Lou Hutchinson, vice presidentand chief revenue officer of WGL HoldingsInc. and its subsidiary WashingtonGas Light Co., sat down with S&P Global Market Intelligence on July19 after his appearance at the Climate Strategies Forum in Arlington, Va., to talkabout the U.S. EPA's Clean Power Plan and the policy changes needed to drive theclean energy transition. The following is an edited transcript of the conversation.
WGL and Washington Gas Vice President and Chief Revenue Officer Lou Hutchinson
S&P Global Market Intelligence:Tell me about Washington Gas, and how the Clean Power Plan is going to impact youroperations.
Lou Hutchinson: From our perspective, it's goingto really drive the full spectrum of energy solutions that our company provides.And we're starting to see that. We're seeing that in the diversity of our portfoliomoving into 2019. We're seeing that in strategic requests in our core service territoryin the Washington, D.C., Maryland and Virginia area. But also in 35 states aroundthe country we're implementing complex renewable energy solutions that are multi-threaded,not just one source or another, but multiple sources. And then we're seeing theintegration of traditional power and traditional gas integrated with renewable generation.
So aswe look at establishing power plants where there is collaboration across state linesfor Clean Power Plan solutions, we are intimately involved even in the planningand designing and implementation and economic development of those solutions fromconception now. Where in the past we might have been approached to implement oneof our core affiliate components, we're now being approached to look across ourenergy spectrum in partnership with states to come up with the planning, the ongoingimplementation, and then ultimately the operations and maintenance. It's very differentthan just five years ago.
What about infrastructure concerns?There are worries in say, New England, over pipeline restrictions, and then there's Aliso Canyon, where a gasleak has put pressureon the power grid. How can we better plan for infrastructure needs and how is thatgoing to work with the Clean Power Plan?
The infrastructureneeds are critical. One of the things we've done within our service territory iswe have a pipeline replacement program and we're proactively going in and dealingwith aging pipeline infrastructure prior to there being an issue. But we're alsoidentifying areas of gas infrastructure expansion that are needed in order to satisfyrenewable generation solutions and distribution as part of the overall plan.
I thinkwe have to look into better integration between traditional infrastructure, as wellas renewable infrastructure, to have the level of resilience given to emergencyweather situations. We don't necessarily do that holistically across an entire cityor between various state jurisdictions like we should. I think the Clean Power Planforces us to take a step back as we're implementing new solutions, to look at existingand older solutions to figure out how we plan better to be able to have that typeof integrated implementation from an infrastructure standpoint going forward.
What issues related to the cleanenergy transition do you believe are not receiving enough attention?
Outsideof management of the ISOs, is guidelines and parameters for integration betweenutilities as it relates to franchise rights. Because as they're dealing with theseintegrated solutions, quite often you will find competitive suppliers that haveto deal with sharing of transmission and distribution in order to satisfy a requirement.That is the bottleneck. Where there may be a need for a solution in the District,if Pepco decides that they're not going to give us right-of-way to do certain things,we won't be able to do it and vice versa. That's a big issue that can stop thingsin its tracks just because of politics, so there needs to be guidelines established.
One of the focuses of the ClimateStrategies Forum panel was congressional inaction. If we look to what the marketsare doing, we are seeing a trend toward cleaner sources, renewables and . And customers are askingtheir utilities for cleaner energy sources. But when I'm on the Hill I hear a verydifferent story that regulationsare pushing coal out of the market, etc. If customers are becoming more engagedwith their utilities, why isn't that message making it to Congress?
I thinkthere are three things that are happening. There are three types of customers: business-to-consumer,business-to-business and business-to-government. On the business-to-business side,the average tenure of a CEO is probably about four years. So the same recovery thatwe have dealt with from a government standpoint, from a national standpoint, thereneeds to be recovery in the commercial marketplace. The one place to deal with recoveryis in energy spend. Anywhere from 5% to 10% of the spend at most corporations isenergy, and CEOs are taking a step back, no longer in a silo form, looking at theirspend and looking at the integrated unit margin of their overall spend across allforms of energy. How do they manage to do that in a way that's going to guaranteeshort-term, mid-term, long-term that there are significant savings against whatthey initially projected?
What'sbeing identified now is CEOs saying, "Wow, if I integrate these various differentforms of energy sources as a part of my solution, while I had increased consumptionI can now manage against that by as much as 5% to 10%." That is material interms of overall EBIT for profitable and publicly traded corporations.
We'reseeing a different level of intelligence from that community, from a business-to-businessperspective, as compared to in the past, specifically over the last three to fouryears. That's a community that, along with consumers, has to drive congressionalaction because it now benefits bottom line. I think it's much more economicallydriven, so the advocacy components of those organizations are starting to have alouder voice in that conversation.