The central bank’s coronavirus relief program for midsize businesses, meant to offer low-interest credit to weather the virus-driven downturn, covered loans for only 13 companies by the end of July. Only one of them was in the energy sector.
Larger and smaller oil and gas companies, meanwhile, have been able to tap other government aid efforts after stay-at-home orders drove the price of oil down as fewer people used cars and airplanes.
“It really does seem to be midsized companies left out,” said Gregg Gelzinis, senior economic policy analyst at the Center for American Progress, a left-leaning think tank.
The oil and gas industry lobbied to make the lending program work better for them, but the changes may not be enough.
The program has been hounded for months by a slow rollout. And crucially, private banks need to participate to make the program work.
But so far, few banks seem willing to do so. “The fact that the banks weren’t that interested in it quelled some of the interest from oil and gas companies,” said Lee Fuller, vice president of government relations at the Independent Petroleum Association of America, which represents small and midsize oil and gas companies.
Under the program, the Fed would purchase 95 percent of a loan issued by private banks to midsize businesses — those with fewer than 15,000 employees or less than $5 billion in annual revenue. But through July, only five banks have issued loans through the program.
Before rolling out the Main Street lending facilities, established jointly with the Treasury Department, the Fed amended the terms of some of the loans to allow borrowers to use the money to pay off old debt — a move called for by oil-state Sen. Ted Cruz (R-Tex.) as well as by the IPAA.
The central bank also changed the program to give companies an additional year to repay loans and to offer more lending options to firms with high debt-to-earnings ratios. Industry observers saw those changes as a potential boon to the highly leveraged oil sector, which may have to wait a while for oil prices to return to pre-pandemic levels.
Still, according to Fed data, only one energy company has participated in the Main Street program — Gulf South Energy Services, a Louisiana-based well testing company, which received a $2 million loan in July.
Lukas Ross, a policy analyst at the left-leaning environmental group Friends of the Earth, said oil companies that would have considered participating in the program may have been able to get loans elsewhere after the Fed helped stabilize debt markets earlier in the pandemic.
“It’s early days in the program, but the Fed’s actions in March had the effect of unfreezing the corporate debt markets,” he said, “making it easier for oil companies to continue accumulating unsustainable amounts of debt.”
Other programs designed for larger and smaller businesses have seen more uptake from the oil sector.
As of the end of July, the Fed has purchased $316 million worth of bonds from energy companies and $345 million in utilities’ bonds as part of another taxpayer-backed program aimed at helping major corporations get through the pandemic. Only companies with high enough bond ratings can benefit from the program.
Meanwhile, the oil and mining sector received through June $4.5 billion in Small Business Administration loans, typically meant for businesses with fewer than 500 employees. Those loans often act like grants since they do not need to be repaid if much of the money is used to keep workers on the payroll.
Despite the slow uptake of the Main Street program, Fed officials say lenders will become more comfortable with it over time and that it may serve as an important backstop for companies if the country slips further into an economic recession.
Eric Rosengren, president of the Federal Reserve Bank of Boston, said in a speech Wednesday he “completely disagree[s]” that the program’s slow start is “evidence of failure.”
“A grant program, or a lending program with even more generous terms, would of course have faster uptake,” he said.
And more Main Street loans are in the pipeline this month. In total, 87 Main Street loans covering $857 million have been settled or are under review, he noted.
NOTE: The Energy 202 is bidding a fond farewell this week to Paulina Firozi, who has been a researcher for this newsletter since its launch in 2017. She is a sharp, tireless journalist who will be deeply missed. Fortunately, she is staying at The Post, moving on to be a general assignment reporter. We look forward to featuring her work right here.
Thermometer
Baghdad’s record heat offers a glimpse of world’s climate change future.
The Iraqi capital blew past its previous temperature record when the thermometer hit 125.2 degrees Fahrenheit toward the end of July, Louisa Loveluck and Chris Mooney report. The past five years in Iraq were 4.1 degrees hotter than the country’s temperature at the close of the 19th century, according to data from Berkeley Earth.
“Iraq isn’t just hot,” they write. “It’s punishingly hot. Record-breakingly hot. When one of us returned here last week, the air outside felt like an oven. The suitcase crackled as it was unzipped. It turned out that the synthetic fibers of a headscarf had melted crispy and were now stuck to the top of the case. A cold bottle of water was suddenly warm to the lips. At our office, the door handle was so hot it left blisters at the touch.”
Power plays
The Energy Department is planning to relax rules for showerheads.
After weathering complaints from Trump about how hard it is wash his hair in modern showers, the department proposed Wednesday new water efficiency rules for them.
“The plan would allow manufacturers to bypass a 2.5 gallon-per-minute maximum flow rate set by Congress in the 1990s. Under current law, each showerhead in a shower counts toward that limit,” Bloomberg News reports. “If finalized, the administration plan would allow multiple shower nozzles with 2.5 gallon-per-minute heads to each meet that requirement separately.”
Consumer and conservation groups say the move is wasteful, especially at a time of drought out West, and that there is no public outcry for the change — except for from one man.
“So showerheads — you take a shower, the water doesn’t come out,” Trump said at the White House last month. “You want to wash your hands, the water doesn’t come out. So what do you do? You just stand there longer or you take a shower longer? Because my hair — I don’t know about you, but it has to be perfect.”
Former Environmental Protection Agency chiefs call for an agency “reset” after President Trump.
In an open letter published Wednesday, six former agency heads who served both Democratic and Republican administrations said the agency needs to “conduct its scientific and economic analysis free from political interference” and address the far-reaching impacts of climate change.
Without naming Trump or his EPA chief Andrew Wheeler, the former administrators said “we believe the time has come to reset the future course for EPA in a new, forward-looking direction to address the environmental challenges we face today and those that lie ahead.”
The former EPA leaders who signed the letter are Lee Thomas, William Reilly, Carol Browner, Christine Todd Whitman, Lisa Jackson and Gina McCarthy.
The Trump administration scraps oil and gas lease sale near Arches and Canyonlands national parks.
“Conservation groups are praising the decision by the Bureau of Land Management to defer 87,000 acres of public lands for potential oil and gas development that critics said were too close to some of Utah’s national parks,” the Deseret News reports.
The decision comes after the agency had backed down from drilling for oil under the Slickrock Trail, a popular Utah bike trail, earlier this year .
