Podcast transcript: How just transition helps a fossil fuel reliant local economy community

Bruno Sarda

Well, hello, I'm Bruno Sarda. Welcome to the EY Sustainability Matters podcast, our regular look at ESG and sustainability topics, and how they impact businesses around the globe. And in this episode, we're going to talk about the just transition and the importance of considering the impact the transition to a clean energy future has on the people, communities and regions dependent on the fossil fuel industry. While the push to accelerate decarbonization efforts is integral to mitigate the worst impacts of climate change, there are significant impacts to the local economies whose job base is tied to conventional energy sources, and where often low-income communities, or communities of color might be disproportionately affected.

So, how can we move toward a net zero carbon future and still ensure that workers, businesses and communities that are impacted aren't left behind as a result of the energy transition and get to fully participate in this sustainable energy future. Joining me to discuss this topic is my colleague Shannon Roberts, partner Ernst & Young LLP at EY, who leads Power and Utilities for our Climate Change and Sustainability Services practice in the US, and we're delighted to welcome our distinguished guest for today's episode, Sandy Nessing, Vice President and Chief Sustainability Officer for American Electric Power, commonly referred to as AEP. And we're grateful to have Sandy with us to talk about how AEP's been modelling the way in this domain with the development of their just transition strategy, which provides a framework and resources to support and empower communities as they prepare for power plant retirements. I look forward to hearing more about the great partnership and collaborative effort AEP has undertaken with their workers and their communities in which they operate. So, thanks for joining us, Sandy and Shannon. Over to you.

Shannon Roberts

Yes, thank you so much, Sandy, for joining us. I'm just as excited to hear about AEP's story, considering the social impacts like workforce, repositioning and health and community resiliency in driving a just transition. At EY, we are supporting numerous clients measure their green house gas (GHG) inventories, set carbon reduction goals and targets, assess climate risk and design their decarbonization strategies in order to meet current market expectations and comply with evolving regulations across the globe. These companies want to invest in renewables that are socially responsible in maintaining or enhancing the health of communities through the energy transition, whether that’s by improving local workforce or environmental conditions. So, with that said, Sandy, for those unfamiliar with the just transition, can you explain what it is and why it is important?

Sandy Nessing

Yes, absolutely, and first thanks, it's great to be here. The way that we look at the just transition at AEP is that it is the socio-economic effect of the energy transition. Industry transitions are not a new thing, right, we've seen it before in multiple sectors. But what's different here, I think, is the real focus on the plant being the anchors, the people, the communities and the local economies that are impacted when those plants retire. Most often, we think about carbon, and we think about renewables when we think about climate change. But we forget about the people sometimes, and the impact of making those changes and that transition, and what that has on those people and those communities. Our economy is so fossil fuel dependent, so decoupling is extremely hard, and it has to be done thoughtfully or we risk severe social and economic consequences. It's about not leaving people behind. That's really what it's about. It's also, for us, a critical risk mitigation strategy, right, to avert the loss of population and to help communities plan for that loss of tax revenue that will occur when plants retire. We are not in a position to write a blank cheque to fill that void when that plant is gone, so what we're doing is working with our communities to help build capacity, so that they own their own future and can bring it forward in a sustainable way over the long-term, right, that's what we're trying to do here.

Roberts

No, fantastic, Sandy. I appreciate that you all are acknowledging these impacts but really thinking about the ways to integrate yourselves and enable that community for resiliency moving forward.

Nessing

No, I was just going to say, you know, power plants, these coal plants are, I said they're anchors, but there's an ecosystem around them, right? So, they are usually the highest taxpayer, they have the highest paying jobs, their workforce is embedded in the community through volunterism participating in civic organizations, in the faith-based community. There's a tremendous impact. There's also a supply chain that springs up to support the plant as well. So, I like to think of it as you throw a stone into a pond and you see the ripple effect and that's what you see with a power plant, and that's what we're looking at, is all of those ripples that go away from the plant. And it's all about the people and the communities.

Roberts

Wow, very, very well said. I appreciate that analogy very much. Well, we're aware that AEP has set ambitious climate goals, including reducing carbon emissions by 80% by year 2030, and to be net zero emissions by 2045. Could you talk about some of the work you have led at AEP to make sure your organization achieves these climate ambitions, while addressing the just transition for the workforce and communities you are impacting in needed plant decommissionings and new technology construction and implementation?

Nessing

Yes, so, it's a big strategy, right, and the just transition is a piece of it. So, of course, there's the clean energy piece of this, and the investments in renewables and grid modernization. You need to modernize the grid to enable all of the technologies, all of this renewable energy that's coming onto the grid. You know, the electric utility sector is eventually going to take the place of other things. So, you won't go to the gas station to fill up your car, you're going to plug it in, either when you arrive at the office or when you arrive at home, right. So, it's things like that. And so, we're preparing for that. So, it's a bigger, broader strategy. But from a just transition perspective, you know, we did an economic impact analysis as we were preparing our last climate report and I'll tell you, I've been fascinated with the just transition, what it is, what the approach is, what the outcomes can be, and so I've been doing a lot of research for the last few years, and we did a TCFD (Taskforce on Climate-Related Financial Disclosures) report, so as part of putting all of that together. I formed a sub-group to look specifically at the just transition and how we might adopt a different approach going forward. Because we've already retired more than 13,000 megawatts of coal-fired generation and we did it really, really well. We took care of our people. We did the best we could in communities.

This is just a little bit of a different approach in that it is more directly collaborative within the community. That's the difference between what we did before and what we're doing now. So, as part of this process, we did an economic analysis. What is the true impact of a coal fire power plant on a region? And we looked at three of our power plants and kind of did an average of the three, and this is what a typical impact would be, and of course, it would change based on geography, size of the plant, etc. But typically, coal plants generate US$160 million in regional economic activity, US$63 million in labor income. It supports more than 700 regional jobs, and this is on an annual basis, and each direct job at a power plant supports another 2.3 jobs in the local economy, in the regional economy.

So, it's a pretty significant impact, and these are all communities where we live and work as well. And so, you know, we're never going to shut the lights literally and walk out the door and say, "see ya", that's not who we are as a company, number one. But we really wanted to help those communities build that capacity, understand what their priorities are, and be a partner to them, right? Again, no blank cheque, but we can partner and bring resources to bear and that's what we did in this case. So, you know, talking a little bit about the Pirkey Plant. The Pirkey Plant is located in East Texas. It affects two communities and one of our operating companies said, “let's pilot this at this plant, because it's retiring in two years.” So, it just retired, at the beginning of April 2023. So, we said that's fabulous, now we need a partner to work with. I had been, through my research, looking at some of the work that the Just Transition Fund was doing. They're a non-profit.

They're an NGO and their sole purpose is helping coal communities transition away from coal. And I was very fascinated by that because it's very specific. It's not broad, it's not looking at coal and other things, it's really focused on coal communities, and that's where we are. Coal is the identity in a lot of places, that's their identity because think about West Virginia, Kentucky, that's the heart of coal country, right? So, that's their identity and how do you transition away from that when that's what you've known for generations? And so, very fascinated with their work. They have a toolkit that is really phenomenal and it's publicly available on their website for communities to start thinking. So, they look at it from the community perspective. That was also very attractive to us. So, I reached out to them. I didn't know, do they work with utilities? I really was just trying to learn a little bit more. But as we got to know each other better, I thought “wow, wouldn't they be a great partner”, and I asked them outright, if they would consider working with AEP. We had this plant in East Texas and we'd like to pilot this approach and they were all in. So, that was fabulous. Having them at the table allowed us to be a participant, not leading the process. They came in as conveners and facilitators and a project manager.

They're urban planners, so they brought a lot of expertise and knowledge to the table to help these communities really think about what the future could be, and we formed a community transition task force and they helped us to do that. I will tell you that the most critical aspect of making this work and be successful is the relationships that you have in the communities, right? So, our operating company and the plant had fabulous, fabulous relationships, really strong ties to the community. They were able to form the initial group of the taskforce to start building from there, and then Just Transition Fund came in and challenged us, and said, "Who’s missing from the table? What voices are we not hearing from?" And they constantly challenged us, which was excellent, because we didn't know what we didn't know, and ultimately, we had more than two dozen community leaders ranging from chambers to economic development corporations, to school superintendents, we had a judge, because in Texas, judges are pretty powerful. So, that was really awesome. Mayors we had, it was a really, really great team. But we needed to go deeper than that. And so, they were able to help us bring additional people to the table who would be affected. One school district alone faced an impact of about US$2 million a year.

That's a lot for a small town, for a community, no matter the size. US$2 million is a big hole. So, one of the things that the Just Transition Fund helps communities to do is to identify, ok, if you have a grant from the state or federal government, does it rely upon matching funds, and do those funds come from tax revenues from the plant? So, taking it all the way through and pulling that thread all the way through. And they had not even thought about that. When we first approached these community leaders and got them together, they had no idea what the impact was. They had heard the plant was closing, but they had no idea, until we actually sat down and shared the numbers, and really talked about all the work that we had done and what we had learned. They thought the Just Transition Fund was a consultant that we had brought in to tell them what to do, and they were pleasantly surprised that it was all collaboration, and really driven by the communities. And so, it was a really fantastic experience. The Just Transition Fund gave us six months of their time and we met every two weeks, which is a huge commitment when you think about the level of, you know, you had school superintendents and mayors you've got that level of people who are participating in this process and they were there every two weeks on the Phone.

What we did initially was, what are your priorities, what's important to you? And that was eye-opening for us, because their number one priority was to keep people local. That's really important to them. If they lose population, that also affects other tax revenue, grants and things that are out there. And people really wanted to stay in those communities. So, that was number one and of course, taxes and jobs. But the other thing that really surprised us was their interest in the cooling reservoir that is used at the power plant, because it is wildly popular as a fishing hole. You know, everybody goes fishing there, and we had not realized just what a valuable community asset that that was, and ultimately what we have done is, we're preserving that lake and preserving it for the community for at least the next ten years. And we looked at how can we get other funding to help the communities actually take control of it. We couldn't. We said, you know what, let's just do it, and that's what we did. The other really good story, as we were doing this community piece, we also had an internal transition taskforce in place, and that's the HR team leading with the workforce. There was a lot of outreach and job training programs, job fairs, resume writing and really just helping people to figure out what it is they wanted to do.  And I will say, at the end, when the plant retired, 90% of the employees at the plant had a job within AEP, or they were able and decided to retire. Four of those employees went to work at our largest wind facility in Oklahoma. So, four coal plant workers went to work at a wind farm.  So, you know, it's just a huge success story. There is life after coal, and the work never stops, right. So, there's still a lot to be done, but it's a great success story. It's a great model for us. It's not going to be that easy or maybe even that successful everywhere we go, but we have something now and that was the whole idea behind what we did.

Roberts

Wow, Sandy, what a great story about how to approach the just transition. You all should be very proud of really how you were so intentional of thinking ahead of the decommissioning and really focusing in on what the community and social impacts of the Pirkey Plant decommissioning would be, and being so intentional about focusing on that workforce and community health through that process and setting them up for long-term resiliency. So, bravo. Really, really impressive. It sounds like partnerships were such an important part of that story of really bridging the gap between AEP and the local community. I know you talked about the just transition but any other key stakeholder partnerships that you found important to that success story?

Nessing

Yes, absolutely. My internal partners were critical to this. So, working with the operating company and the plant manager, and really staying in touch with each other and sharing information. So, what we ended up doing was forming an internal task force that combined both the community and the HR piece of it, so that we were sharing information. So, we were actually meeting every week, and the intent of that was so that we could come back to the community with information or data that was relevant, that they needed, and we were actually contributing to what eventually, became a high- level, economic diversification plan. So, that was the outcome after six months.

It was this strategic plan that they are now carrying forward. But the partnerships with the operating company and the plant were really critical, and then their relationships and partnerships in the community were essential to the success of this, and we learned so much to the point where there were other people in the generation group who were calling and saying, "Should we be asking this question? Wow, we hadn't thought about that," and the cooling reservoir’s a great example of how we had not thought about something like that. Historically, when we retired a plant, we would think about it in terms of the whole package, right, all the steel on the ground, the landfill, the ash ponds, and then there's the substation next to it. So, we’d think about that as a package, never really thinking about well, can we carve something out if it's really important to the community, and so, that was a first for us. The wrinkle in this was that there is a coal mine, a lignite mine that is adjacent to the plant, and the plant was its only customer. So, not only did we have our employees and workforce impacted, but we also had the coal mining employees impacted. And so, we made an intentional decision to bring them in and loop them in on everything that we were doing.

So, we couldn't bring them into the plan, because obviously they were running the operations at the coal mine, but if we did a job fair at the plant, we then brought it to the coal mine. We worked with their company’s HR team to craft the severance package to help soften that blow as much as we could. There were a lot of reasons why that plant had to be retired and, you know, there was anger, why are you retiring this, there's still a lot of useful life left in this plant. But economically, and for other reasons, it just wasn't possible to keep doing that. So that was very challenging.  But you know what? They became a partner, and we invited them to be part of the transition taskforce, and they showed up at every meeting. They came to the community meetings, so we did some visioning, then we did community outreach, and then we worked on that strategic plan for them. So that was definitely, a challenge. It was also hard for us, some lessons learned and the partnerships. Now I know who the go-to people are, right? [LAUGHS] I didn't know who the go-to people were to get things, like, OK, I need a list of all the job titles, descriptions and pay ranges, because that's going to tell us what the true impact is from a labor perspective, and also, what kinds of jobs are we looking for for people. So, getting that kind of information. What are the taxes that we pay? Well, the plant itself is retired, but the substation is still there, so we're still paying taxes on the substation, for example. So, you don't want to lump everything together. So, there were a lot of lessons learned, but it was our internal partners as well as the community partners, that we collaborated with and that's really what the sweet spot was, it was the collaboration, I think at first there was some suspicion, what is AEP, are they trying to tell us what to do? But one of the economic development corporations actually wrote a testimonial.

They did it for the Just Transition Fund, but they shared it with us, and in that testimonial, they wrote about how they were completely in the dark about the impact of that plant retirement, and how suspicious they were about AEP bringing the Just Transition Fund to the table and that we were just going to tell them what they had to do. But what ended up happening is, they were so grateful for that, and what ended up happening is once we finished our work there for that process, they reformed another group and decided what it is they need as communities and a region to attract jobs and grow their local economies. They need a skilled workforce, that's what they need. And so, they opted to focus their efforts on making sure that they have a skilled workforce for the employers who are there, and for those that they may want to attract in the future. And so, that's what they are really focused on. They've already secured a lot of federal dollars for job training programs, they secured grants for equipment in the local school districts. So, they're having this amazing impact and he said, you know, we started as, like, three of us and now it's over a hundred, and he said the best part is, people left their silo at the door and now it's all collaboration, and they're looking it in a holistic way and working that way rather than, you know, this is my community and I want this, and I need that, but they're doing it together. And because they're doing that, I really believe they're going to be really successful as they develop this skilled workforce. It's giving them something to market from an economic development perspective, and they're thrilled and, and again, lots of work to be done, but they got a great start.

Roberts

Wow, what a story and something to be so proud of how you've left that community to be able to drive forward. Maybe could you talk a little bit about why was it important for AEP to take this just transition approach, and I think you touched on a little bit of how your operational and leadership partners really started to understand

and ask some of these questions, but could you revisit maybe the importance for this and how you're thinking about using it moving forward for AEP through the energy transition.

Nessing

Yes, absolutely. You know, we live in and work in these communities. So, it's not just the people. These people mean a lot to us and when these communities are strong and vibrant, and they do well, we do well. It's just good business. I remember presenting this idea to the executive management team and I positioned it as a risk management strategy, and they absolutely loved it, but they really loved the idea of the collaboration and the real focus on people. It's that social piece, right, and we bring our economic development team to the table, but that's just a piece of it. And so, our operating company continues to work in those communities and partner with them and help them to advance that process. But it's about the health of the community and its local economy. That's really important to us. We don't want people to move away, we want to keep people there, right, because if they lose people, we lose a load and they lose other things. They lose the people, they lose the taxes, they lose all the other things that those people contribute to the community and it just was really important to us.

We're very committed to volunteerism, philanthropic giving, you know. We're looking at ways that we can make communities stronger and better all the time and even addressing basic human needs, and sometimes, that's what you're talking about. One of those communities had some environmental justice aspects to it. So, we had to take those things into consideration, and it was great. I loved it. It's about going to meet people where they are and not having them come to you. I worked in the background because nobody knows me out in the field, out in those communities. I'm not the face of anything, but I worked in the background to really coordinate and make sure that we were coming to the table, we had what we needed, they had what they needed, and I really truly think that's why, for six months, the dedication to coming to the table every two weeks, sometimes for two hours at a time, to talk through and develop their strategy, I think that's why we were so successful. And I think that's really important. What I'm excited about is, because of the work that we've done at the Pirkey Plant in Texas, and because we now have a really good understanding of what this looks like on the ground, in our service territory, I've been able to hire a new manager of energy transition, and she is totally focused on just transition and environmental and social justice, because they're two sides of the same coin. And so, totally focused on that. So, we're really, really excited. A lot of companies start out by writing some principles and what they believe in terms of just transition. I kind of went around that and jumped right into the work. So, now we're taking a little bit of a step back and developing those principles and that framework for how we're going to do it, and also metrics.

How are we going to measure success? Because that's really important as well. We documented everything that we did and developed a playbook. It's very kind of basic, right. I mean, it's like just a how -to of each step along the way, the types of data you need to collect and what communities need to do. So, we have that as a foundation. We also created a website as a way to chronicle the journey of each plant and our entire energy transition, and also a way to communicate with those communities and leverage the cross communication that occurred. So, as soon as we had that up and running, the community organizations were linking to it, we were linking back, and we put out information there. We put the Just Transition Fund toolkit out there, like, here you go, here's a great way to start thinking about things, but we also had a podcast that had been recorded with some of our senior executives explaining the why. Why are we going through this transition? Why are we retiring coal plants? And really, you know, the basics about what that is, and we are, like I said, chronicling the journey.

So, there's a page on there just for the Pirkey Plant and one of the things that we're in the process of, we just updated that site, we're adding some history, because we don't want to forget where we came from, right. I mean, our history, you know, it's kind of like a nod to the past and looking and embracing the future, and you don't want to forget that history, because those power plants were critical to the economic success we enjoy as a nation today. And so, we don't want to just, you know, sweep it under the rug. So, we are looking at how we can do that on that website as well. So, that website is AEPcommunitytransition.com, and everything is out there. We even list who was on the taskforce and some of the collateral material, the presentations, all of that stuff is out there. So, we're trying to be really transparent about it at the same time.

Roberts

Thank you, Sandy for that. I know I've visited that website and really, really do appreciate the transparency, really explaining the business value that goes with this transition that you're going through and the focus on the just transition aspects, and also the resources are just really incredible to help others in thinking about how they need and should approach this as well as we all embark on this big transition together through decarbonization. So, thank you, Sandy. So, maybe with that, maybe one last question for you. You know, for other companies who are beginning to make this transition, what are your top key learnings to leave them with?

Nessing

Start early, right. You know, the more time you have, the better. We didn't have a lot of time with the Pirkey Plant, so less than two years. That's not a lot of time. But the earlier that you can start, the better. So, one of the next plants we're working on starting this summer, doesn't retire until 2028. So, that gives those employees, if they want to go and get a new certification or a degree, or something different, they have time to do that, and AEP will pay for them to be able to do that. So, starting early, and also, making sure you've got those relationships and you're communicating. Those things are really, really important. And also for economic development, it takes time. You don't just, you know, put an ad and say, come to Hallsville, Texas. There’s work that goes behind that. They're doing in that community to build the skilled workforce and that takes time as well. I think data is critical to getting it right. You need a lot of information. You have to know what really is at stake and what isn't, because it's easy to just put it all together and it's a very big number. The economic impact analysis we did at the beginning stood up. Because the impact for this plant was about US$150 million in economic and regional activity. So, that stood the test of the time, if you will. So, knowing that, having the data and knowing what's really at stake.

Do you have all the voices at the table? I think that's really important. You've got to make sure that you're hitting every organization and community. It could be a disadvantaged community. Understand what you're dealing with there and make sure that their voices are heard. I would say it's not a once-and-done. You know, it's something that you continually work at and engage on, because you want to keep that transition moving in the right direction. We did not just walk away; we remain engaged to this day and will continue to be. In fact, when we were working with the taskforce to put together that economic diversification plan, we met at the plant. The internal team did, and said, ok, what are some goals that we can commit to and add to that plan? And that's what we did. We added some commitments from the operating company, of things that they could and would be doing. So, we were part of that and we're now accountable for those things. Those are some of the key lessons and I would say talk to anybody who's been through it. You know, it could be somebody in a different sector, it could be somebody who's on the ground doing the work — learn from what others have done before you because that is extremely helpful.

Roberts

Well, wow. Thank you so much, Sandy. I know this story is so powerful. It just really speaks to the importance of understanding all of your stakeholders and thinking about all of the impacts that you have and doing the right thing because it makes business sense. So, thank you so much for your time today and your story. I know it's going to be powerful for everyone to learn from you all and especially, appreciate all of the things that you've put on the internet about AEP's just transition story and all of the resources you've made available. I know everyone will be logging in after this and we thank you for that because that's what this is all about, we're all here to do this together. So, thank you.

Nessing

Thank you for the opportunity to share that story.

Sarda

Well, Sandy, Shannon, thanks so much for this meaningful discussion and giving us, I think, a real insight into this important topic, the social-economic impact of the clean energy transition but also the levers, the partners available, as communities face these transitions. It was terrific to hear of the great work and collaborative effort AEP undertook in the communities in which you operate. I think these stories of success can provide hope, but also frankly, a blueprint for others as they embark on this journey in their own communities and their sectors for everyone else. Thank you for listening. If you enjoyed this episode of Sustainability Matters, please check out previous episodes on ey.com or wherever you get your podcasts. And we'd love for you to subscribe. Ratings, reviews and comments are also very welcome, and please visit ey.com, where you'll find a wide range of related and interesting articles that will help us, put these bigger topics in the context of your business priorities. We look forward to welcoming you on the next episode of Sustainability Matters. Again, my name is Bruno Sarda. You can find me on LinkedIn and feel free to connect with me there. Thanks so much for listening.