WEBVTT - The Utilities Analyst Who Says the Data Center Demand Story Doesn't Add Up 0:00:02.720 --> 0:00:14.080 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:18.360 --> 0:00:21.200 Hello and welcome to another episode of the ath Thoughts Podcast. 0:00:21.320 --> 0:00:22.640 I'm Tracy Alloway. 0:00:22.360 --> 0:00:23.600 And I'm Joe Wisenthal. 0:00:24.000 --> 0:00:27.800 Joe, imagine you are a utilities analyst. 0:00:27.960 --> 0:00:28.200 Yeah. 0:00:28.400 --> 0:00:31.640 Fun, and for years you are laboring in the utility 0:00:31.680 --> 0:00:35.680 analysis mind. Yeah, and you know, we like talking about utilities, 0:00:35.680 --> 0:00:38.960 We like talking about energy. We find pretty much anything interesting, 0:00:39.040 --> 0:00:43.240 that's right, equal opportunity interest people we are. But yes, 0:00:43.520 --> 0:00:46.160 you got to say utilities. For a while, some people 0:00:46.200 --> 0:00:46.760 would say it was a. 0:00:46.720 --> 0:00:49.440 Little POORI no, that's right. I mean for most of 0:00:49.479 --> 0:00:53.600 our careers. I think if you were utilities analyst, a 0:00:53.720 --> 0:00:57.480 really big part of your job. And maybe I'm wrong, 0:00:57.720 --> 0:01:00.600 but I just didn't the popular discourse was like talking 0:01:00.640 --> 0:01:03.480 about yield relative to treasuries. Right, they were seeing a 0:01:03.600 --> 0:01:06.640 sort of bond like instruments, et cetera. Maybe a little 0:01:06.680 --> 0:01:08.119 bit of growth, but real. 0:01:08.120 --> 0:01:11.720 Reliable, safe haven ish dividend plays. 0:01:11.760 --> 0:01:13.840 I guess totally. And since I know where we're going 0:01:13.880 --> 0:01:17.039 with this conversation, one of the themes of the last 0:01:17.120 --> 0:01:21.600 few years has been what I would say is the 0:01:21.640 --> 0:01:25.760 old industries that were either stable or cyclical becoming secular 0:01:25.920 --> 0:01:26.640 in the way they grow. 0:01:27.319 --> 0:01:29.880 I think that's right. So what is happening now is 0:01:30.120 --> 0:01:32.000 if you were I don't want to say, a lowly 0:01:32.200 --> 0:01:35.240 utilities analyst, but you know, maybe a sort of forgotten 0:01:35.360 --> 0:01:39.120 utilities analyst outside of your sector, suddenly you are very 0:01:39.200 --> 0:01:42.640 in demand, right because all you hear about nowadays is 0:01:43.080 --> 0:01:46.679 the AI build out and energy constraints on that, and 0:01:46.720 --> 0:01:48.800 so obviously a lot of people want to look at 0:01:48.800 --> 0:01:50.320 it from a utilities perspective. 0:01:50.720 --> 0:01:54.120 Totally. I always think, like, what a great luck that 0:01:54.200 --> 0:01:56.600 some people have in their careers. You know, you could 0:01:56.600 --> 0:01:59.080 be an analyst and learn modeling skills and all kinds 0:01:59.080 --> 0:02:02.160 of stuff, and then you get allocated and someone gets 0:02:02.240 --> 0:02:07.000 allocated I don't know, farm equipment, and another person gets 0:02:07.000 --> 0:02:10.399 allocated to they wind up in utilities in twenty twenty two, 0:02:10.440 --> 0:02:12.639 and it's like, man, they're on TV all the time. 0:02:12.680 --> 0:02:16.000 My old boss at Business Insider, Henry Blodge, it it's 0:02:16.000 --> 0:02:18.160 like he was there as an Internet enalyst in like 0:02:18.200 --> 0:02:20.640 the late nineties. What amazing timing and luck and. 0:02:20.560 --> 0:02:23.600 So it's like journalism and the Yeah, it's it's the 0:02:23.639 --> 0:02:26.560 exact same thing. I started out covering airlines, yeah, of 0:02:26.600 --> 0:02:29.720 all things, but those were interesting. Anyway, I'm glad to 0:02:29.720 --> 0:02:31.600 say we do, in fact have the perfect guests. So 0:02:31.639 --> 0:02:34.720 we're going to be speaking to a utilities analyst, someone 0:02:34.720 --> 0:02:38.040 who happens to have a very contrarian take on the 0:02:38.120 --> 0:02:41.800 data center build out and how much energy is actually required. 0:02:41.840 --> 0:02:43.760 We've been hearing a lot from people who are very, 0:02:43.840 --> 0:02:47.240 very bullish on the data center build out, so this 0:02:47.280 --> 0:02:49.000 will be a useful I love their point. 0:02:49.200 --> 0:02:49.680 I love it. 0:02:49.800 --> 0:02:53.800 Okay, So, without further ado, Andy Devreese, head of Investment 0:02:53.800 --> 0:02:56.760 Grade Credit and head of Utilities and power over at 0:02:56.760 --> 0:02:59.040 Credit Sides, thank you so much for coming on all thoughts. 0:02:59.320 --> 0:03:00.600 Thank you the pleasure mine. 0:03:00.840 --> 0:03:03.400 So is it great to be a utilities analyst right now? 0:03:03.400 --> 0:03:04.040 Even better? 0:03:04.400 --> 0:03:07.080 Well your your Bloomberg News reporter Josh Saul wrote an 0:03:07.120 --> 0:03:09.320 article about the how much it's changed for being a 0:03:09.400 --> 0:03:11.640 utilities analyst now the data centers are here. But to 0:03:11.680 --> 0:03:14.240 push back, we did have the largest bankruptcy of all 0:03:14.280 --> 0:03:16.960 time in Enron, Oh yeah, the largest LBO of all 0:03:17.000 --> 0:03:20.560 time in TXU, which then went bankrupt, and the largest 0:03:20.600 --> 0:03:23.679 private equity return ever in Calpine twenty five billion, which 0:03:23.680 --> 0:03:27.640 exceeds Apollos, Lioned, l Trade and Blackstones Hilton Trade. So 0:03:27.840 --> 0:03:29.239 we have had a lot of fun along the way. 0:03:29.400 --> 0:03:32.440 Have you been a utilities analyst throughout that entire timeline? 0:03:32.440 --> 0:03:33.560 How long have you been doing it? 0:03:33.760 --> 0:03:36.440 I started with the first packcast bankruptcy and then went 0:03:36.440 --> 0:03:38.200 through the second and here we are with data centers, 0:03:38.200 --> 0:03:39.560 so twenty five years. 0:03:39.600 --> 0:03:42.200 Wow, So you really have seen it all. It is 0:03:42.240 --> 0:03:44.920 fair to say. So, you're absolutely right. There have been 0:03:45.000 --> 0:03:50.440 some disasters and home runs and utilities. You know, they 0:03:50.480 --> 0:03:53.880 do get central in the news, obviously with the fires 0:03:54.000 --> 0:03:57.680 that we saw for example California several years ago, and 0:03:57.720 --> 0:04:02.880 the court trails about allocation of risk in those situations. 0:04:03.040 --> 0:04:06.520 You mentioned ron et cetera. But it is also fair 0:04:06.560 --> 0:04:09.520 to say that much of the discourse in day to 0:04:09.600 --> 0:04:13.080 day has been like these are sort of bond like instruments. Absolutely, 0:04:13.240 --> 0:04:14.720 before we get into that, just like sort of like 0:04:14.760 --> 0:04:17.839 talk to us about what a normal day is like, 0:04:17.960 --> 0:04:19.400 and when you're thinking about you til. 0:04:19.320 --> 0:04:21.600 It before you know, pre data centers, yeah, pre. 0:04:21.560 --> 0:04:23.800 Data centers, five years ago, whatever, Pre data centers. 0:04:23.839 --> 0:04:25.920 You're looking at a lot of rate cases of studying, 0:04:25.960 --> 0:04:28.600 a lot of local news. You're looking at legislation, you're 0:04:28.640 --> 0:04:32.719 reading you know, dry regulatory documents, and then you're tracking 0:04:32.800 --> 0:04:34.839 natural gas prices because that's setting the price of power. 0:04:35.080 --> 0:04:36.960 And then on the federal level you obviously have the 0:04:37.080 --> 0:04:40.880 renewables displacing coal and that's obviously having a big impact now. 0:04:40.920 --> 0:04:42.560 So it's a lot I actually think it's a lot 0:04:42.560 --> 0:04:42.880 of fun. 0:04:43.320 --> 0:04:46.400 My impression was always the policy aspect of it seemed 0:04:46.480 --> 0:04:49.320 kind of the most important thing to keep track of. 0:04:49.400 --> 0:04:52.799 Is that right, absolutely, and that's down to the state level, 0:04:52.839 --> 0:04:54.160 but also the federal as well. 0:04:54.279 --> 0:04:57.200 Yeah, we've done a few energy episodes, still trying to 0:04:57.200 --> 0:05:00.359 wrap my head around the sort of patchwork of that 0:05:00.400 --> 0:05:03.719 seem to cover our energy infrastructure. But anyway, who should 0:05:03.760 --> 0:05:03.919 be a. 0:05:03.920 --> 0:05:07.040 Little aspy about the way? Like you talk to people 0:05:07.080 --> 0:05:08.599 in this space and you're like, well, how is this 0:05:08.680 --> 0:05:11.640 get priced? And they're like, well, are you talking about 0:05:11.680 --> 0:05:14.359 market or central? It's like, okay, I don't know, you know, 0:05:14.400 --> 0:05:15.960 it's like are you talking about a rate board or 0:05:16.040 --> 0:05:17.240 you talk about market prices. 0:05:17.279 --> 0:05:20.320 It's so hard anyway, especially in a forty minute podcast, 0:05:20.440 --> 0:05:21.719 to try to generalize that. 0:05:21.880 --> 0:05:23.680 But I love the people, don't get me wrong, those 0:05:23.680 --> 0:05:24.520 are my favorite people. 0:05:24.600 --> 0:05:27.120 Anyway, Andy, what is the mood like at the moment? 0:05:27.279 --> 0:05:32.960 Among utilities, people, analysts, investors. Wasn't there a conference recently? 0:05:33.080 --> 0:05:36.159 Everyone's gung ho on this. So the biggest conference of 0:05:36.200 --> 0:05:40.720 the year is EI in November and it was packed. 0:05:40.760 --> 0:05:43.680 I was standing and rolling for some of these presentations. Wow, 0:05:44.240 --> 0:05:47.720 your competitors at CNBC were broadcasting from the floor the 0:05:47.760 --> 0:05:49.799 first time. That has probably a sign of a top. 0:05:50.760 --> 0:05:52.480 So yeah, people are very happy, and it just to 0:05:52.560 --> 0:05:55.640 quantify it. Utilities have generally grown around four or five 0:05:55.760 --> 0:05:58.120 six percent a year, and then that's moved to five 0:05:58.160 --> 0:06:00.680 to seven percent a year, and now certain names which 0:06:00.680 --> 0:06:02.920 we'll talk about later are up to eight percent a year, 0:06:02.920 --> 0:06:04.520 and that's driven by data center growth. 0:06:05.040 --> 0:06:07.760 Talk to us a little bit more about that. So 0:06:08.080 --> 0:06:11.080 what is the I mean, I'm like looking at a 0:06:11.200 --> 0:06:14.680 chart of the xl U ETF. I don't think it's 0:06:14.720 --> 0:06:17.520 like done insane, But talk to us a little bit about, 0:06:17.560 --> 0:06:22.159 like maybe quantify the exuberance for us. So it's like, okay, 0:06:22.160 --> 0:06:24.680 we we are no longer just in the business of 0:06:24.800 --> 0:06:28.440 measuring bond proxies and looking at policies, et cetera. There 0:06:28.520 --> 0:06:31.800 was a secular growth driver. Talk to us about like 0:06:32.040 --> 0:06:35.240 the bowl case, and then also how we would see 0:06:35.480 --> 0:06:38.200 the ball case sort of like how it's manifesting into 0:06:38.240 --> 0:06:39.159 tradable instruments. 0:06:39.200 --> 0:06:41.440 Sure, and you pulled up the graph of the XLU. 0:06:41.560 --> 0:06:44.039 Obviously it's still a very interest rate sensitive section. Yeah, 0:06:44.040 --> 0:06:46.680 that's dividends. You can find higher yields and other fixed 0:06:46.680 --> 0:06:49.080 income instruments. So you know, maybe didn't do so well 0:06:49.160 --> 0:06:52.920 last year. But the industry argues that as this EPs 0:06:52.960 --> 0:06:56.160 growth rate goes up to the high single digits, mid 0:06:56.200 --> 0:06:58.240 to high single digits, that it shouldn't be as interest 0:06:58.279 --> 0:07:00.560 rate sensitive. So that's the big debate going on with 0:07:00.640 --> 0:07:02.240 investors right now. And this talk. 0:07:02.440 --> 0:07:05.000 I mean, the exo you has done well to ya. 0:07:05.200 --> 0:07:07.680 If you zoom out, it looks pretty good. That's my 0:07:07.760 --> 0:07:11.320 impression of a bitcoin investor, by the way, zoom outoom. 0:07:10.840 --> 0:07:12.640 All right, think about you've gotten the end. You've gotten 0:07:12.640 --> 0:07:15.560 that coupon, right, so like you get so like you 0:07:15.640 --> 0:07:17.680 might in normal time, just be happy with a coupon. 0:07:17.840 --> 0:07:19.120 You're getting coupon plus. 0:07:19.240 --> 0:07:21.080 I mean, it worked out the Fed zero interest rates 0:07:21.080 --> 0:07:22.840 for so long, so utilities are the place to be. 0:07:22.960 --> 0:07:25.200 That's just math. And then as soon as the Fed 0:07:25.240 --> 0:07:28.240 starts jocking uprates, chat TBT comes on the scene and 0:07:28.240 --> 0:07:29.960 all of a sudden there's data centers. So now, all 0:07:29.960 --> 0:07:31.679 of a sudden, you're taking the leg up on growth 0:07:31.760 --> 0:07:33.640 when you don't need to be so interest rate sensitive. 0:07:33.920 --> 0:07:36.160 Interesting. So one of the reasons we wanted to talk 0:07:36.200 --> 0:07:39.560 to you is because you have that contrarian take on 0:07:39.760 --> 0:07:42.320 the data center build out, and we wrote it up 0:07:42.360 --> 0:07:45.320 in the All Thoughts newsletter, which everyone should subscribe to. 0:07:45.400 --> 0:07:50.640 It got a lot of attention. Your analysis, interestingly, is 0:07:51.080 --> 0:07:55.000 just based on some pretty simple math. So why don't 0:07:55.040 --> 0:07:57.640 you just to start out with why don't you walk 0:07:57.680 --> 0:08:00.400 us through the calculations that you're actually making to try 0:08:00.400 --> 0:08:04.520 to analyze how much capacity the utilities are taking on 0:08:04.880 --> 0:08:07.239 to actually power data centers. 0:08:07.520 --> 0:08:10.640 Sure, so, as you said, it's pretty simple math here, 0:08:11.080 --> 0:08:13.760 so utility, it's so data centers now are consuming around 0:08:13.800 --> 0:08:16.240 forty five gigawatts of power, and you can switch between 0:08:16.240 --> 0:08:19.400 capacity and throughput. I'm going to stick with capacity, so 0:08:19.440 --> 0:08:22.520 forty five gigabats of power. And then there's lots and 0:08:22.560 --> 0:08:24.680 lots of third party estimates for where they're going to 0:08:24.720 --> 0:08:27.720 be in twenty thirty and they center around this, you know, 0:08:27.840 --> 0:08:31.000 ninety ninety five gigawatts, so you need to add fifty 0:08:31.080 --> 0:08:34.440 for two thousand and thirty five, there's a lot fewer estimates. 0:08:34.480 --> 0:08:38.200 You come around one sixty. Now, these estimates, they you know, 0:08:38.240 --> 0:08:41.319 they're all over the place. They come from sell side banks, 0:08:41.320 --> 0:08:43.560 they come from consultants, they come from everyone. Bn EF 0:08:43.600 --> 0:08:45.360 has one there, I think, one of the best out there, 0:08:46.080 --> 0:08:51.280 so we use them a lot. So that's on the 0:08:51.320 --> 0:08:53.640 demand side and where you're going to come out of these. 0:08:53.679 --> 0:08:55.400 And then you look at the supply, and everyone talks 0:08:55.400 --> 0:08:57.680 about the demand, right, But then you look at the 0:08:57.679 --> 0:09:01.079 supply and all these tech are too cool to actually 0:09:01.160 --> 0:09:04.000 look at the supply and do utility analysis, right, Who 0:09:04.040 --> 0:09:05.800 wants to be a utility analysts? You were making fun 0:09:05.800 --> 0:09:07.959 of us before, but if you look at this. 0:09:09.480 --> 0:09:11.920 But when we realize our pity is misplaced. But we 0:09:11.920 --> 0:09:13.400 were not making fun anyway, it's great. 0:09:13.600 --> 0:09:15.640 So you look at the supply and these utilities are 0:09:15.679 --> 0:09:18.360 tracking all these data centers connecting to the grid because 0:09:18.360 --> 0:09:19.880 they've got to do a lot of work, spend a 0:09:19.880 --> 0:09:23.600 lot of money and transmission distribution, new substations, transformers. It's 0:09:23.640 --> 0:09:25.800 a lot of work, but a boost the earnings growth, 0:09:25.840 --> 0:09:28.320 so they're happy to talk about this. And so you 0:09:28.360 --> 0:09:30.959 look at where they're at and where they see things coming, 0:09:31.360 --> 0:09:34.120 and they've got around one hundred and forty gigawatts a 0:09:34.200 --> 0:09:37.040 near term supply. Now, kudos to the utilities. They break 0:09:37.080 --> 0:09:41.760 out what's firm committed, signed, contracted versus pipeline behind it, 0:09:42.120 --> 0:09:44.360 because there's a lot of double, triple, quadruple counting. So 0:09:44.360 --> 0:09:46.079 if you're gonna build a data center in the Southeast, 0:09:46.120 --> 0:09:47.920 you're gonna tell Duke, You're gonna tell Southern, You're gonna 0:09:47.960 --> 0:09:51.360 tell Dominion you're gonna build one. So that's the pipeline potential. 0:09:52.040 --> 0:09:55.480 But looking just at the firm committed whatever they want 0:09:55.480 --> 0:09:58.000 to call it, you around one hundred and forty gigawats. 0:09:58.480 --> 0:10:00.480 Now that's you got a pe adjust So when you 0:10:00.520 --> 0:10:03.480 connected data center, yeah, when you connect the data center 0:10:03.520 --> 0:10:05.880 to the grid, you've got lights, you've got cooling. Those 0:10:05.920 --> 0:10:08.800 third party estimates I gave you are just for raw compute. 0:10:09.559 --> 0:10:11.319 Why did you split those out though, because I mean, 0:10:11.360 --> 0:10:13.520 all data centers are going to need to be cooled 0:10:13.559 --> 0:10:15.319 down right, what's the point of splitting it out. 0:10:15.559 --> 0:10:17.680 I'm not splitting out, I'm just adjusting it downward. Because 0:10:17.679 --> 0:10:20.000 the third party estimates are just compute. So if you're 0:10:20.000 --> 0:10:22.959 connecting to the grid. You're going to ask the lights, 0:10:22.960 --> 0:10:25.160 the cooling and everything. So I want to go apples 0:10:25.160 --> 0:10:25.960 to apples. 0:10:25.640 --> 0:10:30.280 Versus the third party, So what power usage effectiveness or 0:10:30.320 --> 0:10:31.439 power usage efficiency? 0:10:31.559 --> 0:10:34.040 So they're at one forty, so that PUE is down 0:10:34.040 --> 0:10:37.040 to one ten on apples to apples. So just to 0:10:37.080 --> 0:10:40.520 go back, you only need fifty on the demand side 0:10:40.600 --> 0:10:43.480 between now in twenty thirty and the utilities are working 0:10:43.520 --> 0:10:47.040 at connecting one ten. So the utilities are working on 0:10:47.360 --> 0:10:49.800 already connecting almost as much as you need by two 0:10:49.840 --> 0:10:52.640 thy thirty five. So again just to make sure, on 0:10:52.640 --> 0:10:56.200 the same page, third party estimates forty five gigabatser data 0:10:56.200 --> 0:11:00.280 centers now going to ninety fives. That's fifty of these 0:11:00.280 --> 0:11:02.440 are working on one to ten. They don't give timing 0:11:02.480 --> 0:11:04.640 for that. Some of it's going to be past twenty thirty. 0:11:05.080 --> 0:11:07.040 What I'm starting to say is there is a lot 0:11:07.200 --> 0:11:11.040 of supply of data centers coming and it's very unclear 0:11:11.080 --> 0:11:13.720 if there's going to be demand for this. So that's 0:11:13.800 --> 0:11:16.199 the issue there, and then it might be worth pausing 0:11:16.200 --> 0:11:18.920 that and just saying how we're tracking these things. Yeah, 0:11:19.080 --> 0:11:21.160 So what we do for the demand side is we 0:11:21.280 --> 0:11:25.000 use the original AI agent, you know, that is a 0:11:25.080 --> 0:11:28.920 Gmail alert the best. So anything that's not on our 0:11:28.960 --> 0:11:31.600 trade pubs, not on Bloomberg News, we get picked up 0:11:31.600 --> 0:11:34.079 by a Gmail alert and so then we get all 0:11:34.120 --> 0:11:36.520 that in a spreadsheet. So that's on the demand side. 0:11:36.880 --> 0:11:39.200 And then on the supply side we use Diego and 0:11:39.240 --> 0:11:41.960 that's not a large language model. That's my junior sitting 0:11:42.040 --> 0:11:44.520 several blocks best of us right now, so he tracks 0:11:44.520 --> 0:11:47.120 all this on utility calls. Just yesterday, next to Era 0:11:47.320 --> 0:11:51.000 moved another two gigawatts from the potential into the committed. 0:11:51.559 --> 0:11:53.920 And these utilities are chopping at the bit to sign 0:11:53.960 --> 0:11:55.520 more and more of these deals, and I think it's 0:11:55.520 --> 0:11:58.000 just going to be oversupply. We're going to overbuild these things. 0:11:58.440 --> 0:12:02.079 Just to be clear, the commit the firm commitments, those 0:12:02.080 --> 0:12:06.360 are signed agreements to actually build this capacity. Yes, okay. 0:12:06.440 --> 0:12:09.200 And so I was talking with the CFO of Encore 0:12:09.280 --> 0:12:11.040 and they made these comments on their call as well. 0:12:11.040 --> 0:12:13.800 They're owned by Sempra, and I said, you know, no 0:12:13.880 --> 0:12:16.360 one really believes these DAMA and estimates. Texas is a 0:12:16.559 --> 0:12:19.000 wald off market, as you guys know, eighty seven gigawatt 0:12:19.000 --> 0:12:19.440 peak market. 0:12:19.480 --> 0:12:21.760 It is the one thing I know about energy Texas. 0:12:21.800 --> 0:12:22.880 Is it market? 0:12:23.000 --> 0:12:23.160 There? 0:12:23.160 --> 0:12:25.520 You go, so eighty seven gigap peak market and the 0:12:25.559 --> 0:12:27.680 demand estimates or they're going to add thirty gigawatts by 0:12:27.720 --> 0:12:30.360 twenty thirty. And I said to the CFO of on cars, 0:12:30.440 --> 0:12:32.880 there's just no way. He said, it might not be thirty, 0:12:32.880 --> 0:12:34.560 but it's going to be closer to thirty than it 0:12:34.600 --> 0:12:37.840 is zero. And I said, I just the forward power 0:12:37.880 --> 0:12:40.880 curves don't reflect that at all, and he said, then 0:12:40.880 --> 0:12:44.560 they're mispriced. So just for the entire market, just for 0:12:44.600 --> 0:12:47.600 the benefit of your users, you cannot trade forward power 0:12:47.600 --> 0:12:50.680 in Texas on interactive brokers. I know that. Oh that's fair, audience, 0:12:50.760 --> 0:12:52.640 That's too bad. Everyone's like looking up there, That's what 0:12:52.720 --> 0:12:53.040 I said. 0:12:53.040 --> 0:12:56.240 Great, And this gives us a bunch of technical questions 0:12:56.240 --> 0:13:16.160 to get into. Let's just keep talking about Texas. Explain 0:13:16.320 --> 0:13:19.800 to us kind of what the forward power curves are 0:13:20.200 --> 0:13:24.600 and how you can back out the implicit assumptions that 0:13:24.760 --> 0:13:29.199 traders are making based on those forward power curves about 0:13:29.240 --> 0:13:30.640 how much demand there's going to pay. 0:13:30.960 --> 0:13:33.319 Sure, So I mean, obviously, if you're gonna go from 0:13:33.320 --> 0:13:35.640 eighty seven and you're gonna add fifteen or thirty whatever, 0:13:35.640 --> 0:13:37.360 it is you'd expect that curve to go higher? 0:13:37.920 --> 0:13:40.319 How much the curve measuring? Okay, you say there's a 0:13:40.360 --> 0:13:41.640 forward power, so the forward. 0:13:41.400 --> 0:13:43.800 Power curve is a round the clock peak or off peak. 0:13:43.840 --> 0:13:46.480 There's three separate curves, and the difference between peak and 0:13:46.520 --> 0:13:49.600 off peak is actually you know, narrowed because data centers 0:13:49.679 --> 0:13:51.679 run twenty four to seven, so it depends on your 0:13:51.679 --> 0:13:53.559 North Texas or South Texas and those are in the 0:13:53.640 --> 0:13:54.360 high fifties. 0:13:54.920 --> 0:13:57.760 But what would we be seeing in the curves for like, 0:13:58.080 --> 0:14:02.000 or is there trading happening every twenty ten. 0:14:02.120 --> 0:14:04.800 Thirty might not be so liquid, but twenty seven and 0:14:04.840 --> 0:14:05.680 twenty eight certainly are. 0:14:06.200 --> 0:14:08.719 But there's other energy markets. So if you look at 0:14:08.880 --> 0:14:12.200 nat gas for instance, although exactly gas traders are really 0:14:12.200 --> 0:14:15.320 weird about the future's curve in gas, which I don't 0:14:15.360 --> 0:14:17.400 really understand. But if you look at that, you point 0:14:17.400 --> 0:14:21.000 out that over the longer term it's downward sloping, which 0:14:21.040 --> 0:14:23.600 suggests that there isn't going to be as much demand 0:14:23.720 --> 0:14:25.360 or maybe there's going to be more supply out in 0:14:25.400 --> 0:14:25.840 the future. 0:14:26.160 --> 0:14:28.240 I love it we're morphing into natural gas because that 0:14:28.360 --> 0:14:31.400 is the main driver of power prices, especially in Texas 0:14:31.760 --> 0:14:34.280 and the forward curve for gas is much more liquid 0:14:34.320 --> 0:14:36.480 than it is for power, and the forward curve for 0:14:36.560 --> 0:14:39.200 gas is inverted. It goes from three seventy to three 0:14:39.280 --> 0:14:42.160 sixty by the end of the decade. So, as my 0:14:42.360 --> 0:14:45.600 energy unlest Charles Johnson points out, the bigger driver there 0:14:45.680 --> 0:14:48.360 isn't data center demand. We're at six pcf day there 0:14:48.600 --> 0:14:50.160 a lot of people are at at ten twelve. We 0:14:50.200 --> 0:14:53.520 can get into that. But LNG exports. We're exporting eighteen 0:14:53.560 --> 0:14:55.680 bcf day. Now we're going to add another twelve. Like 0:14:55.720 --> 0:14:58.520 you'd think that curve would be at least upward sloping 0:14:58.560 --> 0:15:01.480 by twenty five cents. Cents by the way, you can 0:15:01.560 --> 0:15:05.400 trade that and your attractive broker's account. So that goes 0:15:05.440 --> 0:15:06.920 into is there going to be a lot of LNG. 0:15:07.080 --> 0:15:09.560 It starts getting outside of the expertise. But that's what 0:15:09.640 --> 0:15:11.320 we heard from a lot of clients last week when 0:15:11.320 --> 0:15:12.880 we went on the road all over New York City. 0:15:13.040 --> 0:15:16.240 This is very interesting. Actually want to ask another question 0:15:16.280 --> 0:15:19.520 about the pure power curve. But since we are on LNG, 0:15:19.720 --> 0:15:21.360 and then we can get back to the power curve, 0:15:21.680 --> 0:15:26.520 just setting aside data centers, et cetera. Intuitively, you would 0:15:26.560 --> 0:15:29.280 think that what is a growth business in the United 0:15:29.360 --> 0:15:32.440 States LNG exports. And in fact, one of the sort 0:15:32.480 --> 0:15:36.080 of policy debates around the whole question of building out 0:15:36.200 --> 0:15:39.960 LNG terminals is it's going to make gas more expensive 0:15:40.000 --> 0:15:42.640 for American consumers because now we're going to be competing 0:15:42.680 --> 0:15:46.600 with European buyers, Whereas when we didn't have LNG export terminals, 0:15:46.680 --> 0:15:48.440 we were just swimming in it because it had nowhere 0:15:48.480 --> 0:15:51.160 to go, nowhere to go. So it's very interesting to 0:15:51.240 --> 0:15:55.720 hear that, even with everyone acknowledging a booming domestic demand 0:15:56.120 --> 0:16:00.440 and be the expansion of international demand that downward sloping 0:16:00.520 --> 0:16:01.080 gas curve. 0:16:01.280 --> 0:16:05.440 Yes, maybe, I don't know. Maybe there reflecting world peace 0:16:05.480 --> 0:16:08.880 in Europe and Russia, LNG isnunacceptable to the rest of 0:16:08.880 --> 0:16:09.880 the world. That could be a driver. 0:16:10.080 --> 0:16:11.640 Then they'd have to rebuild that pipeline there. 0:16:11.720 --> 0:16:11.880 Yeah. 0:16:11.920 --> 0:16:14.760 But but back to our visual conversation on demand. The 0:16:14.800 --> 0:16:17.120 reason I was talking to the Encore CFO and asking 0:16:17.200 --> 0:16:19.040 him about this is he said he's holding two and 0:16:19.080 --> 0:16:22.840 a half billion dollars of cash collateral postings from some 0:16:22.920 --> 0:16:26.120 of that demand. And he's like, you're not some you know, 0:16:26.240 --> 0:16:28.240 Joe Schno startup. I'm gonna build a data center and 0:16:28.280 --> 0:16:30.280 connect to your grid if you're posting two and a 0:16:30.280 --> 0:16:32.120 half billion dollars, and he says, and this is what 0:16:32.120 --> 0:16:34.080 he said on their earnings call as well. You know 0:16:34.160 --> 0:16:37.480 that's real demand that is coming. It's it's it's material. 0:16:37.760 --> 0:16:40.760 I'm sorry, just now to go back to the power curve, 0:16:40.840 --> 0:16:43.080 which I get is much less liquid out there. But 0:16:43.280 --> 0:16:47.760 there are trades that happened. These are price, like, how 0:16:47.800 --> 0:16:51.640 do you infer volume from price? Because these are price, we. 0:16:51.680 --> 0:16:54.240 Don't get the volume. But it's a it's a yearly curve, 0:16:54.280 --> 0:16:55.960 and then right before the year starts us listen to 0:16:56.000 --> 0:16:58.040 twelve month curves and then it goes into weekly before. 0:16:58.160 --> 0:16:59.880 What I'm saying is, how do you infer what it 0:17:00.080 --> 0:17:03.480 expected volume in twenty twenty eighty. It goes from a price. 0:17:03.400 --> 0:17:06.040 Curve, Sure it's flat, it goes up a dollar from 0:17:06.040 --> 0:17:08.280 here to twenty thirty. Whereas if you're going to add 0:17:08.359 --> 0:17:10.560 twenty percent to your group demand and you'd expect it 0:17:10.600 --> 0:17:13.360 to go up, okay, several dollars a right gas side, 0:17:13.359 --> 0:17:15.160 I'd want to see forty cents fifty cents. 0:17:15.200 --> 0:17:16.880 I assue what you're saying, okay with pat. 0:17:17.040 --> 0:17:18.719 And then just to go back to the fore your 0:17:18.800 --> 0:17:22.679 upper fifties in Texas, low sixties for peak, and the 0:17:22.760 --> 0:17:25.560 data center companies are paying ninety five. So Vistra just 0:17:25.640 --> 0:17:28.320 did a deal off tenny five dollars a megab an hour, okay, 0:17:28.520 --> 0:17:31.400 for round the clock. So Vistra contracted out its commandche 0:17:31.400 --> 0:17:33.640 peak plant Texas ninety five dollars a megab an hour. 0:17:33.840 --> 0:17:36.919 So big Tech is paying a very pretty penny. You 0:17:36.920 --> 0:17:39.040 can argue some of that's for the CO two free 0:17:39.080 --> 0:17:41.320 aspect of it, and some of it's just a lock 0:17:41.359 --> 0:17:41.879 and the supply. 0:17:42.800 --> 0:17:44.720 So just to go back to the math and your 0:17:44.760 --> 0:17:47.679 overall argument, I mean, you're basically saying that utilities are 0:17:47.720 --> 0:17:51.520 already committed to building out. I guess twice as much 0:17:51.560 --> 0:17:55.760 capacity as is forecast to be needed by twenty thirty. 0:17:56.040 --> 0:17:59.760 So wildcard to me seems to be the demand forecast, right, 0:18:00.119 --> 0:18:04.479 and we're already seeing those change pretty wildly. I know 0:18:04.520 --> 0:18:07.520 you mentioned Bloomberg NEF, but you know they've raised their 0:18:07.560 --> 0:18:10.720 forecast because of the data center build out, so they've 0:18:10.760 --> 0:18:13.080 raised their forecast of how much energy is actually needed. 0:18:13.640 --> 0:18:18.240 How much confidence do you have in those demand numbers 0:18:18.240 --> 0:18:20.119 and how could they change over time? 0:18:21.160 --> 0:18:23.520 Moderate confidence. But like, look where we're at now, Like 0:18:24.520 --> 0:18:28.120 open Aye built all of CHATCHYBT using two gigawatts. All 0:18:28.160 --> 0:18:30.560 the big tech hyperscalers they haven't given their twenty twenty 0:18:30.560 --> 0:18:32.680 five volumes yet, but if you take their twenty twenty 0:18:32.680 --> 0:18:35.479 four volumes and then double it, and this is output. 0:18:35.520 --> 0:18:37.320 So I'm going to transfer it back to capacity and 0:18:37.359 --> 0:18:40.879 you assumer sixty percent capacity factor. All the hyperscalers combined 0:18:40.880 --> 0:18:43.640 around fifteen gigawatts, and that's got to be over half 0:18:43.680 --> 0:18:47.560 the data center demand. So to talk about ninety five gigawatts, 0:18:47.640 --> 0:18:50.600 I mean it's a staggering number. And then you get 0:18:50.600 --> 0:18:54.119