Details on the Pickens Plan (Distilled from Media Sources)

The Major Problem, and the Goal of the Pickens Plan.

• T. Boone Pickens’ main motivation is keeping $700 billion that would otherwise go to purchasing foreign oil in the United States: “I’ve got one enemy. I’ve got one rifle. I’ve got one crosshairs. And it’s focused on one spot.”

• “If nothing is done,” the conservative Texas oilman says, “the US will send $10 trillion out of the country in the next decade … the greatest transfer of wealth in the history of mankind."

• In 1970, the United States imported 24 percent of its oil. In 1990, that had grown to 42 percent. It is now nearly 70 percent.

• The US currently uses a fifth of the world's energy. The US uses far more energy per person than other developed countries; the average American requires more than double the energy of a Briton or a German, and a third more than a resident of Australia.

• America's dependence on foreign oil is "extreme" and "threatens the future of our nation," says Pickens. Nearly unanimously, economists agree that U.S. trade deficits are unsustainable.

• America is vulnerable. The U.S. economy hinges on the ability of foreign countries to provide our daily energy needs, not to mention the need for us to maintain good relations with our oil partners.

• “I’ve been an oilman all my life. But this is one emergency we can’t drill our way out of,” say Pickens. He believes in the "peak oil" argument, which says world oil production is about to enter a period of irrevocable decline. Demand will only increase as growing economies such as China and India consume more. Proposals to drill off the coast of New Jersey or in Alaska's Arctic National Wildlife Refuge, whether or not they go forward, won't be enough.

• "If we create a new renewable energy network, we can break our addiction to foreign oil." Pickens wants America to throw all of its energy into wind power, solar power, diverting natural gas from producing electricity to fuel for larger vehicles, nuclear power, ethanol and other resources.

• In testimony before Congress on July 22, 2008, T. Boone Pickens "warned that oil could cost $300 a barrel in 10 years as supplies drop, if the nation continues to 'drift' on energy policy."

The Personal Motivation. “I’m 80 years old and they weren’t talking about the subject. I thought this is my last chance to … elevate this to where the American people and the candidates are going to understand the seriousness of where we are.” The bulk of Mr. Pickens’ net worth, which is said to exceed $4 billion, will go to charity.

Chuck Raasch of the Tuscon Citizen wrote on July 15, 2008: “Last year, I heard Pickens tell a class of high school graduates that he would trade all the money he ever made, all the fancy things he ever enjoyed, for their futures. He urged the 18-year-olds to learn from their failures as much as their successes.”

The Plan, Summarized. Using wind power and solar power for electricity and powering vehicles (starting with large government vehicles) with domestic natural gas can replace more than one-third of our foreign oil imports within 10 years. By improving the nation’s electric transmission system, vast wind resources from the Dakotas to Texas, and solar energy from the Texas Panhandle to California, could be tapped to power population centers hundreds of miles away. The natural gas that once went to electric utilities could instead be used as a transportation fuel. Many thousands of U.S. jobs will be created to build turbines, erect wind farms and solar power plants, and string transmission lines to the East and the West Coasts.

Mr. Pickens proposed a five-point checklist — the “Pickens Principles” — which he proposes to use to judge the sea of competing energy plans:
--- (1) The plan has to slash our dependence on foreign oil by at least 30 percent in 10 years
--- (2) The plan needs to rely on 100 percent American resources
--- (3) The plan needs to utilize existing, proven and workable alternatives to foreign oil
--- (4) The plan needs to call on private enterprise to execute quickly
--- (5) The plan requires the Federal government to clear the path for implementation

Where Did "The Pickens Plan" Come From? While Pickens may have had ideas about wind energy and natural gas for many years, much of the recently announced Pickens Plan appears based on a pivotal study released in May by an ad-hoc group of energy authorities including the U.S. Department of Energy, the American Wind Energy Association (AWEA) and American Electric Power. That report outlines how the U.S. could generate a fifth of its electricity from wind--but by the year 2030. To do so, the U.S. would have to ramp up its installed capacity of wind power by 290 gigawatts. Last year, the U.S. installed 5.2 gigawatts of wind power, according to the AWEA

The Wind Power Part of the Plan.

• Building wind-powered generators in the heartland of America and new transmission lines would cost $1.2 trillion but it would make America the "Saudi Arabia" of wind power – which consists of $1 trillion for building the wind turbines, and $200 billion to connect them to places where the power is most needed. These investments would come from the private sector, but certain government policies are needed to encourage this investment.

• T. Boone Pickens wants wind to grow from supplying 1 percent of the nation’s electricity to 20 percent in a decade. The nation currently relies on coal - the dirtiest of all fossil fuels - for 50% of its electricity production. Natural gas makes up about 21%, and nuclear power comprises about 20%. Hydro and oil each contribute a bit as well, while traditional renewables - wind, solar, biomass and geothermal - ring in at only 3% combined, according to the Energy Information Agency.

• Missouri’s tiny Rock Port is winning national attention as the first town in America to operate solely on wind power.

• The wind-tunnel corridor stretches from central Texas to the Canadian border.

• Until now, wind energy has not been on a speedy schedule, although generating capacity last year increased by 45 percent. Even the American Wind Energy Association thought it would take another 20 years before wind produced as much energy as Pickens wants in 10. A report from the Department of Energy said in May that America could build enough wind farms to provide 20% of the nation’s electricity by 2030.

• T. Boone Pickens (through his company, Mesa Power) is already spending $12 billion to build the world’s largest wind farm near Sweetwater, Texas, which will produce enough electricity to power an estimated 1.3 million homes. Last Thursday, Texas officials cleared the way for a $4.9 billion plan to build new transmission lines from gusty west Texas to urban areas like Dallas. He has pumped US$2 billion into the project so far, recently placing an order for 667 wind turbines from General Electric (GE). He will spend another US$10 billion on the project before it starts generating electricity sometime in 2011.

• Wind turbines stand twice as high as the Statue of Liberty, with blades as wide as the wings on a jumbo jet. Each one can earn hundreds of dollars every year for landowners, a whole wind farm can generate hundreds of thousands of dollars. A farmer who gives up a quarter of an acre to a wind farm can now earn US$10,000 a year from it - some 3 per cent of the value of the electricity it produces. If he planted corn for ethanol he would earn US$300.

• It's hardly a surprise then that new turbines are popping at a rate of three to four a day. GE alone is expected to sell US$6 billion-worth of turbines this year in America.

• Wind power accounts for 3% of the electricity in Texas. Nationwide the figure is 1%.

The Natural Gas Part of The Pickens Plan.

• Natural gas is 80 percent cleaner than gas and diesel, and it is cheaper.

• American natural gas now generates 22% of the country’s electricity.

• 98 percent of the natural gas used in the U.S. is from North America.

• T. Boone Pickens wants to see vehicles fitted with Compressed Natural Gas (CNG) tanks. Governments should require that all new larger government vehicles be CNG vehicles. GM builds many models of CNG vehicles, but none are built in the United States.

• From a Report at CNNMoney.com: "While automakers are betting on electric cars as the vehicle of the future, those electric cars will still need backup engines to recharge the battery on long trips, at least for the foreseeable future. Those backup engines could run on natural gas, said Julius Pretterebner, a vehicles and alternative-fuels expert at Cambridge Energy Research Associates. Pretterebner also pointed to a host of other reasons why natural gas in cars is a good idea: It's about half as expensive as gasoline and 30% cleaner; the infrastructure to get it to service stations already exists; it's relatively cheap to convert existing cars ($500 to $2,000 per car, he said); and natural gas can be carbon neutral, if it's made from plants, a process he said requires no new technology. 'It's maybe the best alternative fuel we have, and the quickest way to get off foreign imports,' he said." - from "Wind Power: A Reality Check."

• Gazprom [Russia’s state-controlled gas company] last week announced that they are going to put natural gas fueling stations all over Europe.

The Solar Power Part of the Plan. T. Boone Pickens supports constructing solar power plans in the "sun corrider" between west Texas and California. Transmission lines to cities will also be required for this part of the plan.

Other Parts of the Plan. T. Boone Pickens endorses efforts to cut oil imports by other means, such as geothermal, wave energy, and conservation measures.

• The conservation measures seen following the 1979 energy crisis is not likely to be repeated, at least not the same way. As Neil King, Jr. wrote in the Wall Street Journal on July 22, 2008: "The cuts in oil use made between 1979 and 1983 look impressive. In four years, the country weaned itself off of 3.3 million barrels a day, a drop of nearly 20%. Not until 1997 did the U.S. get back to the same level of oil consumption it had in 1979. But half of that cut, in residual fuel oil for electricity generation, was relatively painless and can't be repeated. The U.S. by 1983 had slashed consumption by 1.4 million barrels of oil a day by switching power stations over to coal or natural gas. Today, the country consumes fewer than 700,000 barrels of residual fuel a day, almost entirely in ships. So any similar cuts this time will have to come on America's highways, not in its power plants.

• While further drilling for oil is important, it will not have the impact it had following the 1979 energy crisis. As Neil King, Jr. wrote in the WSJ: "Today's forces are far more complex, and gloomier. Booming demand in the Middle East and Asia is colliding with rising fears of a long-term supply pinch. Unlike in 1979, there is no North Sea about to open up, while the Saudis are pumping almost full out." In fact, one published report noted that during the past year exports of oil actually fell, due to rising demand within oil-producing countries as their own economies expand. T. Boone Pickens, testifying before Congress on July 22, 2008, expressed support for the controversial idea of drilling for oil in environmentally sensitive areas like the Alaskan National Wildlife Reserve and the outer continental shelf. But Pickens added that opening these areas to drilling is not a complete solution to the country's energy problems.

The Challenges Facing the Plan.

• One challenge is the need for long-distance transmission lines and better transmission switching equipment, which will entail arduous work, including purchasing rights of way. Investor-owned utility American Electric Power estimates that the cost of overhauling the entire U.S. transmission system is about $60 billion. Divide that by the number of U.S. households, however, and it amounts to about 8% of the average U.S. customer's utility bill. Many utilities are moving forward with their plans for necessary transmission lines, but crossing state lines makes the regulatory and siting process long and difficult. A strong national regulator may be needed, or better cooperation across state lines.

• Another is a problem of scale – to replace one 600-megawatt gas-fired power plant would take about 300 wind turbines, which means a huge number of turbines to reach the 20 percent energy capacity.

• According to one published report, in May, the U.S. Department of Energy released a report stating wind could provide 20 percent of national power needs by the year 2030. However, such an increase would offset only 11 percent of natural gas use, not 22 percent as Pickens claims.

• Per a Special Report, "Wind power: A reality check," at CNNMoney.com: "One of the big challenges with using wind to replace natural gas is that, unlike the steady flame from natural gas, the wind doesn't blow all the time. To make sure enough power is available when the wind isn't blowing, backup generators would be needed, said Paul Fremont, an electric-utility analyst at the investment bank Jefferies & Co. That could mean maintaining those natural gas plants in case of emergency, or implementing even more novel ideas like systems in Europe that use excess wind electricity to pump water uphill when the wind is blowing, then release it through hydro dams when the wind stops. Either way, any type of backup system comes with a price ... The Sierra Club's Becker downplayed the problem. While a challenge now, he said technological advances will allow several wind farms from varying regions of the country to be tied together in the same electricity grid; when some are idle, others could make up the difference."

• The plan to redesign automobiles with natural gas tanks would apply only to new vehicles, per Pickens. Because CNG is diffuse rather than concentrated, it requires additional storage, often in additional storage tanks loaded in the trunk. Unless the entire country buys new vehicles at once, or conversion is streamlined for cost and speed, its effect on imported oil demand would only be felt long-term.

• At present, there is no CNG distribution system, much less a viable nationwide chain. The plan involves government fleet vehicles to be the first to use CNG.

• Concerns exist over the volatility of natural gas prices, and the possibility that natural gas prices could go higher in future years. Testifying before Congress on July 22, Gal Luft, executive director of the Institute for the Analysis of Global Security, took issue with the idea that natural gas is a viable alternative to gasoline for transportation, telling the committee that it is a "spectacularly bad idea." He said that 63% of the world's natural gas reserves are under the control of Russia, Iran, Qatar, Saudi Arabia, and the United Arab Emirates. Luft said these countries are in the process of developing a "natural gas cartel" that will rival the Organization of the Petroleum Exporting Countries (OPEC). "We don't want to shift from one resource that we don't have to another resource that we don't have," Luft said.

• Despite the recent attention to alternative fuel sources, the Texas Renewable Energy Industries Association’s executive director said other renewable energy initiatives – “solar energy, biomass, geothermal, and hydro sectors” – need the same support wind is currently receiving. (T. Boone Pickens has acknowledged that solar power is indeed part of The Pickens Plan, and he has stated that he supports research and development of other energy initiatives.)

• President Bush lifted his father’s ban on offshore drilling in a move to increase US oil production, though action is up to Congress. Bush's plan could produce an additional 2.5 billion tons domestically over time. Spread over, say, 10 years that could cut imports – if they stay at current levels – by nearly a third. Another possible piece of the puzzle to ending America’s reliance on foreign oil, though tough policy choices remain concerning drilling off America’s coasts. T. Boone Pickens supports exploration wells at this time, but doubts there is much oil off the New Jersey coast, or in other areas, compared to the Gulf of Mexico (into which the massive Mississippi has fed organic material for millions of years).

• If the US could reduce its per capita energy consumption by 20 per cent, about half-way down towards usage in Germany. Even spread across major energy sources, this could reduce US oil demand by almost 200 million tons a year – a similar impact to Pickens’ plan. Even T. Boone Pickens knows it makes sense to tackle both sides of the equation; when giving tours of his home in Sweetwater, he is fanatical about turning out the lights as he leaves each room.

• Is the money available for the project available? "Private enterprise will invest money, and will build new transmission infrastructure cheaply and efficiently, if Congress adopts clear, predictable policies," Pickens said in testimony before the Senate Committee on Energy and Natural Resources in June.

Jobs Created By the Plan.• About 50,000 Americans are now employed in the wind generation industry, but Pickens' plan could boost that figure to 500,000, according to the American Wind Energy Association.

• Today Texas leads the nation with almost 5,000 megawatts of electricity generated from wind turbines. Most of that is concentrated in the north-western quarter of the state. The economic impact on Nolan County, which encompasses Sweetwater, will be $315m this year. Wind has brought more than 1,000 new jobs to the town.

• The potential economic boost to a state like Kansas is clear. A recent report shows the total benefit to Kansas would be $7.8 billion if the state provided its share of wind energy to help the nation reach the 20 percent goal by 2030. That would include 23,000 construction jobs and more than 3,000 permanent jobs.

The Politics (and Economics) Of The Plan.

• Technology for the wind industry and CNG vehicles already exists. Solar thermal power plants are also viable, and advance in solar photo-voltaic technology may make that technology feasible within a few years (potentially enabling local home generation of natural gas or electricity). The technology is now there - and its getting better all the time. This is all about political, business and economic will.

• Pickens and Gore believe the energy crisis should be the No. 1 issue of the election — one reason for the timing of their own energy campaigns.

• Both Pickens’ and Gore’s plans dovetail, said Julia Bovey, communications director of the Natural Resources Defense Council, a nonprofit organization that works to protect the environment.

• Pickens wants the American public to urge Congress and the president to combat the energy crisis.

• The federal tax credit that spurred the recent rush of wind development is about to expire. Congress needs to extend that before the end of the year to provide an incentive to build wind farms. But a two-year extensions won't be enough to encourage large investments, many of which involve multi-year projects. A multi-year extension of the production tax credit is needed. Before Congress on July 22, 2008, Pickens called for a 10-year extension of a tax credit for energy producers. He estimated it would cost taxpayers $15 billion a year in production tax credits for 200,000 megawatts of wind power. Companies like General Electric (GE, Fortune 500), India's Suzlon and Spain's Gamesa, which make wind turbines, aren't building enough of those turbines to meet demand because government tax credits offered to energy producers expire every two years. GE Energy is the leading wind turbine manufacturer in North America and is sold out until 2010.

• Pickens also called on the federal government to clear the way for extending power grids to transmit the electricity generated by new wind farms, by obtaining rights-of-way for transmission lines. Regarding construction of the grid, Pickens testified before Congress: "I think the money is there to do it private ... give us the corridors to put it in and it'll be done. You could do this on a very, very fast track if you wanted."

• Wind farms could benefit when companies or people buy carbon offsets - essentially payments to producers of clean energy and others who take steps in reducing greenhouse gasses. Wind and other renewable energy sources could also receive a boost if a new administration or Congress decides to regulate CO2 emissions.

• The plan requires bi-partisan support. When T. Boone Pickens discusses energy policy with Democrats and Republicans this week, neither side may like all that they hear. His message is likely to be straight-forward. As one commentator put it: “Stipulate that no one in the government, Democrat or Republican, deserves an energy policy star over the past 35 years. Stipulate that expensive choices lie ahead. But quit pointing fingers and tell us how this can be fixed.”

• T. Boone Pickens, former Bush "Pioneer" and major contributor to the 2004 Swift Boat ads, is speaking before the House Democratic Caucus on Tuesday, at the invitation of Nancy Pelosi. He is “sitting out” the politics of this presidential election, for the benefit of the Pickens Plan.

• Environmentalists are cheering wildly, but the Pickens Plan has little to do with their worries about the catastrophic dangers of global warming. It just helps ease global warming, as a by-product of the plan. America's big environmental organizations have become huge supporters of the Pickens Plan. "I will be in the front row of the chorus cheering him on," said Carl Pope, executive director of the environmental group, the Sierra Club. But no one can accuse T. Boone Pickens of being a soft-headed tree-hugger.

The Pickens Plan: The Money Behind the Pickens Plan.

• The most expensive public policy advertising campaign ever.

• “$58 million is what I signed for. They want to give me a budget for ’09. I said let’s see how we do in ’08. If we go to ’09, that will be heavy-duty lobbying. But I’d rather not get into that. I’m hoping that my plan or a better plan shows up before I have to go do any of that.”

• Pickens has said that to implement his plan within 10 years, both Congress and the White House must treat the current energy situation as “a national emergency and take immediate action.”

• Buffalo-based Joe Slade White & Co., a veteran political ad agency with 400 campaigns to its credit, created the TV spots. The Pickens spots began airing on national cable networks such as CNN and MSNBC, and full-page ads ran in the likes of USA Today and The Wall Street Journal. In all likelihood, the $58 million in paid media from Mr. Pickens' own pockets has already been matched in unpaid media hits. "Our goal was all Boone all the time, and we've exceeded our goals, which is easy with a client like Boone Pickens," said Melissa McKay of Sloane & Co., who is handling PR for the campaign. "He's very easy to sell."

Mr. Picken's letter to the Wall Street Journal follows:

My Plan to Escape the Grip of Foreign Oil


July 9, 2008; Page A15

One of the benefits of being around a long time is that you get to know a lot about certain things. I'm 80 years old and I've been an oilman for almost 60 years. I've drilled more dry holes and also found more oil than just about anyone in the industry. With all my experience, I've never been as worried about our energy security as I am now. Like many of us, I ignored what was happening. Now our country faces what I believe is the most serious situation since World War II.

Texas billionaire T. Boone Pickens says his "Pickens Plan" to increase natural gas and wind power's role as energy sources is not a play for personal gain.

The problem, of course, is our growing dependence on foreign oil – it's extreme, it's dangerous, and it threatens the future of our nation.

Let me share a few facts: Each year we import more and more oil. In 1973, the year of the infamous oil embargo, the United States imported about 24% of our oil. In 1990, at the start of the first Gulf War, this had climbed to 42%. Today, we import almost 70% of our oil.

This is a staggering number, particularly for a country that consumes oil the way we do. The U.S. uses nearly a quarter of the world's oil, with just 4% of the population and 3% of the world's reserves. This year, we will spend almost $700 billion on imported oil, which is more than four times the annual cost of our current war in Iraq.

In fact, if we don't do anything about this problem, over the next 10 years we will spend around $10 trillion importing foreign oil. That is $10 trillion leaving the U.S. and going to foreign nations, making it what I certainly believe will be the single largest transfer of wealth in human history.

Why do I believe that our dependence on foreign oil is such a danger to our country? Put simply, our economic engine is now 70% dependent on the energy resources of other countries, their good judgment, and most importantly, their good will toward us. Foreign oil is at the intersection of America's three most important issues: the economy, the environment and our national security. We need an energy plan that maps out how we're going to work our way out of this mess. I think I have such a plan.

Consider this: The world produces about 85 million barrels of oil a day, but global demand now tops 86 million barrels a day. And despite three years of record price increases, world oil production has declined every year since 2005. Meanwhile, the demand for oil will only increase as growing economies in countries like India and China gear up for enhanced oil consumption.

Add to this the fact that in many countries, including China, the government has a great deal of influence over its energy industry, allowing these countries to set strategic direction easily and pay whatever price is needed to secure oil. The U.S. has no similar policy, because we thankfully don't have state-controlled energy companies. But that doesn't mean we can't set goals and develop an energy policy that will overcome our addiction to foreign oil. I have a clear goal in mind with my plan. I want to reduce America's foreign oil imports by more than one-third in the next five to 10 years.

How will we do it? We'll start with wind power. Wind is 100% domestic, it is 100% renewable and it is 100% clean. Did you know that the midsection of this country, that stretch of land that starts in West Texas and reaches all the way up to the border with Canada, is called the "Saudi Arabia of the Wind"? It gets that name because we have the greatest wind reserves in the world. In 2008, the Department of Energy issued a study that stated that the U.S. has the capacity to generate 20% of its electricity supply from wind by 2030. I think we can do this or even more, but we must do it quicker.

My plan calls for taking the energy generated by wind and using it to replace a significant percentage of the natural gas that is now being used to fuel our power plants. Today, natural gas accounts for about 22% of our electricity generation in the U.S. We can use new wind capacity to free up the natural gas for use as a transportation fuel. That would displace more than one-third of our foreign oil imports. Natural gas is the only domestic energy of size that can be used to replace oil used for transportation, and it is abundant in the U.S. It is cheap and it is clean. With eight million natural-gas-powered vehicles on the road world-wide, the technology already exists to rapidly build out fleets of trucks, buses and even cars using natural gas as a fuel. Of these eight million vehicles, the U.S. has a paltry 150,000 right now. We can and should do so much more to build our fleet of natural-gas-powered vehicles.

I believe this plan will be the perfect bridge to the future, affording us the time to develop new technologies and a new perspective on our energy use. In addition to the plan I have proposed, I also want to see us explore all avenues and every energy alternative, from more R&D into batteries and fuel cells to development of solar, ethanol and biomass to more conservation. Drilling in the outer continental shelf should be considered as well, as we need to look at all options, recognizing that there is no silver bullet.

I believe my plan can be accomplished within 10 years if this country takes decisive and bold steps immediately. This plan dramatically reduces our dependence on foreign oil and lowers the cost of transportation. It invests in the heartland, creating thousands of new jobs. It substantially reduces America's carbon footprint and uses existing, proven technology. It will be accomplished solely through private investment with no new consumer or corporate taxes or government regulation. It will build a bridge to the future, giving us the time to develop new technologies.

The future begins as soon as Congress and the president act. The government must mandate the formation of wind and solar transmission corridors, and renew the subsidies for economic and alternative energy development in areas where the wind and sun are abundant. I am also calling for a monthly progress report on the reduction in foreign oil imports, as well as a monthly progress report on the state of development of natural gas vehicles in this country.

We have a golden opportunity in this election year to form bipartisan support for this plan. We have the grit and fortitude to shoulder the responsibility of change when our country's future is at stake, as Americans have proven repeatedly throughout this nation's history.

We need action. Now.

Mr. Pickens is CEO of BP Capital.

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