© 2016 Dow Jones & Company. All Rights Reserved. THEWALL STREET JOURNAL. Wednesday, April 13, 2016 | B5

JOURNAL REPORT

Ban Ki-moon on the Paris accord’s fate, B6

Michael Brune’s energy optimism, B6

Lynn Good looks into the future of coal, B7

Sheryl Corrigan defends Koch Industries, B8

Thomas Fanning and David Crane differ onclean-energy strategies for utilities, B8

Jeffrey Holzschuh and Douglas Kimmelmanoutline their investment portfolios, B9

Lynn Jurich and Tom Warner on solar, B9

Plus: Anne Finucane, Rep. Kevin McCarthy,Sen. Joe Manchin and Alan Armstrong

INSIDE

50%

50%

47%

46%

45%

42%

41%

Source: KPMG survey of 800 auto executives world-wide, conducted online between July and November 2015 THEWALL STREET JOURNAL.

Change on Wheels | Auto executives increasingly see big changes in the industry soonHow likely is a major business-model disruption in the next 5 years? Howmuch will legislation and regulation

influence the development of the industry?Percentage rating each trendextremely important

Connectivity and digitalization

Hybrid electric vehicles

Battery electric vehicles

Market growth in emerging markets

Fuel-cell electric vehicles

Mobility as a service

Customer data/big dataSomewhatunlikely

43%

15%

Not likelyat all

14%

3%

Neutral

32%

1%

20152016

Very highinfluence29%

17%

2%

Highinfluence

51%

Averageinfluence

Low or no influence

Extremelylikely

3%

28%

Somewhatlikely

54%

9%

MR. FIELDS: You could say therewould be less vehicles sold, butwe’re changing our businessmodel to look at this as vehiclemiles traveled. And when you lookat it that way, it changes yourmind to think about what kind ofservices can we offer via ourproducts. I could argue that withautonomous vehicles, the actualmileage on those vehicles will ac-cumulate a lot more than a per-sonally owned vehicle, plus theservicing. That could actually be abit of an offset.

The electric company?MR. BAKER: Does Elon Musk keepyou awake at night?MR. FIELDS: They always ask me,“What keeps you up at night?”Nothing. I am dead tired by thetime I get to bed, because I lovewhat I do. But clearly, we take ourcompetitors very seriously. Whenyou look at the level of competi-tion we have from traditional andnontraditional competitors, we’reembracing that.

Please see FIELDS page B6

The auto industry has been un-dergoing a remarkable transfor-mation—and it’s only the begin-ning. Energy prices and a toughregulatory environment are com-plicating product planning. Elec-tric motors and autonomous driv-ing systems may redefine howpeople move around.

To get a glimpse of how carmakers are navigating this uncer-tain environment, The Wall StreetJournal’s Gerard Baker spoke withFord Motor Co. Chief ExecutiveMark Fields. Here are edited ex-cerpts of their discussion.

Tough terrainMR. BAKER: We’re seeing an ex-traordinary transformation of theauto market. We’re talking aboutelectrification and autonomousdriving. And we’re seeing compa-nies like Google and possibly Ap-

ple getting into the business.You’re seeing car sharing. Tell ushow you are preparing.MR. FIELDS: We’re going to disruptourselves. We have this core busi-ness of designing, developing,manufacturing, marketing andservicing and financing great cars,utilities and trucks. But also wesee these emerging opportunitiesaround what we call smart mobil-ity. We want to lead in specific ar-eas around autonomous vehicles,around the connected car as it be-comes part of the Internet ofthings, around mobility, ride shar-ing, car sharing, around data andanalytics and how we can antici-pate customers’ needs.

MR. BAKER: What are you doing toprepare for an age when a hugeamount of car mobility may bedone through sharing?

Ford’s Road MapTo the FutureChief Executive Mark Fields getsready for driverless cars

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Weaning the world off coal, doubling downon renewables and investing in breakthroughtechnologies that can help stop climatechange were hotly debated topics last weekat The Wall Street Journal’s ECO:nomics con-ference in Santa Barbara, Calif.

At the annual gathering, environmentalistsand energy experts sparred over lofty envi-ronmental goals as well as the current reali-ties of fossil-fuel demand. Can natural gas re-place enough coal-fired power generation toclear the air of carbon emissions? The SierraClub’s Michael Brune thinks not.

Energy banker Jeffrey Holzschuh of Mor-gan Stanley predicted solar power will over-take wind. But he warned that better batterystorage of electricity is needed to truly ce-ment green power in the U.S. energy mix.

Koch Industries defended its environmentalrecord. And U.N. Secretary-General Ban Ki-moon said that while the Paris climate talksheld in December were flawed, they were thebest outcome that could be hoped for and anecessary step toward combating the topthreat to humanity. “This is not the end,” hesaid. “This is the beginning.”

—Lynn Cook

TheFutureMayBeClear. ThePath Isn’t.

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B6 | Wednesday, April 13, 2016 THEWALL STREET JOURNAL.

JOURNAL REPORT | BUSINESS & ENERGY

Are government and indus-try doing the right things tofight climate change? Whatcan they do better?

To get an insider’s view ofthe question, The Wall StreetJournal’s Russell Gold spoke

with Michael Brune, executivedirector of the Sierra Club.

What follows are edited ex-cerpts of their discussion.

MR. GOLD: I saw a speech thatyou gave on YouTube, and you

started your speech by askingthe audience whether they feltgovernments and corporationswere going to be able to re-spond to the challenges of cli-mate change. Are you optimis-tic?

MR. BRUNE: I am. We’re con-fronted with two realitieswhich are going to happen al-most no matter what. Climatechange will continue to getworse. We’re also seeing thegrowth of clean energy. We’restarting to see renewables dis-place fossil fuels, starting withcoal. That will accelerate al-most no matter what. I’m opti-mistic because I think that to-gether we can solve some ofour biggest problems. I seecountries coming together ona very large scale to addresswhat’s being done.

MR. GOLD: You introduced civildisobedience to the SierraClub. Why was that necessary?MR. BRUNE: We engaged incivil disobedience on the Key-stone XL Pipeline because atthe time, it was an importantissue substantively and sym-bolically, and it needed to beelevated. It needed to havemore attention, more focus onit. We may engage in civil dis-obedience on voting-rights is-sues because we depend on ahealthy and thriving democ-racy in order to address envi-ronmental issues.

MR. GOLD: Shouldn’t we be cel-ebrating natural gas because

it’s allowing companies to re-place coal? You’re not a fan ofnatural gas.MR. BRUNE: The reduction incoal is coming from a varietyof factors, a significant part ofwhich is the low price of natu-ral gas. So our goal is to phaseout of coal as quickly as possi-ble and use as little naturalgas as we can in doing so.

The climate impact of burn-ing gas is half that of coal.However, the amount of fugi-tive methanes that come bothat the well head and fromtransmission and distributionis so significant that it nar-rows the difference betweengas and coal.

MR. GOLD: The Sierra Club hassaid for many years it’s op-posed to nuclear. Why can’tyou support nuclear?MR. BRUNE: The Sierra Clubhas been opposed to nuclearpower since the late ’60s forconcerns about safety, storageof radioactive waste, etc. Ifthere was an actual debateabout nuclear power in thiscountry, and if you had finan-ciers who really were going toput serious money behind nu-clear power, then it would be adifferent question. It is not anactive question. There is not a

serious proposal, particularlyin the U.S., to scale up nuclearpower in any way that wouldmake a big difference. I don’tagree that nuclear power is areal solution.

MR. GOLD: You probably heardSheryl Corrigan of Koch Indus-tries say that Charles Koch be-lieves climate is changing andhumans have a part in it.What are your thoughts onthat?MR. BRUNE: Koch Industriesand the Koch brothers havebeen funding some of ourtoughest opponents. Theyhave been putting millions ofdollars behind candidates oron issues that are making itdifficult to solve the world’sbiggest problem.

The fact that we have oneexecutive who makes a state-ment that shows that this ispart of a problem to be solved,it’s great. I’d love to see the$900 million that the Kochbrothers are putting into thiselection not go into fundingcandidates who don’t believeclimate change exists, whodon’t think that humans haveany role and are spendinghuge amounts of money de-stroying the world that mykids are growing up into.

The Sierra Club’s ViewWhy Michael Brune is optimistic about

combating climate change

mechanism?MR. BAN: Yes. We are not go-ing to shame, but everybodyknows which country is doingwhat and how much they aredoing. Everybody has an inter-est to fully comply.

MS. STRASSEL: The U.N. has itsGreen Climate Fund, with agoal of I think $100 billion by2020. But the India environ-ment minister said that if youwant developing countries toget on board, industrialized

countries owed trillions. Doyou think industrialized coun-tries are willing to do that?And how important is thatpiece to making this happen?MR. BAN: The initial promise bythe OECD countries and big de-veloped countries was to pro-vide $100 billion by 2020. Un-fortunately, the firmcommitment has not beenmade. It has been pushed backuntil 2020. When it comes to2020, there will have to be afirm commitment, as well as aroad map, framework, how$100 billion per year will haveto be provided to developingcountries. After that, thereshould be more than $100 bil-lion.

Supreme concernMS. STRASSEL: The U.S. has aplan to reduce emissions by28%. It went to delegation afterdelegation and said, “Look atour commitments, look at thepresident’s climate plan.” Butthe plan is now mired in the Su-preme Court. How much does itconcern you that one of theleading things that got thisdone is now uncertain?MR. BAN: As the largest econ-omy in the world, I believethat this climate change issueshould not be a subject of apolitical debate.

MS. STRASSEL: But it is.MR. BAN: Unfortunately. I’mconcerned. But I do appreciatePresident Obama’s strong com-mitment.

He knew that, with all thisopposition of the RepublicanParty’s stance, he may not beable to have all this legally—through a legal process. But healso has executive power. Hewill do whatever he can underhis executive power.

MS. STRASSEL: Do things fallapart internationally if thiscontinues to be stalled?MR. BAN: It has given a certainnegative wave to the interna-tional community. But I believePresident Obama’s assurancesthat he will do whatever he cando under his presidential exec-utive power.

MS. STRASSEL: PresidentObama said climate changewas a bigger threat than ter-rorism. Do you agree?MR. BAN: Longer term, it is amuch, much more serious is-sue. Of course, terrorism, ex-tremism must be defeated. Butlook at the consequences. Ter-rorism terrifies the people ofthe world, but climate changedoes not respect any borders.It affects a whole humanity, itaffects our planet Earth.

One of the biggest events ofthe past year in energy and en-vironmental policy was theParis climate talks. More coun-tries than ever have pledgedsignificant carbon cuts. Yet inmany people’s views, thosepledges fall far short of what alot of scientists say is necessary.

United Nations Secretary-General Ban Ki-moon sat downwith Kimberley Strassel, amember of The Wall StreetJournal editorial board, to dis-cuss the future of climate di-plomacy. Edited excerpts oftheir discussion follow.

Paris and afterMS. STRASSEL: The U.N. wasnot actually there doing thenegotiations in Paris, but yougot called in at the last minuteto make a few countries fall inline.MR. BAN: I am very grateful toPresident Obama and Presi-dent Xi Jinping for their lead-ership and strong commit-ment. Basically, it was the U.S.and China who really helped[make] this Paris agreementpossible. These are the two

largest emitters of the world:China and U.S. They agreedthat there should be an agree-ment, and we worked andreached out to many coun-tries. [It] was very positive.

MS. STRASSEL: Some wouldsay there is no enforcementmechanism to make any ofthis happen. What do you sayto critics who say this is moreof a feel-good agreement thana consequential way of reduc-ing carbon?MR. BAN: This is an interna-tional agreement; thus, it’sobligatory. It’s not that all theclauses, all the articles, areobligatory. But core elementsare. For example, the nationaltargets, Intended NationallyDetermined Contributions, arenot binding. But every fiveyears, this will be monitoredand reviewed, and in 2018, theparties will gather to reviewwhat happened from 2015 un-til 2018. From then on, everyfive years there will be moni-toring and reporting. This ismandatory. And there is much,much more possibility that

member states will have anopportunity to verify whichcountry has done how much.This is an obligatory clause.

MS. STRASSEL: But for China,maybe it was a little bit easierto agree to its targets; itseconomy has slowed, its de-mand for energy has slowed.But in five years, let’s say thathas changed and the amountof carbon emissions have goneup and they’re not hitting thetargets. What does the U.N. doabout it?MR. BAN: Every member of theParis Agreement will have aninterest to abide by their agree-ment. These are very strictpeer reviews. Every year there’sa UNFCCC meeting [U.N.Framework Convention on Cli-mate Change] to review all this.But every five years, therewould be four-month review-and-reporting sessions, andtherefore, for their own na-tional economy and the worldeconomy, every country has aninterest to keep their promise.

MS. STRASSEL: So a shaming

Carbon CompactBan Ki-moon on enforcing the Paris Agreement

‘Everybody knows whichcountry is doing what andhow much they are doing.’

GENES

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(2)

Latin America 74%

Africa 61%

Europe 54%

Asia/Pacific 45%

U.S. 45%

Middle East 38%

China 18%

* Regional medians, except for U.S. and China

Source: Pew Research Center's Spring 2015 Global Attitudes Survey of 45,435 adultsin 40 countries, conducted in person and by telephone, March 25 to May 27, 2015

No Sign of UnanimityAttitudes toward climate change differ markedly by region aroundthe world and by political affiliation in the U.S.

Percentage* saying climate change is a very serious problem

Percentage in U.S. saying:Global climate change is a veryserious problem

Support limiting greenhouse-gas emissions

Very concerned that climatechange will harm me personally

Climate change is harmingpeople now

RepublicanIndependentDemocrat

20%

41%

68%50%

72%82%

24%42%

53%

12%30%

42%

THEWALL STREET JOURNAL.

MR. BAKER: But he does seemto have something of a headstart here.MR. FIELDS: I would disagree.What he’s done with Tesla hasbeen amazing. The biggestbenefit he’s done is raise theawareness of electrified vehi-cles. Now, his company has ca-tered to a very affluent con-sumer. Our approach [is that]we have one of the largest se-lections of electrified vehicles.We’re the No. 2 seller in theU.S. in electrified and No. 1 inplug-in hybrids. We’re invest-ing another $4.5 billion, so bythe end of the decade, 40% of

Continuedfromthepriorpage

our nameplates around theworld will be electrified.

MR. BAKER: Some of your com-petitors, most notably GM,have made some pretty big,splashy investments them-selves. Billion dollars, I think,on cruise automation, half abillion dollars in Lyft, the ride-sharing company. You haven’tgone down the same route.MR. FIELDS: We formed FordSmart Mobility LLC a coupleof weeks ago. Our businessthere is to design, build, growand invest in mobility solu-tions. On some things, we willdo on our own, in others, wewill partner with others.

MR. BAKER: On autonomousdriving, tell us more aboutwhat you’ve invested in, whatyou might be looking to do.MR. FIELDS: We’ve been work-ing on autonomous vehiclesfor over 10 years. Our ap-proach is twofold. One is to bea leader in advanced driver as-sist and semiautonomous fea-tures, features that will keep

you in your lane, that willalert you about traffic, thatwill adapt your speed. We’reone of the leaders in thatspace. That was what they calllevel zero through three,where the driver has to be incontrol. Then there’s levelfour, where the driver or pas-senger does not need to beprepared to take control. Thatis what we’re working on. Wewill have by some time thisyear the largest autonomous-vehicle testing fleet.

MR. BAKER: How close are weto autonomous vehicles beingavailable, driven on our roads,carrying our children around?MR. FIELDS: Level-four vehi-cles—[which operate] in a de-fined area that’s been 3-Dmapped—we think that some-body in the industry will haveby the end of the decade.

A level-five vehicle, whichis, you go into your car, youhit a button, you go to sleepand you wake up at grandma’shouse, that is a long wayaway—15, 20 years.

Fields

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‘We’re confronted withtwo realities which aregoing to happen almostno matter what.’

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THEWALL STREET JOURNAL. Wednesday, April 13, 2016 | B7

still being a fossil fuel that isemitting carbon, albeit at amore modest rate, and nuclearhaving the challenges that ithas with building and financ-ing new plants, I would agreethat if we’re going evendeeper and deeper in carbonreductions that larger-scale24/7 solutions need to be apart of the discussion.

MS. HARDER: What about car-bon capture for natural gas? Isthat something that’s even re-

motely on your mind or in someof the R&D that’s going on?MS. GOOD: It is.

MS. HARDER: How costly wouldsomething like that be?MS. GOOD: We are still study-ing that. I don’t have a quot-able figure for that, but actu-ally I think there are a fewpeople in the audience whoare looking closely at thattechnology. As we think aboutthe transition from coal tonatural gas, I think putting

carbon capture and sequestra-tion into that analysis will bea natural evolution. And Ithink there’s some infrastruc-ture that’s going to go withthat—capture and movementto geological formations orothers that would make thatfeasible. We have done somestudies with the Energy De-partment on where the geol-ogy works. Not very good inthe Carolinas, better in theMidwest. So that has to bepart of the discussion, as well.

‘The enthusiasm aroundcarbon capture andsequestration wasprobably greater beforethe shale-gas discovery.’

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Lynn Good is the chief exec-utive of Duke Energy Corp.,the U.S.’s largest power pro-ducer and one of the country’sbiggest coal burners. Withglobal leaders increasinglycalling for the phaseout ofcoal due to environmental con-cerns, she sat down with WallStreet Journal energy reporterAmy Harder to discuss the ex-tent to which that is economi-cally feasible.

Here are edited excerpts.

The impact of gasMS. HARDER: In 2005 Duke En-ergy’s coal generation wasnearly 60% of its [power gen-eration] mix. Today that’sdown to 35.3%. And in 2030you predict it will be 23%.That’s a big drop in a shorttime. What is driving the shift?MS. GOOD: Over the last 10years, we have had a target oflowering our carbon emissionsconsistently through invest-ment. The transition haslargely been driven by invest-ment in natural gas. So if I goback to 2005, no natural gas.And then today it representsabout 25% of our mix. We’vealso been investing in renew-ables since 2007 and todayoperate one of the largest re-newable fleets and have drivenNorth Carolina into a leadingposition in solar penetration.

MS. HARDER: What would yousay is the single biggest driverdragging down the U.S. coalindustry?MS. GOOD: Natural gas hasbeen a game changer. If youthink about the discovery ofshale and the low natural-gasprices that we’ve experiencedfrom the harvesting of that re-source, it’s had an extraordi-nary impact on the economyat large and certainly on thegeneration of electricity. Iwould also put a weakeningeconomy generally and world-wide as another driver aroundcoal. At one point over the lastmany years there was a lot ofhope and interest in the ex-porting of coal. Of course, thathasn’t materialized.

MS. HARDER: Do you ever envi-sion a future, whether it’s2050 or 2100, when coal willbe next to 0% electricity herein the U.S.?MS. GOOD: I certainly thinkwe’re moving in that direction.Under the rules that exist to-day, you can’t build a new coalplant without capture and se-

questration [of carbon], and atthis point we don’t have a via-ble technology that is eco-nomic for that. So you’re talk-ing about extending lives ofexisting plants, and those eco-nomic decisions become verychallenging when gas is cheapand renewables are available.

MS. HARDER: President Obamaand the secretary-general ofthe U.N. have called climatechange the biggest problemfacing humanity. As the CEOof a major utility company, doyou believe you share in a re-sponsibility to address climatechange?MS. GOOD: I look at my respon-sibility as serving about 20million people in the U.S. withaffordable, reliable, safe andclean energy. And so you thinkabout that responsibility 24/7,these lights have to work allthe time and have to work for20 million people. And so cer-tainly environmental responsi-bility is a part of my responsi-bility, but so is affordability,so is reliability, so is safety.And so you look at all of thosethings together, and I think Ihave to be at that intersection.

MS. HARDER: Southern Co. CEOTom Fanning had some prettycritical words for carbon cap-ture and sequestration in thelast panel. He said he doesn’tthink it’s going to be economichere in the U.S., given cheapnatural-gas prices. Do youagree?MS. GOOD: The enthusiasmaround carbon capture and se-questration was probablygreater before the shale-gasdiscovery and the low priceswere so prevalent. And Iwould step back again to thepragmatism of an investmentin carbon capture and seques-tration, or retiring an [existingcoal-fired] plant and buildingnatural gas and renewables. Ialso think that as a nation wehaven’t invested as much inresearch and developmentaround [carbon capture] as wehave other technologies.

MS. HARDER: How much areyou investing in carbon cap-ture and sequestration now?MS. GOOD: Modest invest-ments.

MS. HARDER: And where doyou see that going over thenext 10 years?MS. GOOD: I would say stayingabout the same or going down.

Carbon capture for gas?MS. HARDER: Former NRG En-ergy CEO David Crane saidthat if we’re going to achievethis 2-degree limit in tempera-ture rise that the scientists saywe need, carbon capture needsto succeed. Do you agree?MS. GOOD: I believe that for usto meet the broader aspirationaround climate, carbon cap-ture is going to be important,and I would also argue thatnuclear is important. Ofcourse there will be technolog-ical breakthroughs—I thinkbattery storage is somethingthat we all have some hope in.We have probably six or eightpilots ourselves, trying to putbattery technology to workwith renewables and otherparts of our system.

But I think we need to rec-ognize that running a 24/7power system requires 24/7power. And the options wehave today for 24/7 power arenuclear, natural gas and coal.And if you think about coal asbeing phased out over time,you think about natural gas as

The Future for CoalLynn Good on why coal is being phased out,and what needs to be done to replace it

26Total

gigawatts

6.8 gwWind26%

9.5 gwSolar37%

8.0 gwNatural Gas

31% Nuclear1.1 gw / 4%

Hydro0.3 gw / 1%

Petroleum and other0.3 gw / 1%

Sunny OutlookIf all goes as planned, this will be the first year that solar poweraccounts for more new utility-scale electricity-generating capacity inthe U.S. than any other source

Source: U.S. Energy Information Administration THEWALL STREET JOURNAL.

Scheduled capacityadditions for 2016

JOURNAL REPORT | BUSINESS & ENERGY

VOICES FROM THE CONFERENCE

‘We saw a business here and, from a public-pol-icy point of view, we see the future as goinggreener. I think the world is moving in that di-rection. And you have almost 200 countriesmaking a commitment. Even if they fail at theircommitment, they’re moving in this direction.We see business.’

Anne M. Finucane, Vice Chairman,Bank of America

Advancing the Scienceof Smart Energy

The Siebel Energy Institute funds research grants in data analytics,

including statistical analysis and machine learning, to accelerate

advancements in the safety, security, reliability, cost efficiency,

and environmental integrity of modern energy systems.

www.SiebelEnergyInstitute.org

The Siebel Energy Institute is a project of the Thomas and Stacey Siebel Foundation.

All research results will be shared in the public domain.

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With some of the greatest minds in engineering and computerscience, the Siebel Energy Institute pushes the boundaries ofinnovation to address today’s pressing energy challenges.

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B8 | Wednesday, April 13, 2016 THEWALL STREET JOURNAL.

JOURNAL REPORT | BUSINESS & ENERGY

VOICES FROM THE CONFERENCE

‘The No. 1 thing I’d want to have happen is tobring common sense back. Do not allow oneindividual or one agency to pick what’s going tohappen. I don’t think that’s productive for any-body. And it’s better to have all voices at thetable. And then let’s base things on science.Base it in reality, common sense, and make itsustain itself based upon science.’

Kevin McCarthy, U.S. House Majority Leader(R., Calif.)

wooden poles. It’s shockingthat we could be this obsolete.

But every utility in the coun-try except one, Green MountainPower in Vermont, is fightingthe market penetration of peo-ple making their own electric-ity. That’s why, if you have anindustry that’s based, “Oh,we’re gonna give this companya monopoly and hope that theydo the right thing by the cus-tomer,” that’s not going to bethe best approach.MR. FANNING: Tom and I aregreat friends, we really are.He’s dead wrong. SouthernCo., actually our largest sub-sidiary, Georgia Power, wasnamed by the solar industry asthe investor-owned utility ofthe year by the solar industry.You want to buy rooftop so-lar? I am glad to sell it to you.

Utilities have gone throughhuge dislocations and disrup-tions in recent years, and bigfinancial bets are being madeas they position themselves forenergy markets of the future.Wall Street Journal Global En-ergy Editor Elena Cherneytalked to two key players withdivergent approaches: ThomasA. Fanning, chief executive ofSouthern Co., and DavidCrane, who until Decemberwas CEO of NRG Energy Inc.Edited excerpts of their con-versation follow.

MS. CHERNEY: You both tookvery different approaches totransitioning to cleaner en-ergy. David, you told me youwere fired by your board atNRG for being too radical. Youalso said that you wished youhad been more radical. Whatdid you mean?MR. CRANE: There are roughly55 power companies in the U.S.that produce most of the gener-ation. In 2006, when I becamevery sensitized to the carbonissue, I looked at the carbon in-tensities of the 55 companies.We were 54th, or second-mostcarbon intense, and the onethat was ahead of us, Mirant,we ended up buying.

I went to the board andsaid, “Look, it’s unlikely thatthe world’s going to allow usto [continue to] do this.”

So we started on renew-ables. We tried to build a nu-clear plant, because I’m a bigbeliever in nuclear as a zero-carbon source. But I foundthat you had to talk about thatto motivate an employee basethat wants to basically dowhat it has always done. Soone of the reasons I was sooutspoken was to motivate theemployee base, and ultimatelythat made me a bit of a con-troversial figure.

MS. CHERNEY: Tom, you took adifferent approach. You de-scribed it as a more naturalevolution.MR. FANNING: I take my man-agement group through this ex-

ercise from time to time wherewe really try to think abouthow much change is out there.It is up to us, as leaders, tokind of see around the corners.

We’ve moved in our energyproduction: Coal, before I gotthere, 70%; coal this year willbe 28%. Gas back then was15%, 16%; now it is going to beabout 50%. We’ve developedour own technology that pro-duces less carbon than naturalgas. Renewables, we’re movingforward in a big way on solar,particularly, and some wind.Energy efficiency, we just an-nounced a really important ac-quisition, PowerSecure Inter-national [a provider ofdistributed generation, givingpower customers more controlover the energy they use].

The whole notion is to un-derstand really how thismodel will evolve and try toskate to where that puck willbe. If you do it in kind of atransparent, orderly way, youdon’t have this notion of dis-ruption. You have a notion ofnatural evolution.

MS. CHERNEY: Also, you’rebuilding a nuclear facility. Nota lot of people are doing thosethings. Where do you see thatmix going?MR. FANNING: All of the above.

Nuclear, we are leading the re-naissance in new nuclear. Ifthe country is serious aboutcarbon, we need nuclear in themix. It’s really hard to do nu-clear. Our deal, if you includeall capital costs and all financ-ing costs: $15 billion over 10years. Coal, we all know thatcoal is under pressure. We de-veloped this technology wherewe can actually consume coal,gasify it, capture 65% of thecarbon and move on. We’vetaken our lumps on that deal.That deal, probably, becausegas is so cheap right now, isn’tgoing to happen elsewhere inthe U.S. But I’m darn sure thatthere’s a great market for itaround the world.

MS. CHERNEY: David, can car-bon capture be made to workcommercially in the U.S.?MR. CRANE: First, Tom andSouthern Co. should be com-mended for what they’ve donewith nuclear and with pre-com-bustion carbon capture. Butthey’ve essentially demon-strated that those two technol-ogies are not cost effective. Wecannot afford for post-combus-tion carbon capture not to becost effective. If we’re going towin the fight against climatechange, it must succeed in thatregard when you include India

and China plants. I don’t thinkpost-combustion carbon cap-ture, as it’s done, with a tech-nology that’s borrowed fromthe chemical industry, is goingto get it done.

We need a disruptivechange. Overall, I would tellyou that I believe this country,the world, will win the fightagainst climate change by tak-ing the carbon out of fossil fu-els before it wins the waragainst climate change bymaking the world an all-renew-able plus battery-storage place.MR. FANNING: Nuclear abso-lutely needs to be part of theportfolio, and in the portfolioit’s cost effective. Let me ex-plain that. The energy fromour nuclear plant that we’rebuilding in Georgia is going tobe the equivalent price ofabout $1 per million BTU. Now,gas is really cheap right now.The query is how long will gasremain at that price.

Think about stock owner-ship as you build your own per-sonal portfolios. You buy somestocks that are really secure.Then you want to have somestuff that’s kind of risky andmore volatile. Maybe it’s got along-term return potential.

When you think about con-structing an energy portfoliothat has got to achieve the bal-ance of clean, safe, reliable, af-fordable, it is absolutely clear.Now, there’s a temporal featurehere. It will change over time.But it is a dominant solution tobuild nuclear—relatively highcapital cost, very cheap energy,zero volatility, essentially.

It looks like coal is windingdown.Renewables becomemuch more important. I’ve al-ways been a fan of solar. Thebridge in the middle is gas. Ev-ery one of those has a differentrisk/return profile, a differentcapital and energy mix, and asa portfolio, they work.

MS. CHERNEY: David, do youagree?MR. CRANE: In the sense thathe has to get his cost basispassed through the public ser-vice commissions of variousstates, arguments like he justmade about diversification of

portfolio work. In the compet-itive [market for energy] di-versification of portfoliodoesn’t necessarily work. En-ergy has usually been a win-ner-take-all business. Andright now in the U.S., the win-ner-take-all is natural gas.

One of the things we shouldbe talking about is the role theutilities are playing in snuffingout distributed generation.The premise [put forth byTom] is that a central gridsystem is only as strong as itsweakest link. We’re talkingabout an economy we built inthe U.S. built off 130 million

Two Utilities, Two ApproachesThomas A. Fanning and David Crane on their different strategies for cleaner energy

company mandate and thiscompany philosophy?MS. CORRIGAN: We are not per-fect. But I will tell you thatwhen we do have issues, orwhen we do have incidents, wetry to do our best to meet theexpectations of the folks thatwe serve as customers and inour communities. And we tryto learn from them.

The climate questionMR. BUSSEY: The environmenthas been a flashpoint in thereputation of Koch publicly—Charles being ambiguousabout to what degree humanshave a role in climate change.He acknowledges that thingsare heating up. But he says,“Look, you know, maybe nothumans.” What is Koch’s posi-tion on climate change?MS. CORRIGAN: I think Charleshas said the climate is chang-ing. So the climate is chang-ing. I think he’s also said, andwe believe, that humans havea part in that.

I think what the real ques-tion is, and I think it’s some-thing that we’ve talked aboutpretty much all day today is,what are we going to do aboutit? Right? What is the rightanswer?

I’m a baseball fan. Just byassociation, I’m a Yogi Berrafan. So there’s a great quoteby Yogi Berra: “It’s impossibleto get a conversation goingbecause everybody’s talking somuch.” What I think needs tohappen and what our companyis really focused on is, wewant to make sure that thepolicies and the actions wetake are good for people.

Koch Industries is one ofthe largest—and most contro-versial—private companies inthe world. Maker of a wide ar-ray of products, including Di-xie cups, pipelines and refinedoil products, Koch has drawnfire for its massive contribu-tions to conservative causesand concerns about its recordon environmental safety.

To get an insider’s view ofthe company, The Wall StreetJournal’s John Bussey spokewith Sheryl Corrigan, directorof environment, health andsafety at Koch and a formerpollution-control commis-sioner in Minnesota. Here areedited excerpts of the discus-sion.

The big principleMR. BUSSEY: Tell us what youdo inside the company, andhow you would articulate thecompany’s guiding principlesthat you think that the rest ofthe world doesn’t know about,that you think are elements ofthe culture that they should beinformed about.MS. CORRIGAN: I was a regula-tor. And I started with KochIndustries about 10 years agonow. What I learned fromlooking at the company fromthe outside in is, it’s a com-pany that is very principle-based.

So our philosophy, our busi-ness philosophy, talks about

making the stuff that you andI use every day. What makesus unique is that we do that ina principled way and in a waythat really is focused on mini-mizing waste. We’ve beenpracticing sustainability for 75years as part of our businessphilosophy. We just haven’tcalled it sustainability. We’vecalled it long-term value andminimizing waste. I wouldventure to guess that not toomany people know that aboutus.

MR. BUSSEY: It is a business

objective to minimize waste, toincrease profit. But your argu-ment is that it intersects moreclosely with the environmentalconcerns of your customersthan they might think.MS. CORRIGAN: I think a greatexample is we’re an energycompany, we have an energysubsidiary. And since 1997, sowe’ve been at this for a while,we have reduced our air emis-sions at our refineries by 76%.So that’s a pretty big bite outof our emissions.

Likewise, at our Georgia-Pa-cific company, we use biomass

for 50% of our energy require-ments there. Our philosophyis, around the waste minimiza-tion, taking every molecule,every bit of raw materials thatwe bring into our processesand upgrading that to a value-added product. So that’s thewhole mind-set of pretty mucheveryone that works in ourcompany, from the folks at theproduction floor, all the wayup.

MR. BUSSEY: Koch is in the eth-anol business. Charles Koch isvery clear that he believes that

business in the United States isoversubsidized. And yet, etha-nol, heavily subsidized by thegovernment, is a big businessfor Koch. How do you squarethat circle?MS. CORRIGAN: We buy busi-nesses like ethanol and biodie-sel because we are convinced,based on our analysis of thebusiness, that those productscan stand on their own with-out a subsidy or a mandate.Something that folks mightnot understand about ethanolis that it is a very efficient ox-ygenator. And it also increasesthe octane of gasoline proba-bly better than the chemicalsthat have been used in thepast. So we believe that mole-cule for molecule, and gallonfor gallon, ethanol can com-pete with the next-best alter-native for oxygenators andalso for octane enhancers.

MR. BUSSEY: Not a problemthat it’s heavily backed by thefederal government and tax-payer dollars?MS. CORRIGAN: At Koch Indus-tries, we actively lobby againstsubsidies. We lobby to get ridof mandates and subsidiesthat actually, in some cases,benefit us.

MR. BUSSEY: Koch gotslammed for instances of vio-lations with the EPA. Howdoes that square with this

TheKochPerspectiveInsider Sheryl Corrigan defends the company’s environmental record

‘We lobby to get ridof mandates andsubsidies thatactually, in somecases, benefit us.’

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U.S. utility-scale electricity net generation by selected sources,in billions of kilowatt hours

2006 ’07 ’08 ’10 ’11 ’13’12’09 ’14 ’15

Coal Natural gas Nuclear Hydroelectric*,solar and wind

Natural ProgressionNatural gas nearly overtook coal last year as the most commonsource of electricity in the U.S.

2,000

0200400600800

1,0001,2001,4001,6001,800

*Includes only conventional hydroelectric power, not hydroelectric pumped storage

Source: U.S. Energy Information Administration THEWALL STREET JOURNAL.

Thomas A. Fanning (left)and David Crane

VOICES FROM THE CONFERENCE

‘We’re realistic enough to know what renew-ables will do and what they can’t do. They can’tgive you base load power. They can’t give youreliability 24/7. Not yet. Nationwide…But today,you got three months of coal sitting here. I cangive you three months of power. You’ve got re-actors, I can give you nuclear power. Other thanthat, I can’t guarantee anything.’

Joe Manchin, U.S. Senator (D., W.Va.)

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THEWALL STREET JOURNAL. Wednesday, April 13, 2016 | B9

Despite meteoric growth, so-lar is still a tiny slice of theglobal energy pie. Jeffrey Ball,a contributing editor at TheWall Street Journal, spoke withtwo industry executives aboutwhere solar is headed: Lynn Ju-rich, co-founder and chief exec-utive of Sunrun Inc., and TomWerner, president and CEO ofSunPower Corp. Edited ex-cerpts follow.

MR. BALL: The InternationalEnergy Agency says if theworld implements pro-renew-ables policies, solar’s share ofglobal power production in2040 will be about 4%—bothglobally and in the U.S.—upfrom about 1% now.

If you put your industry inthe context of a kid growingup, where is solar?MS. JURICH: This industry hasarrived and is at a place wherethe momentum is there. Theindustry in the U.S. crossed [athreshold of] over a million so-lar homes this year. So there’sall this talk about electric vehi-cles, but there are more thandouble rooftop solar homes asthere are electric vehicles.MR. WERNER: We’re like a 13-year-old or 14-year-old in highschool who’s really athletic,and so you’re going, “Wow,that person is going to be re-ally good.” But this is a 13- or14-year-old. So that would bethe short answer.

IEA is like SunPower: Ourforecasts are always wrong, onthe low side. Solar’s share oftotal generation is probablymore like 10% by 2040.

MR. BALL: There’s effectivelya trade war in solar going on.There are allegations thatChina is selling solar panelsbelow production cost, deci-mating the solar industries inthe U.S. and Europe. How sig-nificant is this?MR. WERNER: We’re always go-ing to have some policy issues.But you have such a massive

opportunity, it creates twothings. It creates the desire tomake sure that the way itworks has the correct policy.And secondly, it brings in mas-sive competition.

Generally speaking, it’s fric-tion, so the consumer loses.You’re not going to be able topick exactly the right place toput a tariff on and make itright. So when you do that,you get counter-tariffs andcosts go up.

MR. BALL: Lynn, let’s talk aboutthe net metering fight. Whathas happened in Nevada?MS. JURICH: What’s happeningright now is we’re buildingtwo infrastructures out. We’rebuilding an energy infrastruc-ture that’s customer-sided atthe grid edge, and we’re build-ing out our traditional central-ized energy. And the econom-ics are very strong on thecustomer side now.

MR. BALL: Your company leasessolar panels to homeowners,puts the panels on the roofsand the homeowners don’t payany capital cost. They pay youeffectively as their electricityprovider and that’s how youmonetize your business?MS. JURICH: Exactly. Andwhat’s happening is that thehome on average uses about70% of that power. About 30%of it flows back into the grid.

The framework we’ve usedin this company predomi-nantly is that that homeownershould be credited at the retailrate when that energy flowsback into the grid, because itflows to the neighbor. It’smuch cheaper for the power togo to the neighbor than it is…

MR. BALL: So I have a houseand I buy my power from youfor less than I would pay if Ibought power from the grid.That’s why I buy power fromyou. And I sell it back into thegrid at a higher price than I

have paid you for it, becauseI’m being paid prevailing…MS. JURICH: Correct.

MR. BALL: That’s a prettysweet deal. Is it going to last?MS. JURICH: Not in Nevada. Solet’s talk about this and howwe can sort of resolve this.

When you look at the stud-ies, what happens is you actu-ally see that at our penetra-tion levels, when we put homesolar onto the grid, itstrengthens the grid. It savesmoney for all customers. Andmany of the studies, and all ofthe independent studies, haveshown that.

There is a utility trade groupthat just did a survey thatasked, “What should consumersbe compensated”—solar cus-tomers—“for energy that flowsback to the grid?” And 80%said, “At retail rate or higher.”

What happened in Nevada,the legislators said, “We wantthis thriving rooftop solar mar-ket. Come on in.” Then the util-ity commission said, “You knowwhat? We’re going to changethe rate on what we pay forcustomers’ power that flowsback to the grid. We’re going topay you two cents, two cents akilowatt-hour, for the powerthat flows back to the grid thatgoes to your neighbor. Butwe’re going to charge thatneighbor 12 cents.”

That’s what happenedthere. That will not stand thetest of time.

MR. BALL: Some say it isn’t fairfor people who are hooked upto the grid but have solar pan-els not to be paying somethingfor the maintenance of theelectrical grid.MR. WERNER: The challengehere is the economic model forelectricity was established along time ago, and wasn’t es-tablished to think you couldhave distributed generationthat made sense. So the eco-nomic model needs to change.

The Big Fight in SolarLynn Jurich and TomWerner discuss the futureand the battle in Nevada over net metering

JOURNAL REPORT | BUSINESS & ENERGY

long-term capital decisions.

MR. BALL: Doug, what is yourthinking on coal?MR. KIMMELMAN: There are bigswatches of this country thatare very comfortable with thecoal that they’re burning, andI don’t see that going away.

For us, the most profitableway [to make money fromcoal] is by cleaning it up, sowe built a large activated-car-bon facility in Louisiana thatremoves the mercury emis-sions from coal-fired powerplants. We also have a busi-ness that deals with removingnitrogen-oxide emissions. Car-bon capture has a long way togo. We aren’t investing in that.

MR. BALL: Let’s move on to re-newables. Some people in thisaudience will say renewablesare a charade and a money

loser. Others will say renew-ables have a viable possibilityof supplying all the world’selectricity and can be profit-able. Jeff, where do you stand?MR. HOLZSCHUH: Right in themiddle. Renewables are hereto stay. Having said that, thequestion has always been,“Without subsidies, are theyeconomic?” I think scale andlow-cost financing has madethem much more competitivethan they were even threeyears ago, and that will getbetter and better. I’m not a bigbeliever that the technologiesare at parity yet [with conven-tionally produced power], butthey are getting closer. I thinksolar will overtake wind overtime. It’s more ubiquitous. It’sgot better characteristics. Andthen, if we get storage, thesupply sector will grow evenmore dramatically.

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Jeffrey Holzschuh (left) and Douglas Kimmelman

they’ll come under the sameconstraints, I’m sure, that thedeveloped countries face now.

Here to stayMR. BALL: What are you tellinginvestors about the advisabil-ity of investing in coal assets?MR. HOLZSCHUH: There is nodoubt that there is a macrotrend toward cleaner genera-tion of energy.

But coal isn’t going any-where. It’s going to remain athird of the [energy] mix inthe world. In the developedcountries it’s dropping fairlydramatically and will continueto go down as plants getclosed and new build is allnatural gas and renewables. Sowe’re helping clients thinkthrough this as they make

kets versus developed mar-kets. But our view now is thatwhen something is clearly en-vironmentally hazardous, wearen’t going to participate.

MR. BALL: But you are going toparticipate in the developingworld, right?MR. HOLZSCHUH: Because thereare no other choices. Look, wefundamentally have to alloweconomies to continue to growand people to have standard ofliving. You can’t go to someplaces in the world and notburn fossil fuels. There justisn’t any economic alternative.And so there has to be someflexibility in that policy to beable to help those economies,governments and companiescontinue to grow. Over time

Jeffrey Holzschuh, thechairman of Morgan Stanley’sInstitutional Securities Group,and Douglas Kimmelman, se-nior partner at Energy Capi-tal Partners, move billions ofdollars through energy invest-ments around the world.

The veteran bankers satdown with Jeffrey Ball, a con-tributing editor at The WallStreet Journal, to discuss howthe energy picture is changingand where they are placingtheir bets.

Here are edited excerpts.

No alternativeMR. BALL: Is there really aglobal energy revolution goingon? And where are you puttingyour money now?MR. KIMMELMAN: I’m in pri-vate equity. We’ve raisedabout $13 billion from inves-tors, mainly public pensionplans. We invest that in en-ergy, largely in North America.

We don’t invest in [explora-tion and production]. We don’tlike the volatility around that.Our focus is in power genera-tion—fossil generation as wellas renewable generation—andmidstream business such aspipelines, gathering systemsand storage, which are fee-

based businesses that aremore dependent on the vol-ume of fossil-fuel movementsrather than the price. We’reinvolved in service businesses,things like constructing trans-mission lines, and we’re alsovery involved in the decom-missioning of nuclear plants.

MR. BALL: Jeff, Morgan Stanleyhas said it isn’t going to fi-nance strip mines or new coal-fired power plants in devel-oped markets. What motivatedthat decision?MR. HOLZSCHUH: Almost adozen years ago some in theenvironmental communitycame to Wall Street and said,“You guys can’t finance coal.”And actually, there was an in-credibly constructive outcomecalled the Carbon Principles,[a series of guidelines on fi-nancing electric-power proj-ects] that has gotten incre-mentally more stringent andmore defined over time.

We have an incredibly envi-ronmentally sensitive philoso-phy within Morgan Stanley. Onthe client side—and we coverevery industry and everycountry—there are going to bedifferences in those policies,depending on emerging mar-

Bankers Place Their EnergyBetsJeffrey Holzschuh and DouglasKimmelman on where theirinvestment billions are going

Lynn Jurich (left) with Tom Werner

VOICES FROM THE CONFERENCE‘We haven’t learned to produce [natural gas]at the price it sits right now, but we havelearned to produce it at a very low cost. Andso that demand is building. I think we’ll prob-ably be surprised when all that demand finallykicks in, when all that infrastructure gets builtout and the facilities built to consume all thatnatural gas actually get built out, we won’thave the rigs ready fast enough to get backand caught up.’

Alan S. Armstrong, President andChief Executive Officer, Williams Cos.

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