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Pedernales CEO touts benefits of cooperative model in evolving power grid

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Essential Energy Insights - September 17, 2020

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Pedernales CEO touts benefits of cooperative model in evolving power grid

Witha sparsely populated, expansive territory to cover, electric cooperatives haveserved as an early proving ground for new technologies in the energy industryeven if they have not always gotten credit for doing so, according to the CEOof what has been billed as the nation's largest and fastest-growing co-op,Pedernales Electric CooperativeInc. in Texas.

JohnHewa said the cooperative model — to lower revenue on a per-consumer basis andincrease operating margins for efficiency — is working well as the grid becomesmore distributed and less focused on centrally located power generators.Covering often rugged and weather-exposed areas has allowed co-ops to becomeincubators for early implementation of technologies to support ruralinfrastructure and lengthy transmission lines. In the case of Pedernales, thatmeans handling 21,000 miles of distribution network.

"Ican tell you that I think more now than ever, who your utility provider is, ishighly relevant," Hewa said. "Whether that electron is flowing from acentral station power plant, or whether it's flowing from the edge of the gridis somewhat irrelevant to us in the co-op space. We need a healthy balance andwe need the certainty and security of the dispatchable central station and theeconomy of it. And we also need the security … and resiliency of edge-of-gridtechnologies."

Pedernalesrecently launched its Empower Loan Program, which provides financial supportthrough low interest loans — up to 10 years of financing and as much as $20,000per installation — for customers to install their own rooftop solar or energystorage. The program also furnishes guidance on energy usage and will soonoffer time sensitive rate options tied to the cost of wholesale power.

Whereaslarger utilities typically offer rebates for such installations, Hewa saidPedernales wanted to provide a greater value for customers while having anequal or greater impact on lowering the lifecycle cost of distributed energyprojects. With the Pedernales model, homeowners retain federal tax creditsreceived from the projects because they own the panels or storage.

Pedernalesis also investing in solar on its own. The co-op recently made an aggregatedbuy of 15 MW of solar photovoltaics that Hewa said will be "chopped up"across 20 projects or so in the Pedernales service territory. This allowed thepurchase to benefit from the economy of scale, but the roll out will be on acooperative's scale and help offset costs of power and transmission.

Hewadoes not see utility-scale energy storage as economically ready for widespreaddeployment, although he recognized that battery technology is being usedelsewhere with success. His concern about putting the proverbial cart beforethe horse also extends to the way some environmental regulations are beingimplemented without a clear signal that the technology, regulators and the griditself are ready.

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TheClean Power Plan, which established carbon emissions standards for existingfossil fuel-fired power plants, is one such example. Hewa said the rule pushesthe industry to invest in more gas-fired generation to replace coal — atransition he said is happening even without the carbon rule's influence.

But Hewawonders if shutting down a significant chunk of the country's coal generationon the timeline prescribed by the Clean Power Plan is prudent without firstestablishing whether FERC and the North American Electric Reliability Corp. canensure that needed infrastructure, such as transmission lines and pipelines,are built on time.

"We'retalking about moving away from a coal facility that is characterized by on-sitestorage of energy. So you've got a 30-, 60- or 90-day pile of coal that candeliver energy during any number of … events," Hewa said. "We'removing that to a gas-oriented energy economy that is dependent … on thepipeline … and its stability and reliability."

Whilethey have matured economically, even renewables are not as common as theyshould be at this point if the United States is expected to move to a gridfueled largely by nonemitting generation, Hewa said.

"Today,when we deploy these systems, particularly with storage, somebody's probablytaking a picture and writing an article about it," Hewa said. "Itneeds to become so trivial and so commonplace that we keep pushing it deep intothe grid. At that point in time, clean power plays out differently."

Thestay of the CleanPower Plan, which seeks a 32% cut in carbon dioxide emissions as measured froma 2005 baseline by 2030, has provided a temporary reprieve that Hewa hopes willbe used to solve some of these larger issues. Pedernales filed an amicus curiaebrief in support of the states and companies seeking to the rule in a federal districtcourt. But Hewa said he does look forward to the investment and innovationsthat will come with the carbon rule.

Hewabelieves the Texas energy markets need some tweaking, too, if the Clean PowerPlan goes forward and drives any fuel switching for which the currentElectric Reliability Council ofTexas Inc. markets may not have been designed. Despite anticipatedload growth in Texas and the potential need for more gas capacity to complywith the Clean Power Plan, power prices in ERCOT are "very low,"which may discourage investment in new generation, Hewa said. The stay of theClean Power Plan may give regulators more time to evaluate these issues, though.

"I don't think it's a bad thing that we're taking somemore time nationally to step back and say… with all the competing objectives,realizing that clean power is a good thing, how do we make a migration in thatarea and do it [while] preserving what's been built and the reliability and theeconomics of what's been built," he said.

Opportunities exist for electric cooperatives to solve theseissues, however. For instance, Pedernales' purchased solar power with ,"behind-the-meter" technologies such as programmable thermostats andautomation opportunities for heating, ventilation and cooling all can helplower power sector emissions.

But Hewa said regulators should not overlook the value ofexisting baseload generation, for both reliability and financial reasons.Unlike publicly traded utilities, member-owned cooperatives do not have investorsand, therefore, are particularly vulnerable to the risk of stranded assets ifolder, less-efficient coal- or gas-fired generation must . And while distributedgeneration holds promise, Hewa said consumers utilizing rooftop solar make upless than 0.5% of Pedernales' membership.

"We … have to be pragmatic and realize that co-ops dohave a lot of dollars invested in baseload generation. … We have to be careful[about] any stranded cost there and what that could do to rural consumers andthe price they pay for electricity," he said.

But electric cooperatives also have more freedom in someways than larger regulated and investor-owned utilities, which allows them tomove more quickly to advance emerging technologies like distributed generation.Pedernales is "not under any state mandates" and is governed by alocal seven-member board of directors that "can move in a very nimble way,"according to Hewa.

"We aren't waiting on state regulators to approve proposalsor programs that really could be very meaningful to the ultimate consumers,"he said.