the state and we reduced all of those wells down. And some we did if it was near Cushing and just the critical nature of the infrastructure we shut those wells in. In the other ones we reduce their volumes by a percent. So I said the peak of earthquakes was 903 in 2015 and 2016 and went down to 623. And then last year was 304 and we should be on track to be at around 200 this year. So...
Jason Bordoff: Significant improvement but still a lot of earthquakes.
Mike Teague: And still not done, right that's exactly what I was going to say we're not done. That coordinating council group still meets every single month. We're going to meet next Monday when I get back to Oklahoma City. And now they're doing research around bottom hole pressures and the combination of industry and researchers has been fantastic and so we have almost three dozen of these disposal wells now that operators have turned over to our geologic survey so they can instrument the downhole pressure. And then you can watch to see well how far away do these disposal wells react if there's an earthquake or when the disposal well next door cranks up the volume or not.
Jason Bordoff: And I presume in addition to reducing pressure increased investment and recycling has been part of this too.
Mike Teague: So that's been the next piece of this. And so you know I was describing how much water this is. In 2014, one and a half billion barrels. In 2014 Oklahoma is in a drought. And so we also have a produced water working group and our water resources board runs that. So not our office. We run the Coordinating Council for seismicity but they are the water planners for the state. We've got a very good comprehensive water plan that says in 2060 use no more freshwater than you did in 2010. So pretty ambitious goal. And part of that is find other sources and if I can recycle even just within the oil and gas sector and take produce water and clean it up enough to frack the next well as to using freshwater. That's a huge improvement. So that group brought together all of the different water users around the state AG, municipal and industrial, utilities, oil and gas brought all of them together with university researchers and the Ground Water Protection Council. And it's been very much the same model of can you bring people together. Sit them at a table, get everybody to understand what the problem is you're trying to fix kind of get their agendas put away and get everybody focused on solving the problem. And so...
Jason Bordoff: And what's your I mean so you talked about lowering the pressure, you talked about recycling steps that can be taken to solve the problem. Not completely but improve it. That come at a cost. And so in your characterization would you say industry has been sort of constructive in recognizing that this puts the social licence to operate at risk and solving it or has it been resistant because there is a cost?
Mike Teague: I think there was a lot of resistance at the very beginning and it goes back to there was a part of the industry that said this is not us. There was also resistance because there are lawsuits and in some I think the rulings have been absolutely correct that you know everybody's working on this to the best of our ability and the cooperation...
Jason Bordoff: There have been class action lawsuits against the industry for the damage from...
Mike Teague: Correct.
Jason Bordoff: The seismic activity.
Mike Teague: And so I think those kind of drove the resistance but the more we saw the cooperation. Right and so when I was describing you know we needed more data on these fault maps. I didn't go ask industry to do that. Their peers did it and it was their peers who were part of the Coordinating Council that then went outside to their buddies and said hey we need to fill in these gaps. And I think that this idea of coordination within this group that doesn't usurp anybody's you know roles that they bring in there. The regulators are still going to go out and make their decision. But the Coordinating Council gives them an environment that they can bounce ideas off everybody else and and see what the response would be. The industry has been able to do the same thing and so I would say the resistance has gone way down to the point where now we know that we have fracking induced earthquakes and we find out of that and we find out specifically about it because an operator came in and shared the data and said hey this just happened. And then you get all the engineers around the table whenever...
Jason Bordoff: This is a really important point. I want you to talk more about it because you know you helpfully clarified earlier when I was using this term broadly and often people in industry will say it's not the fracking of the well itself it's the disposal of the wastewater that had triggered the seismic activity. But there have been reports recently that it has been the actual fracking and completion of the well.
Mike Teague: Correct.
Jason Bordoff: That's triggered seismic activity. Tell us what the latest understanding of that is and what's being done about it.
Mike Teague: So I actually you know I absolutely was part of that messaging as well. So three years ago, four years ago when we started this it was, it's not the completions, it is disposal and in this area of the state it really still is disposal. But as we started to look we were having earthquakes where there were no disposal wells. And again to the credit of a really, really good operator they came in and said this just happened and they literally on a table rolled their data out and everybody was able to look at it. And so in November of 2016 the Corporation Commission put out a guideline on fracking or completion induced seismicity and pretty much a stop light of actions to take at three different levels of magnitude for earthquakes. We modeled it a little bit after Alberta and British Columbia because they have the same problems bigger higher magnitudes a similar problem very different geology. And so we modeled a regulatory structure after what they had done. And then we just so that was November of 16 we just updated that in February of 18 because it wasn't enough and we had better information now and the operators had better information. And so part of the new guideline is that operators have to have access to a seismic array where they can see earthquakes below a 2.5 actually below 2.0. If an operator can see the smaller earthquakes then they can make changes in their completion operation that eliminates the risk of a higher magnitude earthquake and they're doing it. And so it's working very very well. But again that came out of this collaboration of everybody working together.
Jason Bordoff: And so we often talk about oil and gas in Oklahoma rightfully given what its role has been in this sector for more than a century. Also a big state for renewable energy. I think about a third of electricity comes from renewables mostly wind and it's been growing. What's the role of policy in making that happen? Is that a contentious thing, is it sort of people who support oil and gas and people who support clean energy view these in conflict with one another or has that been really strong support for expanding renewable energy production in the state?
Mike Teague: I would say overall a lot of support for expanding renewables. Although not in my backyard is alive and well in Oklahoma just like it is in every place else around the world. But primarily the wind is in the panhandle and pretty rural communities and those landowners. I mean in the middle of this drought I was talking about before the fact that they were getting lease payments to have a turbine on their property is for some of them is how they kept their ranches afloat. The other thing that's been interesting is you know the advancement in technology in both industries. And so when I first started putting turbines out there in the middle of a section and the oil and gas industry is going wait a minute, I have to be able to get out there so I can drill. But new technology for oil and gas and horizontal drilling means the drill pad actually sits on the corner of the section line roads and then they can reach out under to get to what they need. And so the technology is actually deconflicted spatially wind turbines from draw pads. Now tax policy is a completely different story and an incredibly contentious last couple of years. Not only had Oklahoma done some tax incentives for wind and it was really about tracking those wind projects into Oklahoma and competing against Texas and Kansas in our areas. But we also had an incentive tax rate for oil and gas for production. And so our production tax rate historically had been 7% and it went to 1% around the new technology of horizontal drilling. And so that's not a new thing.
Jason Bordoff: The government's using state revenue to support all forms of energy productions.
Mike Teague: All forms. I mean that's what I said we are an energy state...
Jason Bordoff: But continuing to do that for oil and gas. And if I understand it correctly the tax credits were just eliminated for wind.
Mike Teague: Eliminated for wind and the gross production tax for oil and gas went to 5%.
Jason Bordoff: Went up.
Mike Teague: So went back up. Very very contentious. And in the middle of don't tax me tax somebody else. The two industries very much were you know kind of throwing rocks at each other. But again my perspective of looking at both energy and environment for Oklahoma we need that oil and gas production as a state. From a utility perspective we need that gas and we need that wind. And so we right now I think this month is still true. We are the cheapest electricity in the country. And have been pretty consistent in the cheapest probably the top three or four for going back to a year and a half. And our fuel mix for power generation has shifted away from coal which for us was powder River Basin coal and our coal plants don't run very much anymore but...
Jason Bordoff: I mean you say we need that wind. The reason is because it's the cheapest because it's cleaner or what's the reason?
Mike Teague: It's cheap and and gas is right behind it. And so again if you think of an Oklahoma revenue it's Oklahoma wind and wind turbines pay _____ [00:36:48] taxes and lease payments to landowners. And it's Oklahoma gas running gas plants, gas power plants in the state and those two pieces overwhelmingly are the majority of our power generation now. And so when you can use your own natural resources to generate your power and do it again cheapest in the country...
Jason Bordoff: But it's happening because it's the most economic option not because government subsidies are...
Mike Teague: Correct. I would say the government subsidies have helped generate those wind projects, generate the oil and gas development into the shale. But now that we've ended those tax incentives we're still seeing wind projects proposed and constructed. We're still seeing drilling in the SCOOP and STACK at 5%. And so I think we'll continue to see those. I'm a big advocate of incentives at the beginning, kind of a crawl walk run but when an industry is up and able to run, the public should not have those incentive still out there. It's difficult to clawback an incentive. But I think...
Jason Bordoff: I mean one of the arguments for supporting that some people might make is that in addition to being low cost energy in state energy it is zero carbon energy.
Mike Teague: Correct.
Jason Bordoff: And that's presumes there's a policy problem you're trying to deal with which is climate change. We mentioned Senator Inhofe before we mentioned your industry to approve it before how big an issue was climate change for you and for the state and trying to think about the design of energy policy.
Mike Teague: It's absolutely a piece of how we think about designing energy policy. But we go about in a different way. And so if you look at other states with renewable portfolio standards and policy mandates. In Massachusetts you know up the road from you guys they're struggling to meet their renewable mandates when they can't get transmission lines to come in to get hydropower or move down from Canada and they can't get wind off the Cape because again not my backyard. Oklahoma doesn't have a renewable portfolio standard. We have a goal it was 15%. We're at 28% right now. And so we've far exceeded that goal. And so we don't need to use policy mandates to improve our economy with this low cost energy and improve our environment at the same time. And so we've really focused it around the economics and you get the environmental benefits at the same time. And that's been our approach to it.
Jason Bordoff: Mike Teague unfortunately we're out of time but I want to thank you for spending the time to join with us today and talking Columbia Energy Exchange. Thank you for your service in government, and your 30 years of service in the U.S. Military.
Mike Teague: Yeah. Jason thanks. I really appreciate it.
Jason Bordoff: Thanks for tuning into Columbia Energy Exchange and as always please take a moment to rate our podcast on iTunes and leave a review. My cohost Bill Loveless and I read every comment and your feedback helps us improve the quality of Columbia Energy Exchange as we grow and move forward. For more information about the podcast or the Center on Global Energy Policy please visit us online at Energypolicy.columbia.edu or on social media at Columbia U. Energy. We'll see you next week. Till then I'm Jason Bordoff.