The EIA - Yesterday And Today: Reflections Of A Former Administrator

In the mid-1980s, when the pressure for removal of natural gas price controls came to a head in the United States, Chairman Dingell of the House Energy and Commerce Committee commissioned the Energy Information Administration (EIA) to analyze the current market situation and to assess the consequences of decontrol. By – H A Merklein, former head of the EIA*

The study that emerged several months later offered essentially the same conclusions as an earlier Administration study on the subject, yet the EIA study was readily accepted in Congress while the Administration study was dead on arrival. Why the different treatment? Because we had credibility, while the earlier Administration study was believed to be politically biased.

Credibility is what makes or breaks EIA as an acceptable disinterested contributor to political dialog. In a city where inter-party warfare is a way of life, I have always thought of EIA as a bullet manufacturer. We made the bullets, good bullets, reliable bullets, but we never fired any of them. Political players made the decision whether and in what direction to shoot them. More often than not, they would shoot them in mutually destructive directions, which is not incompatible with warfare, political or otherwise.

I think it is fair to say that all EIA Administrators have recognized the crucial need to maintain a bias-free stance on data collection and analysis, and the country as a whole has been better off because of it.

Simple as the concept of independence is to grasp in theory, in practice it is far from being clear-cut. Whether a statistical or analytical agency adheres to its independence mandate is basically a matter of judgment. In the case of EIA, it falls on the Administrator to determine where in the continuum from neutrality to activism a workable line is drawn over which the Agency as a whole, or any of its individual analysts, cannot step without violating the spirit of the EIA Enabling Law. That requires a level of technical expertise, integrity, and sound judgment we would like to see in all government agencies, but at EIA and in similar statistical agencies it also requires a strong backbone and resolve to reject attempts to invade the integrity perimeter set up, but not defined in detail, by law.

There are many ways to undermine EIA’s political neutrality, but two stand out. They are deliberate or unintended moves from without the EIA and zealotry from within. Deliberate outside attacks by political activists are clearly discernible and easily ignored. An article by one particularly aggressive organization, which had been opposed to gas price decontrol as early as the Carter years, called the very gas report that Chairman Dingell had praised “a highly flawed document”. That organization stated in print that it had made it its “goal for this year (1986) to see him (Merklein) out of office.”

I would ascribe the occasional call for support from non-EIA parties within DOE, from other government departments, or from Congress, as mostly uninformed or unintended interference with EIA’s political neutrality, even if the suggested pronouncements are technically correct. The visual impact of lining up with political entities outside EIA can be damaging to the Agency and is likely to give rise to charges of yielding to outside pressure.

Zealotry from within is a different matter. There is no clause in the EIA Enabling Law that grants independence to individual analysts. Technical analyses are typically done by teams whose members have special expertise in the issue at hand. If a team cannot come to agreement on a specific problem under consideration, it is resolved by being moved up the chain of command, culminating on occasion in the Administrator’s office.

When the Dingell study was underway, one EIA analyst insisted that the removal of controls would lead to an “explosion” of natural gas prices throughout the United States and he took it on himself to incorporate his ideas within the Dingell Gas Study. This idea met with resistance from the leading Office Director and his fellow team members. When the dispute reached my office, I met with the individual one-on-one and tried to reason with him on purely economic grounds. When that failed to persuade him, I categorically overruled his position, and that was that.

In 1984, when I inherited EIA, the Agency was just 7 years old. It was in what psychologists would call its formative years. Today, at the ripe old age of 35, EIA has certainly matured.

When I started to think about EIA’s post-Merklein evolution while preparing these remarks, I thought it would help if I compared the EIA’s latest Annual Energy Outlook with the last one that was prepared on my watch, the 1990 issue. I called EIA some 15 minutes before quitting time on a Monday afternoon, hoping that an old copy might still be around somewhere at EIA that I could borrow. I was prepared to pick up an archived hard copy at DOE the next day, if I struck gold.

At 5:06 PM that same day, about 20 minutes after my call, I had a digital copy in my inbox. I am sure, a good number of current EIA professionals would be astonished to learn that the Agency did not have the benefit of E-mail or the internet when I took the helm and that it was just beginning to understand and use these brand-new tools when I left. Catching up and staying ahead in this fast moving computer world was one of EIA’s major challenges at the time. Yet, EIA’s biggest challenge, in my view, was to convince the world that this young Agency’s independence was for real.

I do not know if EIA is subject today to the type of aggressive activism that it was in my days. I was investigated twice, once by the FBI acting on anonymous charges that I had been a member of the Hitler Jugend. (I lived in Germany during World War II and was 9 years old at the end of the War, one year short of the then mandatory age for conscription – I was astonished that the FBI had not figured that out by themselves, and I told them so).

The other occasion occurred when the US Department of Justice was asked, by the same radical organization that wanted me fired, to investigate me for “abuse of power”. That included “unnecessary” quarterly trips to the EIA Dallas Office (now moved to Washington, DC), annual trips to Prudhoe Bay which at the time accounted for some 25% of the US crude oil production and reserves, as well as to Middle Eastern oil-producing nations which were and continue to be the world’s largest and most vulnerable oil suppliers.

The US Department of Justice looked into the allegations and dismissed them on the grounds that I was merely using the discretionary power of my Office. There were, in addition, numerous press releases and letters to political leaders in the White House and in Congress, to the press, to EIA personnel (no copies to me in most instances) and to me personally. Of the letters to me, I responded to one only and refused to pay further attention.

I believe that these aggressive tactics eventually worked in EIA’s favor, since all charges were dismissed and their capricious nature was widely recognized, which contributed to the general perception that EIA could and did pursue its mission with integrity.

That said, the road traveled by EIA in the post-Merklein period was, I am sure, not always strewn with roses. Yet, in the end, the Agency’s transition from pre-puberty to adulthood was an unmitigated success. Using the 1990 and the 2012 Annual Energy Outlook (AEO) is as good a starting point as any to compare EIA’s activities 22 years ago with what the Agency is doing today.

The one thing that stands out in terms of content is that EIA is now dealing in some considerable depth with environmental data collection. The expansion into environmental data collection was authorized by Congress and signed into law in 1992 and it was expanded in 2005, two and fifteen years after my departure. As a result, environmental data and analyses are deeply imbedded in EIA’s 2012 AEO, where, for example, the term “greenhouse gas” appears 61 times, compared to a peripheral one-time mention in the 1990 issue.

As to forecast scenarios, the traditional reference case and its classical high-low economic growth and high-low oil price companion excursions have been retained in the 2012 issue of the AEO. However, they are now dealt with in much greater depth than they used to be, which increases their usefulness not just for policy makers, but for industry as well. No less than 25 side cases explore areas of uncertainty for markets, technologies, and policies in the US energy economy which, I am sure, is a welcome addition for policy makers and industry.

Shale oil and shale gas are not mentioned once in the 1990 AEO Issue. By 2012, this topic received plenty of attention, and deservedly so, following advances in horizontal drilling and in multi-stage fracturing that did not exist 22 years ago. (Straight fracture treatments in tight vertical wells, by contrast, are old hat. I myself fractured several wells some fifty years ago in the New Hope Field in Eastern Texas during my younger engineering days).

I took note that EIA acknowledged the success of oil and gas production from shale formations, especially gas production. But I also appreciated that the 2012 AEO sounded a cautionary note since the longevity and decline rates of shale gas wells are at the moment far from settled and probably have been overrated in a period of early euphoria. As a result, and also because of low gas prices brought on by the very success of shale gas operations, many independent and major oil companies with holdings in shale properties have lately been implementing significant reductions of the value of shale gas reserves on their books and, if used in investment promotions, in filings with the US Securities and Exchange Commission.

Overall, EIA’s treatment of the US shale gas potential is sensitive and cautiously optimistic, which makes me suspect that EIA has brought new petroleum engineering talent on board since 1990. One of the most impressive moments, from an ex-Administrator’s point of view, was EIA’s acknowledgment that its forecasts will, rather than might, contain errors – period. That is a concept that I had always emphasized and that EIA’s then Director of Statistical Standards, had fully subscribed to. We began to publish past forecast errors, which came to haunt us at times, when critics disclosed them as errors that they had “discovered”.

Having witnessed the 2012 AEO presentation, is there anything that made me think that I might have done things differently? The answer is “yes”. I had always felt that a statistical agency, especially one like EIA, operating in a politically charged environment, should be discreet. I saw how effective and well-received the public presentation of the 2012 AEO was and the good will and trust it created.

Taking the lead rather than being on the defensive is certainly a different approach that might have served EIA equally well, or quite possibly better, than the more sedate, almost academic, approach I pursued. For better or for worse, we will never know.

* Dr Merklein is a consultant in oil and gas policies. He was Assistant Secretary of International Affairs and Energy Security at the US Department of Energy and Administrator of the Energy Information Administration (EIA) from 1984 to 1990. As head of EIA, Dr Merklein was in effect the Government’s Chief Energy Analyst. Prior to Joining the Reagan Administration, he was Professor of Petroleum Engineering at Texas A&M University and Dean of the Graduate School of Management of the University of Dallas.

He can be reached at [email protected], Tel: 1-202-484-7477.