What can utilities do to better embrace the business model evolution facing the industry? During today's OnPoint, William Gaines, chairman of the Large Public Power Council and CEO of Tacoma Public Utilities, discusses the challenges facing public electric utilities as U.S. EPA prepares to announce its new standards for existing power plants. He also talks about new physical security and cybersecurity efforts.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Bill Gaines, chairman of the Large Public Power Council and CEO of Tacoma Public Utilities. Bill, thank you for joining me!
William Gaines: Pleased to be here!
Monica Trauzzi: Bill, the Obama administration is scheduled to release its existing power plant standards on June 2. How is the LPPC perspective different on these regulations as compared to some others in the utility sector?
William Gaines: Well, it's a great question. Let me talk for just a minute about LPPC and who we are. Most people probably don't know that about 30 percent of the electricity in the country is delivered by consumer-owned utilities; either publicly owned or consumer-owned and there are about 2,000 public utilities. We're the largest; 26 in the country, so our trade association has been in place since the mid '80s. It was formed around the Tax Act provisions that were contemplated at that time. But we've been advocating for large public power since that time. And if you look at the distribution, the geographic distribution of our members, it's really a microcosm of the country. We're on both coasts; we're in the Southeast, we're in the Midwest. And so the difficult policy issues that you see being wrestled in Congress are being similarly wrestled in our association. But very recently we've recognized that there will be regulations issued by EPA. We're trying to engage with EPA and OMB in a constructive way to tailor those regulations in a way that achieves a continuation of reliability, which is a key part of our value proposition to consumers; also significant delegation of deference to the states in crafting policies, and a reasonable glide path from where we are now to where we ultimately need to be.
Monica Trauzzi: So how are your members preparing for these pending regulations?
William Gaines: Well, there's a variety of approaches around the country. In the case of my own utility, Tacoma Power, we're essentially 100 percent hydroelectric so it's not a large issue for us. But if you take the other extreme, our members in the Southeast who are heavily coal, they're already looking ahead to new generation forms and they're participating in two new nuclear units that are being sponsored in that area of the country and a number of natural gas developments also.
Monica Trauzzi: Much of what the administration is doing on climate centers around the utility evolution; this idea of the evolving utility business model. What do you think utilities can be doing better to embrace this impending change and the challenges that come along with that?
William Gaines: Well, I think you said it. It's embrace. I think it's really being open minded and recognizing that we need to position ourselves to serve customers in the ways that they want to be served. And for too long I think the industry has had kind of an iconoclastic vision; you know, one product, one set of consumers. We need to be a lot smarter about that and understand our consumers better and what they want. And in the case of a distributed gen, for example, solar is the issue de jour. We need to have a pricing structure that enables consumers to do solar without adversely burdening other consumers. So we have some work to do in that area.
Monica Trauzzi: So DG is a very hot topic right now across the country. How much choice should consumers have and how much power should they have as we sort of shape the future of utilities?
William Gaines: Well, yeah I think in our part of the country we intend to be fairly accommodative about that. If consumers really want to do solar we want to do what we can to accommodate that. But particularly in the case of public power where don't have an equity holder, a shareholder, for example, we've got to be sure that our costs get recovered from the appropriate consumer groups. And so those retail pricing issues and how to price the backup service that solar customers necessarily need are going to be tough issues.
Monica Trauzzi: You mentioned some of your members focusing and shifting to nuclear. It's such a critical juncture for nuclear right now. We're a bit unsure about the future of nuclear in the United States. With so many renewables coming online, can nuclear be competitive?
William Gaines: Well, I certainly hope so, and if we're really serious about replacing carbon in this country in large scale, we believe that nuclear has to be a part of that equation. So we're pleased to see a couple of our members participating in those developments that are being supported by the government in the Southeast but we're also hopeful about new nuclear technologies; small modular reactors which may initially be trialed at the Hanford Reservation in our part of the country, we think holds a promise for the future and can be done at a scale that don't involve the financial and other risks that come along with thousand megawatt plants.
Monica Trauzzi: Let's talk about security. Physical and cybersecurity are among your priorities at the moment. How would you describe the level of coordination that currently exists between the power sector and the government on grid security?
William Gaines: Well, I think it's improving and can be further improved. In fact, over the last couple of years that's probably the primary message that we've carried back here in Washington about cybersecurity, and now physical security is information sharing with the government. We've met with and worked closely with the security agencies who, frankly, are a little reticent about sharing information with the utility companies. But ultimately, we're the boots on the ground, and when something goes wrong we have to have the threat information that's actionable so that we can repair it. So I think the government, there's numerous pieces of evidence that the government is warming to that and recognizing that and beginning to move in that direction. And we're pleased to see that. If you think about it, reliability is a huge part of our value proposition to consumers. And so our interests and the government's interests are very much aligned in this area. It's not something that lends itself to traditional heavy-handed, top-down regulation but more a collaborative approach with the government, particularly considering how quickly the cyberthreats morph and change.
Monica Trauzzi: So what would you identify as the biggest threat currently to your industry's ability to maintain reliable and affordable energy? Is it the cybersecurity threat or policies that are coming down the line?
William Gaines: Well, you asked it in terms of economics?
Monica Trauzzi: Yeah.
William Gaines: So I think it's probably the emission's issues if you look at the policies that are likely to have the biggest impact on consumer rates it's probably the air emissions that we're dealing with right now.
Monica Trauzzi: So you expect rates to climb?
William Gaines: Oh, I think any time you're forced to remove a low-cost, embedded generation that's largely paid for and replace it with something new, it's going to have upward pressure on retail rates.
Monica Trauzzi: All right. We'll end it there. Thank you for coming on the show.
William Gaines: Yeah. Well, thank you very much. Pleasure!
Monica Trauzzi: And thanks for watching! We'll see you back here tomorrow.
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