Supporting the Grand Canyon State's Growth



Fortnightly Magazine - February 2022

The PUF team has been asking some of the industry's leaders, what's in store in this new year, 2022?  Southern Company's CEO and Oncor's COO told us what to look for this year, at their companies and industry-wide, in January's Public Utilities Fortnightly. Arizona Public Service's CEO and Eversource's COO tell us what to look for in this issue of PUF.

The following conversation with APS's CEO, Jeff Guldner, gets kinda inspiring in a few spots. Like when he says, coal is personal to me, and talks about his grandfather and mom from Wyoming coal country, and about how coal played an outsized role in building up the state of Arizona. And, as he sees it, our collective obligation to rural coal-dependent communities. 

Or like when Guldner says, we had a troubleman who gave up his ball cap and a water bottle to a homeless person because he saw that person under a bridge and the sun was shining in, and talks about redirecting the corporate culture to empowering everyone to speak up and act up on behalf of customers, and about how responsible his company is to helping accelerate the economic boom the state is now enjoying. If you drive up the interstate here, Guldner says with evident pride, you'll see twenty-five cranes around the TSMC semiconductor project.

Read on, and see what he sees coming this year in the Grand Canyon State. And for that matter, around the country.

PUF's Steve Mitnick: What's in store at APS as you look into the year ahead and also industry-wide?

APS CEO Jeff Guldner, at right, meets with employees at the Ocotillo Power Plant.

Jeff Guldner: This is a great time. When you transition to a new year, there's a moment of restoration and refocusing. Something we do at the company every year is take a deep look at our strategic priorities, visualize the big picture, and ask ourselves how it all fits together. For 2022, there are two things that are table stakes, both as a company and as an industry.

The first is safety, especially in light of COVID-19, and making sure our workplace protocols are developed with the health and safety of our employees in mind. That continued focus on safety is a hallmark of our industry no matter what transition we're going through with decarbonization and technology changes, industrial safety, nuclear safety, and public safety.

The second thing that does tie more to the energy transition, but is also table stakes, is our focus on customers. We're working hard to continue to improve our customer satisfaction scores and we are already seeing progress. Last year, we had the privilege of being recognized on Escalent's 2021 Business Customer Champions list.

We're also focused on increasing our JD Power scores and are seeing positive movement. That's important, not just because of the industry, but because that's what we do. We're here to serve customers and put customers first in everything we do. At the same time, partnering with our customers is going to be key to making our one-hundred percent clean energy transition work.

Jeff Guldner: Across the industry we’re seeing supply challenges to get basic resources, like transformers, cables and poles. These are moments where it’s important for us to communicate.

In the technology space, we're developing cutting-edge customer programs that rely on engagement, whether it's residential customers helping us by participating in our energy efficiency programs or our demand-response residential thermostat program. 

We're also preparing for the increased adoption of electric vehicles in our state and developing ways to optimize the grid. Our programs like Take Charge AZ are a great way for us to partner with business customers, like local cities and towns, who are pursuing their own decarbonization strategies.

Arizona's business community is also growing exponentially. We're seeing global companies like TSMC — Taiwan Semiconductor Manufacturing Company — coming to Arizona with national, strategic implications. We're also seeing several electric vehicle manufacturers, like Lucid Motors in Casa Grande and Nikola Motors, move into our service territory.

Our business customers are focused on unique aspects of their supply chain and also have decarbonization goals and want access to renewable energy resources. It's important for us to partner with customers at all levels to make sure we're managing affordability and to bring them along in this advanced energy economy.

While we are planning for our growing customer landscape, we're also continuing the exciting work with our Clean Energy Commitment and moving toward a zero-carbon electricity system by 2050. In 2022, we're continuing to make progress on that. 

We're putting energy storage in some of our utility owned solar plants and pairing storage with solar to be able to provide customers more solar resources even after sunset.

As a summer peaking, late evening system, we need that energy, not at noon, but at six, seven o'clock at night. Battery storage is going to continue to be an important piece in meeting customer demand.

From a regional perspective, we're dealing with tighter energy resources in the west and trying to find innovative solutions and collaboration across the region as they relate to energy markets.

That includes our work with the California ISO, as well as with other western utilities to learn more about the most optimal energy market options and how we can more effectively operate our system. 

PUF: You have this unique situation where Arizona's growing and the power is flowing back and forth between you and Southern California. You're transitioning away from coal-fired generation, but you have considerations for coal-impacted communities, including the Navajo Nation. How much are you going to figure that out in 2022?

Jeff Guldner: It's important that we move on those different fronts at the same time, so let me dissect a bit of that. I'll start with Palo Verde Generating Station. 

Nuclear energy is going to be a cornerstone of how this country transitions to a zero-carbon future and we're blessed to have Palo Verde, which is the largest power plant in the U.S., as well as the largest clean energy power plant in the U.S, because it produces one hundred percent carbon-free electricity.

A lot of the long-term work we're doing with Palo Verde is making sure we have a plan for the duck curve and optimizing how we use that energy during spring when it's a light load on the system. Is there a way we can produce hydrogen with that energy? Can we use what's generated to desalinate water? 

There's a lot of space for innovation when we think about the ways we can use electricity to make sure we continue to maintain the viability of our country's existing nuclear fleet. 

By 2031, we will have ended all coal-fired generation. I've shared my story with our employees. Coal is personal to me. My grandfather was a coal miner in Wyoming and my mom was born in Hanna, Wyoming, which was a mining town. Coal is part of my family's heritage, and it played such an important part of our history.

The growth we saw in Arizona was supported by coal power back in the 1970s and 1980s in the Four Corners region. That's why we've developed our Coal Communities Transition package where we've committed twenty-five million dollars of shareholder funds not recovered through customers for that transition.

We're working with the Navajo Nation, which is where one corner sits, and also the Hopi Nation, which operates the mine that was from the Navajo Power Plant, of which APS was a participant.

We're also considering the impact to our Cholla Power Plant, which is in rural Arizona. How do we help transition rural communities where that coal plant, just like on a tribal nation, has been the centerpiece of the economy? 

We want to make sure we're thinking about other economic development opportunities for them. That Coal Communities Transition will continue to be an important focus and dialogue. There's a great opportunity here to work with our state and federal partners. 

It's potentially partnering with the federal government to bring in advanced manufacturing, whether it's clean energy related or another sector. It's about looking at how you can develop a more advanced economy once coal closes in those areas. How do we replace that with high paying jobs, good tax revenues, and a good tax base? 

Those are a couple of the big issues related to the transition on nuclear and on coal communities that we'll be focused on.

PUF: You used the term duck curve, which some, but not all our readers understand. As there's more solar, part of the day there's power galore. As the sun comes down, you're gasping for it. Give a sense of that.

Jeff Guldner: At APS, we're a leader in solar power. We have the largest percentage of customers with rooftop solar on our system than any U.S. utility outside of Hawaii.

These rooftop solar systems are fixed tilt, so they tilt in one direction. If they're south facing, you get generally the most sunlight, but it also erodes faster as you get later in the day. Our peak is later in the day.

But along with finding the right technology, is making sure customers have equitable access to clean energy resources, so we developed a program called APS Solar Communities that provides our low-income customers direct access to rooftop solar and incentives for participating, while allowing us to optimize their system and receive better capacity value.

The duck curve refers to the load shape as it appears in places with high solar penetration. In places like Arizona and California where solar is abundant during the middle part of the day as the sun shines brightest, but customers use the most energy in the evening hours after the sun has set, the shape on the graph resembles a duck. 

That duck curve is what's driving energy storage and we're looking at solving two storage issues in particular. One is short-term storage. We need to figure out how to take energy at noon when we've got a lot of that solar generating, and then as that solar comes off, be able to dispatch batteries or other storage so we can tap into stored solar energy at six, seven, or eight o'clock at night.

We're also looking at long-term solar power storage solutions. We have all that solar cranking energy out to our customers, and it drives the system minimum even lower, so how do we capture all that excess energy when energy demand is lower, like in April, and then deploy it back on the grid during peak months, like July. 

That's where you start thinking about hydrogen technologies, compressed air energy. There are other ways you could capture energy that's not batteries, which are good for day-to-day, but we can't have batteries that we charge up in April and then leave unused until July.

That just economically doesn't make sense, and partly goes back to what we signaled when we made our Clean Energy Commitment, the need for more technological innovation from the industry. Storage is one issue we need to solve by 2050.

So, let's invite our vendors, the supply chain, our partners to come in and say, here's what we're seeing and what we're going to need. Is hydrogen the answer? What is the path that gets us that long duration storage?

What is the path that gets us to a zero-carbon fleet, but still is dispatchable? I don't see the combination of just wind and solar and probably even batteries that's going to make the grid run.

Even with a big nuclear plant and robust demand-side programs, you probably need dispatchable generation. Is that going to be hydrogen? Or is that going to be a carbon capture type system? 

We wanted to send the signal out for more innovation and the industry as a whole is sending that signal through our partnership with EPRI, the academic community, and government labs. Help us solve some of these challenging issues so we can find that path to decarbonize.

PUF: In some cases, there's no sun for a while, so long-term storage is critical.

Jeff Guldner: It's storage and then it's transmission. When you think about the western grid, you've got a ton of wind in the Wyoming area. You've got the best hydro resources in the country in the Pacific Northwest, and you've got a lot of solar in the Desert Southwest.

We think about what's the optimal transmission system that can wheel all those different resources and take advantage of it. When we can build transmission out, then you've got to have the market design that optimizes the siting, construction, and development of the resources.

There are all these fascinating policy and market issues. This is important in Arizona, but we're also dealing with growth. 

We had a challenging rate case decision, and we want to make sure we continue to communicate with our regulators that the challenge isn't just this energy transition. The challenge is keeping up with the growth in the territory now that we have more mega projects, meaning billion dollar-plus projects. There's about one a month that is being announced in Arizona.

If you drive up the interstate here, you'll see twenty-five cranes around the TSMC semiconductor project. We have to maintain a balancing act to support growth while we're transitioning to one hundred percent clean energy, to manage affordability for customers, and to solve the other normal challenges we see as an industry, like strengthening cybersecurity, ensuring a safe environment for our workforce, and continuing to enhance our customer experience.

It ties to the cultural work we've done as a company to drive a growth mindset framework, so you don't feel overwhelmed by all that change. This is a great opportunity to figure out how to navigate uncertainty and change.

It does all tie together. I'm proud of the team here at APS. We are doing a lot of cutting-edge things, but also approaching it through our APS Promise: As stewards of Arizona, we do what's right for the people and prosperity of our state.

PUF: It seems as if that link between the state's growth and prosperity is increasing, and you are keeping up by investing in the infrastructure. 

Jeff Guldner: Yes. It's been one of the focus areas. Governor Doug Ducey is coming to the end of his second term in Arizona, and he's been such a proponent of growth and economic development for our state.

If you go back to the big recession in 2007, we cratered. It was like Nevada and Arizona were the worst affected states in the country because our entire economies were real estate driven.

Arizona is now transitioning to a strong manufacturing economy. We have more stability. Credit all of our state policymakers and particularly Governor Ducey, as they've created that environment where people want to come to Arizona.

It ties also to a strong partnership with Arizona State University and our university system, where we're bringing the talent to support those new jobs and the innovation mindset to support that growth.

It really is a system. We feel like we're an important part of that system, but you've got to recognize that all that progress, all that development, and ultimately where we're going to go, depends on us being good partners with everybody we work with. It's not just our customers, but key policymakers and stakeholders like our university system and the manufacturing community.

PUF: Talk about what culture means, also to the development of your young people.

Jeff Guldner: It is interesting when you watch the history of the cycles that companies take and in a lot of cases, you adapt to what's needed at the time. With what had happened in the past it was important for us to focus on operational excellence, and procedural adherence.

As I came into this role, I saw employee empowerment as an area for growth. My personal leadership journey has been largely premised around empowerment.

Employees at our company felt they did not know why they were carrying out certain projects and tasks and felt they didn't have the space to challenge our processes and procedures. As we started moving into a lean mindset from a customer affordability and cost management standpoint, we needed people to question the status quo and to feel empowered. 

From the safety culture, you want that apprentice to feel like that person can challenge the twenty-year foreman, learn why certain procedures are in place and voice concerns if they feel a situation is unsafe.

I used three guiding words and wanted to keep it simple and direct. I'd visit parts of the company and I'd say, I want everybody to speak up, I want you to challenge the status quo, and I want you to be empowered.

When we started, we had to earn the trust of our employees and show that this was an intentional environment we were cultivating. More and more, people realized that I meant it. It started to be where you saw more of that empowerment shine through.

For example, what this might look like for our customer service organization, is thinking beyond an established procedure to support a customer calling in with a tough situation. I want our Customer Care Center advisors to feel empowered to provide a solution for the customer or consult with their leader.

To make real progress, we needed to have employees who felt empowered to make decisions in the interest of our customers and who were going to help us on our APS Promise. It's important for us to share customer stories with our executive team and we invite employees from the front line into our leadership meetings to share a story, a customer moment.

One of these stories I recall was when we had a troubleman who gave his ball cap and a water bottle to a homeless person because he saw that person under a bridge and the sun was shining in. A passing motorist saw this take place, wrote down our troubleman's truck number and called to share what had happened. That's the kind of thing we want to celebrate.

Empowerment has been important in our culture change. We have a phenomenal human resources team that is helping drive the APS Promise and the framework that we use around growth mindset. We also partner with the NeuroLeadership Institute, and they've been great in helping us develop ways to continue to enrich our teams.

PUF: Are you feeling optimistic about 2022 for APS in Arizona?

Jeff Guldner: I'm absolutely feeling optimistic. There are a lot of important dialogues we're having. We're also working together to figure out how we deal with some of the real-world challenges we're faced with like inflation and supply chain pressures.

Across the industry we're seeing supply challenges to get basic resources, like transformers, cables and poles. These are moments where it's important for us to communicate and engage in dialogue with regulators, policymakers, customers, and stakeholders

As we move forward from our last rate case, we're ready to approach the challenges in our current landscape with a growth mindset. We're the largest electric service provider in Arizona and we've had a stake in the community for more than one hundred thirty years.

We're enthusiastic about the future and the innovation we'll be creating to support Arizona's long-term prosperity, but we know there are challenges in how we can navigate these risks and opportunities.

But we're not going to shy away from it, we're going to figure out how can we do that in the most effective way for our customers and our state.

Lead image: The APS Red Rock Solar Power Plant.