The Fable Of The Pirkey Power Plant (As Told By Texas State Senator Bryan Hughes)

Precis of the Fable

Evil fossil fuel devouring Monster Asset Managers (MAMs) forced Princess AEP to prematurely kill her beloved child Pirkey. Jobs and heat for homes were lost. Children starved in the cold 🥶. Angry gods showered Storm Uri upon the Kingdom of Texas. Aided by the cunning and malicious Renewable Energy Orcs, the entire Kingdom was cast into ice. All of Middle Earth was nearly lost. With the help of Chairman Gandalf, a small committee of brave and beautiful Elves 🧝🏽‍♀️🧝🏻 called the MAMs to the Shire of Marshall to cast a spell upon them to make sure this would never happen again.

Much has been written about the December 15, 2022, Texas Senate Committee on State Affairs hearing in which the committee grilled Dalia Blass (Senior Managing Director and Head of External Affairs at BlackRock, Lori Heinel (Global Chief Investment Officer of State Street), and Lorraine Kelly (Global Head of Investment Stewardship Solutions at ISS). The day before, Committee Chairman Bryan Hughes (R-Mineola) (he of a neatly trimmed, slightly graying beard and a fashionably long but tasteful coiffure) graciously dismissed John Galloway, Vanguard’s Global Head of Investment Stewardship. Mr. Galloway was saved the long trip ✈️ from Malvern (population of 3,419) to the comparatively bustling metropolis of Marshall (with a population of around 23,000) since Vanguard had expeditiously withdrawn from the Net-Zero Asset Managers Alliance a week before.

Sadly, I’d already rather booked myself for December 15 and didn’t have the opportunity to listen in on the hearings, kindly broadcasted live for all to see—for free! I then got busy (you know how these things go as the holidays approach) and it was only yesterday that I had the opportunity to watch over six hours of riveting political theater in Part I (2’ 43”) and Part II (3’ 50’). Not quite as long as Parts I (”An Unexpected Journey”) and II (”The Battle of the Five Armies”) of “The Hobbit” which gave me hope for a Texas Part III (”The Desolation of Smaug”)! So I popped myself some popcorn 🍿, grabbed a few cold beers 🍺, and sat down for the show.

In his soft and lilting Texas drawl Chairman Hughes graciously and warmly welcomed all the guests to Marshall, a “beautiful piece of history (the first city in Texas to have telegraph service with a line that linked to New Orleans) and still making history (maybe through these hearings?).” He also thanked the folks from Marshall for letting them be there for “a good time today (not sure their out-of-town guests felt that way, but they can speak for themselves), a profitable time (I guess that depends on the meaning of “profitable”), an important time (only time will tell).” He also proudly noted that in Texas hearings “real people get to come and testify.” Considering myself a real person, that caught my attention. It generated some hope for a cameo appearance in the popular new TV 📺 series “Red States Boycott the Boycotters”!

Since I am not a professional movie critic, I don’t have the skills to write a pithy summary which will encourage (or not) a potential viewer, with enough enticing tidbits yet not giving away the dramatic ending, to see the show. Given these limitations, I will simply focus on a short segment of four minutes and 37 seconds, starting at 47’ 48” and ending at 51’ 25”in Part I.

I know a lot about ESG, but I know virtually nothing about lignite coal mines, utility power plants, the energy grid, and the energy situation in Texas. I saw this as a learning opportunity! Even as I enter my eighth decade, I’m always eagerly seeking new knowledge. Chairman Hughes’s comments certainly gave me an opportunity to do so. Let me share with you what I think I learned, but as an energy neophyte I could well have gotten some things wrong.

Teaser alert. Like so much of the rhetoric of the anti-ESG crowd, there is this patriotic fervor about free markets while unabashedly ignoring their reality and even trying to interfere with them. In this case it’s coal vs. renewables. I’m glad I still wasn’t eating popcorn when I did some follow on research on the four minutes and 37 seconds I watched, or I might have choked on it. More on this below.

The Chairman pointed out that the energy discussion was not simply about oil and gas vs. renewable energy but also about coal, a “clean burning energy and reliable energy and good jobs.” I think I understand the concept of reliable energy, but I’m puzzled about the clean energy claim. According to the U.S. Energy Information Administration, coal has the largest carbon footprint at 211.87 pounds of CO₂ per million BTUs. By comparison, diesel and home heating fuel is 163. 45 and natural gas is 116.65.

In terms of jobs, back in April 2018 the Texas Comptroller’s officer, under Glenn “Chuck” Hegar, posted an article “Solar Power in Texas: The Next Big Renewable?” (Yep, the same Chuck Hegar who ran for re-election riding the anti-ESG wave surfing the ludicrous Texas Section 809 Boycott Provision which I’ve already dissected.) The article enthusiastically begins “Ten years ago, Texas’ solar industry was fairly small, but today some believe it’s ready to take on a much larger share of the state’s energy needs.” It proudly noted that Texas ranked seventh in the nation in terms of cumulative solar capacity and fourth in terms of solar jobs (8,872 vs. 1,037 in coal). (Redder and redder Florida is also in the top 10 on both counts.) The article also pointed out the irony that “the oil and gas boom prompted by hydraulic fracturing and other enhanced recovery techniques has influenced electricity markets in renewables’ favor, driving down fuel costs and making both coal and nuclear energy less competitive on price. In effect, it’s lowered the price points at which power producers must compete.”

I have nothing but respect for coal miners. Coal mining is hard and dangerous work that leads to elevated risk of heart and lung diseases and limits life spans. I further appreciate the need for people who work in coal mining communities to feed their families and educate their children. What I wonder is whether there can be other and better jobs for these people as coal mining jobs disappear—as they have been for decades—driven by economic, technological, and regulatory forces.

So it’s fair to ask what has happened in Marshall. Like always, it’s good to get the facts from local sources on the ground. According to The Marshall News Messenger, “Sabine Mine President Andy Hawbaker said all but 26 of the mine’s around 130 employees have already found work outside the mine.” It further noted the work of the “Just Transition Fund, a nonpartisan grantmaking organization helping coal communities navigate economic transitions away from fossil fuels.” It also pointed out that “ Pirkey will leave behind substation and generation infrastructure at Pirkey Lake that [AEP External Affairs Manager Mark] Robinson said AEP could potentially utilize for solar energy production.”

Senator Hughes gravely noted that the 36 year-old Pirkey Power Plant had “decades and decades of life left” to provide great jobs. (Historically power plants have an average lifespan of 46 years.) He also darkly asserted that AEP “wants to shut that plant down, prematurely” saying in a warning tone that he has “evidence that AEP has been targeted by the very firms we’re going to talk to today.” Oh, what drama! The life and death of a power plant! And perhaps a premature death at the sword of some big asset managers! What could make for a more gripping story on a slow news day in bustling Marshall?

I checked out AEP’s top shareholders. Shurnuff, the Big Three all of these red states are railing about are the three largest shareholders in the company: Vanguard (8.80 percent, but maybe now a friend?), BlackRock (5.86 percent ), and State Street (5. 39 percent) have a whopping collective 20.5 percent. More than enough to push this company around and make them close that plant with the coal mine as collateral damage. I figured that if this were true, AEP would have loudly complained about this gross injustice.

Instead, what I found out was that this move is part of a broader global strategy of AEP to shutter about half of its coal-fired power fleet. “Economics are a major factor in AEP’s spate of recently announced closures. The company, like other U.S. coal generators, is grappling with refining cost estimates of complying with environmental rules against a number of factors.” In 2020 the company estimated that that future investments to meet existing and proposed requirements could range from about “$500 million to $1 billion through 2026.” At this point, I’m still okay with my popcorn.

Of course, the Supreme Court’s ruling against the EPA in “WEST VIRGINIA ET AL. v. ENVIRONMENTAL PROTECTION AGENCY ET AL.” might reduce these costs but future legislation could conceivably make them higher. It’s tough for companies having to make long-term investment decisions regarding energy sources in a changing political, geopolitical, economic, technological environment.

The story is bigger than Marshall. It’s about the whole state of Texas. Aesop Hughes ruefully recalled and reminded the audience several times of Winter Storm Uri which slammed Texas last year. “My goodness,” he solemnly intoned with a slight shake of his head, “I think we learned in Texas a year ago we need more dispatchable energy, not less.” (I didn’t know what dispatchable energy was so looked it up. Basically energy you can turn on and off at will.) Another Senator sagely commented that “wind and solar only operates when it chooses to.” (So there are no batteries in Texas?) The argument here is that through some mystical force a plant that was still operating somehow contributed to a near break down in the Texas energy grid.

Not knowing anything about electrical grids, I checked this out after the show. I’m glad I wasn’t eating popcorn since now I would have surely choked 🤮. According to Sustainable FERC Project, the reason this storm left 4.5 million people without power for days, killed 248 people, and cost the economy $195 billion in damages—making it the largest disaster in state history—”is that relying on gas [NB: not coal] poses serious risks, and that a strong, nimble grid is absolutely essential.” The situation was exacerbated by the fact that the Lone Star state likes to go it alone when it comes to electricity “because most of the state is an electrical island with very limited connections to neighboring states.”

Before focusing his glare on Ms. Blass and Ms. Heinel, at 51’ 25” Chairman Aesop gave Senator Lois Kolkhorst an opportunity to contribute to the fable. She referred to someone as her “favorite professor” because he talked about “politicization” (which she stumbled over pronouncing it a couple of times due to, she said, the lack of coffee and an early start). I’ll skip the obvious irony of who’s doing the politicization. More importantly, she didn’t mention the professor’s name but since it’s not me it doesn’t matter. And I’m jealous.

Senator Kolkhorst talked about how China burns 25,000 tons of coal and we burn 2,500 per year. She complained about an “unlevel playing field” because China (and Saudi Arabia, Russia, and India) don’t care about their ESG scores (ummm, Senator, companies get ESG scores, not countries) and simply care about providing cheap energy for their economies. “ESG is working to tear American down,” the Senator cried! (Every time I turn around the power of ESG to wreak destruction on al aspects of life in America seems to grow in Red State Minds.) She didn’t mention that China could exceed its renewable energy target of 33 percent by 2025 (it was 12.4 percent in the U.S. in 2021) or that China is winning the race for clean energy technology.

In conclusion, the Senator rued the fact that “We lead the nation in renewables to the detriment of our citizens as we saw in Uri.” This caught my ear since I’d already learned from Mr. Hegar’s office that Texas was making great strides in renewable energy. I wondered if he’d seen the error of his ways after suffering through Uri. It is in researching this that I was glad I’d run out of popcorn. Otherwise, I might have choked and died and not be here to tell this fabulous tale. I also wished I’d grabbed a couple of whiskies 🥃 with beer chasers to more fully appreciate the sheer inanity of the hearing.

Two months before the December 15 Marshall Monster Mash, which generated more heat than light on the energy situation in Texas, the Comptroller’s Office published “Texas’ Energy Profile A Review of the State’s Current Traditional and Renewable Energy Capabilities.” (Yep, Chuck won the re-election so it’s him again!) It provides an insightful analysis of the evolving role of renewable energy resources in Texas that can be captured in three points:

1. Texas leads the nation in energy production and consumption, being the largest producer of oil (43 percent), natural gas (25 percent), and wind-powered electricity (26 percent).

2. Despite these capabilities, limitations in the current Texas infrastructure (e.g., transmission lines and battery storage) make it “unable to transmit and store all the electricity generated by renewable energy sources, including wind and solar.”

3. Thus, Texas needs a diverse energy portfolio, including oil and gas sources, to ensure sustainable and cost effective energy production. (Movie viewer’s query: Was coal not mentioned on purpose or was this just an editorial oversight?)

And ya gotta love the closing quote from Mr. Hegar: “We must work together to advance timely, practical solutions that develop renewable energy, while acknowledging the continued importance of a diversified energy portfolio. Our economic health and well-being depend on it.” In all sincerity this makes perfect sense to me. I don’t expect oil and gas to completely disappear ever, although we need to wean ourselves away from it as quickly as we can within policy, economic, technological, and geopolitical constraints.

Here’s where I’m confused. Remember, I’m an ESG guy, not an energy guy 😍. Did I hear it right that Senator Kolkhorst is throwing shade at her fellow Texan Mr. Hegar? So if he’s the real problem, why drag Ms. Blass, Ms. Heinel, and Ms. Kelly for a pre-holiday trip to the lovely little town of Marshall for a senseless conversation? Why not haul in Mr. Hegar (in shackles, if necessary) and sternly demand that he explain himself? And tell him that if he isn’t a good boy and change his ways he’s only going to get coal in his stocking for Christmas! Actually, that could a sign of love from her, so I take that back. Instead, he’ll get a solar panel.

Precis of the Reality

The energy transition is a complicated one that will take time and will involve a mix of fuel sources for decades to come. Renewables have an important role to play but they are not a silver bullet. Infrastructure in terms of transmission lines and grid-scale battery storage needs to be developed. Asset managers need to carefully allocate their capital across companies producing different sources of energy. Public policy has an important role to play. In many ways Texas is showing positive leadership. In other ways Texas is putting America’s energy security and ability to gain competitive advantage in clean technology at risk. By holding hearings that are completely divorced from reality, Texas politicians are making it harder for America to do what needs to be done.

In the end, reality trumps (cute, right?) fables.