Outlook: Energy & Natural Resources
Adrienne Bell, Holland & Hart, LLP
Dan Black, Vivint Solar
Josh Brown, Rio Tinto Kennecott
Cindy Crane, Rocky Mountain Power
Angela Franklin, Holland & Hart, LLP
Jerry Hascall, Sunnyside Cogeneration Plant
Mark Keim, Big West Oil
Christine Watson Mikell, Enyo Renewable Energy
Gary Takanaka, Bronco Utah
David Zimmerman, Brahma Group
A special thank you to Dr. Laura Nelson, executive director, Office of Energy Development, and Michael Parker, vice president of public policy for the Salt Lake Chamber, for moderating the discussion.
Let’s start by giving an overview of the outlook for your industry.
CRANE: We’re very optimistic. The industry is changing at an extremely rapid pace. And I see that as nothing but opportunity. It’s opportunity for our business, but more importantly opportunity for our customers and our employees as well. It’s allowing us to tap what would be looked at as a traditional utility culture and really change to more of an innovative culture. We’re looking at innovative solutions for our customers. It’s exciting for our business. And it’s exciting for our customers, as well as our employees.
TAKANAKA: We are very excited to open this new operation in Utah. We feel there are opportunities for competition in the coal business in the Emery/Carbon Counties area. We’re very excited to bring on new employees to help the economies in the area and hope to be in operation soon.
MIKELL: I’ve been in the renewable energy industry since 2001 when I started at the Utah Energy Office. At that time we were 98 percent natural gas, coal and oil. And I think as of the end of 2016, renewables make up 10 to 12 percent of our electricity mix. Which it’s hard to believe. I’ve been in the industry for 15 or 16 years and it’s taken that long. In 2004 I entered into the private sector and developed the Spanish Fork Wind Project, which was the first wind project in Utah. And the last 10 years I’ve spent working on developing two other wind projects that were sold to Rocky Mountain Power, the Latigo Wind Project, which was built by sPower. And then another project in Wyoming, called the Pioneer Wind Project. And both those projects were the only two wind projects to be built in either state in probably six years since the projects that Rocky Mountain Power put together. As you can tell, it takes a lot of time to get these kinds of projects developed.
A year ago my joint venture partner decided here were opportunities here in Utah, more in the solar space. So they decided to invest in the company. And now the company’s called Enyo Renewable Energy, and we’re developing solar and wind here in Utah. I do believe that we’re at a tipping point. Last year there were more people in finance than there were projects to invest in. I think that’s really telling of the market we’re in. There are many companies that are looking to either move to Utah or are currently operating businesses in Utah that want renewable energy for their electricity. We are one of those companies that can support Rocky Mountain Power in those efforts to fulfill those customer needs.
BELL: We’ve seen a big uptick in interest from developers, national and international companies, looking for new opportunities. Utah has now come on the radar for a number of these companies that have been active on the coast, California in particular. Utah, Colorado, Wyoming—they’re all looking for more renewable development as long as all of the pieces come together. So that’s the puzzle to solve.
FRANKLIN: I teach a group of junior high aged girls every year. And my point to them is petroleum products are everything we touch and see basically. Unless it’s been grown naturally, then it is a petroleum product that’s involved in it. And I think it’s a message that people need to understand: it’s not just going into our cars, it is what we wear, what we touch, what we eat, aspirin, makeup, everything. So I am passionate about educating our young people about what a great industry this is and what it provides to our society.
KEIM: Since the ’80s, I’ve seen the ups and downs in the refining industry. It seems like every decade we go through this. And so when people talk about the downside or the future of the oil industry, I just say, “You know, I’ve heard this for 30 years.” It’s been going on for 40, 50 years, where people say there’s only so many barrels of oil out there that’s recoverable. And every year, technology improves. People are smart, they’re innovative; they come up with new ideas to get the oil out of the ground in an environmentally sensitive way. And so these negatives I’ve heard, you kind of just get used to it. And you ride through it.
There’s been a downturn. This last year was really tough for the oil and gas industry in general. The rates dried up. We had one of our worst years from a refining standpoint. But we see a positive future. We see a slow growth. We don’t really want the upswings. The consumer really gets hurt when we have swings of gasoline. It wasn’t that long ago when gasoline was $4 a gallon here and consumption really dropped off. Now that it’s $2.25, 2.30, people are buying bigger pickup trucks and driving more, taking more vacations. There’s a sweet spot. There’s a fair price for gasoline and diesel and petrochemicals. We just need to land on that fair spot.
The swings really hurt the industry. When there’s a downturn, you have fewer engineering graduates, you have fewer people that go into the industry and look to it as a future. And in reality, if you look at the pay scale for probably all of our industries, we support middle-class families. Just at Big West, the average salary, with benefits and so forth, is about $120,000. And that’s not just for engineers. It’s for operators, for maintenance people.
ZIMMERMAN: We look a little bit at our estimating department as a kind of bellwether for where the industry is going. I just sat in an estimating meeting yesterday where our estimating department manager said, “We’re going full tilt. We’re going as fast and as hard as we can to just look at all the different projects, the different opportunities.”
We’re looking at a significant number of solar energy projects. We see an uptick in our mineral projects. And, significantly, we see an uptick in some of our capital projects, which represent an increased investment by our customers in all of these aspects of energy and natural resources.
We see workforce as one of our constraints. We see an increased tension on our ability to hire and find qualified workers—welders, pipe fitters, millwrights—to do the work we need to do.
HASCALL: We provide a service in that we burn waste coal and convert it to energy. We sell all of our power through Rocky Mountain Power and hope to continue that in the future. We provide a lot of remediation. The waste coal that we burn, there are no other facilities in the state that can do that. So we feel we provide a very good service to Carbon and Emery Counties. And then also to the state of Utah when they want to reclaim some of the mine sites.
We are also able to burn alternative fuels, like the tire oil that’s now being produced in Emery County. There’s opportunity for the old site in Orem with some of the steel mill leftovers that they have. Being the only site left in the state provides an opportunity to partner with several industries in order to be a good environmental partner.
I, too, am passionate about our industry and what it provides the communities. Somehow we need to educate the public that we are conservationists and that we care about the future. And that we do provide very good-paying jobs. There’s a lot of different high-paying jobs, whether it’s a consulting firm or engineers or hydrologists or geologists. We have to be able to put our case forward in a more positive light. And then work on our partnerships to see whether we have synergies and can further our causes together.
BLACK: I work for one of the top three residential solar companies in the country. In the last couple of months we reached a pretty significant milestone. We installed our hundred thousandth residential solar unit. We have over 1,200 employees at our corporate headquarters in Utah, with over 3,000 across the country.
I’m pretty bullish when it comes to the renewable sector. There’s been plenty of shake ups in our industry. And I think there will continue to be this need to innovate. It’s incredibly important for our industries to stay ahead of the innovation curve. As we look at our customer base, they really want the ability to choose their energy provider, or at least a portion of their energy. And they also want to be able to conserve and to be energy efficient. And, ultimately, control their energy future, to lock in their power prices with either a company like ours or to purchase solar for their roof top.
It’s a new and amazing industry. It feels a little bit like the wild, wild west sometimes, especially as newer and smaller companies pop up over time. But it’s going to be the future of how we develop and how we power our homes. The governor likes to talk about an all-of-the-above energy policy, and that that certainly is the case for Utah as we see distributed generation continue to grow, whether it’s large commercial installations, like on the Vivint Smart Home Arena, or small, two kilowatt systems on a small home.
BROWN: As we do our opinion polling throughout the years, people accept and appreciate Kennecott being present in the valley. The governor often brings it up as being a very strong anchor point of Utah’s economy. It’s helped through the last recession. Copper prices were high at the time, which worked great for us. The last couple of years we’ve had commodity prices across the board drop quite substantially. And this has created this new world of mining. Everyone recognizes you always have to be more efficient. Resources are something we absolutely need to acquire, both human resources, as well as new technologies, and determine new ways to do it more efficiently, faster, cheaper.
Rio Tinto has really tackled the opportunity question that was posed: What does this new world create for us? There’s a lot of opportunity. I think it is coming to a moderate center, giving balance to maybe things that have gone too far one way and things that are going the other way, and hopefully we can get to this ground where we can all win. We recognize both sides of the equation. We recognize that we have to be environmentally effective, have our footprint be as small as we possibly can to extract as much ore as we can. And at the same time, do it by improving air quality, improving the process in which we actually mine.
You then look at it on the global side. Rio Tinto is pretty much everywhere outside of Antarctica. And we recognize throughout our interactions with the rest of the world that there is a question of what does this new world bring? Are we going to have tariffs? Are we going to create issues coming into the United States? Are we going to have border taxes? We are actively engaged. We really try hard to get the opinions of both sides and work through what would be the best solution going forward.
There’s a little bit of both optimism and uncertainty that’s come with the change in the administration. What are your thoughts about regulatory changes or other things that you see shifting from an industry perspective?
CRANE: We’re optimistic with the administration change from a standpoint of bringing balance back to the table and making sure we’re looking at the total picture as we’re approaching things. We think we’ve swung too far. We think there’s balance to be achieved.
From a standpoint of general regulations, we’re optimistic that it will come back to the states where it belongs. We think Washington has taken too much control of the country. And that’s out of balance with the Constitution. So what we expect to see is more state deference. Because we’re not the east. We’re in the west. And even each state in the west is different. And the states know best. They know their economy. They’re really in the best position to make those good regulatory, environmental, balanced decisions.
KEIM: The difficulty we’ve had over the last several administrations is just the whipsaw. Depending on the administration, it just goes from one extreme to the other. Somehow we need to get it back to a balanced system. We’re not against regulations, but it needs to be science based, cost effective, smart energy growth policies that drive safe, reliable development of energy. Energy’s going to be around for a long time—it’s just so fundamental to how we live our lives. The problem is we’ve got so much partisanship that we can’t agree on anything. So the current administration will put out executive orders and it’ll drive us in one direction, and four years from now we could be driven in a completely different direction. And all of our companies, when we’re making capital investments, it’s long term. If we decide to do a project or something that’s regulated, it takes us three or four years to get through all of the rigamarole. But we’re making long-term investment decisions and trying to get capital deployed on things that are moving targets. From the oil and gas industry, from the refinery, we have a very hard time deploying capital smartly because the regulations keep changing.
I’m not sure if the current administration will get us there, not based on what I’ve seen lately. It’s back to the same thing where it’s so partisan that the decisions are made not based on science, it’s just on edict. And I think we need to get that out of the mix altogether.
What are the biggest challenges you’re facing? What strategies are you employing to navigate or manage through those challenges?
BLACK: I echo what’s been said, that there is a tendency—not just at the federal level, but also the state level—toward sweeping changes that create quite a bit of shock. And one of the most important things for our company is stability and understanding what the future legal or regulatory environment might look like, what the economic environment might look like—that’s incredibly important for investors. It’s also incredibly important for customers that are making an investment decision for power over 30 years. And when you have rhetoric, whether at the federal or the state level, where you’re talking about border taxes or sweeping changes to net metering programs or any of those things, it really throws a wrench in.
The biggest challenge that lays ahead for solar, especially distributed solar, is reforms to net metering. We’ve been spending a lot of time in Utah looking at what the future of net metering would look like. And it’s not unique to Utah. We see it across the country. California and New York have been going through substantial revisions to their net metering programs.
Fortunately, as much rhetoric and partisanship that we see when you talk about climate change, when you talk about renewable energy sources, this isn’t a partisan issue. We found through polling at either the federal or state level, whether you’re Republican or Democrat or Independent, people love renewable energy. And we saw that a couple years ago when the investment tax credit was extended. That was through a bipartisan process.
The same is true in Utah with the state tax credit. There was originally a bill that was drafted that would have been pretty draconian in the state tax credit. Instead, we got to the table and had discussions among the various stakeholders and worked out a solution that provided a glide path for Utah customers. That’s the opportunity we have; whatever our positions may be, it seems that we can find common ground. Hopefully that becomes a playbook for the rest of the country—that in Utah, we can set aside our separate issues and partisanship and try to find a way to get the win-win-win.
CRANE: For us, one of the challenges is the bigger, broader market dynamics that are occurring in the west. What’s happening in one state is having tremendous effects on power markets across the entire western United States. We looked at that and said, “How can we get involved with no risk and capture benefit for our customers?” So we created, working with the California ISO, the Energy Imbalance Market. It didn’t cost a lot of money to do it, and there’s little to no market risk associated with it. And with our large transmission system and our extremely diverse resource portfolio, it’s just a phenomenal success story. It was just us and the California ISO. Now we happen to have the largest transmission system by line mile in the western U.S. And because of that we happen to have access to all power markets in the west. And that’s why our customers have the benefit of the low rates. We just took that to a new level.
Everybody in the western U.S. is now joining. Every week we’ve got new announcements. It’s not just the investor-owned utilities. We’ve got public power now joining. We’ve got Canada talking about joining. We’ve got Mexico talking about joining. It’s just becoming a tremendous value proposition that we can tap into for our customers.
And it’s enabled us to do some different things. Number one, and most importantly, it’s enabled us to be able to capture value for investors, flex our resources, capture value through the market, and actually reduce our rates. So we’ve had the benefit of being able to announce rate reductions in all three of the Rocky Mountain Power states two years in a row.
But operationally, it’s created its own set of challenges. We do have a large coal fleet in multiple states. And we do have some gas plants. We had to learn how to manage the fleet differently. And not just from a, “hey, here’s how I’m going to dispatch you today,” but it’s literally at the operator level at a power plant. The first year, when the market dynamic hit, we literally just shut the fleet down. We shut down five coal units. We took transmission lines out of service here in the Salt Lake Valley, because we had to control the voltage on the system. But we got innovative and we got smart when we started learning and seeing how the market was going to move and how it was going to act. As we’re now into the second year of that market dynamic, we’re not shutting our coal fleet down. What we’re actually doing is flexing our coal fleet like we’ve never flexed those assets before. We’re dropping them to lower minimums than anybody ever thought we could. We’ve got computerized tools that our operators have in front of them that are showing what’s going on in the market, what the forward-looking market dynamics are. And we’ve changed how we deal with our mills.
And so what looked like a really bad situation for the state of California, we’ve turned into just a phenomenal opportunity for essentially everybody in the west. And now we’re tapping into that because we do have base load capacity, and we have the ability to flex that capacity based on what makes sense from an economic standpoint for our customers.
HASCALL: Some challenges, like the regional haze issue, are going to affect you no matter what industry you’re in. However, the regulations that are coming from the federal government are not based on sound science. Now, we can measure mercury in the parts per trillion, but according to the regulation they have a term that they call density. And I challenge anybody to read the definition of that. You can have a pH meter. You can read mercury, nitrous oxide, sulfur dioxide down to a very minute measurement. But there is not a device that measures the density. It’s an arbitrary and capricious measurement. And it’s putting all of our industries at risk. Somehow we have to be able to convey that.
There is common ground there. And we have to bring the environmental community in on that. It needs to be based on commonsense where we can reach common ground. No one’s opposed to measuring it. But we have to know what the scientific measurement is. And then we can identify the individual contributors to the haze. If we don’t do that, then the regulations are going to prevent us from making these investments that we need to make, especially past 2022 and 2030.
We’ve seen a considerable increase in attention to air quality concerns. Can you talk about what your industry is doing to address air quality?
CRANE: Air quality is absolutely paramount to our business, as well as our economy and way of life. We’re focused on it from several dimensions. Certainly, the most visible one right now is our recently announced WestSmart EV program. Through our legislation, which was the Sustainable Transportation and Energy Plan, Senate Bill 115 that was passed in last year’s session, this state has allocated through the regulatory commission process $10 million that is going to be invested in electric vehicle infrastructure and promotion and education of electric vehicles.
We’ve also partnered with the universities and Laura’s office and others to put together an application for a DOE grant, which we were awarded. So we’ve now added an additional $4 million from that grant, which is going to allow us to build charging infrastructure on the interstate highway systems in Wyoming, Idaho and throughout Utah, and that’s really going to get rid of that range anxiety issue. It’s going to help facilitate education on electric vehicles. It’s also going to help us work with you all and all of our business customers in our state to help you promote electric vehicle adoption with your employees, as well as the community. Because tailpipes are our single largest contributor to the air quality challenges here in the Wasatch Valley.
BROWN: Air quality is consistently on our minds. We’re a very large mine. We’re a very large city. We recognize that it’s our privilege to operate in the valley. We shut down three of our coal-fired power plants last year, with an agreement with Rocky Mountain Power, that takes that out of the air shed. And we continue to look for opportunities to improve our fleet vehicles with either natural gas or electric vehicles. We were very active in the don’t idle your car campaign that Utah Clean Cities really pushed. We’ve taken that across the U.S. in a variety of different approaches, different industries.
BLACK: Distributed solar is not going to be the end all, be all when it comes to fixing air quality in the valley, but it’s certainly a large piece of the puzzle. You couple that with EVs and other technologies, and I think we can take a big hit in our air quality. And it hits home for me. I have a six-year-old daughter with severe asthma. In the winter months, in January, she can’t even go outdoors to recess. So to me, it’s something we need to be focusing on and finding innovative solutions that reduce emissions in our gas burning cars, convert to EVs, and find ways that the Salt Lake Valley doesn’t look like Beijing in the middle of January.
MIKELL: I see our company partnering with Rocky Mountain Power, as these new businesses—Facebook or Google or Apple—decide to come to Utah and are looking for new resources from renewables. We have projects all over the state. The benefit of utility solar is similar to rooftop solar. We could put solar in Tooele County, Box Elder County, Carbon County, Emery County, and we can create economic benefits for everybody in the state. And that’s where I see our difference helping.
HASCALL: Sunnyside Cogeneration has worked with the state to achieve low-emitter status on a lot of our particulates. As we blend our fuels that we have, you know, the workforce knows what we’re trying to achieve. The one thing that we can do better is letting the public know we’re trying to be a low emitter.
ZIMMERMAN: I’d like to mention two things in particular. One is my solar group has been extremely innovative in the installation of solar facilities as part of the effort to drive down the overall price of those facilities. So as you drive that price down, obviously it makes it more available. The second is we’re just in the business of installing a lot of pollution control equipment as well. We’ve got a couple of really fun projects that we’re jumping into right now. So we’re installing that equipment that will help clean the air as well.
KEIM: Let me, first of all, give a plug to the governor. This is really high on his agenda. He has visited every one of the refineries. He came to all of our sites to talk about Tier 3 gasoline, ultra-low sulfur gas. It will make a big difference in the valley. The population is growing. And a big percentage of our environmental issues have to do with the gasoline. So I give him kudos for making the rounds, making the effort, certainly elevating it to the level he thinks is necessary.
I also want to give kudos to the legislators. They’ve passed two bills: one, the high infrastructure bill that was passed a couple of years ago, and then the recent refinery tax. They both are incentives for the refiners to produce Tier 3 gasoline. And it does help. It’s a long way for paying for it all, but it certainly incentivizes each refiner to take a hard look at it. I mean, we’re all going to be Tier 3 compliant. There’s no question about that. It’s just a question of how we get there. We live in the community. We’re part of the community. We want to be part of the solution. We’re just trying to find the right technology at the right cost to do it.
If you were to tell us one significant opportunity and one thing you want the broader business community to understand about both your industry and company, what would those two things be?
BLACK: The biggest opportunity for distributed solar is just the total addressable market that’s still out there. Utah has been in the top six or so solar penetrating states—there’s some big players in there, like California and Arizona and Hawaii—but we’re minuscule in terms of number of households that have solar. You’re talking in the 2 percent, maybe 3 percent range. We’re less than 1 percent penetrated across the nation. And that’s amazing given how much has happened with solar over the last five to six, maybe even 10 years.
HASCALL: One of the things the public needs to know is that coal drives a large portion of the economy in our state, especially in Carbon, Emery and Sanpete Counties. It touches all phases of life in those rural communities. And we need to put a good message forward to let them know that we have a future and that we need to maintain it.
FRANKLIN: The revolution of the oil and gas industry over the last 10 years has changed the security of this country. Our energy independence is critical to our position in the world and our safety and ability to perhaps not engage with foreign actors that we may have in the past. It is critical for our country’s survival.
BELL: The trajectory of the utility-scale solar industry is limitless, given the resources we have in the state. Once the industry can solve the issues of site selection, interconnection, transmission, and put all those pieces together, we could have tremendous development going forward, as other states have seen. We’re just getting started and more, hopefully, will come.
CRANE: Utah is far more renewable than the citizens within the state truly understand. We are the largest provider of electricity in the state, we have the largest wind fleet, we’re the largest wind owner and operator in the western U.S. and second-largest in the U.S. We were just recognized by Smart Electric Power Alliance as being in the top 10 nationally for solar installations in 2016. We were third for bringing on 760 megawatts of utility-scale solar. All of that in the state of Utah. And we have a few hundred megawatts that are still in the pipeline under construction that will come online this year as well.
We also have extensive hydro. So it’s not just wind. It’s solar and hydro. And we do have a little geothermal plant as well. All of that goes toward meeting the renewable energy goals, the sustainability goals that our customers and our cities and communities throughout Utah are putting in place as goals they want to achieve. And it’s these larger-scale resources that are going to enable us to help them achieve their goals.