 We're back. We're live. We're here. It's three o'clock rock here in Honolulu, but we are connected by Skype to our guest, who is Lucian Pugirisi. He is the CEO, president of EPRINC, which is an energy policy research organization, think tank in Washington, D.C. And we're going to talk about energy in America today, namely with respect to what happened in Irma and what happened in Harvey. Welcome again to the show. Nice to have you here, Lou. Good to be here, Jack. So, Lou, we had some pretty serious storms in the last couple, three weeks. And as a result, there were disruptions in supply of fuel and energy. And it's ironic, looking at it from Hawaii's point of view, because Nextera is Florida power and light. Nextera was trying to buy Hawaiian Electric. And everybody was expecting they would be able to lay lots of capital into upgrading the grid and this and that. And now they have their own headache, don't they, in Florida? Absolutely. And we should talk about two things. One is, when you have a large event like this, a storm, plus two in a row, first Harvey, which moved into the Gulf Coast and literally shut down almost well over a third of U.S. refining capacity, shut out power, disrupted pipelines, followed by Irma, which had very large consequences to the power sector, particularly in Florida. So one of the things I'd like to talk about today is, first, what happens? What does all the instruments of government and industry do when one of these storms hit? And why are these measures very important, these responses? Because some of these responses are not physical logistics, they are policy. Relief of the Jones Act, changing gasoline standards. So we could, let's talk, we'll talk a little bit about that. And but first, I'd like to start with slide number one, which is a sort of cartoon, it's a map of Florida. And the reason I picked Florida, not only did it get hit very hard by the second storm, and I don't know, is the image up there? Yes, it is. Yeah, so you can see, one thing you think about Florida is, it relies extensively, not just on pipelines, but shipment by seaborn tankers and barges. So like the Hawaiian islands, it has to get its fuel, not just by pipeline from other parts of the country, but by tankers and barges. And that means that when you have a hurricane and the ports are interrupted, you also have a huge surge in the demand for seagoing vessels. But the United States has a policy required shipment from one US port to another to use only American flag tankers, the so-called Jones Act. So the first thing the government does, and they did in this emergency was to relieve the requirement to use a Jones Act tanker. So I think that's very important. You think about for the Hawaiian islands, if you are serviced by facilities from the US that cannot be served by foreign flag tankers, it must be served by American flag tankers. But in an emergency, the surge in demand for those tankers can just take off, and there's not enough capacity. So the first thing the government needs to do is to waive that, and they have to do it quickly. This is not a statutory thing. In other words, Congress does not have to act. This can be done on the executive branch. Absolutely. Homeland Security has the authority, DOE and Homeland Security acting together have the authority. Another big instrument that happens is that in the US we have these what we call boutique fuels. So different parts of the country have something called reformulated gasoline or read vapor pressure. And the point is they want to, lots of parts of the country are subject to, they're more leaning, smog is more prevalent. And one way to deal with that is to produce gasoline which has lower volatile organic compounds. And that's called this read vapor pressure. But in an emergency you need to move fuel all around the country. And to do that, some parts of the country can't use the fuel in other parts. But if you waive the regulations, all the automobiles can use it. So the second thing the government did was to relieve these local, some of the federal requirements for what's called REBA, RVP, or the production of reformulated gasoline. So the first thing you need to do in emergency is sort of simplify the fuel specifications across the country so the logistics can be served sourced from anywhere. And second, you need to open up the transportation system on the regulatory side. So I would say both those actions which were done quickly by FEMA, the Homeland Security and the Department of Energy, helped to relieve this crisis. Yeah. But it strikes me that you've got to do those things in order to get the fuel delivered to the affected area. And if you wait on those things, then the shipments wait. And then you have another problem. And I think what people don't realize is it has to come from some distance. It has to be taken by truck or by ship, I suppose, and brought into the area. And if that gets held up, the whole thing is exacerbated. Right. Of course, and gasoline prices have gone up. They went up an average of somewhere, sometimes as much as 40 cents, but they're already beginning to come back down a bit. And I haven't looked at the data for the Hawaiian Islands, but if you take out 3.2 million barrels a day of U.S. capacity, which is about a third of U.S. capacity, of course, it's a small percentage of world capacity, probably less than 5%. But if you remove that much capacity for producing refined products, you're going to affect the world price of gasoline, the world price of diesel fuel. And one of the things we ought to look at, maybe I'll send you a note later, is what happened to gasoline prices in Hawaii over the last 10 days? I would not be surprised if they were up a good 20 cents. Well, when we talked to Jeff Kissell about this two weeks ago, he's also with E-prink, he was looking back at Katrina, where Katrina had an effect, of course, on the mainland, in Louisiana, and it had a secondary effect on prices in Hawaii. And not only for gasoline, but all commodities that were in short supply in that area. So I imagine the same process will always happen when you have one part of the country that's affected in short supply, we here in Hawaii will suffer because the resources are not available to us. Right. And I think that the other thing I am concerned about, but it's too early to tell, is these two storms and the sequence that came so close together, they may actually have a fundamental effect on the national economy. And I wouldn't be surprised if we end up at the end of the year losing anywhere from a half to maybe a whole percentage point of GNP. Hopefully we can make some of this up and it won't be that bad, but we have really restored a lot of growth in the national economy, running around 2.8 percent. And I think there was a good chance to raise that up to three and a half. So we may not be able to do that now because a lot of productivity has been really hammered into the ground. Yeah. But on that point, let me ask you, and I'm really curious about this, so you have a storm, you have destruction and people aren't going to be able to work. There's no productivity happening for a while until we get it together. But then you go into a phase where everybody is rebuilding. They're rebuilding what was broken, what was destroyed, damaged and trying to get back to normal. But they're doing it on an expedited basis. They're doing it faster than they would normally do. So do you find actually when you make this kind of analysis, Lou, that there's a period of time where it's really low productivity, but then when they rebuild, it's higher than normal because they're working so hard to rebuild? This is a classic problem. It's called the broken window problem. The idea is it's not so bad if someone breaks your window because then you go out and you buy some moog glass and put it in. But that's actually not a really good way to think about this problem. The resources you put into replacing that broken window could have gone into more productive things. So you're really not better off if you blow up a lot of the country's housing and people go back to work. Now I think these two storms can easily come in anywhere between $100 and $150 billion in damage. Who knows what the real number is? We have a $10-12 trillion economy, whatever it is. So we can absorb this loss as long as we don't get a lot more of these. And hopefully it will not be a big loss. But we are worse off if a lot of our productive stock gets damaged. Yeah, multiple broken windows, as it were. Right. Let's pause on that point too because from the scientific community, we're getting the message that climate change is bad and getting worse. And we have some indication of that in all these storms. Well, we're going to talk about that at the end of this event today. But before we move on, let's go to the next slide. I wanted to also show you something which is quite, to me, quite interesting. The pace at which they were able to restore power in Florida was also quite good in Texas. But so if you see the first slide here, I mean, you see number two, this shows you the state of power outages in Florida on September 12th. And you can see that by the colors, anywhere from 50 to 60 to 70 percent of the state was without power on this day. And you think about Florida, it's the fourth largest, I think it's maybe the fourth largest economy among the states in the U.S., maybe the third largest population. That's a devastating result. Now if we go to the next page, page three, and look at power outages, one of the amazing things about this is the ability to move large numbers of repairmen and repair women into the region quickly, as much as 60,000 people moved into Florida, linemen, electricians, all kinds of construction experts. And this is actually something to think about for the Hawaiian Islands because the ability to move a large number of people into the Hawaiian Islands quickly is probably not that great. But in Florida, lots of different routes. And if you look at this chart here, you can see that if you compare Wilma with Irma, yes, Irma was worse, but within within five days, less than, yeah, within five days, less than 10 percent of the population was without power. So it's a remarkable resilience of the U.S. system. And one of the things that's going to happen now is we're going to get a lot of post-storm studies on distributed power. How did wind and solar hold up versus the rest of the grid? Yes. That's going to be very interesting. Do you have any indication of that yet? Do you have any early numbers on that? Some of the numbers suggest the wind, the wind didn't do too well. Sure. Well, we're talking about over 100 miles an hour. It's going to break something. And of course, some of the distributed power of the solar, the photovoltaics on the rooftops also took a big hit. But it strikes me that in the in the case of wind, you can build a really strong turbine, but if the wind comes at, you know, the high speeds, it's going to break the turbine. In the case of solar cells, you can really anchor them down well. Like for earthquake kind, you know, resilience. And you can probably do more to protect the solar cell than a windmill against a hurricane like this, no? Yes. But you know, if you have the, if these cells are exposed right outside to the elements, but the advantage of them is they don't need to be hooked up. I mean, you're right there. So I think we need to take a look at the data after the storm as it comes in. Yeah. And that's, I think that's one element we have to learn by this. Um, everything that happens is a lesson, not necessarily an opportunity, but at least a lesson. Let's take a short break. This is Lou Pulirisi here on Energy in America. He's with Aprink, and we're talking about what we can learn from Harvey and Irma going forward and how they affected Hawaii. We'll be right back. This is Think Tech Hawaii, raising public awareness. I'm Helen Dora Hayden, the host of Voice of the Veteran, seen here live every Thursday afternoon at 1 p.m. on Think Tech Hawaii. As a fellow veteran and veteran's advocate with over 23 years experience serving veterans, active duty and family members, I hope to educate everyone on benefits and accessibility services by inviting professionals in the field to appear on the show. In addition, I hope to plan on inviting guest veterans to talk about their concerns and possibly offer solutions. As we navigate and work together through issues, we can all benefit. Please join me every Thursday at 1 p.m. for the Voice of the Veteran. Aloha. Guys, don't forget to check me out right here at the Prince of Investing. I'm your host, Prince Dykes, each and every Tuesdays 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. We're back. We're live with Lou Plierisi here on Energy in America. He's the CEO of EPRINC in Washington, joins us by Skype. So yeah, after our break here, Lou, you wanted to cover some points about climate change and what we can learn about that and how that both interacts without planning. So we've talked about this many times in the past. So the question of adaption versus prophylactic measures to deal with the reducing CO2 emissions. And one thing we should say before we go is that I don't know if you remember, in the first Gulf War, when the Iraqis moved in and they set on fire all these oil wells in Kuwait, all the analysts estimated it was going to take two, three years to shut them down. But people often underestimate the value of learning. And the workers in the fields will learn quickly how to do it better and faster. And what was predicted to be a three-year job turned into an eight-month job. And I think in Florida, that chart we looked at earlier is, we're getting very good at figuring out, two things are coming out of Florida, very early. One is, the new building codes appear to be working. Ah, that's great news. The new building codes, they've had tremendous resilience. The newer homes are doing much better than the older homes, particularly attachment of roofs, building them higher. Lots of different measures, ability to withstand flying debris and all these things. So we're going to have to, that should be studied very carefully. Those are very good lessons for Hawaii. Very relevant to Hawaii, because it was just a couple of months ago that Governor E. Gay signed the new building code statute, which updated our building code, which hadn't been updated in quite some time, and largely for energy efficiency, but other things too. So this is really good news, that the modern technology and building codes actually helps you become more resilient in storms. Yeah, so before we look at, before we go to the next slide, a big theme that comes out of this, these recent storms is that this is really the result of CO2 loadings in climate, right? But do the data support that view? So let's go to the next slide for, this shows the U.S. flood damage as a percent of GDP. You can't just look at, you know, the economy gets bigger, more people move into the coastline, you know. So what you want to do is look at what percentage of the wealth of the national economy is hurt by floods over time. And if you look at this data from 1940 to 2012, right, it shows that the amount of flood damage in the U.S. as a proportion of GDP has actually declined. Now, part of that could be is that people are smarter how they build facilities. I don't actually think it means that less people are moving into flood zones. That's, people love to live in the wetlands, close to the ocean. And we've had a lot of build-up in coastal communities. When I used to, by the way, when I was in the Navy, I used to fly with the hurricane hunters. And we had two problems. One is we weren't so good in those days of predicting where it would land. And we would predict it would land at X and it would land at Y. And people who boarded up and it didn't appear, they would not board it up the second time. So there's a problem with uncertainty. Human nature. And the other thing is we had a lot of big storms in the 60s and 70s. But when they landed in coastal areas, nobody was living there. So if we go to the next slide, it's very interesting. Do we have an increase in the incidents of hurricanes in the historical data? Actually, in the climate models, I think what they show is that you get an increase in weather temperature. Probably you will get fewer storms, but they will be more intense. Yes. But the data does not show that hurricanes, at least from 1900 to 2013, if you can take a look at this, if you look at U.S. Hurricane Landfalls, from 1900 to 2013, there is no, actually there's a slight decline over that period of time. But most people realize that we've had about 12 years now where everybody in the Florida Gulf Coast, we've had a couple of storms, but largely we've escaped all the major storms. They have all spun out to sea. So this once again gets back to the question of what's the most effective strategy for climate? How much should we put into adaption? How much should we put into reducing our CO2 footprint? You know, on that point, there was one really interesting piece on National Public Radio, and that was that although this storm was a category five, I guess I'm thinking about the one, Irma, the temperature on the ocean surface was a couple of degrees higher than it used to be, and that's probably global warming. I'm sure it is global warming. Because Judith Curry had data that showed it was a little bit lower, but let's say it was higher just for fun. So assuming it was a couple of degrees higher than it was, say 20 years ago, hypothetically, if Irma took place 20 years ago, same storm, took place 20 years ago, it would have been a category two instead of a category five. And that's similar because of the way it works on the ocean surface. I know it is, but I think it's an interesting kind of comparison. It is, and it would be worth to look at it. But I mean, anybody who does research off a single incident should probably be spanked, because you can't make conclusions over a single storm. We have these huge oscillations in El Niño, La Niña. We have huge variations in weather. I just find that outrageous that they would take a single storm and spin out some story over a single event. That's where the pelki data got pelki into so much trouble. That's his data right here, you see. Okay, continue, please. So I think the question is, I'm not a climate denier. I think we have a long-term climate problem. But I think we continue to hurt ourselves if we take every incident and try to tie it to climate and turn it into a political rather than a research of our technocratic discussion. So that's my big theme on this. Okay, but you'll agree with me, won't you, that we have to be very mindful of the possibility, even if not shown to everyone's satisfaction, that these storms could be getting worse. I think that if you run a real model and you have rising temperatures, you will get more intense storms, but you will get them less frequently. You have to take the whole model, you can't just say, and that to say Irma was caused by or Harvey was caused by, it's just not supported by the historical record. I think actually that you can get this severity and weather in the future is not unreachable. It's not unreachable, but it really weakens your argument if that's the case you're making. Well, yes, but you know, to tell you the truth, however many storms we get, if they're more severe, they're going to hurt us more. That's bad. And Hawaii especially has to worry about that. The question is, what should Hawaii be doing? Should they be spending more effort on resiliency of the housing stock and the emergency services and the sea walls, or should they be playing with very expensive and exotic fuels, which may or may not generate much benefit? That's a really good question. That's a really good question because resources are not unlimited. Both of these alternatives take money and resources in general and labor and time and planning and what have you. But let me put it to you this way. Why not do both in moderation? You could do lots of things in moderation, but remember, the resources you put into the politicians' favorite hobby horses aren't always the best thing. Right. You can say you can do both, or why not do everything, but resources in the end are limited and people have to make choices and they can make bad ones. So what is your suggestion for Hawaii based on this and based on the fact that if commodities are disrupted by a given storm 6,000 miles away, it will have an effect on us somehow. So how do we plan against that? And I agree, of course, that it can't all be dealing with climate change per se and that some of it, maybe a substantial part, has to be dealing with how to preserve your ability to have the fuel, to have the water, to have the food, and so forth. You were talking before about the stock, the fuel stock and how in this country we have certain areas where fuel is stashed away for a hard time. What is that relationship of that with Hawaii? So I think this is very interesting. So the U.S. has a strategic petroleum reserve. And in fact, the Trump administration, various people in the Trump administration, have either suggested to get rid of it entirely or cut it in half. We have something in excess of 550 million barrels of crude oil. Now when you have a storm, of course, the crude oil is not enough. That's really almost a strategic, you know, if you get cut off from the Middle East or there's a major war terrorism event in one of the world's production centers. It can be released not just to the U.S., but into the world market. I think we also are learning that we need good redundancy in our logistics and our transportation to move these refined products around. It's very interesting. Everybody says, you know, we don't need this gasoline or we can get off of that. You see a storm hit Florida. The first thing people ask, when can I get some gasoline? Absolutely. When can I get the diesel fuel? So we should be cautious about saying we can throw these fuels away. We don't really need them. We have wind and solar. That's a very common theme in Washington. Well, when a storm hits, you can see how valuable those commodities are. Well, you know, you raise an interesting point because were there electric vehicles and were we to avoid fossil fuel and use solar, for example, as a source of the fuel for electric vehicles, we'd be more resilient. And it's all about, you know, for a lot of people renewables is about energy security. So shouldn't we go down that path? If the power lines go down, you're going to have a trouble moving your electric car around. So the one thing about gasoline and diesel fuel is its distributed power. Very dense and it's a small package and it can be moved around a lot of different ways. If the grid goes down, you're not going to be driving your Tesla for a week. Well, that impels you to put your own solar system and batteries in your house, which not everybody can afford to do. You're right. Right. Well, it was really interesting. It's a sort of chilling in a way to look and see what happened there, to see how well we did in some ways, but also to be careful planners as against the possibility that later storms will be worse. And I think partly it's a mindset, isn't it? It's a matter of wrapping your mind around these possibilities and reorganizing your communities so you take less of a hit the next time. Right. And it's very hard to get people to prepare for rare events. You know, well, manana. Yeah, you heard it here on thinking it's a true fact because it's not at the top of their list of priorities. No, no. So what do you expect is going to happen in terms of the national supply system as a result of these storms? What if anything is happening? What if anything is the government doing? Well, for that matter, private industry doing. I think there will be a lot of, first, we really need a good, we should not lose this opportunity to understand what happened and what worked in the recovery and what didn't work. I would say the emergency operations of the federal government, this has nothing to do with Trump. Just the bureaucracy itself has gotten a lot better. They've had a lot of lessons from Katrina and Sandy, and they sort of understand what needs to happen right away and move much more quickly in pre-positioning supplies and waving the regulatory requirements that have a low payoff, but potentially more disruptive. So in that sense, we ought to take the time to look at this very carefully, look at what supply systems held up, what didn't, what can we do in the future. Because if you believe these storms are going to be more intense in the future, well, I think we need to put some effort into this. Yeah, and how do you, and this goes to the National Preparedness Disaster Training Center, which is actually across the street from our studio. It's a federally funded program that tries to train people, but I, you know, I wonder, you know, here we have two great object lessons. We have two very important stories, and those guys ought to be referring to them when they go out and train and try to change the way people think. Don't you think? Yeah, and I'm sure they will. I'm sure it's going to be. I have no doubt both Irm and Harvey will be studied very carefully. You know, I mean, you know, in Houston already from the building codes, almost everybody is now convinced that they built a lot of homes in the wetlands, and that might have been okay, but they didn't, they didn't plan for enough capacity to evacuate the water, you know, the canals and the byways. I don't think they built them big enough or strong enough, so there are going to be a lot of lessons that come out of this. Yeah, and we here in Hawaii, we have to be very aware of this because we have a lot of lowlands, we have climate change as well as storms, and if we have an extreme storm, our low-lying properties are going to be affected, and of course, our low-lying properties are going to be affected in tourist areas, that's going to have an immediate effect on our economy. Exactly. So we have to be very aware. Well, thank you. And it should be interesting to see somebody must be working on this at the state level, I hope. I hope. We join each other on that point. Lou Pulirisi, Energy in America, Ebrink, thank you so much for joining us. We'll see you in two weeks from now, and I hope there'll be no more significant storms in that period, but we'll find something else to talk about in our examination of Energy in America. Thank you, Lou. All right. Thanks, Jake.