Electric Utility CEO Roundtable: Obama’s 2009 Report Card

by Kristen Wright, associate editor

Electric Light & Power editors wanted to know what utility higher ups think about President Barack Obama’s performance during his first year in office. We asked a few friends to join us for a roundtable on the subject.

Below are the answers of Ray Beavers, CEO and general manager of United Cooperative Services in Cleburne, Texas; Mike Morris, chairman, president and CEO of American Electric Power Co. Inc.; and Jorge Carrasco, superintendent and CEO of Seattle City Light and newly elected chair of the Large Public Power Council, a not-for-profit large publicly owned utility organization.

After a year in office, what has President Obama and his administration accomplished to positively affect the electric utility industry? 

Ray Beavers, CEO and general manager, United Cooperative Services

Beavers: The president has done a fairly effective job in bringing to the forefront our nation’s need to explore additional domestic energy policies that put greater emphasis on energy efficiency and conservation, nuclear energy and renewable generation.

Even though he hasn’t officially articulated a belief that we’re in a new paradigm that will require a change in how consumers use energy, he has alluded to the need for Americans to have more accountability, more skin in the game with regard to how each of us uses energy. What I’m waiting for—hoping for, really—is for the president and his administration to boldly state that yesterday’s paradigm, which encouraged a philosophy of “use all you want, we’ll build more power plants,” is no longer acceptable or even plausible, given our circumstances today.

With climate change and health care losing momentum, and his recent public statement in support of nuclear energy, the president might be nearing a point where he can focus adequate attention on ensuring the future of our energy industry.

Jorge Carrasco , superintendent and CEO, Seattle City Light; chair, Large Public Power Council
While I’m appreciative that he’s taken a progressive step in support of nuclear energy’s role in meeting our energy and economic goals, I’m nevertheless hopeful that it’s not just a singular occurrence and that he will continue to promote nuclear energy’s vital place in our energy future. Efficiency and conservation are the quickest and easiest ways to address the shortfall of necessary electric generation, so the administration’s push to encourage those efforts within the stimulus legislation was a good beginning, but they should continue to be underscored as necessary practices by industry and the public.

Morris: I’m encouraged by the attention that the administration is giving energy issues, and particularly, by the appointment of a scientist to head the Department of Energy. Dr. Chu is very much dedicated to moving the energy equation forward. We are seeing support for critical efforts like the commercialization of carbon capture and storage technology and progress in efforts to expand nuclear generation fleet through the nuclear loan guarantee program. We also are seeing stimulus funding to support long-term job creation in our industry.

Carrasco: The president and his administration have made energy independence and the impacts of climate change a key priority for the country. Every administration since President Carter has tried to advance a national energy policy and had mixed results.

Mike Morris, chairman, president and CEO, American Electric Power Co. Inc.

President Obama has identified the need to focus on energy efficiency, renewable energy and clean energy sources. In addition, he has called attention to the expansion of the national energy transmission grid, advanced energy technologies through a smart grid program, as well as the urgency of addressing cybersecurity and reliability in a comprehensive energy policy. Likewise, the president recognizes that a clean energy policy can help reinvigorate our national economy.

What has the president and his administration done, or failed to do, in the first year that has most negatively affected the electric utility industry?

Beavers: The most glaring oversight by the administration has been in its failure to connect economic recovery and future success with the need for large-scale baseload electric generation.

Yes, renewable energy has an important place in our energy future, but to portray it as the engine that could drive broad-based economic recovery is irresponsible.

Face it, the majority of the American public is, to put it bluntly, in the dark when it comes to understanding that our nation will have to build new large-scale electric generation. While it’s hip to promote small-scale, residential renewable applications and provide grants and tax incentives for consumers to install, it brings limited substance to bear against the critical need to provide dependable and adequate power generation.

For example, if we convince the consumer that a 1-kW wind turbine in their backyard will help meet those generation needs without educating them that the turbine will only generate enough power to run a hairdryer is, in my opinion, a bit irresponsible on the administration’s part.

Further, the president has not addressed the fact that a major portion of the energy currently generated in the United States is done so by utilizing coal as a fuel. The administration has its collective head in the sand on this topic and is really not addressing the future of coal in this country.

Simply saying “no more coal” in the United States is not an acceptable option. The administration should be working with states and industry to find acceptable ways to move forward with coal-fueled plants, as well as nuclear and natural gas-fueled plants.

Rather than throw stimulus funds at Band-Aid economic recovery mechanisms like cash for clunkers, a more responsible action with long-term implications would have been to apply those funds to more R&D on making coal-fired generation more palatable to the public, industry and utilities.

Morris: I’d like to see us closer to meaningful energy policy that will grow the economy and enhance U.S. energy independence. But that’s been on the agenda for decades, so there is still opportunity for progress.

Short-term, I’ve been discouraged by the lack of momentum in addressing long-term storage of nuclear waste. The administration expresses strong support for nuclear energy, but there has been no positive action on the nuclear waste issue. It must be addressed if we are going to expand nuclear generation in the U.S.

I’m also disappointed by the EPA regulatory action on greenhouse gas emissions. The Clean Air Act is a poor vehicle for cutting greenhouse gas emissions, and it is universally acknowledged that global warming is an issue that needs the appropriate dialogue, debate and accountability that resides with Congress. Congress may not be moving as quickly on global warming as the administration or our industry might want, but I don’t like seeing EPA initiating action as a way to force Congress to act.

Carrasco: The electric utility industry wants predictability, that is, knowledge of the regulatory and policy environment within which it must operate. During the past year, we have not received clear direction on the most critical energy issues we confront, such as key climate initiatives and energy independence. There have been major issues, such as health care, that have taken precedent.

The American Recovery and Reinvestment Act of 2009 (ARRA) announced billions of dollars in grants for smart grid demonstration projects that Energy Secretary Chu said will set the course for the modern grid. How have your company and the industry benefited from this funding in the short term, and what benefits do you expect the industry to see in the long run?

Beavers: Our electric cooperative began implementing smart grid technologies more than 10 years ago, as have many other cooperatives across the nation. As technology has evolved, we have continually updated our smart grid technologies.

We requested funding in the first round of the smart grid investment grant program to complete a smart grid technology upgrade at our cooperative, but funding was not awarded. Regardless, we are going forward with this investment because it is the right thing to do for our membership. As far as utilities that have received funding, we believe many would have continued to invest in these newer technologies regardless of the grant awards; however, the speed for implementing such technology throughout the industry would definitely be much slower if the grant awards had not been made.

In the long run, we believe utilities should find ways to give consumers the information they need to make cost-effective decisions relating to their energy use and find ways to increase the efficiency of their operations with the same data.

Morris: AEP customers and the communities we serve are directly benefiting from the stimulus funds dedicated to creating jobs and reducing greenhouse gas emissions. We have been awarded $75 million to help fund the demonstration of advanced grid technologies, including smart meters, distribution automation, community energy storage, plug-in electric hybrids and smart appliances, for a portion of our customers in Ohio.

These investments will improve the reliability and efficiency of our distribution system and demonstrate new technologies and consumer programs that will reduce energy consumption, cut peak demand and save customers money. It also will provide jobs, both for installers initially and for operators going forward.

In addition to smart grid funding, AEP was selected to receive $334 million through the Department of Energy Clean Coal Power Initiative Round 3 to help commercialize carbon capture and storage (CCS) technology at our Mountaineer coal-fueled power plant in West Virginia.

We have been successfully operating a 20-MW validation CCS project at Mountaineer since September 2009, capturing 90 percent of the CO2 emitted from a small portion of the plant and storing it about 1.5 miles underground in deep geologic formations. The DOE funding will provide up to 50 percent of the cost of the scaling up the technology to 235 MW, commercial-scale, in the 2014 to 2015 timeframe. The project will provide thousands of high-wage construction jobs as we build the facility, and 30 to 50 new permanent jobs at the plant when the project is complete.

Carrasco: With respect to the short-term, Seattle City Light and its customers are directly benefiting from ARRA through two programs: a smart grid project at the University of Washington and a project to install energy-efficient lighting at small to medium-sized businesses.

In 2009, a Smart Micro Grid project on the Seattle campus of the University of Washington was developed jointly by the university, Seattle City Light, Battelle and the Bonneville Power Administration. The project will install 200 building-level energy consumption meters, energy management and lighting control systems in more than 30 buildings, and a small number of electric vehicle charging stations. Results from the microgrid demonstration will be useful in determining broader application of this approach.

A second ARRA program that Seattle City Light is successfully implementing comes through funding under the Energy Efficiency Community Block Grants (EECBG). Known as the Veterans Commercial Lighting Upgrade Program, it uses EECBG funds to hire and train returning war veterans who are identifying inefficient lighting fixtures in small to medium-sized commercial businesses and replacing them with new, efficient fixtures.

In the long run, the ARRA provides a tool for public utilities to make investments in new technologies and energy efficiency that, in its absence, may not be attempted. It provides opportunities for partnerships to make maximum use of funds and to learn firsthand about new technologies.

In addition, the focus of the ARRA on funding new renewable energy and transmission projects will help public utilities and the electric utility industry attain their goals for delivering clean and renewable energy to their customers.

Has ARRA investment spurred smart grid development that otherwise would not have occurred?

Beavers: As I mentioned, our cooperative’s smart grid technology has already existed for many years, and many utilities have been taking advantage of similar technologies because of the efficiencies they afford.

We do believe the investment has kick-started several projects earlier than they would have occurred, but overall, these projects would likely have been done over a longer timeframe regardless of the stimulus programs.

Morris: The Public Utility Commission of Ohio required us to seek ARRA funding to help support installation of smart grid technologies in Ohio. Without the stimulus funding, our ability to move forward with demonstrating the full suite of advanced grid technologies would have been limited. It is important to remember that these technologies are being advanced to enhance efficiency, reduce consumption and cut emissions, but they mean additional up-front costs for utility customers. In the current challenging economy, the stimulus funding will advance the technology at a faster pace than might be possible solely through customer-funded programs.

I am concerned about the ultimate impact of the funding if the Department of Energy isn’t successful in working with the Treasury Department to resolve the issue of the taxability of the grants. Taxing the grants at nearly 40 percent would significantly reduce the amount of grid development and the associated economic development and job creation that the grants will support.

Carrasco: ARRA has spurred larger and earlier investments in smart grid technologies than would have been possible otherwise. It has created a common understanding and definition of smart grid. By making a national commitment to these technologies, it is generating more private investment and more advances that support smart grid development. At the local level, utilities are developing the business case for these technologies to continue their investments when federal assistance is no longer available.

Has ARRA investment had a meaningful impact on renewable and clean energy industry growth and development?

Beavers: I’m in complete support of any advancements our nation can achieve in renewable generation for the long-term sustainability of our economy.

We’ll need every kilowatt we can get, however, the ARRA investment has had a less than meaningful effect on making any major strides in advancing renewable energy, to put it mildly.

The problem that the administration is failing to address with the American public is that you can site and build larger-scale renewable generation sources, but the investment in transmission to get the power from those typically remote locations isn’t following suit.

Case in point, we have some of the best locations for wind generation in west Texas. Various entities are clamoring for the ARRA funds so that they can get their piece of that pie, however, we’re years away from having the transmission infrastructure in place to bring that needed power to major hubs like Dallas-Fort Worth, Austin and Houston.

The turbines that are being raised today at breakneck speed will sit idle until the administration or some other entity puts the funds toward the transmission, not just here in Texas, but in photovoltaic implementations in Arizona and other renewable efforts across the country.

Morris: I believe there are still opportunities to support renewable energy development. One of the key issues that we need to address, and that can be addressed if Senator Bingaman is able to move his energy bill forward, is the issue of transporting renewable energy from the midsection of our nation to the population centers on the coast.

Senator Bingaman has put together a very good piece of legislation that will support the development of the transmission infrastructure that is absolutely required for wind energy expansion in our nation.

Carrasco: The ARRA aims to provide alternative funding mechanisms for clean and renewable energy at a time when credit and equity investment capital have been especially challenging to come by.

For example, the Department of the Treasury has been administering direct grants in lieu of tax credits for qualified renewable and distributed generation projects. This expedites funding for projects that are otherwise ready-to-go but may be substantially delayed by the inability to capture the tax benefits during a recession.

The Department of Energy is administering a $4.5-billion grant program to modernize the grid—smart grid projects, for example—and $6-billion loan guarantee program for electric transmission and renewable energy projects.

While the ARRA is moving us in the right direction, it is still too early to draw a conclusion about the overall impact on the renewable and clean energy industry. These are large and complex programs.

As of last September, less than a quarter of the authorized treasury and DOE funding had been awarded—and only a fraction of the awarded funding had been paid out. The impacts of ARRA funding are likely going to become more visible later in 2010 and in 2011 as more funds are dispersed and more projects actually begin construction.

President Obama told the United Nations in September that failing to address climate change could create an “irreversible catastrophe.” A couple of things have hindered that: In November, hacked e-mails from the Climatic Research Unit at the University of East Anglia exposed suppressed data contradicting a 20-year-old paper written by its director. And in December, little was accomplished during the Copenhagen climate talks. Do you think these recent events will make it more difficult for the administration to push through meaningful climate change legislation?

Beavers: Regardless of these events, the administration would have had and will continue to have difficulty defining what truly constitutes “meaningful” climate legislation.

If it means adding more government regulation on electric utilities and more oversight of industries still reeling from the economic fallout we’re merely beginning to recover from, then it’s bad policy.

Many of our cooperative members are having a very difficult time paying their electric bills during this colder-than-normal winter in north Texas. As a distribution cooperative, the cost of electric generation and transmission are passed through at their actual cost, however, that cost comprises the largest part of their monthly bills—70-80 percent.

If “meaningful” climate legislation is passed or if the Environmental Protection Agency is granted oversight power of carbon-emitting sources, I’ll presume that means that there will be a carbon-limiting cost within either of those scenarios.

If so, we’ll have to go to our members and explain to them that the bills they’re already struggling to pay are going to go higher because the administration is more focused on regulating carbon emissions than ensuring Americans have food on their tables. That will be a tough pill to swallow for cooperative members who are already struggling to make ends meet.

Even though we all should be great stewards of our environment, we should do so in an intelligent way.

Morris: Our ability to move forward with climate legislation in the U.S. has been particularly challenged by the inability to get meaningful international emission-reduction commitments.

Our representatives in Congress wisely understand that this is a global issue that requires a global solution. I believe the U.S. can lead the way in addressing greenhouse gas emissions, but we have to do so with the understanding that other countries with large emissions will follow suit. Otherwise, we will have negatively impacted the U.S. economy without achieving any real environmental benefit.

The November elections also will make passing climate legislation more difficult. As we get into the second half of 2010, a vote on a controversial issue like climate legislation is going to be harder for some lawmakers to make.

As an alternative, I do think we can move forward with meaningful energy legislation, like the bill developed by Senator Bingaman to expand renewables and develop transmission infrastructure, and the bipartisan legislation developed by Representatives Boucher and Upton that will support deployment of carbon capture and storage technology. Both of these bills will reduce greenhouse gas emissions while creating jobs and supporting economic growth.

Carrasco: Clearly, the hacked e-mails from the University of East Anglia and the muted results from Copenhagen will not help President Obama with the politics of climate change legislation.

With regard to the science of climate change, however, those events were probably less significant. While there are dissenting views on the science of climate change, the preponderance of scientific opinion continues to be that greenhouse gases drive climate change and that human activities contribute significantly to the formation of greenhouse gases.

It is my hope that we can employ a rational and objective policy response, informed by the best scientific information available.

Given all the administration’s priorities, do you think it has properly prioritized energy needs?

Beavers: Until the recent public acknowledgement that nuclear energy is essential for the long-term sustainability of our nation, I would have said the president did an adequate job in addressing only one area of our energy needs: energy efficiency.

Though there is much the administration can do to further energy efficiency and educate consumers on how important it will be in offsetting rising energy costs, it’s clear through the tax incentives that have been introduced by this administration that it sees the value in developing new energy initiatives.

With the recent push by the administration to advance nuclear energy, it’s beginning to address a top priority in terms of needed large-scale baseload energy.

It is my feeling that the administration must continue to promote efficiency and conservation, nuclear generation and the construction of all other viable generation methods—coal, natural gas, wind, solar and distributed generation—and the associated transmission to meet the United States’ future capacity requirements. Overlooking these integral pieces of the electric energy puzzle will lead to cost challenges beyond what most consumers today can even imagine.

Morris: I’m cautiously optimistic about the level of attention that the administration is placing on energy issues; cautious because every administration since Richard Nixon has talked about energy and energy independence, and it’s still a priority 40 years later.

I am encouraged by some of the things that are happening, and I believe the administration is serious in its desire to address the issue.

The bipartisan editorial writing by Senators John Kerry and Lindsey Graham late last year put forth four clear principles for U.S. energy policy. It’s an agenda that I support, and I’m hopeful that they will be able to move it forward. I’m an absolute believer in energy independence and weaning our economy away from imported liquid fuels. I’m encouraged by the car companies’ renewed focus on electric vehicles and the investment of oil and natural gas companies in shale gas exploration and recovery.

Carrasco: As an industry, we recognize that not every major issue facing our nation can be addressed at once.

Personally, I am encouraged that the president specifically talked about the need for a national energy policy and energy independence, as well as the significance of climate change in his State of the Union address.

We are seeing signs that the Congress may be ready to move the energy agenda, as well.

How well does Obama and his administration communicate with the electric utility industry and understand its needs?

Beavers: Initially, I was in the school that felt like the administration was forcing its policies down the industry’s throat. The communications only went one way and there wasn’t much of an opportunity to provide industry perspective. This is due in part to the heavy emphasis that was put on climate change during the first several months of the administration, which in turn strained the relationship between the industry and the administration on two fronts.

It was widely recognized that coal-fired generation was on the chopping block during the president’s campaign, and the administration’s stance on climate change at the very beginning of the term seemed as if it would follow through on the campaign promises, further straining the relationship with the industry, especially generation utilities.

But it wasn’t merely with generators. The Obama administration also strained its relationship with the distribution companies with its early stance on climate change by favoring legislation that, if passed, would result in price increases for electrical costs of between 25-80 percent.

Because of the cool relationship between the administration and the industry, it is my feeling that communications have been far from good, and this lack of communications has created a limited understanding by the administration of the energy industries’ needs.

That being said, I’ve noticed a very, very modest change in the administration’s approach lately, which is probably partially attributed to the fact that the president is a little more educated on the severity some of his policy positions—no coal, carbon emission-reducing legislation, etc.—will have on an American public greatly suffering from the recession. At least that’s my hope.

Recently stepping forward side-by-side with the nuclear energy supporters is a step in the right direction, but much more can be done. Much of the reason the president was elected into office was because he was perceived to be a good communicator. To me, an exceptional communicator is one who listens, as well as speaks. The administration should listen to the industry more to better understand the challenges facing the consumers and the economy.

Morris: The administration has been quite receptive to hearing the viewpoints of our industry and has spent time both inside and outside the Beltway interacting with utility executives.

I have met with President Obama twice as part of a group of CEOs, and he sought our input on a variety of issues.

EPA Administrator Jackson spent time sharing her views and hearing from utility CEOs at the EEI CEO meeting earlier this year. Secretary Chu has spent significant time with utilities over the last year, visiting our research and development facilities in Ohio last November, and Under Secretary of Energy Dr. Kristina Johnson helped commission our carbon capture and storage project in West Virginia last October.

In addition, with the appointment of Dr. Jim Markowsky as assistant secretary of fossil energy, the administration has tapped the vast knowledge and experience of a former AEP executive who very clearly understands the industry and fossil-fuel generation.

Carrasco: The president has surrounded himself with capable people in positions that are critical to electric utilities. Their expertise spans science, regulation and the environment.

Dr. Steven Chu, a Nobel Prize winner and secretary of energy, formerly led Lawrence Berkeley National Laboratory, a part of the national energy laboratory system.

Jon Wellinghoff, FERC chairman, practiced energy law many years, working on renewable energy, demand response, distributed generation, electric vehicles and energy consumer issues.

Carol Browner, White House advisor on energy and climate change, was the longest-serving administrator of the EPA.

The administration listens to our needs and our concerns, which is why I am hopeful that the administration will look carefully at creating incentives for public power to develop renewable energy resources comparable to those currently available to investor-owned utilities and developers.

Balancing the incentives available to public power will encourage public utilities to make more investments of their own in new technology development and deployment.

How would you grade the Obama administration’s energy policy during his first year in office, from A to F, and if you could have a one-on-one meeting with the president, what one thing would you ask of him?

Beavers: I would give our president a grade of C—and that is only because I strongly believe he cares—but he needs to study the entire situation more acutely.

If I were ever honored to meet with our president, I would remind him of our dependency on electricity for almost everything we do: Electricity is what brings health, wealth and prosperity to our lives. I would tell him I have looked into the eyes of the elderly struggling to meet the rising cost of electricity. I have met with young couples with children who can’t make ends meet, and I have talked to those who have lost their jobs during the recession and are thus saddled with the worries that they might not be able to keep their homes or afford to stay warm in the winter.

The future is even more dependent on electricity, and we must begin now to ensure that electricity continues to be a reliable source of energy and affordable, as well. We even need to start planning now to ensure the electric power will be available to meet the ever-increasing demand that our economy will require.

I would say, “Mr. President, we are at a crucial time concerning our future energy needs. Let’s be pragmatic, smart and do the right thing for our future generations.”

I would then ask him, “Will you join us in overcoming these challenges with real solutions that don’t negatively impact our nation’s consumers, and that positively affect our economy today and well into the future?”

Morris: At this point, I think we would have to give the administration an incomplete. The collapse of the economy has had a huge impact on the ability of President Obama and his team to address energy policy.

On the most recent occasion I had to share my views with President Obama, I advocated moving forward some of the energy legislation already put forth by the Senate and House as an alternative to climate legislation because it seems unlikely that Congress will take action on a climate bill before the midterm elections this fall.

The energy bill put forth by Senator Bingaman combined with the bipartisan carbon capture and storage funding mechanism developed by Representatives Boucher and Upton will stimulate the economy, result in immediate and long-term job creation and reduce greenhouse gas emissions—all areas the administration is seeking to advance.

Carrasco: It’s too soon to assign a grade. Our energy issues are long-standing. More time is needed to clearly engage leaders in the executive and legislative branches of government to arrive at a comprehensive energy plan. I am encouraged by what I have seen so far from the administration and will continue to support energy solutions that are critical to Seattle City Light customers, as well as residents throughout the Pacific Northwest region.

If asked, I would encourage the president to take a comprehensive approach to our national energy strategy. With climate change, we know the challenge. The question is: How can we best meet that challenge? As we do our own long-term resource planning for the utility, we evaluate possible combinations of future resources on four measures: cost, risk, reliability and environmental performance. Each resource is evaluated on its ability to help us achieve our objectives. In this way, we aim for a combination of resources that will meet our needs, yet remain focused on impacts for customers.

I see a parallel between this conceptual approach and the one used by the Electric Power Research Institute (EPRI) in their Prism/MERGE analyses update. That study found that a multifaceted energy strategy had the best cost-effectiveness and impact on lowering CO2 emissions from the U.S. electricity sector. The measures selected by the study are all viewed as feasible from a technological and an economic perspective.

The recommended portfolio included end-use energy efficiency; transmission and distribution energy efficiency; renewable resources; nuclear; partial displacement and lower emissions for fossil fuel; carbon capture and storage; electric transportation; and deployment of efficient electrotechnologies.

Each region differs in its natural endowment of energy resources and its comparative advantage, so I would expect that the exact combination of resources would differ by region. In short, a comprehensive strategy may be our best hope for leading the way to a lower-carbon future.

 

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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