Clean Power Plan

Texas co-op expands renewable portfolio as power plan concerns linger

As many electric cooperatives move toward expanding their portfolios to include a greater percentage of renewables, will co-ops be better equipped to meet the requirements of the Clean Power Plan? During today's OnPoint, John Hewa, CEO of Pedernales Electric Cooperative, explains how his company has shifted its portfolio to include more solar and wind, but says concerns remain over the power plan's impacts on coal-fired power generation.


Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is John Hewa, CEO of Pedernales Electric Cooperative based in Texas. John, thank you for joining me.

John Hewa: Thank you, Monica, glad to be here.

Monica Trauzzi: I almost got it, right? Pronounce it for me correctly.

John Hewa: You said it right, Pedernales Electric Cooperative.

Monica Trauzzi: Pedernales.

John Hewa: We're in central Texas in beautiful Texas Hill Country.

Monica Trauzzi: Wonderful. So, John, we're seeing a trend among electric co-ops shifting towards renewables and cleaner sources of energy, in particular solar energy. Talk about the steps that your co-op is taking on solar and your Empower project.

John Hewa: Absolutely, thank you for asking. We've taken a very balanced formula approach to making sure that we have reliable, affordable electricity for our membership. That includes, and increasingly includes, distributed energy resources. So Texas has been a leader in energy, both production and energy consumption, and a leading state with regard to wind. So in our portfolio today we have all the traditional resources including bulk wind. Today we're moving more towards distributed resources with an emphasis on solar, and we've been very active in that area and working to partner with our member owners.

As an electric cooperative, our members own the assets, so it's our obligation, it's our responsibility to optimize the value of the infrastructure that they've paid for and that we are stewards of. In doing that, we're now deploying 15 megawatts of community and distributed solar, which will be fractured in about 20 or so projects across our large service territory, and we're also working in a very close partnership with our membership and our local installers on an Empower loan program that works to provide on-bill financing, low-interest, convenient, on-bill financing for members that are installing foldable tanks or energy storage systems at their home or business.

Monica Trauzzi: We often think of co-ops as being coal-heavy and being economically reliant on coal. Is that still very much the case?

John Hewa: So we have to take a step back and look nationally, and co-ops do have a balanced portfolio, but nationally we're seeing 30, 35-plus percent of our energy portfolio is provided by coal infrastructure. So it's been and continues to be a very important part of the stability, security and economy of our national energy supply. Today we're seeing very favorable low-cost natural gas, and that's been very beneficial to the state of Texas, to the ERCOT market and to our member consumers, it's helped us lower their cost. But we do have to remember that coal plays a very important part in the dispatchable technology and the dispatchable reliability of our nation's power supply.

Monica Trauzzi: In initial conversations with co-ops after the release of the Clean Power Plan, one of the arguments against the power plan was that co-ops are so reliant on coal and that the plan would be economically destructive. But it sounds like a shift is happening in the market, a natural shift.

John Hewa: Absolutely. So there are a lot of forces at play here, and first of all, let me just say that the electric co-op market aligns brilliantly with where we're heading with distributed resources. As consumers have more options, more capability to self-generate, to adopt technologies, that aligns remarkably with electric co-ops. And we also say that co-ops have been and will continue to be technology leaders. We cover 75 percent of the nation's landmass, we own over 40 percent of the distribution infrastructure in the United States, our grid is becoming more distributed in nature. And co-ops are using technology to overcome a lot of the challenges of low density in very rugged and exposed service territories.

So with that, our model aligns perfectly with where the grid and our energy economy is heading. That being said, today we do have in our portfolio a fairly significant amount of coal. We're working through those transitions, and the Clean Power Plan presents some challenges. For our co-op, we've done so much in the area of renewable energy. We've brought in and are providing very reliable low rates to our membership, but we do have concerns about the Clean Power Plan and the path that it sets us on, and particularly the timing and implications of security related to that.

Monica Trauzzi: So you talked about what your energy portfolio looks like now. What is it going to look like in 2025, 2030?

John Hewa: I think there's a lot of question there. How will Clean Power Plan impact coal, particularly in the state of Texas and across the nation? We're seeing natural gas is at an all-time low, so we've got a couple of factors that are weighing in on coal right now. We've got the uncertainty of federal regulations, including EPA and the Clean Power Plan. We also have remarkably low-cost natural gas, and plentiful. So in combination, that is fairly quickly deteriorating the economics of coal in our state and around the nation.

Now, one of the areas that we've had concern about regarding the Clean Power Plan, as we ponder and as we evaluate a plan that moves the nation towards the elimination really of one of its resources, we are moving away from a resource that is characterized with on-site fuel storage. The EIA, for instance, has tracked 30-, 60-, 90-day burn piles of coal, and that's an onsite resource that is very secure in the way that it can be utilized. We're moving out of that, and because of the timing of the Clean Power Plan, we're moving largely towards a natural gas environment that is very dependent on real-time delivery on a pipeline. It's dependent on pipeline redundancies or limitations, and we've got to be very careful with that as we architect the future.

Monica Trauzzi: But there's no longer an economic case for coal?

John Hewa: So I think the economic case is very challenged right now. We're seeing wind and solar come in very affordably. We're seeing natural gas perform very affordably. But we have to be careful in the migration away from a resource that is readily available and is carrying such a burden of our nation's energy supply, again, over 30 percent.

Monica Trauzzi: Texas, where you're based, has suspended planning on the power plan following the Supreme Court's stay of the rule. It's clear though that discussions on the plan are still occurring behind the scenes. What types of conversations have you been involved in since the stay?

John Hewa: So we filed comments to the court regarding our concerns over the plan, and our concerns really focused on the area of cost and reliability with a greater focus particularly on timing and security. From a timing perspective, and we're seeing our members begin to adopt solar and other technologies fairly rapidly, however, it remains a very, very small fraction of our total energy requirement. And so while solar has matured economically, we need to see it be adopted and propagated at a much more rapid pace before we can truly be comfortable that it's going to work as a bridge technology, and it really needs the complement of energy storage. And that's really where I think a problem lies on timing right now with the Clean Power Plan.

While energy storage, if technically it works, it's not working economically, and there are still very few projects around the nation. We need a deep deployment, a heavy density propagation of solar and storage in combination, along with some other grid technologies such as demand and response, to really bridge what we're talking about here with the CPP. And in the absence of those technologies being mature and propagating in that level, it essentially becomes a natural gas play. That's really what this moves towards without those technologies really ready to go prime time. And that's where our concern on timing relates to security, because we're putting additional pressure on pipelines, on the compressor and the infrastructure-related pipelines, and we're moving away from the redundancy to a very rather singular fuel environment, which is alarming for us.

Monica Trauzzi: Even though that in the final plan we saw a step away from a natural-gas-heavy rule, certainly as compared to the draft rule?

John Hewa: You know, I think there have been some provisions, but we looked at the early work of NERC and tracked what was happening there, and certainly some concerns that were raised early on in the rulemaking, and I think those softened a bit as we got towards the final rulemaking. And I think NERC's final report really just advised utilities how to work with their local state in solving these problems. But at the federal level, I don't think FERC and NERC have really solved the issues of the interdependency between electric and gas. I don't believe we necessarily saw all the issues of potential security matters related to being more singular in our fuel approach. And while we're excited for what's happening in the alignment of the electric co-op model into distributed resources including solar and storage and wind, we need some time as an industry to transition.

Monica Trauzzi: All right, we will end it right there. And you're of course in town with 1,500 other electric co-op members having meetings here this week in Washington. Thank you for joining me. Thanks for coming on the show.

John Hewa: Thank you, Monica, thank you so much.

Monica Trauzzi: And thanks for watching, we'll see you back here tomorrow.

[End of Audio]



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