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In the

room Expertise from

included inside

A lite paper on what we learned in a room full of People to Know. The Energy Edition


Shawn Bennett Director of Corporate & Community Affairs Energy In Depth Ohio

David Reierson Manager of Strategic Initiatives Homeport

David Compaan* Corporate Development Manager Ohio Advanced Energy Economy

William Spratley Executive Director Green Energy Ohio

Dan Lorenz President Joe Knows Energy

Tom Stewart Executive Vice President Ohio Oil & Gas Association

Terrence O’Donnell Member - Energy/ Sustainable Practice Dickinson Wright PLLC

Dan Whetstone President - Energy Group HMB Inc.

* Attended the roundtable for Tom Ford, CEO Ohio Advanced Energy


The People to Know ‘In the Room’ Initiative

At Clark Schaefer Hackett, we’re proud to be industry specialists. We strive to know everything we can about the industries we serve, and to share that insight for the good of our clients and communities. When we gathered the 2013 Energy People to Know around one table to talk, we were privy to profound thought, unique perspectives, and intelligent understanding. Here, we share their wisdom with you.


What we learned pg 1

The future of Ohio’s energy industry

pg 5

Energy policies and industry regulations

pg 9

Comprehensive energy approach


The future of Ohio’s energy industry

The shale energy resources in Northeastern Ohio have changed the playing field for the energy industry, locally and beyond. In very recent history, U.S. energy resources were considered scarce and dwindling. That’s changed. And it’s not just the potential of the country’s shale plays that have transformed the energy conversation. Wind, solar, and biofuels have become more viable than ever. Ohio’s Utica shale play resources - natural gas and crude oil reserves - show every sign of being ready to usher in economic health. The state’s midstream infrastructure is beginning to take shape. Drawing on the experience of other regions who’ve already built a support structure to transport and process the product from their shale plays, Ohio seems to be implementing smart, effective development. Major strides have been made in advancing green energy, and in creating green jobs. This sector also shows potential for significant growth.

1


Insight

from roundtable participants...

Ohio’s Energy industry is growing so rapidly, we are going to need human resources from all over. And that will benefit the state and our economy. We met a job candidate who moved his family to Ohio from Texas specifically because of the opportunity here and the chance to be part of the solution. That’s a 20-year veteran of the industry who is now an Ohio resident. There is a lot of opportunity in our state and people will be drawn to it. There is big potential in Ohio for green jobs. We rank # 2 in producing parts for wind turbines. There are 8,000 parts in a 30-story wind turbine. Ohio has 200 wind turbines in the ground, with eight or nine more wind farms ready to come forward. Twelve out of 120 Wal-Mart stores in Ohio have solar on them. It is their corporate intent to do all of their North American stores. And Kroger, with 2500 stores nationally, is watching them very closely. So we are seeing big corporations making green decisions. That means green jobs in the private sector. The reality is the economics are changing rapidly. To be a part of this we need to be making things. Otherwise we are going to just have the residual jobs. In Germany the efficient and renewal energy industry has now surpassed their auto industry. This is a global thing going on here. I think Ohio is going to be a big leader. We have the technology. We have the big universities. We have Battelle, a global research and development organization. We have all these pieces that fit together.

Dan Lorenz

Joe Knows Energy

William Spratley Green Energy Ohio


Insight

from roundtable participants...

We try to elevate the exposure of solar applications in residential, single family homes. In 2008 we built a demonstration house certified by LEED at the platinum level as a tool to help us launch a larger, more comprehensive revitalization initiative. Since then we’ve built over 35 energy-efficient homes, 8 of which use solar systems. Sales are strong- especially for solar-equipped homes, which proves the technology has been embraced by our buyers. We think it’s critical to connect this market with this technology in order to help elevate the profile of alternative, renewable energy sources. For any homebuyer, the energy cost savings is just as important the consideration of the environment. With natural gas liquids we have a saturated market in the Northeast. You can only take them a couple places. We have built interstate natural gas pipelines, or we get a cracker - which would be years out- to have those natural gas liquids go to the petrochemical regions which would be Louisiana or Texas. There ethane is a hot commodity. That is what makes our phones, the plastics that we use on a daily basis, and vinyl siding. In addition there is a larger market for other natural gas liquids like propane and butane. By utilizing natural gas liquids pipelines is the best way to get competitive prices for the natural gas liquids prices which benefits land owners and operators as well.

David Reierson Homeport

Shawn Bennett

Energy In Depth Ohio 3


Insight

from roundtable participants...

We provide construction management, quality assurance, constructability analysis, design and permitting services for pipelines, roadways and energy-related facilities in the Utica Shale region. Finding an experienced workforce to work in this new-toOhio industry is challenging. And the industry is very demanding. Working six 10-hour days is a typical work week, but in reality that ends up being six 12-hour days. To succeed we draw on the experience of other states. We have a lot of people working on getting Ohioans trained to do this. Ohio has done a great job of learning from Pennsylvania. What we are finding is that you have to get the experienced people there first, so they can demonstrate the smartest path and to train the less experienced people. There are a lot of good people here in Ohio to make up the oil and gas workforce. First we need to attract the experienced experts to make sure we are establishing this industry the right way. Just ten years ago, the discussion around the oil and gas industry would have revolved around having already hit peak oil, our diminishing resources and scarcity. And now we’re talking about a future strong in natural gas, and even exporting that American product. I think there is a bright new future for oil and gas here in the United States.

Dan Lorenz

Joe Knows Energy

Tom Stewart

Ohio Oil & Gas Association

4


Energy policies

and industry regulations

Having a dependable power source is essential to the success of our country, so energy generation and delivery require oversight through government policy and regulation. But there’s a balance to strike so that the free market is allowed to influence energy as well. Each of the 50 states approaches this a bit differently and those laws shape the energy industry landscape. U.S. federal energy policy is hotly debated, particularly when the need for power is pitted against environmental priorities. Renewable energy is often supported through state standards that require its use. But the regular review of these laws leaves uncertainty that the standards will be upheld. And that discourages long-term investment in these alternatives. Risk is inherent to the energy industry. Some say progress will only happen when the risks are accepted, rather than overly regulated.

5


Insight

from roundtable participants...

The Ohio General Assembly currently has a renewable portfolio standard that requires 12.5% of Ohio’s electricity to come from renewable sources by 2025. There is a separate energy efficiency standard that actually flips the model upside down and tells utilities they can get cost recovery, but they have to help customers use less power instead of just selling more electrons all the time. That law passed in 2008. It is a few years old and is undergoing a pretty comprehensive review right now. I think it’s appropriate, five years after passing, to take a fresh look at the law. But the industries that have made investments based on that policy – and would consider making more - are concerned. If we see wholesale revisions to that policy, some of those investments won’t happen. That’s something that particular sector is watching very closely right now.

Terrence O’Donnell

A lot of investment in advanced energy is directly tied to either renewable portfolio standards or the Federal PTC. And they have a review cycle of one year or two years, or five years. So it is really tough for Ohio based businesses to make a firm investment, especially on the wind spectrum where they are renewing the production tax credit one year at a time. For someone to make the investment to put in a big wind farm, they need financial backing. And the uncertainty of the standards’ review process is not very conducive to securing financial backing. I think something that we would like to see is a longer-term look at these legislative activities. That would help to foster a lot of the Ohiobased businesses.

David Compaan

Dickinson Wright PLLC

Ohio Advanced Energy Economy

6


Insight

from roundtable participants...

One thing I am hearing is that the Ohio EPA and ODNR are focused on the needs of the energy industry, due to the governor’s leadership. The industry is saying that Ohio is a breath of fresh air. It seems Ohio is connecting all the different regulating departments together to make sure they are all working in unison. Ohio has learned from other states. Different states have taken different approaches to regulating or deregulating the energy market. It makes for a fascinating study on the different outcomes you can achieve. Policymakers try to balance having a free market that leads to low prices for rate payers and consumers, with providing suppliers the certainty and stability needed to invest capital in new generation. I think most people think the free market is a pretty good way to get there, but when you layer in the risks of the energy market - this is a utility after all, and the lights have to come on or there will be major problems - states wind up striking a balance. In a more regulated model, for example, the state would direct a utility to build a new plant and give the state the invoice when it is done, and the state will make sure the cost is fully baked into the rate base. It takes virtually all the construction risk out of a project. But the tradeoff is that you don’t really have a free market system. Ohio tries to strike a balance by allowing competitive suppliers. So we are seeing a more diverse portfolio, and I think consumers are getting some of the benefits of lower prices in the market. But there’s more risk to the businesses in the industry here. Ohio’s abundance of gas may draw interested parties, but without a guaranteed long term revenue stream, they may not be able to get the financing to build a plant. So there is a capital decision to make; where will they allocate their capital, where will they get those returns? I hear players in the energy generation industry suggest that if the market is more fully regulated, they would consider placing a facility in another state where they know they can collect capital costs, and then export the energy to states where it might be more risky to have a facility. That’s not the last word on the subject, but that is one thing I hear.

Dan Lorenz

Joe Knows Energy

Terrence O’Donnell Dickinson Wright PLLC

7

7


Insight

from roundtable participants...

US energy policy is the market place. What has happened in the United States in the past five years is what every politician, administration, president, congress person has said since the very first gas line and oil well – we want energy. We may very well surpass Saudia Arabia in oil production. We always want more. America is a wonderful place to live, but we take so much for granted. Energy policy should reflect that we need a well regulated industry that the public has faith in and can trust to be safe and responsible. The flip side to that is and has to be recognized is that there are risks in doing these types of things. America was built on risk. When we look for the riskless society, then nothing’s going to happen. When you look to develop fossil fuel, there’s risk involved. We will not advance at all without those risks. It is in the industry’s best interest and the public’s best interest that the resource gets developed.

Tom Stewart Ohio Oil & Gas Association


Comprehensive energy approach

Meeting the world’s growing energy needs will be no small feat. Many experts contend that every viable form of power will have to be a part of the solution. There are pros and cons to every source, and society will ultimately decide if any carry too high a cost. Exciting advancements are happening in the energy sector and we can’t afford to dismiss any of them. From renewables to fossil fuels, biofuels and nuclear options, no single source can currently provide for our needs. The answer lies in maintaining a balanced, comprehensive approach to providing affordable, reliable energy.

9


Insight

from roundtable participants...

When it comes to meeting the world’s energy needs, our board member Dale Arnold likes to say, “There’s silver buck shot, there’s no silver bullet.” It has to be a comprehensive approach. Last year the biggest addition to the grid nationally was wind power. AEP Energy’s wind offering is actually cheaper than the standard rates of all four investor-owned utilities. Solar is cheaper than it’s ever been. Even utilities begin to see that they are going to lose load and probably try to get into the solar business. Worldwide, solar is the fastest growing energy industry because you have whole countries that don’t have wires and pipes, so it is easier to put in solar arrays and wind turbines. As it becomes more economic with the smart grid, and all the advanced technology that is going into the electric grid, we think renewables are going to play a bigger part. Going forward in the short term, natural gas is a game changer. It has half the emissions of coal. And you still need baseload generation. What’s nice about gas-fired generation is that it can ramp up and down when you are dealing with intermittent sources like wind and solar. Energy drives our economy. We have to use all forms of energy. In 2010, we used 100 quadrillion BTU’s of energy and it is only growing as we use smartphones and iPads, which all rely on electricity. If all energy sources don’t get together, we are going to have unnecessary shortages. You have natural gas, which is a perfect complement to intermittent wind and solar, because those plants can start up in 15 minutes. Coal still has an important role because that is baseload energy. You also have to have nuclear, and all forms of energy. If we don’t, our economy is never going to succeed. Cheap and reliable energy is the only way to have a robust economy. It isn’t the producers who will ensure all the facets work together. It is in the hands of the utilities to determine the energy usage balance. And it’s the free market that will do it.

William Spratley Green Energy Ohio

David Compaan Ohio Advanced Energy Economy


Insight

from roundtable participants...

The energy industry now interacts with its consumers very differently than it did 10 years ago. Coming from the technology side, we regularly present and develop strategic IT project leadership and solutions to energy firms. I advise and support the customer systems they employ for billing and other customer experiences, as well as the businesses’ operational systems. I’ve seen utilities responding to the reality that today’s consumers – individual and corporate clients – have energy options. The utilities now operate in a competitive and regulatory market, and it’s a whole different model. They regularly update their websites to be attractive and interactive. Now people have the opportunity to go online to pay their bill, or handle that on a mobile device. The outage watch systems in place today are online and interactive so that when there is a storm, the public can go online and see where the outages are in real time. They can also participate and enter information themselves that they have an outage updating the company websites. The point is that the consumers themselves are helping to drive the experience; energy companies are paying attention to the customer preferences and responding with appropriate strategies. Years ago in the energy sector, IT would often drive business changes. For instance when it became prudent to implement automation of some kind, IT would have seen the issue, then developed and implemented the solution. That has switched around in the last few years. Competition and consumer demand now drive the utilities’ business decisions. IT more often than not listens to the business needs and then co-develops the initiatives to support the overall strategic business plan.

Dan Whetstone

HMB Inc.

11


About Clark Schaefer Hackett The core competency of CSH is to provide best-in-class technical expertise in assurance and tax services to mid-sized organizations and their stakeholders. For 75 years, our accountants have served as the primary trusted business advisor to the organizations that form the backbone of the region’s economy. We align resources by industry to better serve the needs of our clientele. Specialization permits us to develop deep knowledge of the issues facing our clients and to anticipate needs based on our understanding of industry trends. We select a team that best fits the needs of the client from our strong bench of firmwide industry specialists. Our industry and specialty groups provide expertise comparable to a national firm but with the benefits of personalized service and a value-added fee structure found in a regional or local firm. Learn more at www.cshco.com.

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Energy Roundtable - People to Know