Jim Kelly on Centralized Utilities' Pandemic Challenges & Quest for Resilience

Jim Kelly

As California again begins to prepare for another wildfire season and climate change’s new normal - this time possibly spent adhering to social distancing and shelter-in-place mandates, VXNews interviewed S&C Electric's Jim Kelly to better appreciate the impacts that the coronavirus pandemic is having on centralized utilities. Kelly opines on the critically essential function of the workforce tasked with operating, maintaining, and improving the electric infrastructure that the public continues to rely on to meet the state's energy needs.

Project how executives of California’s IOU’s—SCE, PG&E, SDG&E—are now addressing the real-time challenges of Covid-19?

I lived through some very difficult times in the California utility industry, like 2000 and 2001 when we had the epic energy crisis that resulted in the impeachment of a governor. And yet, I feel badly for the utility executives who are living through this now in California, because they are also dealing with the incredibly difficult challenge of coping in this new world of climate change and wildfires.

I know SCE and SDG&E have spent billions of dollars, using the smartest people and the best technology, to see how they can safeguard the grid against wildfires. They were going at breakneck speed to try to be ready for summer to minimize that risk, but then COVID-19 hit. How well have we really done if we survive COVID-19, but then our town burns down later this year because of a wildfire?

Here’s a very personal example - my insurance company is not renewing my homeowners insurance because I live in an area which, God forbid, has trees. As a result, I am no longer a good risk, and they don't want to renew my insurance.

Jim, with 37-plus years in executive leadership of a utility, and your board participation since on many clean energy startups, what impact is the COVID-19 pandemic having on centralized utilities and, more specifically, on investment in distributed energy?

Jim Kelly: I think we’ll end up realigning some of our past thinking and maybe our priorities. Perhaps we were a Pollyanna in the past by assuming that we could just do individual things to help green our state and our world—like solar cells on our roofs or LED bulbs in our lights. But we never consider the notion that plague—and often pestilence and civil war and invasion too —are, sadly, all part of global daily life. But now we're seeing how things can suddenly change all the rules, and we maybe can't rely entirely on a centralized supply system anymore either.

What happens if electrical workers either, by choice or by government mandate, can’t keep going into work anymore because there's a pandemic so fierce that it's simply not humane or ethical to ask them to work? What do you do when the lights go out in your neighborhood? What happens to the food in your freezer and the stuff you've been counting on to sustain your life and your family's life, when suddenly your electric supply goes away?

            Imagine you're a modern American going through this quarantine—this lockdown—without the internet, without television, without your phone or your computer, electric lights or refrigeration? What would you do?

How do you keep your wits about you when those things are so much a part of our lives? As people look at that, it’s going to dramatically change their thinking about the degree to which they want to be self-sustaining, or at least how communities or groups want to be self-sustaining using things like backup generation and batteries. We know that with modern electrical demands batteries typically won’t last long enough.

We’re going to see more of a clamor than ever to put in backup generators—propane, gasoline, diesel, natural gas, hydrogen, or something entirely new. What does it mean for California's meritorious emissions goals when everybody wants to put a gasoline generator next to their house because they can't afford the risk anymore? How do we prevent that from happening?

 Can we really designate workers so essential that no matter how bad the pandemic they have to go to work? Do we have the National Guard force them to work, because the National Guard doesn't have the skills to keep the lights on? How does this fundamentally change the way we think about our need for self-sufficiency?

And at the California PUC, the Energy Commission, or Cal ISO, what are their real-time regulatory challenges?

I'm deeply concerned. If I were in that regulatory position, I’d be thinking about how would to keep safe these men and women out there bravely trying to keep fundamental utilities—that are so much part and parcel of our life—running every day.

When I ran grid operations at Southern California Edison—which historically and statistically has been a very reliable utility—if I didn't have 100 outages in a day just because of normal events, it was an exceptionally good day. Who fixes all those outages? The men and women in the trucks climbing the poles or in the buckets.

If I'm a regulator, how do we humanely balance worker safety, while at the same time recognizing that without them, I'm really doomed. And we need them all: the water people, the sewer people, the gas people, the electric people, the cable people. They're desperately needed more than ever in a time like this to keep hospitals running. Think of all the people who are totally dependent upon technology to keep them alive in the midst of COVID; and the kids—our children and grandchildren—whose education is now online.

We're dependent on electricity and the internet. How do we protect those vital utility people? I'm having a tough time telling them they've got to go out every day realizing that they're at risk, while I'm working from home.

You focus legitimately on the health and safety of the workforce that keeps the electrical grid functioning. Will the pandemic cause a policy reconsideration or tempering of the state of California’s underlying energy policies— electrification & decarbonization?

It's going to make us rethink it a bit. Here’s an example of why: if we follow all the latest guidelines for environmental responsibility that California has been promoting—and they're good ones, by the way—but if we do, then we’re essentially going back to the days of my youth when we had what we used to call, Gold Medallion Homes. You actually got a gold medallion on your front porch because everything in it was electric—an electric stove, oven, space heating, cooling, water heating and clothes drying; everything was electric.

People eventually ran from those homes, in part because electric cooking was really lousy for a long time. It's since gotten much better. Another big factor was the disparity between the price of electricity and the price of gas, making electrification tremendously noneconomic. The only smart thing you could do was to heat your home, cook your food, heat your water, and dry your clothes using natural gas because it was really cheap. It's still really cheap today.

Recognizing that electric applications have come a long way, some modern electrical appliances and uses can now compete on a cost-basis with natural gas and can certainly beat natural gas on an emissions-basis. But the problem is, you're still dependent upon the grid.

In most cases, the electric consumption in homes is now so high that it can't be backed  up itsself with solar cells and batteries for anything more than a few hours. Electric heating is typically an energy intensive use, and so are electric clothes drying and food cooking. A Tesla Powerwall is not going to last you very long if you're doing all of that. And, buying state-of-the-art, ultra-efficient electric equipment is a heavy capital exercise that isn’t realistically available to lower income folks—renters, those with poor credit, etc.

But if you have a diverse set of energy sources, one electric and one natural gas, the presumption is, if one of the two is up and running, there is a lot more you can do.So, if the electric stove’s down, but the natural gas barbecue is working, you can go outside and grill, and maybe even kind of have fun doing it.

We have to think about not just the reliability—but the resiliency provided by having alternatives and diversity in our energy supply, even though that means a little less purity in our adherence to environmental goals in the short term.

In a world where things like COVID can run wild, we just have to rethink and reflect. People are rethinking, and it's very painful. At times, for people like me who've been in the middle of this for years, it feels like taking a step backwards. Nobody ever wants to take a step back. But we have to be realistic.

California has prioritized electrifying mobility, with the State going “all electric” by promoting vehicle and fleet electrification. Is this goal still realistic in a COVID world?

The thing that most troubles me is that I've always made the assumption that one of the important ways that we would reduce mobile polluting sources—in addition to electrifying our cars, our buses and our trucks too —is that we would continue to get smarter and smarter about public transit.

I assumed that more and more people would use it; that we would come up with all kinds of clever innovations and incentives to shift how we move around. But now I question, if we make all the buses and the trains electric or hydrogen powered or not, are people going to get on them anymore? How long is it going to be before people feel safe packing shoulder-to-shoulder on a bus, or on a train holding the strap while we are all breathing on each other.

If you're honest with yourself, won't be anytime soon, right? How do we reconcile this need for high density, high speed public transit—urban and suburban—with things like COVID? I don't yet know how we do it.

With electricity demand plummeting & local government budgets in deep distress as a result of ‘shelter-in-place,’ some local jurisdictions are rethinking their relationship with their incumbent utility.  What’s typically being ask for; and, what is likely to result from such negotiations? 

One has to ask how the interaction between incumbent utilities in the cities and counties they serve will change over time. To what degree will cities look at alternatives, like Community Choice Aggregation (CCA) that is spreading all over the state of California, by which people are trying to move accountability closer to their city, and their citizens, than they have been able to do with a large centralized utility.

Will utilities change so that they can provide that close touch that fits the needs and, frankly, the preferences of particular cities? Or will we increasingly see middlemen, like CCAs, that stand between the traditional utility, which owns wires and meters, and the customer, who wants to be served by a utility, or a utility-like entity, that listens to them very personally?

The answer we're seeing in California is that more and more people are deciding they want the feel of a hometown utility that gives them more personal choice, rather than policy decisions that get spread over millions of people like peanut butter. They want to be able to pick their particular choice very individually. I don't think that desire for choices is surprising, but it's going to add a whole other layer of complexity, because we have new players in the market and new rules will have to be adopted to ensure that the choices are fair to the incumbent utilities too, and that consumers are protected.

What mix of energy and utility policies – immediate, bridge & long term – are needed to work through and out of the present COVID-19 crisis?

There’s a somewhat mixed set of messages and incentives when looking at the energy sector right now. On the one hand, there are utilities in California who have been told—and, in fact, have agreed wholeheartedly—to spend unprecedented amounts of money to try to harden their systems to fix things that were wrong and to make things better and more resilient. They’ve made a tremendous commitment to doing those things, and heroically continue to try to do them in the teeth of COVID.

On the other hand, utilities often spread the fixed costs of their businesses over the number of units sold. In the case of the electric utilities, those costs are figured in cents per kilowatt hour. So every time you use a kilowatt hour of electricity, you’re charged a certain amount. The thing about spreading the costs for very large capital budgets for improving the system is that when the number of units plummets, because of something like COVID, the math doesn't work so well anymore.

There’s an old joke about making up those costs on volume. But the utilities were directed to do important things and have to be able to collect the money to pay for it. In order to do that, they're going to have to raise the price per unit. That's the only way the math balances.

But this is about the worst time you could possibly think to raise the cost per unit when everybody is suffering through the tremendous economic impacts of COVID-19. So, it is a tough policy dilemma: how to keep the utility healthy and doing the work they need to do at a time when demand is plummeting because the stores, factories, and schools are all closed right now?   People are working from home and consumption is low, but we know it’s going to come back.

So you have to look at a bridge policy for getting through COVID that puts people back to work. Then, how quickly will the demand for electricity come back up to normal? Will it ever look the same? If I'm on the board of a manufacturing company that has a big factory, when you look at that production line in normal times, pre-COVID,  people are almost shoulder-to-shoulder all day long.

Well, now we have people who are 8 to 12 feet apart, with plastic barriers between them, so you can't produce products nearly as fast and instead do staggered shifts, 24 hours a day. Think about how the energy consumption of that factory has changed dramatically, and may never go back again, because of social distancing norms.

Do these things stay in place forever because they're healthier? It'd be nice if we never got the flu because we no longer ride on planes with sick people. We've all been on a commercial airliner with somebody hacking and coughing the whole way there. That's always been considered acceptable - but maybe it's not going to be acceptable anymore. Maybe it shouldn’t be.

 Maybe things are going to change forever, and it's going to alter the way we consume energy. What do we do that's humane, reasonable, and thoughtful in the short term? What do we do in the long term as we start to reopen America? It's going to look different.

Elaborate on how both the commercial and industrial sectors of our economy are adjusting their energy use to this pandemic.

It's easier to imagine a world in which large commercial enterprises and most industrial enterprises could develop have resiliency in the event of natural disasters, like  a pandemic, global warming, or extreme weather.

If you're a commercial vendor in a shopping mall, or you've got a manufacturing plant, it's not hard to imagine putting in a cogeneration facility, batteries, solar, or—in some parts of the country—small wind turbines to give yourself a degree of resiliency to get through some of these events for a long period of time. It's much harder to assume that will happen initially with individual citizens.

How does it ever happen for the economically disadvantaged people in our state and country? We might be able to afford to put that generator out in the backyard and keep it fueled up, but what happens to the in low-income immigrant multifamily dwellings that we find all over our great city right now? How are they going to be protected from all of this?

Drilling down on the infrastructure impacts on ports, water systems, as well as the electric grid, what are the immediate observable impacts of COVID-19, not only in the United States, but globally.

We've had a fundamental belief for many years now that the combination of technology and globalism would save us all from ourselves and that somehow we’d fix all these problems because we now have this world that was globally interconnected in ways we never imagined before. The notion that if I want to buy parts for my machine, I go online and have someone in Holland 3D print and deliver three days later at a remarkable price, isn't this a wonderful world we've created?

But now can we trust having things move between countries and borders, when perhaps they're somehow contaminated or infected? Can we trust that with the geopolitical situation that the chips we get from Russia are not loaded with a backdoor, so they can be hacked someday by our enemies to further their own aims—whether it's in elections or to somehow terrorize us? How does this change this notion of globalism when we tend to be driven into a nationalistic frenzy that's so contrary to everything we've been doing for the last couple of decades.

If we have a state that refuses to practice common sense hygiene in the face of a pandemic, do we let them send their goods and their people to those that do? Suddenly, is not as far-fetched an idea that Americans crossing borders within the United States will be stopped and questioned as it might have seen just a couple of months ago. How does that forever change us?

There are some in Congress who are advocating for renewed infrastructure investment at scale as a way to bridge ourselves out of this COVID economic crash. What should be in such an infrastructure bill, that doesn't take us back to the past, but rather advances a new, environmentally sustainable infrastructure paradigm?

I'm certainly much more expert on electricity than I am on other parts of industry. But I don't think it would surprise anyone to say that we know that California needs to continue to make big investments in water infrastructure. God knows the discussions we've had at VerdeXchange every year about the need to be able to mitigate drought years by having proper infrastructure and storage in California. That’s absolutely critical.

We need to continue to develop the infrastructure that allows California to move towards 100% clean energy in 2045. The CEC and the PUC have done the studies and experts have found that unless we make tremendous infrastructure investments, not just in transmission and smart distribution, but in energy storage, we won't get to that 2045 100% clean energy goal. If you think about how long it takes to make investments in water or electric infrastructure, we need to start right now. These are long-term investments that take a long time to permit, a long time to review environmentally, and a long time to build.

The same is true of the investments we're going to need to make in things like the internet. How many people in America still don't have reliable internet. How reliable even is our internet? In a world where everyone's told to stay home, I'm having friends tell me that they're going through existential crises because they can't use their computer while their TV is streaming because they don't have the bandwidth anymore.

We can fix all of that by putting the investment out there. The only thing we have to be careful of, because we get so enamored with the idea of the federal government particularly, but also state government, making this massive infusion of infrastructure investment to pull us out of this tragedy, that we forget that there is a price to be paid for that. Ultimately, if you do it too much too fast, you certainly get into other economic issues in terms of the growth of the economy, how quickly the debt is growing, all those things that economists and other smart people are worrying about too. It requires a very deft touch by very smart people on both federal and state levels, and I hope we have enough smart people in both places to do it well.

And lastly, Jim, for much of the last decade your focus has been to advise startups in the energy sector make breakthroughs in furtherance of California goal of energy self-sufficiency. Address the new challenges those young companies face in this COVID-19 environment.

I have been privileged to work with some incredibly gifted young people who have a tremendous commitment to making this world a better place. We know all the names - from Robyn Beavers, to Evan Birenbaum to Eliot Abel, and so many others - these are young people who have absolutely the right stuff to make the world better, but they face the same problem that the rest of us face. They've got to make a living.

If you're in a startup company trying to do something that really changes the world, it takes tremendous faith and sacrifice, because you're typically going to be scraping, begging, borrowing and “stealing” trying to get that extra $50,000 or $100,000 to take the next step in the development of your company. Suddenly, you come into a world where the sources of income that you had have stopped. There was the little contract with the small firm that was piloting your product, but they can't pay because of COVID drying up their revenues. Your people have been sent home and may not have the technology or the infrastructure to keep working.

You can't do a lot of lab work from your kitchen table. If you were in a startup firm, suddenly, you've just sort of gotten bound up, the bills continue, the income doesn't, and it's very easy for you to die and give up and move back to some faceless cubicle somewhere and decide that you really can't change the world. That's a damn shame.

We have to try to not let that happen. That's why we need to continue to look favorably on programs that will help bridge the gap, whether it's loans, or in some cases grants, to these small firms that are meritorious. America's big enough; we can afford to do that. We have to do it thoughtfully and carefully, but we can't let the innovators die because of this crisis. That would be a terrible shame.



"Perhaps we were a Pollyanna in the past…now we're seeing how things can suddenly change all the rules, and we, maybe, can't rely entirely on a centralized supply system anymore."—Jim Kelly