Jon Powers: Welcome to Experts Only podcast sponsored by Clean Capital. Learn more at cleancapital.com. I’m your host, Jon Powers. Each week we explore the intersection of energy, innovation, and finance with leaders across the industry. Thank you so much for joining us. Jon Powers: Welcome back. I’m your host, Jon Powers, and we have a very special episode today. We usually don’t jump on current event opportunities, but this we could not miss. Clearly folks are following the disaster that’s happened in Texas because of the polar vortex and the power outage, as well as loss of water and another major infrastructure. We wanted to bring in Jonathan Mon ken, who is with Converge Strategies, but is really, previously the senior director for systems resilience and strategic coordination of PJM. Jon is a West Point grad and a energy security and national security expert. Jon really understands what’s going on today within the grid, and some of the failures happened around resilience. Jon Powers: So we’re going to really quickly jump on this topic and talk through some of the failures we saw in Texas, and how to really plan to ensure this doesn’t happen again. I hope you enjoy this conversation. And, as always, you can get more episodes at cleancapital.com. Jon, thanks so much for joining me. Jonathon Monken: Absolutely, Jon, thanks for having me. Jon Powers: This is a special episode. We usually don’t dive into as much current events as we are today, but so much on the news recently about what’s happening in Texas, and the polar vortex that has really just shut the state down economically with power, with water, it’s just an absolute mess. And I really want to take this chance to talk to you as an expert in the space and help explain to people what is actually going on. And before we do that, I do want to step back and just set the table a little bit for folks who may not know you and, I think, your experience in this space. You, first of all came out of the military, you’re a West Pointer, correct? Jonathon Monken: That’s right, yeah. Jon Powers: All right. And then you ended up going into a career in national security and then sort of an energy security. Jonathon Monken: Right. Jon Powers: And most recently you were at PGM as a senior director for system resilience and strategic coordination before converge. So talk a little bit, just for a second, about your sort of career path here and why you’re sort of teed up to be able to talk about these issues. Jonathon Monken: Yeah, it’s interesting. I have a very winding path in terms of how this really brings me to the energy sector in general. And so, essentially, when I transitioned out of the military my focus was in state government. So I was the head of the Illinois State Police for a couple of years. I was the head of the Illinois Department of Nuclear Safety, Emergency Management and Homeland Security in Illinois for four years. Jonathon Monken: And in that capacity, I started doing disaster responses. And so certainly Illinois has its fair share, right? There’s plenty of everything from tornadoes to polar vortexes and floods. And so in that capacity, I started working a lot with utilities in the state of trying to understand what I could do to support them and vice versa. Recognizing the fact that if there’s, the single most important question that people are asking immediately following a disaster is how many people don’t have power, because it’s such an important indicator as to every other area of the response and how it’s going. Jonathon Monken: And so I really just doubled down on that engagement with utilities and started working specifically in the energy sector because of this recognition that this is the linchpin that everything else just kind of hovers around. And so when I got to PJM, which is the largest wholesale energy market in the world, it’s the largest grid operator in north America, they had a vested interest in saying that we need to have a formal resilience program because we can’t just let this thing happen by accident. Jonathon Monken: And it requires this cross-functional approach of saying, well, there’s a market component to it, there’s a transmission planning component to it, a realtime operations, physical and cyber security. All of these things are part of this resilience puzzle. And so that’s really where I engaged and spent my time is coordinating with federal entities from the Department of Defense to the Department of Energy and FEMA on how these things are done. How you develop power outage incident annexes or engage utilities in this way. How you develop and execute exercises in this space. Jonathon Monken: So it’s really become this, this whole thing of energy resilience that takes each piece of what I’ve done previously in my life, whether it’s military, law enforcement, homeland security, emergency management, and just kind of bundles it into one. And I think Texas is seeing impacts associated with literally every one of those areas. And so it’s just unique. Jon Powers: Yeah. So I want to come back to Texas in one second, and I want to come back to this conversation later in another podcast. I would love to hear about how your experience working across the bureaucracy has helped you work across the utility too. Jonathon Monken: Yeah. Jon Powers: And bring those together. But before diving into Texas, just for folks that aren’t familiar with Converged Strategies as well, and your just incredible team you guys have there, can you just talk for a second about what you guys do at Converge? Jonathon Monken: Yeah, small but mighty. So essentially- Jon Powers: All rock stars really. Jonathon Monken: That’s right. Exactly. That’s exactly right. So really our focus is on the intersection of advanced energy technology and national security. And the touch points there are practically infinite when you recognize the fact that it’s so consequential to the execution of these national security functions and homeland security functions is the availability of electricity. Of making sure these infrastructure systems are there to support it, because otherwise it exponentially increases both the demand on finite resources during these events and how they’re ultimately planned for, to try and mitigate against these consequences. Jonathon Monken: And so that’s what we really do is perform, function in this cross-functional space. But bringing together those huge bureaucracies, both within the industry and government, and saying, hey, there’s, there’s some shaded area in the Venn diagram here that we need to work on if we both want to succeed adverse operating conditions. Jon Powers: And speaking of adverse operating conditions, we’re seeing, just to set the stage. I think everyone has seen the news, people with water frozen in their bathtub in Texas right now, and had been without electricity. This will probably premiere a week after most of this has been, at least on the power side, fixed. But Texas in its own right, I just want to set the stage of why Texas is unique as an energy beast, because it has its own grid, it’s not interconnected between states. Can you talk a little bit about what that structure looks like for folks? Jonathon Monken: Yeah, absolutely. So Texas essentially functions as an island. So across the United States, what you have is a network of independent system operators or regional transmission organizations and these balancing authorities that essentially do this realtime grid management across large swaths of the country. And so when you take the United States as a whole, there’s three interconnections, Eastern interconnection, Western interconnection, and the Texas interconnection. So, it’s the only one that’s not really regionally aligned in a multi-state environment. And there’s a lot of reasons for that, not the least of which is it basically allows them to be exempt from federal regulation on interstate transmission. So they’ve actively chosen to function as an island. Jonathon Monken: Where anywhere else in the country if you have a frequency deviation or a blip on the radar from the grid perspective in Florida, you’re going to feel it in New York, because they’re part of the same interconnection. They’re going to see the grid physics impacts across the entirety of the region, and that’s not necessarily a bad thing at all. In the vast majority of instances that’s a great thing, because you really know what’s happening around with your neighbors, and you have a friend you can call on when you need to move that sofa to the third floor walkup. You’ve got somebody that you can trust to help you. Jon Powers: So just for the one on one basis of this for a second. So because Texas is an island in itself, meaning it literally can’t pull power from Oklahoma and Louisiana or whoever it’s neighbors are. Jonathon Monken: That’s exactly right. Jon Powers: So when they were talking on Fox News about frozen wind turbines, which we’ll come back to, where they’re having issues with, there literally is nowhere else for them to pull power in, because they’re unplugged. Jonathon Monken: That’s right. And a fundamental truth of how grids are restored in general is you work from the outside in. So, basically, you go to areas that have stable power and you push the dominoes back up from the outside in. That’s the fundamental blocking and tackling of grid restoration. And when you have a system that’s isolated like that, if it hits the edges of your system, that’s it, there’s nowhere else to go. There is no one to call upon to have that stable grid and that stable flow of electricity that you can build your own system back off of. Jonathon Monken: And that’s what’s so unique about this circumstance is that when you’re on an island, there’s nowhere else to go. Jon Powers: So I’m going to come back to what caused this, from a maybe regulatory perspective and policy perspective, but just paint a picture for the audience of… I think people who read the media reports or, especially the energy Twitter-verse, Tucker Carlson’s comments have gone all over the place. But, really, on the ground, what happened over the last week in Texas? And it has caused people to go sometimes hours, sometimes days, without power. Jonathon Monken: Yeah, at it’s most fundamental level what they experienced was a significant winter peak in demand for electricity. Essentially, something that does not happen with regularity, something that they’re going to see multiple times in an individual year. And the combined effect of having this significant increase in load, which was really a byproduct of the fact that 75% of the heating for customers in Texas uses electricity, not gas, which you would normally see in places like New England or your beloved Buffalo. You’re going to have a lot of gas there, right? Jonathon Monken: Instead, what you’ve got is this huge demand on the grid. And what they had was a system that was not ready for it, because they had so many generators, so much capacity on the system, they had to come offline because of the operating conditions they were experiencing. And, essentially, you can just see, there’s no more juice to give. You’ve got all this demand on the system. There’s nothing available to deliver to it. And they were really only able to get electricity to roughly half of all the customers in Texas, which is an unprecedented event. I mean, you, there is not an equivalent in UA history to reference. Jon Powers: Yeah. I was reading recently about what’s going on in Austin and San Antonio is it CPS, right, correct, is that the. Jonathon Monken: Yes, yeah. Jon Powers: And they had shut down, I think three out of every five customers there. And the only reason the other two didn’t get shut down is because they happened to be living up maybe next to a fire station, which is critical infrastructure, right? Jonathon Monken: Yeah. That’s exactly right. And in this instance Texas performed load shedding, which is basically taking customers off the system. And every grid operator has a load shedding process, a list of procedures and things that they’re going to do in order to reduce that pressure, that demand on the system. And typically what you have is a system that’s prioritized, and it’s basically at the feeder level. So like you said, if you happen to live on a street with a police station or a fire station, odds are the utility is identified that distribution feeder saying this one’s a priority, that would be the last thing or one of the last things that we take off the system. Jonathon Monken: But essentially it has to come from somewhere. And so one of the biggest challenges is usually the utility gets to be the chooser of how this is going to happen and where it’s going to come off the system, but that’s because the number is typically very finite. You’re not talking about lots and lots and lots of customers. This is a very unique circumstance where you’re saying you have to lose half of the system. You’re well beyond the planning criteria that’s established for utilities of saying, oh, these feeders are going to come off first. You’re way past that. Now you’re in uncharted territory of saying, we’re just going to have to take as much off the system as fast as we can to get some level of balance back in the system. Jon Powers: So, a lot people argue this is, or argue, I think appropriately, a lot of this is driven by climate change. We’re going to see more of these situations driven by climate change. How does this compare to say like a superstorm Sandy that happened, almost a decade ago, I guess now, and had similar, complete shutout, blackouts across places like New York and New Jersey and Connecticut? Jonathon Monken: Well, I think the most fascinating difference between, if we look at a hurricane driven event, is that there was no substantial infrastructure damage that was associated with this outage. When you talk about Puerto Rico, you talk about Sandy, you talk about Katrina, these are horrible events, right, millions of people without power. But there was massive physical damage to infrastructure that really was the catalyst for the outage. And then to take time to stand those poles back up and rerun that wire and bring all these… This was a fascinating event because it was an event without damage, right? Jonathon Monken: You weren’t knocking down transmission lines. You didn’t have 120 mile an hour winds and massive storm surge and all these other things causing it. This was a misoperation of the system. This is fundamentally a byproduct of a poorly constructed energy market and the operational procedures that support it. Jon Powers: Let’s go back to that piece in one second. And last sort of question for you is, as you looked at the baseload across the utility. There’s been a lot made in the conservative space around the fault of renewables here, when the reality is gas had equal, if not more of a role to play. Can you just for a second, talk about that baseload, what it’s comprised of, and then what were some of the root causes to… You mentioned, I live near Buffalo, New York. We have turbines literally sitting the edge of the Great Lakes, which freeze every year. But those things run fine, right? Jonathon Monken: Yeah, that’s right. Yeah, that’s exactly right. Jon Powers: The turbines themselves, they work. Jonathon Monken: Yeah. Jon Powers: What was the cause of that reduction in production? Jonathon Monken: So essentially what you have, and baseload is the right term to use, because essentially that’s the vernacular that has been brought forth in this discussion about legacy generation versus next generation. So when we’re talking about advanced technologies, we’re talking about renewables and those types of things that are coming onto the system. Those are considered this intermittent load, or intermittent capacity, these resources that are kind of on and off the system, depending on the conditions and what the circumstances are. Baseload is a generic reference to say your fossil burning capabilities, right? Your coal, your natural gas. And then you get into things like nuclear. Jonathon Monken: And so those are things that comprise this, these kind of, the concept is this always on covering your bare minimum across the board for what you ultimately need to do. And that it’s also touted as the resilient component of the grid itself. Of saying, well, it’s more capable of being on whenever you call on it. And it’s something that’s dependable and is always going to be there. Jonathon Monken: And I think the circumstance that you see here is, to your point earlier, this was not an issue of well, the wind capacity dropped, and that’s what, what covered it. I mean, even if, let’s say all the wind was completely on, as a percentage of its total installed capacity you’re only talking about 10% and they lost 50%. They lost 50% of their ability to deliver. And so the number of base load generators that were incapable of delivering as a percentage of their own installed base, as a percentage of what they contribute on a regular basis, their drop off was substantially high by orders of magnitude. So they failed at a much higher rate. Jonathon Monken: In fact, wind in terms of its average, was down in only in a single digit percentage of its regular output, expected output, at that time of year. So not the cause of it, right, it’s not going to be the thing that knocks four and a half million people off the system. Jon Powers: Right. Jonathon Monken: It’s just one piece of the puzzle. Jon Powers: So let’s go to that puzzle and putting that puzzle together. And I think, you’ve mentioned this earlier, but really sort of the failure here in both market design and sort of resource management. Talk a little bit about, what are the failures you’re seeing there? And then, how does Texas move forward? What lessons did we learn that can be shared in other markets here? Jonathon Monken: Yeah. So, essentially, I think what we’ve seen is that, your point earlier about how much of an anomaly was this weather event, and, certainly, there are ties to climate change here, right? Jon Powers: Right. Jonathon Monken: It’s not as anomalous as you’d be led to believe. Meaning that Texas has had multiple cold snaps in recent past that have caused outages, just on a different scale. And so the frustrating circumstance of it all is that there are steps that can be taken and have been taken in other areas of the United States to be able to account for those types of winter peaks and that type of operating condition. As you indicated, upstate New York has wind turbines and they make it through the winter. Jonathon Monken: And so, essentially what you have is, this is a byproduct of a market that’s built around least cost of delivery. At the expense of essentially everything else we’re going to go for the cheapest megawatt hour we can possibly find under any conditions, and that’s what’s going to build up the base of our grid. Jonathon Monken: And so the byproduct of that is, for people who are building these generation assets, when you’re saying least cost of delivery is what allows me to get into the market and make money here and get customers, you are going to forego anything that’s an additional expense that you deem to be non-essential. Jonathon Monken: And one of those examples is winterizing your assets in Texas. Because you look at it and say, statistically speaking, I don’t think it’s going to happen. So I’m not going to pony up the extra money and winterize these resources because that’s going to cost money. If you’re a natural gas generating facility in Northern states, a lot of natural gas plants purchase firm service for natural gas delivery, making them a priority instead of the last person to get natural gas when conditions are tight. Jonathon Monken: You’re going to pay for it, right? You’re going to winterize your low voltage electronics and the control systems in the generating facilities themselves so that they don’t freeze up in this circumstance. You’re going to potentially procure a dual fuel contract of saying like, I actually can run on gas, or I can run on oil, or I can run on diesel, or I have a battery backup on site. I have another resource that I can leverage. Those are all expenses that are not incentivized in the Texas market right now. And so they just don’t build it because they think the probability is low enough that it’s not going to be an issue. Jon Powers: What type of, the economic hit, I think, is still very much to be discovered here. I think the economic hit, obviously, of Sandy was hundreds of billions of dollars, and think about Texas and Houston and Austin, and some of these hubs shutting down for days will be equivalent in terms of dollars. How much is it going to cost to now retrofit? Jonathon Monken: Oh. Jon Powers: That realization, right. And, and how does Texas get its head around third party owners of, I use the wind turbines as an example, but maybe use a natural gas plan as well. Are they going to put out grants to do this? How do they start to wrestle with this going forward? Jonathon Monken: Yeah, it’s a great question because, essentially, the last statistic that I saw is that ERCOT had actually done an analysis of what the economic impact of the loss per megawatt hour would be for whenever they had failures. And this was following the 2011 cold weather event, where they had to shed about 4,000 megawatts. And so, essentially, based on the- Jon Powers: What was the total megawatt shed this time, do we know? Jonathon Monken: This time we’re talking about, essentially we’re looking at more than 15,000 megawatts, more than 20,000 megawatts. We’re talking four to five times bigger than what we had before. And so, using their own math, essentially what they’ve determined is that every 24 hour period for the size of load loss in this particular event, it’s two and a half billion dollars in economic impact, economic opportunity that was lost as a result of the outage. And we’re already four days passed, right? Jonathon Monken: And so you’re talking about 10 billion dollars of lost economic opportunity. So when you’re talking about the price tag, what an interesting question. Because at this point it’s worth $10 billion or more to make this investment. And essentially, it does not turn on a dime. Jon Powers: Not at all. Jonathon Monken: All of these strategies that were developed in Northern states to build out things like capacity, performance markets and these winterization techniques and the things that you can do, it’s a years long process of implementing. But, essentially, what normally would cost 5% over the construction cost of these resources, now you’re talking 10 to 15% to go back and retrofit all of these systems to be able to withstand these types of events. Jonathon Monken: And so you can socialize that cost. You can spread it out amongst rate payers and say, okay, well, these things are eligible for rate based recovery. So it’s either going to be taxpayer dollars or rate payer dollars, right, for the state of Texas. But one way or another, they’re going to have to spend some money. Jon Powers: Is there any chance this shakes up the whole ERCOT structure and Texas is no longer an island or? Jonathon Monken: Well, maybe. I mean, there was a NERC, a North American Electric Reliability Corporation, and FERC, Federal Energy Regulatory Commission, both of them published reports following each of the last two cold weather events that forced customers off the system in Texas, neither of which were heeded. So at this point, in the absence of enforcing federal regulation on them, there’s really, it’s up to Texas to try and figure out what they’re going to do. Jonathon Monken: And I think you raise a really interesting question, which is, if they can’t implement on their own and they’ve had multiple opportunities to do it, and have passed previous legislation within the state of Texas to try and force this winterization that just wasn’t heeded and never enforced. At some point, it’s going to have to come home and roost, because you, they can’t continue on this way, assuming that it’s just never going to happen again, because twice in a decade is not an irregular event. It is now well inside of the planning cycle of a grid operator. Jon Powers: Interesting. And then finally, I think, obviously, all of these outages, it’ll take months to sort of wrap head around all the lessons that are going to be applied here. But in the utility-verse of folks that are, that you engage with, what are you sort of just forecasting? What are some of the major lessons that you think others will pick up on here and try to implement in their own? Jon Powers: I mean, there’s so much happening, first of all, just in the utility space in general, the markets are getting shifted. And many places are just completely flipping over because of the insurgents of renewables and storage. And you have a new administration that’s going to push new policies. But this is equivalent to a superstorm Sandy level event, where it can be game changing, not just for utilities, but for the customers, the Walmarts, the eBays, the Apples, others who have operations in Dallas and Texas. What kind of lessons do you see coming out of this that can help ensure that we don’t have a situation like this again? Jonathon Monken: Well, I mean, I think a big part of it is that there has long been the drum beat of the least cost delivery of service. And I think there are other areas of the country that have been able to identify value streams that resonate with customers. Jonathon Monken: And so one example is, people are willing to pay more, on average, to have carbon reduced or clean energy, right? People will willingly say yes, I will pay a little bit extra to make sure that I’m getting renewable. At this stage, I think you’d be hard pressed to find someone in Texas who wouldn’t pay extra money to have a more resilient grid. That says, you know what, the least cost thing had its benefits, but I’m willing to pay 15 cents a month more for my electricity, or $5 a month more for my electricity, to make sure that this doesn’t happen again, to make sure that the adequate steps are taken in order to harden the system, or harden generation to do it. Jon Powers: Let me ask you, just a follow-up on it. So think about Fort Hood, right? Fort Hood had a major sort of micro-grid program being put in place the last couple years with APEX energy and others. Any idea how that operated in this situation? Jonathon Monken: So we’re actually trying to unpack exactly what the extent of impacts to DOD facilities were, because Texas is, it’s a military state, right? I mean, some of the biggest military installations on the planet are located in Texas. And so essentially, I mean, I think, at first blush, they were not immune to these types of impacts. There was the opportunity to still, for the operator to make some choices as to where they were going to take people off of the system, based on that prioritization. And so it certainly insulated installations to a degree. Jonathon Monken: But I think it’s also a reminder of why they were pursuing a micro-grid program to begin with, which is, right, mission assurance. The ability to execute national defense missions is completely dependent on the availability of private infrastructure to execute. And this is a very harsh reminder of exactly why that’s important. And the amazing thing is, you just can’t point to something that says, well, we saw this, it was not a 2017 hurricane season, and says, well, it was a cat five hurricane that annihilated the transmission and distribution system. Jonathon Monken: This is something that was largely an unforced error, right? Jon Powers: Right. Jonathon Monken: Yes, it was extremely cold. Yes, that cold weather was rare. However, you can’t point to physical carnage as what got us here. And I think that’s a wake up call for DOD as well, of just understanding- Jon Powers: It wasn’t that cold, it’s like August in Buffalo, or is it there? Jonathon Monken: Yeah, right. Yeah, exactly. Yeah, you would’ve been out there in your shorts for sure. Jon Powers: Yeah. So Jon, well, first of all, part two of this, and you just talked about it. Part two of this podcast is going to be with Jon’s partner, Michael Wu, exploring DOD and energy security. We talked doing it for a while, and you’re going to hear that soon. But I just wanted to thank you so much for joining us on short notice to talk about this. It’s such an important issue and folks just don’t, really are trying to wrap their heads around what’s going on down there, so I really appreciate it. Jonathon Monken: Yeah, absolutely. It’s my pleasure to do it. And I think you’re asking the right questions here that need to be pursued, because it’s going to be the difference between our system doing what we really need it to do societally, and just failing us at the time we need it the most. Jon Powers: And thank you so much to Converge Strategies and to Adair and the team, they’re helping put this together, and to our producers, Colleen Young and Carly Battin. Jon Powers: As always, you can get more episodes at cleancapital.com and I look forward to continuing the conversation. Thanks. Jon Powers: Thanks for listening in today’s conversation. Find more episodes on cleancapital.com, iTunes or wherever you get your podcast. 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