Keynote: TJ Deora

TJ Deora, Director of Governor Hickenlooper’s Energy Office – Colorado

Transcript

Gordon Feller

We have here a session which is going to look at Colorado. And unfortunately, Barack Obama, our President, is going to be coming to Denver I believe next week and in preparation for that he sent the Secretary of Commerce here who in her position is among other things responsible for figuring out what does the President say when he comes to a place like Denver. What kinds of commitments does he make? What kinds of promises does he offer? What kinds of programs does he announce? And it turned out that the Governor got waylaid and brought to a meeting with the Secretary of Commerce at the last minute. So that’s the bad news. The good news that we get to join us here somebody who really understands the issues in the Governor’s office that we care about; probably would have written the remarks for the Governor anyway so we get to hear from the author rather than just the speaker.

TJ Deora is the head of the Colorado Governor’s Office of Energy, and he received this position, I believe it was, on December 31 that he was told that this was his new role in life. But he comes from the renewable energy sector. Some of you know the company Horizon Wind. Horizon Wind tasked TJ, before he joined the Governor, with developing their rollout and the preparation of their projects in several of the Colorado counties and before that, in New England. But he comes from the bridge building world, that is to say government, industry and the advocacy world. And so for instance he was the founder and leader of the Colorado Renewables and Conservation Collaborative which took a lot to bring together all parties to the table and to have a common voice and a common approach to the future of renewables. This state is really leading in renewables and there are reasons why. TJ is one of them. The Governor is another. But prior to that, Mackenzie, Calpine, Dow – a lot of experience doing the hard analytical work to think about the future of energy for this state and we’re really pleased that he could join us at the last minute. Thank you, TJ.

And I should say, one of his historical benefits in coming to the job was a role with the Peace Corps in Jamaica and so he brings the global perspective to Colorado which probably not many people in his role in other governors’ offices around the U.S. can enjoy, so TJ, please join us, and thanks again for coming at the last minute.

TJ Deora

Well thanks to everyone for having me out today, and apologize for the Governor not being able to make it. It’s not unfortunate the President is coming next week, that’s very fortunate for the State of Colorado, we do appreciate the federal level of attention, but it is unfortunate that you’ve got me instead of the Governor. And contrary to popular belief I do not write the Governor’s speeches. I wish I did. My job would be a little easier if I did. But the Governor is very engaged on these issues. For those of you who don’t know, the Governor started his career in the oil and gas industry as a geologist and has spent much of his time when he was Mayor of Denver thinking about how to improve resource efficiency, namely energy efficiency, in the City of Denver. So I often find myself challenged with him, constantly, and anytime I recommend anything to him I get a ton of questions back so we have a very engaged Governor who is very interested in these topics, making sure that we have resource efficiency and sustainability going forward.

Gordon mentioned that I did serve in the Peace Corps and I was reminded just yesterday – I served for the regional solid waste management authority when I was in the Peace Corps and one of the things I did was ride on the back of garbage trucks with garbage men to build some buy-in and build some credibility and then start working on a safety program for those folks. And so yesterday – what reminded me of this was, yesterday I was out at Republic Waste Management. They’ve got a fleet of 140 vehicles that they’re converting from diesel to compressed natural gas, and one of our policy priorities is to diversify the transportation fuel in the State of Colorado and we think compressed natural gas is a leading method of doing that. But we were talking about it there and that got me thinking about my experiences in the Peace Corps, and it got me a little reflective.

You know, I don’t come from the public sector, I’m primarily a private sector guy except for this experience that I had in the Peace Corps and working in government there. And one of the stories I like to tell about that, about what it was like working there, had to do with helping the managers of the solid waste management authority that I worked at think and just try to apply some basic math to how they manage their organization. And one key example was they got a dictate from Kingston, the headquarters office in Kingston, that they’re using too many garbage bags in their waste collection process and so they said, ìHey, we’ve got to stop; we’ve got to cut the use of garbage bags. We’re just cutting the use of garbage bags by twenty-five percent. That’s what we were told to do.î And I thought, when I go around with the guys in the garbage trucks, I see the garbage bags out there waiting to be collected, but I also see a lot of chicken feed sacks and burlap sacks and piles that need to be swept up. Are we really using too many bags?

We went through some basic math, or tried to go through some basic math to help make the decision of how many garbage bags we need to use. And you know, we figured out, we’ve got 120 street sweepers who work four days a week. We did the math there, 1,000 bags, something like that. Turns out we were using about 250 bags when it made sense, just doing some basic analytics, to use 1,000 bags. And it blew their minds that they would even think that way and they said, ìOkay, well, the result of this meeting is we’re using too many bags so we’ll just cut the bags.î

You know I thought that I’d left that behind. We were – that was a developing country. I was a Peace Corps volunteer helping that country develop. I come into the public sector, and while it’s not quite that bad at times in the State of Colorado, we do run into the same basic issue: that there isn’t the level of analytics that we would employ in the private sector at times. And I think a lot of that is just due to government takes time to react. But just a clear manifestation of that is when we think about new energy, and we think about renewable energy and clean tech, the experience that I find over and over again, whether it be the policymakers in the public sector or whether it be folks in the private sector talking to the public sector, is an expectation that we have – we’re doing things the way we were doing them the last several years. We aren’t using the analytics. We aren’t making that business case to really explain why we’re working on these issues. And when we start pushing back and trying to understand the business case, some folks actually get pretty upset with us. When we think about issues, when folks come to us and talk about smart grid issues which is a big topic here, when folks talk about things like energy storage, we’re always pushing back and saying, ìOkay, explain to me the business case. Explain to me how this is going to impact Colorado rates and what the value is going to be for the Colorado consumer.î

Now these are all very important things that we want to work on. We understand in the future we may need storage as a way to integrate more renewables. We understand in the future, if we’re making investments in upgrading our electric power sector, we want to use the best available technology that is cost effective. But we have found that because the last several years we have had enough success – I’m thinking before 2008 – we’ve had a successful enough economy and state and federal budgets that can afford to put some investment into these areas that we have conceptual value propositions that are delivered to us. And so what I mean by that is well, here is – we’ve got an old, aging infrastructure so therefore we need to upgrade the infrastructure so let’s do it with best available technology. And that’s great conceptually. That makes a lot of sense. That’s a ìwhyî for when we have the ability, we have the margin to be able to make some experiments and that can be sufficient justification for a policymaker at times.

But right now we’re in a different time. Our state budgets are very tough. In fact, it was just announced earlier this week that the State of Colorado is looking for $500M in additional budget cuts that we don’t know where they’re going to come from and so we’ve got a long slog ahead of us at the administration. Luckily that’s not my job, we’ve got other folks to worry about that. I’ve actually got the coolest job in the cabinet. I get to promote and I don’t have to make those hard choices in the budget that same way.

But those are the kind of issues that we’re dealing with and so when we get companies saying, ìHey, I’ve got this great technology. It’s going to help you integrate renewables. We’ve got this great technology in smart grid; state come help us out,î or ìcreate biomass technology,î I’ve got to come back to them and say, ìThat’s great, we love what you’re doing, but we need to understand why you want the state to make an investment,î whether it be terms of dollars or just in terms of bandwidth, in terms of things that we talk about; why the state should be making an investment right now. We think about the energy sector, we think about energy strategy for the State of Colorado, we’re thinking about, ìWhy do we have to do this now?î And now doesn’t mean this year, now could mean the next three years or four years. Now could mean how are we developing plans that’ll get us on the right path in the next ten or twenty years, but we have to understand that in a very quantified, very quantitative way, that’s customized for the State of Colorado.

And so in our office, we’re doing a number of things there. First off, we’ve developed a mission for our office that is different from the mission of the previous administration. We have had incredible success in the previous four years with the new energy economy. Governor Ritter, my boss’s predecessor, made it a key priority for the State of Colorado to invest in the new energy economy and the mission of the Governor’s Energy Office at that time was to promote the new energy economy, primarily renewable energy and energy efficiency. We’ve had an incredible amount of success in doing that. $5 billion have been invested. Wind energy now is going to be close to 2,000 megawatts on the system. We’re going to get to 4,000 or 5,000 megawatts by 2020. That has resulted in wind is now actually this investment, or getting ahead of the curve on the investment means that wind energy is now the least cost resource in the State of Colorado. So if you’re making a purely economical – not thinking about any externalities, you’re going to choose wind energy until you can’t choose it anymore for integration reasons. And solar energy is on the same cost to K curve. It’s a fantastic success story here in the State of Colorado. When I put solar on my roof back in 2008 it was $8 per watt installed. Now we’re seeing installations at $4 a watt. And we’re starting to see getting us close to grid parity. We’re just a few years away, in the State of Colorado in certain service territories and certain solar regimes, where solar energy will now be able to be sold to consumers at the cost less than what the utility is charging consumers, so incredible success that we’ve had there.

But that was all set up in a time where we had more margin for error, we had a little margin to experiment, and we just had to answer the question ìWhy?î but not necessarily the question ìWhy right now?î with the limited resources we have today.

When we focus on these things we’ve got to think about what, what are we focused on? What do we care about? So we’re shifting away from the means, which is renewable energy and energy efficiency, and we’re shifting to focus on the ends. And the ends for Colorado and Colorado’s prosperity are four elements: jobs, security, cost and environment. And those are the four elements that we’re looking to balance. There’s actually plenty of opportunity in renewable energy and energy efficiency specifically to capture all four of those and do things that benefit all four of those, but there’s opportunities beyond that as well. So we’re thinking about this in terms of the ends, not the means, and we’re thinking about the ends in the near-term aligned with a longer term vision as well.

As a result, we’ve got five areas the State of Colorado’s working on. The first is a transportation fuels initiative, and we’re looking to create a balanced energy portfolio for transportation fuels. As folks are aware, about 93-94% of our transportation fuel is derived from oil and we’re looking to see: how can we diversify that? And we’ve got ideas for what we can do for electric vehicles. We’ve got ideas for what we can do for hydrogen. But in our minds those are longer term solutions. We’re not going to make a significant impact in the amount of oil that we import into the state or into the country through those technologies for several years. It’s going to be five, ten, fifteen years put into the technology and how things develop before we make a significant impact there. So we really are focused on compressed natural gas as a near-term opportunity, and compressed natural gas for larger fleets, light and heavy duty trucks as an opportunity for us to move forward and make a dent in the near-term even while we’re laying the groundwork for making bigger dents with electric vehicles and hydrogen in the future.

The second area we’re focused on is looking at energy efficiency and trying to understand fundamentally why the housing market and the commercial buildings market does not value energy performance when assessing or when getting appraised values for properties. So folks have tried. They’ve recognized that the energy performance isn’t valued in these buildings and they’ve been looking for end-arounds. PACE – wonderful program – Property Assessed Clean Energy. Hopefully that will get restored through some action happening in Congress. We’ll see; Congress isn’t particularly functional right now, so maybe it won’t happen. But we’re hopeful that that program works. There’s also talk of on-bill financing programs and we’re interested in engaging with the utilities to discuss their thoughts about starting on-bill financing. Neither of those two programs, which are fantastic programs if they succeed, will address the fundamental market failure. The fundamental market failure is that homes and commercial buildings, the values of those things do not reflect the energy performance that the homes and the commercial buildings actually exhibit. And so we’re going to be working as well on making sure that market is working properly and doing what we can do to make sure the home values are capturing energy performance: working with appraisers, working with underwriters, working with realtors and the like.

The third area of focus is something we’re calling energy information. We were calling it energy literacy but the target for that is policymakers and some folks may not appreciate being told they’re energy illiterate. But the reality is we do have challenges about the energy mix that we have and getting actual accurate data and information out to policymakers. I mentioned that wind energy is the least cost energy resource in the State of Colorado, and most people are shocked to hear that. Most people don’t understand that, and so I have to step through the economics to explain that to them. That should be something that all policymakers in the State of Colorado understand pretty clearly because we have both market data and analytical data that can support that assertion.

The fourth area we’re focused on is promoting the energy innovation ecosystem. And what we mean by that is really figuring out what the state can do to ensure that we are as supportive as possible and as hospitable as possible to companies, to universities, to other researchers and investors, venture capitalists, the like in investing in innovation in the State of Colorado. And so it’s some pretty simple things. There’s a lot of efforts out there. Some of the folks who are leaders in energy innovation in the State of Colorado spoke at this conference. But it’s making sure that they’re coordinated. It’s making sure that we understand where the financing gaps are occurring. And if we can’t encourage through just awareness and promotion the right financial capital to come to the state, then it’s actually seeing is there a role for the state to provide some of that capital. And we actually run a small venture debt fund out of my office that provides venture capital for companies approaching one of the infamous valleys of death: the pre-commercial, ready to go from pilot to commercial sale valley of death.

And the final area I want to focus on really addresses this issue of the need for a quantitative value proposition and that is what we’re calling a balanced energy portfolio for electric power. What we’re trying to do is look at how we build on the success we’ve had in the state with the new energy economy, with energy efficiency and renewable energy, and understand what the next steps are. Colorado famously has a 30% renewable energy standard. Until California passed its 33% renewable energy standard it was one of the highest standards in the country.

But it turns out due to minutiae of the law we actually don’t have a 30% renewable energy standard; we have a 16.4% renewable energy standard. So when I explain this to folks and go through the math and explaining exactly why we’re at 16.4% and not at 30%, immediate reaction is, ìWell, we should fix that. Let’s go ahead and create a true 30% renewable energy standard.î And then I immediately push back and say, ìWait, wait. We’re not sure that’s necessarily the best path forward.î And even if it is the best path forward, it’s not going to be successful or we’re not going to be successful in getting by it and getting really progress and momentum going if we don’t have everyone agreeing, or the majority of folks agreeing, that it actually makes sense from a policy perspective.

What we’re doing is we’ve engaged in a broad stakeholder process that is going to help us do analytics jointly to determine: what is the cost benefit in terms of job security, cost and environment? We’re going to actually internalize all the externalities in a transparent way working with stakeholders ranging from utilities to the environmental community to the renewable energy industry, energy efficiency folks. Bring everyone together, create a spreadsheet model – it’s accurate plus or minus 10% which is, we like to joke, good enough for government work. And will be enough to inform policy. It’s not going to replace the electric resource planning that the utilities go through, but it will be informative, and just as important as the output from this process, telling us whether or not a 30% renewable energy standard or a certain policy around retiring coal plants or whatever else we come up with. Not only will it tell us whether that makes sense from a cost-benefit analysis but it’ll really help inform different stakeholders who really care about our electric power mix, which will then make the policy move, hopefully, that much easier to actually get done through the legislature and through the regulators.

So that’s the overview of what we’re trying to do here in the State of Colorado. Again, we’ve had a lot of success, but with the times changing in terms of the state budget outlook and the lack of federal policy direction, we’ve decided we require a different approach to actually tackling these challenges. And so I ask all of you to engage. We love to have your insights and your expertise into these processes.

We think about this – you know I come from the private sector – I think about this in terms of a sales call. What policymakers need is they need sales calls. Not the carousing kind of sales calls where you go to a Broncos game or go out for drinks, but the sales call where you deliver a value proposition that is specific, is customized and quantitative to the policymaker so they can understand exactly what the benefit is going to be for the people of Colorado and for other states as well. And we’ve got to do this because I think this is the most effective way to get to enhancing Colorado’s prosperity through energy markets, through the jobs, the security, the cost and environment.

I think about this. I was dropping my kids off at school this morning; I’ve got a three year old and a five year old. And thinking about all the craziness we’ve had this summer with debt ceilings, raising it or not raising, sovereign debt issues in Europe as well, and you know, I start to get a little worried about what the future looks like for my kids. I think about my daughters; will they have the opportunity like I had to have a job, have a career, that they just love? Or will they be worried about just getting themselves fed? Will they live in a safe and stable society like we live in today, at least in this country? Will they be able to afford the choices and to have the experience rich life that I’ve been able to have? And will they live in a world, do these things in a world that is as beautiful as what we have here today? So thinking about job security, cost and environment, it’s important for us for now but it’s also going to be the foundation for how we make those decisions for the future.

With that, if I have time, I’ll take any questions. Thanks.

Gordon Feller

Well, we have time just for one question, and I’ll take the chairman’s prerogative and ask it on behalf of everybody. So we’ve had a day and a half of discussion about the role that cities can play and whether that’s a city leader and elected or appointed role or city actors of other kinds who are helping to develop their cities, make them cleaner, greener, more sustainable, maybe even smarter cities, more connected cities. And in the course of this discussion, we keep asking ourselves: How do we get cities to be willing to take risks? For instance, as early adopters of emerging technology, whether it’s the information technology that will help drive them to be more efficient or the clean energy technology that makes them greener. And I wonder from the state’s point of view, since you’re filling the vacuum the federal government fills – I’m sorry, the federal government creates that vacuum and you’re filling the vacuum, at least in terms of energy policy, are there things that you are now doing or planning to do to partner with cities that will help make it easier for them to take the risks that perhaps they’re not willing to take on their own?

TJ Deora

Sure.

Gordon Feller

In any way you want to answer that.

TJ Deora

Right. So I’m not sure –

Gordon Feller

– not putting you on the spot.

TJ Deora

– let’s see. Let me muse for a little bit before I get that. So first I’ll say that in my time, in about nine months in state government, I have found that local government is by far, by far, the best to work with. And the reason for that, it’s not necessarily from a risk perspective, but from an accountability perspective. At the local level it’s very difficult to see party labels and very rarely do I see partisan issues come up, because the local folks are accountable most closely accountable to the electorate for getting stuff done. And then as we go up to the state level it becomes political. There’s less engagement on what actually we’re trying to do, what’s going to work, what the business case is. And at the federal level, we’ll have meetings with folks and they figure out what label is in your administration, is it “D” or “R”, and they pretty much decide whether they want to engage at that point. They just – folks on the other side just seem to shut off right now.

So I think for whatever reason that creates that, there’s a lot of potential, and there’s a lot of great things that are happening at the local level. And there’s a lot of potential to continue that, and that’s actually where it’s the most fun to work, because the local folks are the ones who are really thinking about business cases and not about politics.

So in order to create the risk. Well I think – I understand local budgets are also challenged. The state does provide some money to local governments. We did a lot of that through the stimulus money that we got for the state; we distributed that to local governments. And I think those kind of funds were the funds that local governments, local officials had to be experimental because it wasn’t their direct tax base’s dollars. Their direct tax base’s dollars are getting the garbage picked up, making sure that the police are working and school teachers are working and the roads are plowed and all that good stuff, but the dollars that the local communities tend to use are federal and state dollars. And I’m not sure I have an answer because those dollars are drying up here in the State of Colorado. There was a claw back on some of the severance money that was typically distributed to local governments; was actually kept back to balance some of the state budget issues. And we know that at the national level the Congress seems less willing to distribute funds that are not directly in their control, or not willing to spend any money, much less going to go to other levels of government to spend. So it is a real challenge. I don’t know that I have an answer. But I would say that it’s going to continue to be an emerging problem because the funds that folks want to use on these more risky, more experimental or entrepreneurial activities, those funds are drying up.

I think we need to – just to go back to my earlier point though, we need to respond and perhaps the way to manage that risk is to be more quantified, to be more analytical. When we talk about smart grid deployment, we had a lot – one of my former staffers I think is here today who was leading our smart grid efforts – there was a challenge for us to understand what is the actual value proposition in the next five years for rate payers with these smart grid investments? And should we be giving time, given the current circumstance, in spending our dollars on those smart grid investments? There’s just too much unknown. So I guess the challenge back out there is to just make that sales pitch. Get that down. Help quantify, help publicize the successes we’ve had in very quantified ways, and hopefully that can manage some of the other challenges to the risk profile or the risk willingness folks have.

Gordon Feller

Thank you so much. Thanks, TJ.

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