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Interview with Loyd Drain

Loyd Drain shared his views with JHCGA on the current state of energy in Wyoming and beyond. Mr. Drain's views are his own.

Tell us about and your background vis a vis energy in Wyoming.

My career spans 40+ years in the energy business with an engineering degree from Texas A&M and a J.D. degree from the University of Tulsa Law School. I have called Wyoming home on three different occasions during my career- starting in 1973 in Casper as a graduate engineer working with Phillips Petroleum Company. Phillips owned the gas processing facility in Douglas and had a substantial gas gathering network in the Powder River Basin (PRB). In January 2007, I became the Development Director at the Wyoming Infrastructure Authority (WIA) in Cheyenne. The WIA was formed in 2004 by the Wyoming Legislature to assist in the diversification of Wyoming’s economy primarily via power generation & transmission. In 2014, the Legislature expanded the WIA’s role to include coal exports. In 2009, I became the Executive Director of the WIA and held that position until August, 2015, when I left to pursue other interests in the energy sector. I currently have an energy consulting business based near Houston, Texas and remain engaged in Wyoming energy via one of my client’s $3 billion wind energy development project located in Carbon County, north of Medicine Bow.

Part 1 - Expert Index Questions: The first section of the Interview Series is a standard set of questions posed to experts in Wyoming and outside. It is part of an ongoing effort which, when there is sufficient input, will result in an energy index. Interviewees indicate if they strongly agree, agree, are neutral, disagree, or strongly disagree with the statement.

Wyoming’s Economy

The Wyoming coal industry will rebound.

Strongly Disagree. Unfortunately, Wyoming has seen the peak of coal production which was a result of demand for feedstock for coal-fired generation in over 30 states in the U.S. Demand for PRB coal will continue to decline; however, higher natural gas prices and the energy policy of the Trump Administration can and likely will mitigate the decline. Such mitigation gives Wyoming the opportunity to seek to move coal up the value chain beyond use for power generation as an integral part of the development and execution of an Economic Diversification Plan. How Wyoming responds to that opportunity will have long term consequences relative to tax revenues for the state.

Wind power should be part of Wyoming’s future.

Strongly Agree.

Wind Energy should and could be a big part of Wyoming’s future but with the current sentiment of the leadership in the state, such will not occur. With the decline in tax revenues from coal, it is my opinion that Wyoming has no Plan B to offset such revenues via diversity of Wyoming’s economy. Wind alone can’t replace the revenue shortfall; however, it could generate over $1 billion in tax revenues over a 25-year period for each tranche of 6,000 MW of wind generation. Should the state truly embrace wind, not only could such revenues become a reality but even more revenue and jobs could be seen in the form of manufacturing infrastructure sited in Wyoming for the production of turbines and components relative to wind energy. Texas is a great example of how a state can diversify beyond oil & gas.

Carbon capture and storage (CCS) technologies should be part of Wyoming’s future.

Strongly Agree.

CCS will definitely be part of Wyoming’s future but again, that alone will not offset the loss in tax revenues from coal production.

Wyoming’s economy is overly dependent on energy production.

Strongly Agree.

Without a doubt, Wyoming has depended far too long on coal and oil & gas as the primary contributors of tax revenues and jobs.

Wyoming should try to diversify beyond energy and tourism in the years to come.

Strongly Agree.

In order to maintain the level of services provided to the residents of the state, Wyoming has no choice but to diversify its economy beyond energy. That said, Wyoming could also diversify its energy portfolio with the inclusion of a larger position in petrochemicals.

The Nation’s Energy Landscape

Within 5 years in the U.S., CCS technologies will start coming on-line through demonstration projects, bringing the costs of these technologies down, and proving the technology.

Strongly Agree.

CCS technologies are already on-line with more projects in the pipeline. The costs will continue to come down. The Trump Administration will support the technologies.

Within 5 years, California will be using Wyoming generated wind-power.

Strongly Agree.

I believe such will happen even earlier.

Upon review of the studies conducted by Dr. Jon Naughton at the University of Wyoming on the benefits of the diversity of combining Wyoming wind energy with California wind and solar, power purchasers in California already understand the benefits Wyoming wind will bring to that state. The National Renewable Energy Laboratory (NREL) also produced a major study analyzing the benefits of adding Wyoming wind energy to the California grid. Both studies were funded by the WIA.

PacifiCorp’s Gateway West and South projects; Anschutz’s TransWest Express project; LS Power’s SWIP line in Nevada; the integration of the California Grid (CAISO) and PacifiCorp’s Grid; the closure of PacifiCorp’s Naughton #3 Unit will free-up 300 MW of transmission capacity; the closure of the IPP Coal Plants in Utah freeing up transmission capacity to California; and the formation of the Mountain West Transmission Group (MWTG) will allow Wyoming wind energy to be marketed in California; Colorado; Arizona; and markets in the Eastern Interconnect within the footprint of the Southwest Power Pool (SPP). All the transmission projects could be developed provided Wyoming officials truly embrace wind energy and not only support wind but also become a strong advocate to speed-up the permitting process on federal lands for both generation and transmission projects.

The national regulations set forth by the Clean Power Plan will be repealed, or abate in some manner.

Strongly Agree.

I believe the Clean Power Plan will be dead on arrival with the new Trump Administration. We will see continued regulations on coal but not to the point of precluding coal-fired generation in the definition of “all of the above” power generation feedstocks.

Other coal producing regions of the U.S. will rebound and successfully diversify their economies beyond coal dependence.

Strongly Disagree & Neutral.

Again, unfortunately, coal production from the PRB and all the other coal producing states will not see a rebound to historic production levels.

Like Wyoming, to the extent that other coal producing states successfully diversify their economies will be dependent upon the success of the execution of the individual Economic Diversification Plans.

The Global Energy Landscape

Within 5 years, CCS technologies will start coming on-line globally through demonstration projects, bringing the costs of these technologies down and proving the technology.

Strongly Agree.

To what extent depends on what uses of CO2 are developed beyond EOR and the economic viability of such.

Within 5 years, renewable energy will reach price parity with fossil fuel energy, creating a global renewable energy explosion.

Strongly Agree.

Wind and solar energy developed in areas with high capacity factors will be competitive with fossil fuels as a feedstock for power generation. Twenty-nine states in the U.S. have renewable portfolio standards (RPS) and more are likely to follow. California’s RPS is 50% by 2030 and they will need large amounts of wind energy from other states including Wyoming to reach that goal.

When the decision process for acquiring power no longer has a Climate Change factor requirement but rather is merely an economic decision and renewable energy is on-par with coal-fired and gas-fired generation, then we will see even more demand, an explosion if you will, for renewable energy. Wyoming can choose to be part of that with its world class wind or stand by and watch other states benefit in the transition.

The integration fee to make renewable energy dispatchable has declined over the years and currently stands at about $.01 per kWh. In addition, great strides are being made to mitigate the cost of energy storage.

I would point out that should we see the U.S. GDP at 4-5% per year in the future, such will spur increased demand for power which will bode well for both fossil fuels and renewables.

India is the next frontier for CCS technologies.

Strongly Disagree.

Given the fact that 300 million people in India have absolutely no power and 1.2 billion live with spotty, unreliable power, the impetus will be on low cost power production and not power production with CCS. The good news is that the power generation facilities can be retrofitted with post-combustion CCS technologies at some point in the future.

The world’s largest economies, the USA and China, should be cooperating with each other in developing and scaling clean energy projects.

Strongly Agree.

Part 2 - Short Answer Questions:

Wyoming’s Economy

What steps do you think Wyoming should implement to combat layoffs in the coal industry?

That’s a tough question. In the near term, there’s really not much that Wyoming can do for all of the workers who have and will continue to lose their job. To some extent Wyoming can and does provide assistance for retraining but the success of such presupposes that there are jobs within Wyoming waiting to be filled—that is not the case. Even though jobs in the wind industry will be created, the time between when such jobs are available and today is such that workers can’t afford to wait. Unfortunately, many of these workers will leave Wyoming—all the more reason to have a viable Economic Diversification Plan in order not to lose residents in the future.

Should Wyoming work to reemploy such workers in the coal industry or work to create employment for former coal industry workers in other fields, including renewable industries? If so, how could this be done?

If Wyoming develops and implements a successful Economic Diversification Plan which can include renewable energy and many other job creating segments, such will help the state to increase the horizon of jobs available in the state. I would hope that such a plan would include significant amounts of wind energy but again, that won’t happen given the current sentiment about wind energy.

Within the context of a Plan, it would be great to finally see the inclusion of an energy complex managed by the University of Wyoming’s School of Energy Resources. The complex would be located somewhere within the footprint of the PRB or in close proximity. There’s been lots of rhetoric on the subject but nothing has been done. Now is a great time to actually start creating such a complex which would diversify both the economy of the state but also provide diversification within the state’s current energy portfolio. The start of an energy complex which can enhance the value of coal and oil & gas in the state using power generated in the state can grow to a level which could possibly offset or surpass the losses of tax revenue on coal production. I mentioned earlier the possibility of a 4-5% GDP growth in the U.S. and that coupled with more manufacturing in the U.S. via a lower corporate tax and the repatriation of offshore funds could result in the creation of a significant demand for products made from fossil fuels and Wyoming is blessed to have vast reserves of such fuels. For example, products can be made to supply building & construction; automobile; and cable industries.

As part of the energy complex, a 25MW carbon-free, coal-fired generation demonstration plant could be built to help supply some of the power needs of the complex along-side with wind energy (with the efforts around the globe relative to clean coal, there are those who believe carbon-free coal-fired power can be developed in the $50-$60 per MWh range).

The energy complex is not a novel notion---we’ve seen the province of Alberta, Canada with an energy park and it’s worthy of noting a recent announcement by Saudi Arabia to diversify its energy portfolio with the inclusion of a petrochemical component. Wyoming has the basic resources to begin the development of an energy complex and a big reason to make the decision to initiate the development---increased jobs and tax revenues.

In addition to the Wyoming Legislature and the Governor agreeing to support the Plan, the elected officials in D.C. should be asked to formally support and advocate for the Plan on a federal level.

Also, within the context of the Economic Diversification Plan and on a selective basis, the budgets of some of the economic development entities in the state should be increased with the lead entity being the Wyoming Business Council (WBC).

In your opinion, can state or federal legislative solutions play a role in solving Wyoming’s current economic situation? If so, what are some of those legislative solutions?

In addition to my prior answers, the State Legislature should reinstate the sales tax exemption on wind energy equipment. If the state can exempt data centers from sales taxes, one would think the same treatment could be afforded to facilities that provide much greater tax revenues and jobs than data centers.

On a federal level, any monetary assistance for retraining of coal workers would be helpful.

What is a higher priority for Wyoming, developing energy (coal, wind) on Wyoming’s federal land, or protecting it?

There should be a balance. The great thing about developing wind energy in tranches of 6,000 MW at a time is that when the state reaches a predetermined threshold of such development, the State Legislature could always drop the exemption of sales tax on wind equipment which would slow or stop the growth of development prospectively.

Is there a state that has successfully implemented state legislative policies that Wyoming could replicate?

Texas is a great example as to what true diversification can do for a state.

What are currently Wyoming’s most important clean energy R&D priorities? Coal conversion? Carbon capture, utilization, and storage? Hydrogen production and utilization? Energy storage? How should this research be financed?

All of these are important including the work being done of the Integrated Test Center---I would add the energy complex previously mentioned belongs in this list as well. As far as financing, private partners could be encouraged to invest and that could include dollars relative to the earlier mention of repatriation of offshore funds. In many respects, it’s more about development than research.

Grid modernization is a term that we hear again and again but it is unclear what that looks like. Wyoming could be at the center of grid modernization because of our role as an energy producer. What sort of grid infrastructure can Wyoming invest in to be at the forefront of grid modernization?

Terms like grid modernization or smart grid apply more to the demand side of the power equation than the generation side. Since Wyoming is much more a producer of power than a consumer, such terms do not apply.

Wyoming does need to strongly advocate for both new transmission capacity; the integration of the CAISO and PacifiCorp grids and the formation of the MWTG previously mentioned. Both the CAISO/PacifiCorp integration and the MWTG would result in Regional Transmission Organizations (RTO’s) and give independent generation facility owners the ability to schedule power onto the grid on a day ahead basis which is impossible to do anywhere in Wyoming today.

What is the international market for coal, oil, or natural gas produced in the U.S.? Should Wyoming be in the business of developing these markets?

Wyoming exports less than 1% of its coal production to foreign markets. Recent efforts to develop coal exports has been met with much opposition and a mountain of regulations. As the Trump Administration refines its energy policy and starts to eliminate some of the regulatory burdens, I would hope that such could breathe new life into the export projects—the Gateway Pacific and Millennium Bulk Terminals projects in Washington State. The development of one or both projects would be great for Wyoming.

Wyoming needs to increase its advocacy for coal, oil and natural gas exports to foreign markets.

How much of a global market do you think there is for coal-based industrial chemicals and other end-products of coal conversion?

There is definitely a market--In addition to developing markets in the U.S.; Canada; Mexico and South America, many of the products and/or output from infrastructure facilities relative to a Wyoming energy complex could find their way to more distant Asia/Pacific markets.

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