 This is Think Tech Hawaii, Humanity Matters here. Okay, we're back. We're live. I'm Jay Fiedel. This is Energy in America today on a given Wednesday at 3 p.m. And we're talking, as we always do, with Lou Plurici. He is the CEO of EPRINC, which is an Energy Policy Research Think Tank in Washington, D.C. He joins us by Skype, and we always like to talk to him and catch up on what's going on. Lots is going on. Hi, Lou. Welcome back to Think Tech. It's good to be here. You look good. I just want to point out I'm wearing my Washington Nationals shirt tonight because the Washington Nationals are headed to the World Series, as well. We don't know yet, but they're in the playhouse. We're going to try to show the logo as the show goes forward, and give you full credit. It's my second favorite logo after the University of Hawaii. Okay, so. Thank you. We want that too. We want that too. The news, then, and I understand you came back from a trip recently to Canada. You, at the courtesy of Canadian government, to see some installations and have some discussions in Canada. Can you tell us about the trip and where it went, what it did, and what you learned? Yeah. So I think that it was an interesting trip. The government of Canada occasionally sponsored some visits to their energy facilities. Myself along with senior people from the Institute of Energy Research, Heritage Foundation, someone from the State Department, the Department of Energy, and the Brookings Institution were all guests of the Canadian government. And we visited Manitoba, we visited Saskatchewan and also Alberta, including the infamous heavy oil fields in Fort McMurray. We did see what was quite interesting, one of only two fully functioning carbon capture and storage facilities in the world. And I was impressed with the, this was at Saks Power in Regina, Saskatchewan, and I think the thing that struck me most about that visit was basically you have a power plant in which somebody installed on the end of it a chemical plant, and that the skill set to run a chemical plant is much different than the skill set to run a power plant. But this facility tries to capture the CO2 and either store it deep underground or transmit it by pipeline, some 70 miles, to an oil company which uses it for enhanced oil recovery. So what's the benefit of connecting an energy facility with a chemical facility? How do they synergize? I think that's one of the problems if we're going to make carbon capture and storage successful is we're going to have to have a more sophisticated skill set because it is the power plants that generate the CO2, of course, and the long held concern, let's say, of the coal producers and the coal people that use coal and power plants is that if we could just somehow capture and store this carbon, this industry could survive because it could be a zero emitter because it could literally store all the carbon deep under the earth. What use would the carbon play if it's stored under the earth? We're just keeping it out of circulation. Is that the idea? Exactly. And at that stage when you put it down under so much pressure, it is in fact a liquid. And we do know that there has been a lot of debate on this, a lot of concern on liability. What happens if the storage facility has a big burp and emits all the carbon at once into the atmosphere? But I actually think the real issue with carbon capture and storage is not the integrity of the underground storage but the cost. Can it be done in a cost effective manner? Is it costing $100 a ton or $10 a ton? And no one ever wants to tell you what that number is. I think logic is they just don't know yet. Yes. So how do you store carbon underground? Just pump it into the soil. You put a pipe down. Can you find a geologic structure, maybe an old oil well or geologic structure, or you drill a well deep, maybe 10,000 feet and you find a geologic structure which is stable and which can store it and accept it in a way where it doesn't release it. What are you saying? I mean if you think about it, we are quite good at drilling very deep holes. Think about a great deal of CO2 for tens of years, I think for decades, in places where it makes sense. Oil drillers have used CO2 to produce oil to give them enhanced oil recovery and the CO2 has in fact remained behind. Well, so I guess my question is how can you be sure that that geological structure is going to contain the carbon and that the carbon will not leak out into the earth and somehow affect the environment or agriculture or just cut right up into the air? We can't be 100% certain on any technology, but I think the Bug Yucca Mountain in Nevada where we store the nuclear material. We'd like to store the nuclear material, but former Majority Leader Harry Reid prevented us from doing that. I think the consensus really is that this is a stable way to store it. The real issue is how cost-effective it is. Yes. Well, looking at the whole trip that you had in Canada, I guess it was mostly toward the western end of Canada and maybe points north, what was your sense of how the Canadians view oil, how they view fossil fuels, how they view energy and is it different from regulatory or otherwise, maybe consumer-wise? I think the most interesting thing about Canada today is they have proceeded with a nationwide carbon tax. But since none of the provinces trust any of the other provinces, all the taxation and revenue from the carbon tax stays within the province. So they have a carbon tax that is going to go is now around $10 a ton that will rise over time by 2040 to $50 a ton. Think about that. That's roughly equivalent to 50 cents a gallon for those of you that still drive an internal combustion engine. So it's not a trivial amount. And their biggest concern is since virtually all Canadian energy is shipped to the U.S., what does it do to their competitive position? Yes. Yes. Well, they've depended on the U.S., aren't they? The U.S. is their biggest market and they're always concerned. Virtually their only market. Yeah, oh, interesting, interesting. Actually, the interesting thing that I told the Canadians, because 83% of Canadian power generation is non-emitting. It's either hydroelectric power or it's nuclear power. So I told the Canadians, actually, I don't even know why you went to the Paris meetings. You should have just asked them to send you a check. So you must have spent a week or two doing this in Western Canada. And I'm sure there were moments, there were aha moments for you where you observed and learned and heard things that you didn't know and that you could take back. And I wonder if you can tell us what those things were, at least some of them were. What were the aha moments, Lou, in Canada? The aha moment with Canada is they're just not, they don't have as many unreasonable people as we do. That is the only real takeaway. That's been so for a long time. Yes, they don't really have the extremes on either end. They try to always work things out. And in a way, this is a grand bargain because in order for the Albertans to get the other provinces' degree to allow installation of their pipelines, they have agreed to go along with this environmental measure for a carbon tax. So I think that that, and the other thing that you really struck by the Canadians, I think, is that their energy technology is really first-win. And it's very sophisticated. And of course, people from around the world come and visit this carbon capture and storage knowledge center because it's a working storage-captured facility in Regina. So what can we learn from the Canadians? I mean, is there something that strikes you which you saw that they have, we don't have, and that we can use either way of technology or a systems approach or a regulatory approach? What can we learn? What should we adopt here from what you learned there? I think there's a couple of things. One is, if you look at the traditional way, the first thing is that they have really done a great job in pioneering kind of much more friendly environmental extraction technology. If you remember, oil sands are largely produced by mining, removing the overburden and then taking just a few feet below the surface, up in the boreal forest, crushing and mixing it with water and solvents and extracting the crude oil from the bitumen. But the new facilities now use no mining technique at all. They drill a pipe, maybe 5,000 feet, maybe a mile long, and they drill a second pipe. The first pipe, they pump down very hot steam. The second pipe is just through gravity and a lot of small holes takes the bitumen and is pumped to the surface. So that is a quite innovative technology, which is just long term, we will not be mining bitumen in the boreal forest anymore. And I think that's a lesson in the few parts of the world where they have these kind of heavy oil deposits that everyone can benefit from. So do we have the same kind of topography or resources similar to theirs? No, that's very interesting because the Canadian, they are going to be, they are producing in Canada about 4 million barrels a day. I think next year they will probably increase their exports to the US by 300,000 barrels a day. Around 2.9 to 3 million is from this heavy oil that is mining, your mining in-situ process. The US shale oil geologic formations are actually quite the opposite. They are light oil, they are totally accessed by deep drilling and horizontal and fractionating the shale rock to get it up through high pressure water. It's a completely different process and all the Canadian oil is produced on what we call crown property, that is the government's property. In the US, most shale oil and gas is produced on private property. So with that, you know, I recall there's something called the Athabasket tar sands in Alberta. This is exactly what we're talking about. Yeah, okay, so that's it. But we don't have tar sands, do we? We don't have it. You know who else has these, though? Are the Venezuelans. Ah, interesting. The Orinoco Basins, but the Venezuelans are kind of a basket case right now. They have their own issues. So let's shift gears for a minute to Secretary Perry's new directive where he's talking about trying to do what appears to be a progressive thing to create incentives and disincentives around sustainability about resilience, if you will, of power development and transmission. Can you talk about that? Yeah, so I think there is a, you know, in the sort of political wars of Washington, there is a sense that a lot of renewable technologies like wind, solar, perhaps, you know, some of the more exotic approaches, that these are inherently intermittent. The wind doesn't operate when you don't get wind power when the wind doesn't blow. You don't get solar power when it's nighttime. So, but the way power is developed and purchased and charged for does not have a tag on it that says, oh, this power is a little more valuable because it's very resilient, and I know it's going to be there in good times and bad. And this power, which I'm dispatching today for almost nothing because the government paid for the wind and solar and the marginal cost of transmitting this power is very low in pennies, whatever it is, that that doesn't really include in that cost the fact that that power is intermittent. So how should the, and in the U.S., many parts of the U.S., almost all parts of the U.S., has a merchant on market-based system for determining how to dispatch power. And it's when you dispatch power that you can decide which determines how much revenue you get. So if you built a power plant, or you built a wind facility, you get paid. You get paid on whatever the market rate is at that moment in time. It's quite interesting. People have cogeneration facilities, sort of in Canada. They are convinced that they will bid zero even though, which means that the regional transmission operator or the independent transmission operator can keep drawing power from them even if the established market rate is zero. Some people do that just so that they can be attached to the grid. That's pretty swell. I mean, if you can store it, you're in great shape, huh? If you can store it, but of course, co-gen is flowing from the gas and stuff. So here's the interesting thing about this. I think the proposal has received a lot of criticism, an enormous amount of criticism, because they haven't just spent enough time on it yet. But I think the idea that some power is more valuable than other power because it is more resilient is actually something that we need to think about. Particularly after we've had these big storms. Yes. So my question is, okay, so he raises what could be a progressive argument or a possibility. I think the bottom line is we call it very unprogressive, but I mean yes. Because chances are it would punish wind and solar and give more credit to a facility like a nuclear facility or a coal facility because they have power stored on site. Yes, and dispatchable. Dispatchable, right? So I guess, okay, it's a nice idea, but how, if at all, does Secretary Perry actually intend to implement this? I mean, what is his program? So what he does is we have something in the United States called the Federal Energy Regulatory Commission. And that commission is in charge with all kind of public monopolies or the inherent regulatory authority to address public monopolies which are involved in the, you know, maybe inherently monopolistic in the transmission and production of electric power, natural gas pipelines, and energy, but these kinds of energy resources. And the commissioners at FERC have a very large staff and they essentially set the rules of the road, you know. What can you charge if you build a common carrier pipeline? How should the regional transmission operator or the independent transmission operator be organized to dispatch power? What are the rules he can use and what are the rules he cannot use? So they have to weigh in on this. They have to compute a notice of proposed rulemaking, which kind of set out the idea, but didn't really tell them exactly what he wanted them to do. Yes. So we're going to have pushback. We're going to have the stakeholders weighing in. We're going to have a conversation in Washington and potentially nationally. And that means, Lou, that you and me, we have to follow the story, especially you, and check back in on it and see where this all goes because it could be a very positive change. Anyway, let's take a short break. The Princeton hurricane did show us. Yeah, we're going to call it. We're going to discuss that right after this break. This is Energy in America. That's Lou Plurici of EPRNC, the Energy Policy Research Foundation in Washington, D.C. Joining us by Skype. We'll take a short break and come back. And we're going to talk about what happened with energy in Puerto Rico and how we can fix it. We'll be right back. This is Think Tech Hawaii, raising public awareness. A program on Think Tech Hawaii. We show at three o'clock in the afternoon every other Monday. My guests are specialists. Those from here and the mainland on energy efficiency, which means you do more for less electricity. And you're generally safer and more comfortable while you're keeping dollars in your pocket. Guys, don't forget to check me out right here at the Prince of Investments. I'm your host, Prince Dyke, each and every Tuesday at 11 a.m. Hawaii time. I'm going to be right here. Stop by here from some of the best investment minds across the globe. And real estate, finances, stocks, hedge funds, managers, all that great stuff. Thank you. You guessed it. We're back. We're live. I'm Jay Fidel. This is Think Tech Hawaii and we're doing Energy in America with Lou Plurici of EPRNC in Washington, D.C. by Skype. Lou, you mentioned before the break and I'd like to cover it now. This whole issue about energy in Puerto Rico. We know that Puerto Rico was really devastated. It hasn't recovered yet. Most of the island has no power at all. This serious problem could happen elsewhere, too. And it will, I suppose, when extreme storms hit other cities in the country. But I just wonder what your thoughts are and your comments are about what happened in Puerto Rico to the grid, to the distribution of power and what needs to be done. What are we learning from all that? So why don't you tell us a story of energy in Puerto Rico? As you know, if you hold a Puerto Rican bond, as I do, that the Puerto Rican electric utility is a bankrupt. Oh, that's nice. They have failed to make a lot of investments. And they're regulated in a very, let's say, counterproductive way over the years. And so this storm could not have hit, in terms of U.S. states and territory, a worse site or a more vulnerable site in the whole continental U.S. and its territory. I just can't imagine Puerto Rico to be the last place we want to storm to hit. It is under-invested in the reliability of its grid, its grid is old, it's outdated, and the storm-direct havoc to the whole island. On top of all the other problems they've had... The whole grid was wiped out. On top of all the other problems they've had, as I recall, there's $70 billion underwater in Puerto Rico that can't pay their bonds on anything, and they haven't been bailed out just yet. So now, on top of all of that, we get the storm. And I do think that for our friends on the Hawaiian Islands, Puerto Rico's a good object lesson. We might not like making these investments in our grid. We might not like making the investments in our power sector. But when you lose power, and you can't bring back quickly, it's devastating. They have dialysis units in Puerto Rico that could not get enough diesel fuel to keep running. I think the best count is maybe up to 100 now. And I do really think in many ways, it's not just technology. It's very dysfunctional politics of Puerto Rico where we don't like to tell the public, oh, this is painful, but we have to pay for these things. We have to build out our grid. We have to put some resiliency in the system. Now, lots of people would like to blame this on renewables, but I did some checking. Only 2% of the power in Puerto Rico were renewable. And they were completely wiped out in the storm, of course. As you know, most windmills shut down when the wind gets about 55 miles per hour. They get engaged. And at hurricane strength, most windmills suffer enormous structural damage. Sure, I'm not sure what shutdown means, but if they lock the blade at 55, you can see the blade being torn away. If they don't lock the blade at 55, you can see it spinning out of control. Either way, it's a problem. They're trying to have ways for it to lean into the storm, do all these other things, but you're right. It can be very high speeds. And I think this gets back, sort of, if you're looking for a connection back to the PERI initiative, which is, okay, renewables can be quite cost effective, right? They can be non-emini. And so we certainly should not discourage them. We need to find a way, as we move forward, to not be so reliant that we're increasing our vulnerability. We need to think about the resiliency. And this gets back to an old story we've talked about many times. We haven't figured out how to store the power yet. We haven't figured that out yet. Well, it strikes me that, you know, Puerto Rico has lost so much. It's lost all its infrastructure, really. It's lost so many residences and businesses. A number of people leaving every day is in the thousands trying to find a home somewhere else. And that's probably a one-way trip because it can take a long time to rebuild Puerto Rico. And so what you have in some ways is a complete devastation, a bankruptcy at every level. And another thing, though, another approach to that is it's an opportunity to rebuild and rebuild better. So if I give you the job... I agree. I mean, I think there has been some criticism of the recovery effort and the role of the Federal Energy Management Administration or what we call FEMA here in Washington. Actually, I think that FEMA did a pretty good job in Texas and Florida. They were well positioned. They had a good... They were able to draw upon an able and skilled workforce. They had logistics worked out. And I think the Puerto Rican suffered. It's quite interesting. I believe that if you saw the full-page ads in the Wall Street Journal about the paper where the Maritime Union wanted everyone to know they were supplying Puerto Rico. But in fact, we only lifted the Jones Act for Puerto Rico for 10 days. We probably should lift it for a year. Yeah. In other words, we should help them any way we can. And if one way we can help them is open up the whole island to worldwide shipping and the cheapest possible transportation through the Maritime Services. Well, that's definitely something we should do. I think that is one of the issues. Well, Hawaii is very interested in the Jones Act. And what happens with the Jones Act in Puerto Rico will be instructive to us here because we could have the same kind of experience. But let me ask you this. I mean, I'd like to put you in charge. I'd like you to be in charge of Puerto Rico now or at least the energy part of it. And I'll fly you down there just the way you flew to Canada. And I'll put you on the ground in San Juan. And here you'll find this desolate landscape with everything flattened and no power in most places on that island. Where do you begin? What do you do? How do you build or rebuild? And what special considerations would you entertain in order to rebuild it in a way so that it's not susceptible to further storms? Yeah. I think there's going to have to be a lot of study on that. Clearly, you're going to have to do a lot more work on how you distribute the power. The Puerto Ricans are going to need stable, dispatchable, base load power. They're just going to have to make this investment across the board. And that's, unfortunately, going to take money. And I think some of that money is going to come from you and me. I'm sure because they don't have it down there. And if that place is to survive at all. But there's a lot more problems with Puerto Rico than just the power sector. The tax structure, unfortunately, they borrowed a great deal of money when they weren't able to, for operations instead of investment. And the place is a basket case. It's going to have to have massive economic reform. Yeah. And speaking of economic reform, I mean, this is kind of unprecedented because you have an island which had a really soft economy to begin with, you know, failing economy, if you will. Now people are leaving. You know, the structures and infrastructure of the island are in terrible shape. It's going to require a lot of money. I don't think that throwing paper towels out to a crowd is going to help very much at this point. It requires cash money from the United States, from you and me. Not clear that Congress is going to provide that money. Not clear there's anybody out there, Jones Act or no Jones Act. It's actually going to provide supplies and cash and, you know, all the things you need to rebuild from the ground up. And so we have the possibility of an unprecedented failure of a territory economically happening right on our watch. I actually believe the Congress will step in. I think that they might, who knows, perhaps the island will have to be, the whole island will have to be put under some kind of control board. They're going to have to change this investment rule. I think they need to give it. It might have to be given special tax treatment. But they're going to have to do something to change the whole attitude towards investment stability of the workforce. I think this is a very serious problem I created here. And I don't think there are any easy answers. It's important to Hawaii to watch what's going on because we're a likewise island state. You're given the sort of nature of both the isolation and the way power and economies of these islands work. Puerto Rico's a much bigger piece of territory than Oahu or Kauai. But it's still something to keep an eye on. And we will though, you and me, we will talk about this again. We'll follow through on all these trends. And I will see you again in two weeks. I'm looking forward to that as always. Lou Pooley, the CEO of Eprink, who joins us from Washington, D.C. by Skype. Thank you so much, Lou. It's always fun.