Tilting with Windmills

Connect turbines from wind alley to where people need the juice, and you could transform the American energy grid. Even get us to 50 percent renewables. That was Michael Skelly’s grand vision.

 

By Russell Gold

 

This is not a story with a happy ending — yet. It’s a tale of former Peace Corps Volunteer Michael Skelly (Costa Rica 85-87), who set out to build an interstate energy transmission superhighway system. Over a decade, the roadblocks proved immense. Here are excerpts from Superpower: One Man’s Quest to Transform American Energy by Russell Gold. 

 

When he was 25 years old, Michael Skelly felt directionless. 

He wrote a letter to his parents from Costa Rica, where he was wrapping up two years in the Peace Corps. “Time to start clipping fun articles about fun things to do with your life and sending them down my way.”

He had been sent to the small town of Golfito on the Pacific coast. United Fruit Co. built the city, once called Banana City, in the early twentieth century as headquarters of its country operations. An extensive labor strike led the company to leave Golfito in 1985. A couple of months later, Skelly arrived in town.

The region had “very serious economic and social difficulties,” noted the Peace Corps country head in a 1987 letter. There were few jobs and little bank credit. Skelly worked with an electricians cooperative to set up an inventory control system and a radio advertisement campaign. But he spent most of his time working with the town’s fishermen.

In letters home, he complained about not having enough to read and the challenge of developing a workable business model. “Gotta figure out a new way for these fishermen to sell their fish,” he wrote. There was only one buyer in the capital and “he’s got these guys over a barrel, always, as they say here, playing games with the prices.” He worked on a microcredit programs to help the fishermen start businesses to get their catch to nearby markets. “I didn’t know much about fish or like running microcredit programs, but you sort of figure it out,” he said years later.

One lesson that Skelly took from his time in Costa Rica was the importance and influence of money. In 1989, he decided that if businesses were central to the operations of the world, he should understand how they worked. He enrolled at Harvard Business School. As he neared finishing his degree, Skelly decided he wanted to have a more interesting job than any of classmates. His wife, Anne Whitlock, has a slightly different memory. She said his objective was to find a job where he didn’t have to wear a suit and tie to the interview.

 

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Twenty-two years later, in early 2009, he felt directionless again. He was in good health and energetic. He and Anne had three children who were all in middle and high school. He had spent the previous few years as the chief developer of a pioneering wind farm development company. Then he had made a quixotic, and nearly successful, run for Congress as a Democrat in a heavily Republican district in west Houston.

He angled for a job in Barack Obama’s incoming administration, hoping to be the assistant secretary in charge of renewable energy. He imagined himself as an idealistic bureaucrat with a $1 billion budget. Why not? He had built about twenty wind farms that produced more than five million megawatt hours of power a year. To put that into perspective, it was more power than that generated by a handful of smaller nuclear power plants. Washington did not welcome Skelly with open arms. It was, he later said, a “truly humbling experience.” 

Back in Houston, he took some meetings about developing more wind. People were willing to back him, but the prospect left him unenthusiastic. He wanted to move forward. He was starting to think and talk about climate change. He was plagued by the thought that all his work building wind farms wouldn’t make a difference for the climate. “How are we ever going to move the needle on renewable energy?” Skelly wondered. At the time, solar was expensive and a niche product, an accessory for the wealthy and environmentally minded. It provided one-fiftieth of one percent of the electricity in the United States in 2009. Wind, a bit more mainstream, generated a bit less than 2 percent of the electricity in the United States. Skelly knew increasing that figure would be difficult.

 

The U.S. Energy Department issued a report titled 20 Percent Wind Energy by 2030. The agency concluded this was doable, but would require $20 billion for several thousand miles of new wires. 

 

A few months earlier, the U.S. Energy Department issued a report on renewable energy. It was titled 20 Percent Wind Energy by 2030. The agency concluded this was doable, but would require $20 billion for several thousand miles of new wires to move the electrons from where it was windy to where people used a lot of electricity. 

The government report produced a map of where new transmission lines would be needed. In bright red, the largest cluster of new lines was centered in the thin sliver of the Oklahoma panhandle, heading eastward into Mississippi and Arkansas. The report stated: “If the considerable wind resources of the United States are to be utilized, a significant amount of new transmission will be required.” Who would pay for it? The report was silent on this question.


The Power Lines We Need

All new electricity generation — including wind energy — would require massive expansion by 2030.

From 20 Percent Wind Energy by 2030


 

Every generation or so, the country goes on an infrastructure-building spree to accommodate new forms of energy. Maybe it was wind’s turn. Suedeen G. Kelly, a member of the Federal Energy Regulatory Commission, thought so. “We need an interstate transmission superhighway system,” she told a reporter a month after the Energy Department report. The quote was in an article that described a wind farm called Maple Ridge in upstate New York that sometimes had to shut down even when there was a brisk wind blowing because of congestion on the grid. Skelly knew all about that wind farm. He had built it.

The idea of a transmission superhighway system was the kind of grand vision that appealed to Skelly. It was the kind of thing that America once excelled at. The U.S. government and American companies had built the interstate highway system, the Hoover Dam, and the Panama Canal. Skelly loved these projects. He read books about them. The more he thought about it, the more he came to believe that the modern equivalent was a new and improved grid. It was certainly a needle mover, Skelly thought.

As the year wore on, Skelly felt himself sinking into a funk. He was thinking a lot about climate, but found it depressing. “People think that inspiration comes from, like, you’re sitting around and you’re happy about something and this great idea pops into your head. I think the opposite is true.” Wallowing and worry were his sources of inspiration. “From despondency comes inspiration, not from giddy happiness,” he said. 

From Skelly’s despondency came his desire to build transmission lines. They would begin in the Great Plains, that large airshaft in the middle of the country where the wind blew consistently and the wind speeds were strong. The lines would carry the renewable energy to where people lived. There was one large problem: He wasn’t sure that a private start-up could build an interstate transmission line. Giant utility companies typically built them. They had authority to condemn property, if needed, to route these lines. And the companies didn’t risk their money. The state utility commissions guaranteed them a return on the billions of dollars they invested. Could a private company accomplish such an undertaking?

Maybe. It was hard to say. No one had really ever tried. Skelly figured someone had to test the idea to see if a private company could build a big interstate transmission line. Why shouldn’t it be him? He figured someone would give him money to try because of his earlier wind success. And he would be building something challenging again. Skelly thought it sounded like fun.

If he could build a large transmission line to connect the windy and sunny parts of the country to the cities, renewable energy would take off. And if he could make money doing it, this would beget more investments and more renewable energy. If he could figure out how to do it, others would follow.

 

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Work on the new company began in what Skelly called the “Casita,” the little house. It was a romantic description of the garage apartment behind his home in the West University neighborhood. Skelly wanted to build something enormous — a power line that stretched across three states, held aloft by 150-foot-tall towers. But the small apartment was large enough to work on pitch decks and financial models. Skelly’s first recruit, Jimmy Glotfelty, required little convincing. At a family-run restaurant, Skelly explained his idea over a Tex-Mex breakfast. 

“Wow,” Glotfelty responded. “I’ve always wanted to start a transmission company.” He had tried something similar, but less ambitious, a few years earlier. He lacked Skelly’s entrepreneurial chops. “I was a government guy and I had a really hard time figuring out the business side of things,” he admitted.

A native of San Antonio, Glotfelty joined the administration of Governor George W. Bush in the mid-1990s when he was a few years out of college. He was assigned to work on deregulating the state’s electrical market. When Bush went to Washington as the forty-third president, Glotfelty followed and took an appointment at the Department of Energy.

Over the years, Glotfelty had developed a good idea of how the power grid worked and didn’t work. He was on vacation in the Santa Fe National Forest in 2003 when a blackout rippled across the Northeast United States, leaving 50 million people in the dark. He worked for days from a phone booth, the only working phone for miles, to coordinate the government response and investigate what went wrong.

In 2003  a blackout rippled across the Northeast United States, leaving 50 million people in the dark. But there was ample power to the South and West.

This experience had opened his eyes. The Northeast United States had been dark, but there was ample power to the South and West. It didn’t take an electrical engineer to see how a better-networked grid could have helped. After the blackout, he had participated in a brainstorming session at the Energy Department about a “National Electricity Backbone”: building large transmission lines that would move power around from region to region. The idea sparked his imagination.

At the breakfast, Glotfelty explained to Skelly that at the DOE he had championed a way to attract private sector money to invest in this backbone. After he left Washington, the idea had made it into law as Section 1222 of the Energy Policy Act of 2005.

The federal government could partner with a private company to build interstate transmission. It was a way to modernize the grid without spending too much taxpayer money. The government would identify areas in need of transmission investment. The private company brought the money, and the federal government brought the power of eminent domain.

By the time breakfast was over, Glotfelty was ready to leave his job as a consultant and sign up with the new company. It could be a business that would make the U.S. power grid better, cleaner, more affordable, and more reliable. Glotflety started driving over to the Casita on Sunday afternoons to figure out how it would work.

Skelly was going to be the chief executive and visionary-in-chief. Glotfelty would figure out how to negotiate the byzantine state and federal regulatory pathways. What was needed was an actual developer, someone to focus on project minutiae. A month after his breakfast with Jimmy Glotfelty, Skelly had lunch with Mario Hurtado, an Ivy League–educated energy developer who had built hydropower dams in Latin America and consulted on liquefied natural gas terminals.

As they ate at a Thai restaurant a little north of Skelly’s house, Hurtado asked Skelly what he was doing. Skelly started talking about the project. Hurtado said he was interested. He had spent nearly two decades inside corporations and wanted to work somewhere smaller and more entrepreneurial.

He liked Skelly’s ideas. “Michael really had the vision of where wind was going to go and why transmission was the bridge to get there,” he said. Before Hurtado and Glotfelty left their regular paychecks, Skelly convened a meeting of the three men and their wives.

Anne Whitlock says it was important for everyone to know what they were getting into before they got too swept up in the excitement. Skelly was pitching and, she says, when he starts pitching he has a way of getting people to sign on to his vision. “Even if you have doubts, you think, maybe we can pull it off,” she said. But she wanted everyone to have open eyes.

“It is a start-up and it is very risky. Our funding stream could disappear,” she said. Anne had watched Skelly help build up the wind company. There was luck and hard work involved. Nothing was guaranteed, and it would take several years before the project had any hope of being built. And the forces arrayed against the project could be considerable. No one had second thoughts. Glotfelty and Hurtado both decided to give it a shot and together with Skelly, they built the new enterprise.

After a few weeks at the garage apartment, Skelly moved into a borrowed conference room in a downtown office that belonged to Michael Zilkha. Michael and Selim Zilkha had funded the wind company, and Skelly’s success building wind farms had made them a considerable sum. Moving into a real office was important, Skelly said, because it was a much better place to raise money. “The best way to raise money is to look like you don’t need it,” he said.

Eventually, Skelly pitched the Zilkhas — father and son — on becoming the first investors in what the three cofounders called Clean Line Energy Partners. Skelly talked for twenty minutes about his vision for the company before Selim Zilkha interrupted him. He said he appreciated all that Skelly had done at Zilkha Renewable to make the company successful. But he was not interested. “This is folly. It’s not the money, it’s just I don’t want to encourage you,” he said. Skelly wasn’t daunted by the warning. He was in thrall to a big idea that had gotten him out of his funk. There would be other investors.

Even after passing on backing the company, the Zilkhas told Skelly he was welcome to continue using the office space. To keep things going, Skelly began to bankroll the project. He sank hundreds of thousands of dollars into the effort, paying for studies and interconnection requests. He eventually funded payroll. To save money, the company reused leftover campaign stationery. Early Clean Line documents often had a purple “Skelly for Congress” logo on the back.

He talked about the transmission lines they planned to build as “renewable energy pipelines.”

Skelly pitched more investors in the summer of 2009. Skelly shared his idea with Goldman Sachs as well as other investment banks and private equity companies. He talked about the transmission lines they planned to build as “renewable energy pipelines” — using the language of oil and gas that would be familiar to investors — that would connect “quality renewable resources and energy demand centers.” Developing and permitting the line would take $50 million, but they only sought half of that to get moving. Once approved, it would cost $3.5 billion to build.

Most of the early pitches didn’t end well. Investors were afraid because no one had built anything like this before. Some meetings went very poorly. In San Francisco, Skelly met with representatives from the Texas Pacific Group, a large private equity firm. As Skelly walked them through the pitch, the prospective investors ate catered sandwiches. Over thirty minutes, Skelly explained how the price difference between the cost of generating wind and the price in eastern markets was high enough to more than cover the cost of long-haul transmission. As he finished the pitch, he sat down at the long conference table. The investors thanked him and excused themselves. “They left me to finish my lunch by myself,” Skelly said.

At one meeting at the Four Seasons Hotel in downtown Houston with representatives of the Ziff family, a young company intern named Charlie Ary handed Skelly a printout of the pitch deck. As Skelly passed it to Ziff representatives Bryan Begley and Neil Wallack, Ary saw a flash of purple. “My heart sank,” he remembered. Each page of the investor slides had “Skelly for Congress” printed on the back. Ary was mortified and it showed.

Begley leaned over to Ary. “This is your first business meeting, isn’t it,” he asked. It was, Ary admitted. Then Skelly jumped in. We’re a lean start-up. We got a free intern and we recycle old paper. We’re not going to waste the investors’ money, he told them.

It was an awkward start, but the Four Seasons meeting brought Skelly together with Clean Line’s first financial backers. In November 2009, Ziff’s investment vehicles put $25 million into Clean Line. By this time, Skelly estimated he had put in $1 million of his own money.

There was a lot that Skelly couldn’t put in the pitch deck. Like how he believed life was at its richest when you did things that were big and bold and challenging. “If you are motivated by that stuff, it doesn’t have to work for it to be worth it,” he said. “If you’re an investor, that’s probably not a great answer… But what else are you going to do other than the stuff you believe in that is arguably important?” 

By the end of the year, Clean Line was a real company. It had money and a plan. It even had an office, in the same building but a few floors below the Zilkhas’. Appropriately enough, given the mission, a clutch of electrical wires hung from the unfinished drop ceiling in their conference room when the company moved in.

 


From Superpower written by Russell Gold. Copyright© 2019 by Russell Gold. Reprinted by permission of Simon and Schuster, Inc. All rights reserved. Russell Gold is senior energy reporter for the Wall Street Journal.

This excerpt was published in WorldView magazine's Spring 2020 edition.