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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Hello and welcome to another episode of the All Thoughts podcast.

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Speaker 2: I'm Tracy Alloway and I'm Joe.

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Speaker 3: Isn't it Joe?

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Speaker 2: I have big news for you.

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Speaker 3: Go on.

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Speaker 2: I'm an electricity generator now, oh yeah, tell me what

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Speaker 2: this is big news in my personal life. I am

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Speaker 2: finally the proud owner of a pretty big solar panel

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Speaker 2: that is feeding into the grid in Connecticut.

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Speaker 3: How's that going so far?

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Speaker 2: Are you?

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Speaker 3: Has it?

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Speaker 1: So?

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Speaker 3: I got your lower electricity bills.

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Speaker 2: I got one electricity bill so far and it was

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Speaker 2: about twenty dollars for a few weeks, which is amazing. However,

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Speaker 2: I have also experienced my own intermittent energy problems because

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Speaker 2: we are recording today on December fifth, and in case

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Speaker 2: you don't know, it's been snowing up in New England

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Speaker 2: and the solar panels are covered with about eight inches

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Speaker 2: of snow, so they're.

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Speaker 3: Not producing any electricity.

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Speaker 2: Yeah, all the electricity is out. We have a power generator,

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Speaker 2: so that's kicked on. But I'm now learning one of

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Speaker 2: the downsides of renewable energy.

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Speaker 3: No, it's like perfect. This is the end of the

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Speaker 3: conversation right here. It's cheap, but it's interman.

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Speaker 2: It's cheap and intermitt Yeah, that's basically it. But you know,

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Speaker 2: it got me thinking, I'm not in Connecticut at the moment.

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Speaker 2: We are both in Washington, d C. For a big

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Speaker 2: energy conference. And because I am now an electricity generator

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Speaker 2: of sorts and I feed into the grid that is

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Speaker 2: owned by a giant utility, we have never actually interviewed

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Speaker 2: someone from a utility.

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Speaker 3: That's right.

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Speaker 2: I don't think we have.

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Speaker 3: I don't think we have either there, and I have

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Speaker 3: to say and that now this is certain makes sense

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Speaker 3: to me that like how utilities work, how pricing in

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Speaker 3: particular works for electricity, is this incredible black hole in

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Speaker 3: my knowledge because this has come up. But you know,

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Speaker 3: we're not called customers, we're called rate payers. And I

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Speaker 3: know that in many markets there's this negotiation where there's

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Speaker 3: some utility commission or something like that, and the utilities

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Speaker 3: have to figure out, okay, we spent this much, and

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Speaker 3: can we raise our prices this much, et cetera. And

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Speaker 3: then you know, I know there's in some places sort

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Speaker 3: of live auction markets and how the weather changes the

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Speaker 3: price changes. But I really find this incredibly hard to

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Speaker 3: wrap my head around. I guess basically the question of

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Speaker 3: why you pay what for electricity?

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Speaker 2: Yeah, so two things here. Number one, it seems incredibly

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Speaker 2: complex because of all the factors that you just laid out,

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Speaker 2: including the patchwork of different regulations for different states and

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Speaker 2: the limits there, and also well the political tensions as well.

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Speaker 2: That's one thing we can maybe talk about. But the

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Speaker 2: other thing is it feels like the whole system is

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Speaker 2: becoming more and more complex because you have more renewable

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Speaker 2: energy coming on. A lot of that renewable energy, you know,

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Speaker 2: you get credits for feeding that into the grid, which

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Speaker 2: means special people like me are no longer actually paying

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Speaker 2: that much for electricity, but we're still drawing on the

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Speaker 2: resources of the utility.

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Speaker 3: And I guess there's really two things, because there's this

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Speaker 3: a rise of sort of distributed energy, rooftop solar and

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Speaker 3: things like that, new forms of energy production. And then

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Speaker 3: something that comes up a lot the resumption of load

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Speaker 3: growth for the first time in decades. That's right, And

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Speaker 3: so you have the renewables, you have load growth, You

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Speaker 3: have this impulse from the public and the corporate sector

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Speaker 3: to reduce emissions overall net zero, there's always net zero

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Speaker 3: press releases going out over the years, and so how

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Speaker 3: this all comes together wildly complex, and usually when people

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Speaker 3: are explaining it to me, I have to pause them

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Speaker 3: every five seconds, like what is that term? What's the

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Speaker 3: capacity market? Again? All these things.

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Speaker 2: So it's nice for you to warn our listeners in

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Speaker 2: advance that they're going to have to pause this episode

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Speaker 2: quite a bit. No, hopefully we'll be able to explain

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Speaker 2: everything because we do, in fact have the perfect guest

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Speaker 2: we're going to be speaking with Long Hubor. He is

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Speaker 2: the senior vice president of Pricing and Customer Solutions at

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Speaker 2: Duke Energy. So Long, thank you so much for coming

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Speaker 2: on the show.

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Speaker 3: Great to be here.

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Speaker 2: Is it terrible for companies like Duke when their customers

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Speaker 2: get solar panels? Is it bad? I keep hearing about

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Speaker 2: the agility death spiral.

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Speaker 3: It all comes down to pricing and the rate structure.

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Speaker 3: So it's not an easy answer.

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Speaker 4: If you have the right rate structures, it can actually

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Speaker 4: be a beneficial thing, but a lot of times that

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Speaker 4: isn't the case. And so in your Connecticut example, you're

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Speaker 4: basically getting your fully bundled rate as a credit. But

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Speaker 4: that fully bundled rate, although it's in kill a loot hours.

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Speaker 4: It's actually made up of a lot of kW and

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Speaker 4: fixed infrastructure cost. So that pole outside your house that's

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Speaker 4: wrapped into an energy charge, even though as we all know,

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Speaker 4: if your energy uses drops, that pole doesn't get cut

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Speaker 4: in half. You can't just pull out that pole handed

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Speaker 4: to your neighbor. That's fixed infrastructure, and that's seventy percent

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Speaker 4: of the grid. Why don't we zoom out really big?

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Speaker 4: What is the business model of Duke Energy? Ah, all right,

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Speaker 4: this is good. So we have a franchise that enables

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Speaker 4: us to for an low cost, reliable electrons as a

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Speaker 4: precondition to economic vitality for our community. So we have

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Speaker 4: essentially a set jurisdiction where nobody else can come in

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Speaker 4: for certain services. And so we have our geographical jurisdiction, right,

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Speaker 4: and we're supplying the wires in some cases the power

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Speaker 4: generation to that territory. And again there's obligations and exchanges there.

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Speaker 4: So we're under democratic control of those prices of the

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Speaker 4: return on equity for investors in this long term infrastructure, right,

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Speaker 4: So there's balances here. So you have this market discipline

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Speaker 4: entity that still has accountability to local communities, to policy makers,

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Speaker 4: and has a way to spread infrastructure costs in a

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Speaker 4: structure that can make long term intergenerational sense for communities.

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Speaker 2: So you mentioned economic vitality just then, and one of

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Speaker 2: the things I often hear when I occasionally read books

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Speaker 2: about electricity or the grid is this idea that electricity

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Speaker 2: cost is still heavily subsidized in many ways because we

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Speaker 2: still view it as a sort of social good that

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Speaker 2: enables us to do things like manufacture stuff and power

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Speaker 2: our homes. And I guess my question is to what

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Speaker 2: extent do you think that's true.

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Speaker 4: Well, it is certainly true that it is an inelastic

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Speaker 4: you know, necessity to modern civilization, right, I agree, But

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Speaker 4: for the most part, there isn't necessarily I would say

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Speaker 4: a large amount of subsidies, at least on the state level.

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Speaker 4: There's some federal tax credits, but again a lot of

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Speaker 4: those apply more broadly to the sector. But you know

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Speaker 4: what you could hear is well, certain types of customers

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Speaker 4: might be subsidizing other types of customers, and so that

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Speaker 4: can pop up where you have these certain classes, whether

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Speaker 4: it's maybe the industrial class could be subsidized by the

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Speaker 4: residential class or vice versa. That is inherent in a

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Speaker 4: fixed network system.

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Speaker 2: Or the non net meter customers paying the net meter customers.

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Speaker 2: I E.

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Speaker 3: Me, that's right, you explained what Duke is. What is

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Speaker 3: your title is Senior VP Pricing and Customer Solutions, So

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Speaker 3: what is that role?

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Speaker 4: Yeah, so this is all about helping our customers out,

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Speaker 4: not rate payers, our customers customers, right. So these are

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Speaker 4: a large customers because the industry has changed a lot.

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Speaker 4: Just I mean, when I first got in the industry,

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Speaker 4: it was rate payer all the time.

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Speaker 3: If I'm operating, if I'm operating that, if I'm operating

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Speaker 3: on data information, then I'm happy to be correct you.

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Speaker 2: But why was that the like, why was that the

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Speaker 2: common term?

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Speaker 3: I mean, partly there was.

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Speaker 4: Just not the technology or visibility into customers. There was

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Speaker 4: a mentality there too, a culture built up, but for

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Speaker 4: the most part, it's like if you don't have any

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Speaker 4: of the analytics, if you don't have the meters, if

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Speaker 4: you don't have the communication back and forth, you're sort

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Speaker 4: of at a distance, right, And all that has changed

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Speaker 4: ramatically in every category.

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Speaker 3: I'm updating. I'm updating. My mental framework of how you see,

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Speaker 3: how you use is okay, So you go on with

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Speaker 3: the customer, the pricing.

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Speaker 4: As right, and so I've got economic development as well,

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Speaker 4: and so that's new businesses coming in the existing businesses

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Speaker 4: that are there that also want to grow, the pricing

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Speaker 4: and rate structures all around that. And again this is

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Speaker 4: for all of the Duke States and customer load analytics

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Speaker 4: things of that nature to sort of make it all

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Speaker 4: work and do an A to Z to solve customer

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Speaker 4: problems or goals. So if a customers like, hey, I

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Speaker 4: want to bring a new manufacturing to the state, my

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Speaker 4: team will work in conjunction with the government and we'll say, okay, well,

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Speaker 4: here's a great site or here's a great community that

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Speaker 4: would really fit the workforce you're looking for, the size

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Speaker 4: of business you're bringing that type of thing.

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Speaker 2: So when it comes to actually setting those types of rates,

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Speaker 2: can you talk to us about I guess the building

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Speaker 2: blocks that would go into that, like what are you

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Speaker 2: putting presumably into a giant Excel spreadsheet and then spitting

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Speaker 2: out as the final number.

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Speaker 4: Well, it all comes down to something called the revenue requirement.

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Speaker 4: And the revenue requirement basically says how much money do

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Speaker 4: you need to collect from your customers to cover your investments,

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Speaker 4: to cover operations and then taxes returned to investors, so

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Speaker 4: that is the big number. Then from there you slice

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Speaker 4: and dicee that based on how the different classes are

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Speaker 4: using energy, right, the makeup the load profiles and so forth,

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Speaker 4: and you create pricing around that to collect that revenue requirement.

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Speaker 4: But it gets really complicated because the easiest way to

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Speaker 4: collect that revenue requirement is by just having everybody pay

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Speaker 4: a big fixed charge.

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Speaker 3: Right.

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Speaker 4: That would be the easiest thing. If you know I

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Speaker 4: need to collect one hundred from you, give me a

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Speaker 4: one hundred each month, right, But that doesn't send the

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Speaker 4: best price signals, does it right for you to conserve

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Speaker 4: because you would just be using a huge amount of

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Speaker 4: energy because it would be one hundred dollars every month

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Speaker 4: no matter what you use for the most part, right,

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Speaker 4: and there'd be a little bit of fuel there. And

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Speaker 4: so that wasn't palatable that type of pricing to collect

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Speaker 4: that type of revor requirement. And so then it was well,

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Speaker 4: what's the next easiest thing to do given the state

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Speaker 4: of technology that we have, And that's where you see

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Speaker 4: a lot of the legacy pricing where it's mostly just

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Speaker 4: usage kWh based.

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Speaker 3: All right, let's talk about the different types of markets. Then,

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Speaker 3: so there are markets where there's some commission right that

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Speaker 3: determines a legitimate price there.

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Speaker 4: Every state has a public utilities commission or okay, how

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Speaker 4: they might label it.

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Speaker 3: And so you talk to us about how you interface

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Speaker 3: with the commission. What are the conversations like, how often

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Speaker 3: are they and what are you actually talking about with them? Yeah,

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Speaker 3: regulators are key to making this all work, and they

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Speaker 3: have staffs that work and they scrutinize all of our filings.

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Speaker 3: And so we're in there and there's just basic sort

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Speaker 3: of automatic oh that's true up because the fuel went up,

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Speaker 3: and you know whatever else outside of the control or

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Speaker 3: we've got these programs that we're updating to more intensive

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Speaker 3: processes like rate cases where you go in and you say, okay,

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Speaker 3: well we have made these investments, we're about to make

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Speaker 3: these investments, and you know, here's what we think is prudent,

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Speaker 3: and here's where we think the capital markets are in

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Speaker 3: terms of return and debt markets and so forth, And

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Speaker 3: so there's a lot of scrutiny there. There's formal data requests.

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Speaker 3: We get thousands upon thousands of data requests formal that

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Speaker 3: come in and then they're on the record. Some of

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Speaker 3: them are confidential and then only with parties that sign

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Speaker 3: certain agreements. But everything is just very well scrutinized in

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Speaker 3: these settings. Some of these proceedings are very contentious and

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Speaker 3: you're under oath others, you know, most parties agree, they're like, hey, yeah,

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Speaker 3: this is a good idea, Yeah, go forth. Or it's

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Speaker 3: so routine that it doesn't have a big impact. Remind

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Speaker 3: us how many states you're operating in six and seven

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Speaker 3: if you included and only guests. Ye, supplies to it.

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Speaker 2: So one question I want to ask, and you know,

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Speaker 2: hopefully in a slightly diplomatic way, but what are the

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Speaker 2: big frictions with regulators? Like is it mostly over cost

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Speaker 2: and pricing structure or does it go to environmental Like

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Speaker 2: what is it that you you fight about when you're specially.

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Speaker 4: Ready that there's another key party involved in all this,

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Speaker 4: and that's the consumer advocate. Most states have it. I

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Speaker 4: used to be working in a consumer advocate office actually

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Speaker 4: in the beginning part of my career, and they are

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Speaker 4: meant to really, you know, scrutinize things from more of

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Speaker 4: a using and consuming public lens.

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Speaker 2: So that we're representing the criticisms about pricing and things

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Speaker 2: like that.

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Speaker 4: Yes, so they're representing a constituency there, and the Public

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Speaker 4: Utility Commission is usually the entity in charge of balancing

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Speaker 4: all the different parties and taking in this information. It's

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Speaker 4: quasi judicial, and so you have they're the ones that

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Speaker 4: everyone gets mad at. Presumably they're the public face sometimes

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Speaker 4: a lot of it. And it really just depends on

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Speaker 4: the state and what's going on. You know, you typically

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Speaker 4: always push back on way to return, for instance, what

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Speaker 4: you're you're paying for equity and and and that's sort

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Speaker 4: of steady state. And then things can get controversial if

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Speaker 4: something goes wrong on a power plant or something of

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Speaker 4: that nature. But there's sort of that consistent rate case

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Speaker 4: mode that provides some friction there. For sure.

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Speaker 3: Let's get into the economics of different types of energy

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Speaker 3: production and consumption and so forth. We've added tons of

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Speaker 3: renewables to the grid over the years pretty much across

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Speaker 3: the country. Some have gone really fast, like Texas and California.

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Speaker 3: There's not as fast for obvious reasons. Why does that

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Speaker 3: not cause the price of electricity to collapse?

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Speaker 4: Great question, And it gets to all the different aspects

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Speaker 4: of what makes up that electricity bill and So when

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Speaker 4: I mentioned before that a lot of the costs are

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Speaker 4: fixed infrastructure costs. Right, this is a huge grid. It

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Speaker 4: spans thousands upon thousands of miles. Right, our grid can

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Speaker 4: wrap around the world like you know six times.

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Speaker 3: That's cool.

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Speaker 4: That's how like just the mammoth that's just our distribution system.

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Speaker 4: So that's how big that we're talking about. And so

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Speaker 4: you have that fixed infrastructure, which includes power plants, the

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Speaker 4: power lines, everything of that nature. You have the fuel

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Speaker 4: and all the different fuel supply and administration and just

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Speaker 4: everything from like tree trimming. Right, if you have that

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Speaker 4: many miles, you have to think about the trees, and

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Speaker 4: then what if a drunk driver hits one of the

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Speaker 4: poles and our scorel starts gnawing on things. Right, there's

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Speaker 4: a lot in that price of an electric bill. So

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Speaker 4: if you have an intermin renewable resource, well, what is

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Speaker 4: that good at offsetting? Well, it's good at offsetting fuel

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Speaker 4: expense if it aligns with the peak of the utility system.

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Speaker 4: It can also avoid future power plant or purchases on

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Speaker 4: the market for capacity, But it all depends on the

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Speaker 4: individual resource and the location to see if it can

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Speaker 4: bring that capacity value. But at least it can provide

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Speaker 4: a fuel savings, and so that's a smaller part of

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Speaker 4: the bill, right, And so if you're only offsetting a

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Speaker 4: smaller part of the bill, that's why you don't see

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Speaker 4: that downward pressure. And another thing is a lot of

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Speaker 4: different types of renewables are heavy upfront capital expenses, right,

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Speaker 4: and so that initial investment puts upward pressure on rates

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Speaker 4: even though it gives a nice long term hedge or

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Speaker 4: discount on fuel.

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Speaker 2: So you mentioned long term just then. And one of

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Speaker 2: the things that I do not envy utility providers in

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Speaker 2: having to do is to try to sort out immediate

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Speaker 2: energy needs for the state of our economy and our

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Speaker 2: society right now, but also try to make those giant

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Speaker 2: capital investments for like decades out into the future. How

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Speaker 2: do you guys think about that? That seems tough.

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Speaker 4: It's a lot of responsibility and it's a collective decision, right.

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Speaker 4: And I mentioned regulators and sumer eravocates, other stakeholders policymakers

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Speaker 4: in the state. And if you look at utilities in

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Speaker 4: the past, they have completely shaped the landscape of states.

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Speaker 4: And so Duke Energy, for instance, I mean we were like, hey,

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Speaker 4: Hydro and we built a huge amount of lakes all

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Speaker 4: around the Carolinas to get that power. Then we there

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Speaker 4: are a lot of lakes in the Carolinas, right, yeah,

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Speaker 4: and some of them are artificial from from you know,

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Speaker 4: from and that brings recreation, it brings you know, it

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Speaker 4: brings so many different other things to the state. It

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Speaker 4: changes the landscape, you know. Then you get into nuclear. Right,

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Speaker 4: these are like eighty year assets, and back then you

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Speaker 4: needed to have an even still today pumped hydro to

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Speaker 4: store some of that nuclear during the down times of

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Speaker 4: the day. And so now you're creating different lakes at

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Speaker 4: elevations to move water up and down as the long

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Speaker 4: duration storage.

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Speaker 3: So these are like big landscape changing. So you have

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Speaker 3: extras electricity at some point, maybe during the night with

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Speaker 3: nuclear or during the day with solar, and use that

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Speaker 3: electricity to lift water at a high elevation and then

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Speaker 3: at night it rolls downhill and then it spins a

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Speaker 3: wheel or something like that. That's exactly right. I've always

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Speaker 3: thought that was just such a fascinating concept. But on batteries.

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Speaker 3: So you mentioned that one of the issues with say

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Speaker 3: solar or what we think of as renewables is that

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Speaker 3: they're intermittent and so forth. Battery technology is getting a

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Speaker 3: lot better. And I keep seeing stats about how again,

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Speaker 3: in some markets like Texas and California, especially during high

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Speaker 3: stress periods, you increasingly see grid level batteries playing an

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Speaker 3: important part of the mix that's applying energy. In the

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Speaker 3: last few years, how much have you seen batteries and

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Speaker 3: the improvement in battery technology sort of change the economics

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Speaker 3: of renewables.

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Speaker 4: Yeah. Again, And this gets to the beginning of why

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Speaker 4: this area is so complex, because not only do you

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Speaker 4: have the patchwork of regulation and utilities, but each geographic region,

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Speaker 4: when you have weather dependent generation, it brings something unique.

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Speaker 3: And so a solar plus.

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Speaker 4: Storage facility in Arizona is going to have a lot

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Speaker 4: of different economics than say in North Carolina. Okay, right,

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Speaker 4: And so you've got more sun, maybe cheaper, flatter land,

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Speaker 4: and you have a summer peak that you really worry

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Speaker 4: about in in Arizona, and so a four hour mixed

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Speaker 4: with tracking solar can provide a decent amount of capacity

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Speaker 4: value in Arizona. Switch to say Midwest, Well, where it

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Speaker 4: can be the peak. The peak could be winter. Well,

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Speaker 4: what does the winter peak look like? Well, it could

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Speaker 4: be a week of cloudy weather where you see no

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Speaker 4: sun and it could these very cold extreme weather events

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Speaker 4: could last for many days. So that's a very different

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Speaker 4: set of economics and outcomes, and so really depends on

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Speaker 4: where you are. In general, batteries and around the four

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Speaker 4: hour duration have really come a long way. Paired with renewables,

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Speaker 4: especially in those markets where you have that summer peak,

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Speaker 4: are still trying to crack the longer term extreme weather

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Speaker 4: event type of peaks.

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Speaker 2: So it is kind of true that at the moment

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Speaker 2: we sort of perversely solve the problem of intermittent energy

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Speaker 2: and the fact that you know, solar and wind tends

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Speaker 2: to come on and off with more generation, right, so

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Speaker 2: we don't store the extra energy. We just try to

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Speaker 2: make up for it with generation from other sources when

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Speaker 2: that goes offline, when the solar and wind goes offline.

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Speaker 2: How far are we from solving that storage problem? Just

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Speaker 2: to press on Joe's point.

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Speaker 3: Well, that is the big question.

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Speaker 4: Is there a startup out there that has the solution

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Speaker 4: that'll be ready in five years and can scale with

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Speaker 4: some type of new long duration storage technology. Right, there's

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Speaker 4: form Energy, there's others that are out there that could

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Speaker 4: be very promising, So time will tell when those breakthroughs

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Speaker 4: will happen on the storage side. But to your point

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Speaker 4: right now, it takes a great diversity of resources to

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Speaker 4: make this all work in all the and that's why

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Speaker 4: there's concern of when certain states or advocates say, well,

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Speaker 4: we don't like that particular resource, or you know, we

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Speaker 4: want you to do more of that. There has to

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Speaker 4: be a balance there because they all sort of work

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Speaker 4: in synergy, and there's really complex modeling that sort of

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Speaker 4: shows how this all works to keep that reliability during

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Speaker 4: those extreme events. But what you don't want to do

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Speaker 4: is have to build two systems, a renewable system that

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Speaker 4: is there when the weather's great, and then a tire

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Speaker 4: backup fossil system.

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Speaker 2: Right.

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Speaker 3: Well, so the third thing that we haven't started talking

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Speaker 3: about yet when you talk about like these different conceptual systems,

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Speaker 3: the fossil fuel system, the renewables and battery system, and

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Speaker 3: that's nuclear. And one thing that's come up on the

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Speaker 3: show in the past is that some of the advocates

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Speaker 3: of much more aggressive nuclear build out don't like the

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Speaker 3: current market structure model because they say, look, we have

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Speaker 3: these huge gigantic upfront costs and we need some price certainty.

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Speaker 3: And if we're going to have a electricity market in

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Speaker 3: which we're not getting any revenue during the really sunny

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Speaker 3: days because Tracy doesn't need to pay anything into the

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Speaker 3: grid at all, it's really hard to justify the planning

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Speaker 3: and the upfront cost and the years of construction and

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Speaker 3: work for everything that we know that's difficult about nuclear.

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Speaker 3: Do they have a point that when we're thinking about

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Speaker 3: market structure for electricity that it's hard to optimize for

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Speaker 3: a world that has a lot of nuclear but also

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Speaker 3: has a lot of room for the tracys or the

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Speaker 3: solar firms of the world.

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Speaker 4: Yeah, So this gets back to the larger market structures

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Speaker 4: out there, and so some markets are considered restructured, meaning

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Speaker 4: they have opened competition on the generation side of the business. Right,

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Speaker 4: the wires is a natural monopoly. You don't want a

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Speaker 4: thousands exactly wires across the street, right, But generation was thought, well,

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Speaker 4: there could be some competition there, and so some markets reformed,

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Speaker 4: others stayed vertically integrated. And like I mentioned, we're in

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Speaker 4: both so we can see both works and what doesn't,

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Speaker 4: and where you can get some advantages and where there's

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Speaker 4: some issues and again, as we talked about, there is

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Speaker 4: a trend of a lot higher load growth, and these

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Speaker 4: markets came about during a time where's relatively calm and

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Speaker 4: flat to maybe modest load growth, and they set up

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Speaker 4: their markets where again you have energy and capacity, and

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Speaker 4: they have energy markets which are a lot deeper. But

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Speaker 4: capacity markets in the end of day are fixed infrastructure,

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Speaker 4: big lumpy investments. How do you encourage fixed infrastructure out there?

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Speaker 4: What price signals do you send because you're either sending

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Speaker 4: too much dollars or too little dollars. It's very hard

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Speaker 4: to get right on the infrastructure side. Some markets just said,

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Speaker 4: like Urcott, we're not going to have something specific for

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Speaker 4: capacity at all. Others have capacity price signals, and so

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Speaker 4: that's the inherent tentions of where do you get that

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Speaker 4: revenue to recover those big investments.

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Speaker 3: So just on this point, you mentioned or Cott, and

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Speaker 3: so that's Texas, right. So in Texas, basically it's every

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Speaker 3: one can plug into the grid and sell, but there's

441
00:23:04,240 --> 00:23:06,720
Speaker 3: no excess capacity. What is a capacity market?

442
00:23:06,800 --> 00:23:11,680
Speaker 4: Specifically, a capacity market is all about providing the payments

443
00:23:12,280 --> 00:23:17,399
Speaker 4: needed to encourage big new infrastructure investments with generators. Right,

444
00:23:17,600 --> 00:23:20,440
Speaker 4: So in this example, so it's money to a producer

445
00:23:20,480 --> 00:23:23,119
Speaker 4: of energy that is, like you're going to pay them

446
00:23:23,160 --> 00:23:27,720
Speaker 4: to exist basically regardless of what that day's market conditions

447
00:23:27,760 --> 00:23:30,119
Speaker 4: are like for electricity. And so if you have some

448
00:23:30,840 --> 00:23:33,199
Speaker 4: if the energy prices are very low because everybody has

449
00:23:33,280 --> 00:23:36,520
Speaker 4: zero marginal cost renewables that day because it's sunny, they're

450
00:23:36,560 --> 00:23:39,119
Speaker 4: still getting capacity payments got right as long as they

451
00:23:39,160 --> 00:23:41,400
Speaker 4: show up, and there's big penalty if they don't.

452
00:23:42,960 --> 00:23:46,480
Speaker 2: Well in terms of storage and maybe starting to fix

453
00:23:46,560 --> 00:23:49,560
Speaker 2: some of these problems. We do have things that people

454
00:23:49,680 --> 00:23:53,240
Speaker 2: talk about called virtual power plants or distributed power networks,

455
00:23:53,280 --> 00:23:55,560
Speaker 2: whatever you want to call them. Like, is that a

456
00:23:55,600 --> 00:23:57,440
Speaker 2: big deal for you guys? Or is it still kind

457
00:23:57,440 --> 00:23:59,639
Speaker 2: of something that people are just talking a lot about

458
00:23:59,720 --> 00:24:01,439
Speaker 2: at types of conferences.

459
00:24:01,920 --> 00:24:04,160
Speaker 3: Yeah, I only hear about them conferences.

460
00:24:04,320 --> 00:24:05,400
Speaker 2: Yeah, the same.

461
00:24:06,280 --> 00:24:09,679
Speaker 4: Well, it is a I would say it's new branding

462
00:24:09,800 --> 00:24:12,720
Speaker 4: to something that at least some utilities have actually have

463
00:24:13,040 --> 00:24:15,320
Speaker 4: a lot of experience with and have years of a

464
00:24:15,440 --> 00:24:18,800
Speaker 4: track record with. It falls under the all the above

465
00:24:18,880 --> 00:24:23,359
Speaker 4: categories again, and these are devices or you know, different

466
00:24:23,400 --> 00:24:26,479
Speaker 4: resources that are out in the distribution system a lot

467
00:24:26,560 --> 00:24:29,360
Speaker 4: of times on the customer premise, sometimes behind their meter,

468
00:24:29,720 --> 00:24:32,479
Speaker 4: oftentimes behind their meter, and it could be something as

469
00:24:32,520 --> 00:24:37,560
Speaker 4: simple as energy efficiency, but you know better light bulbs, insulation,

470
00:24:38,000 --> 00:24:40,880
Speaker 4: and it can move and where virtual power plants really sort.

471
00:24:40,680 --> 00:24:44,040
Speaker 3: Of captures it as dispatchable research.

472
00:24:44,119 --> 00:24:47,600
Speaker 4: Think like smart thermostent, think battery storage on the home,

473
00:24:48,000 --> 00:24:51,200
Speaker 4: those types of things, controllable water heaters, and the idea

474
00:24:51,359 --> 00:24:55,280
Speaker 4: is you have an aggregation of all these and you

475
00:24:55,520 --> 00:24:59,680
Speaker 4: orchestrate this so that it mimics a centralized power plant.

476
00:25:00,440 --> 00:25:03,240
Speaker 4: Now we've started decades ago, so we have over a

477
00:25:03,359 --> 00:25:07,639
Speaker 4: million connected devices already out there that we orchestrate. The

478
00:25:07,800 --> 00:25:10,440
Speaker 4: numbers add up to something meaningful when we have what

479
00:25:10,680 --> 00:25:14,200
Speaker 4: we call demand response events during peak times. But it's

480
00:25:14,320 --> 00:25:16,439
Speaker 4: not like fifty percent of the resources out there by

481
00:25:16,480 --> 00:25:18,320
Speaker 4: any means. Right now, it can grow and people are

482
00:25:18,320 --> 00:25:20,840
Speaker 4: excited about it now because you have new resources and

483
00:25:20,920 --> 00:25:24,640
Speaker 4: new technologies that make that orchestration better. So in the past,

484
00:25:24,680 --> 00:25:26,359
Speaker 4: all we had just like a hard switch on an

485
00:25:26,400 --> 00:25:28,840
Speaker 4: AC unit. Now you have the smart thermostat, so you

486
00:25:28,880 --> 00:25:31,040
Speaker 4: can optimize that and make it so that the customer

487
00:25:31,080 --> 00:25:34,280
Speaker 4: doesn't even feel that you're making minor changes to their thermacy.

488
00:25:49,280 --> 00:25:51,800
Speaker 3: Let's feel about load growth. So obviously operate a lot

489
00:25:51,840 --> 00:25:54,280
Speaker 3: of the Southeast. We've seen a lot of the sort

490
00:25:54,320 --> 00:25:59,200
Speaker 3: of new industrialization endeavors battery plants and car plants, et cetera.

491
00:25:59,280 --> 00:26:02,359
Speaker 3: I imagine a lot of these entities are Duke Power

492
00:26:02,480 --> 00:26:06,119
Speaker 3: customers talk to us about Okay, I'm setting up a

493
00:26:06,160 --> 00:26:08,320
Speaker 3: new battery plan, I'm looking for a site. How long

494
00:26:08,400 --> 00:26:10,159
Speaker 3: does it take me to plug in? And what does

495
00:26:10,240 --> 00:26:13,320
Speaker 3: that whole process look like when I come to say, hey,

496
00:26:13,320 --> 00:26:15,719
Speaker 3: I'm thinking about I got some tax credit, I got

497
00:26:15,760 --> 00:26:17,240
Speaker 3: some money from the government. I want to build a

498
00:26:17,280 --> 00:26:20,399
Speaker 3: plant somewhere in South Carolina or something like that. How

499
00:26:20,440 --> 00:26:22,200
Speaker 3: long does it take until I could actually plug in

500
00:26:22,240 --> 00:26:26,320
Speaker 3: and get power from you? Yeah, well, unfortunately it all depends, okay.

501
00:26:26,480 --> 00:26:29,560
Speaker 4: And so when I mentioned there's those restructured markets, there's

502
00:26:29,760 --> 00:26:33,120
Speaker 4: the vertically integrated markets. When it's vertically integrated, we can

503
00:26:33,640 --> 00:26:35,359
Speaker 4: see the whole system. We can plan for it. So

504
00:26:35,400 --> 00:26:37,960
Speaker 4: if we know large customers coming, we would put it

505
00:26:38,000 --> 00:26:40,720
Speaker 4: in what we call our integrated resource plan. So you'll

506
00:26:40,800 --> 00:26:44,400
Speaker 4: often hear IRP. So we're planning making sure that generation

507
00:26:44,600 --> 00:26:46,520
Speaker 4: is there. If you're in a restructured market, it's a

508
00:26:46,560 --> 00:26:49,320
Speaker 4: bit more complicated. A lot of times, utilities aren't necessarily

509
00:26:49,400 --> 00:26:51,800
Speaker 4: in control of that here at the whims of what

510
00:26:52,040 --> 00:26:55,400
Speaker 4: is trying to be interconnected in queues and so forth,

511
00:26:55,480 --> 00:26:58,280
Speaker 4: and so there has to be certain bilatter agreements that

512
00:26:58,400 --> 00:27:00,879
Speaker 4: the customer would have to make perhaps up. But in

513
00:27:00,960 --> 00:27:04,639
Speaker 4: a vertically integrated market and in a restructured market, you

514
00:27:04,800 --> 00:27:07,200
Speaker 4: do have the teams on the ground that work with

515
00:27:07,359 --> 00:27:11,520
Speaker 4: that company. They find sites maybe that have been already

516
00:27:11,880 --> 00:27:15,800
Speaker 4: just made ready for an economic development opportunity, so that

517
00:27:15,920 --> 00:27:18,960
Speaker 4: customer would come in, they would give the specifications, the power,

518
00:27:19,320 --> 00:27:23,760
Speaker 4: the size workforce, and there'd be a matchmaking and that

519
00:27:23,880 --> 00:27:27,320
Speaker 4: matchmaking could actually be pretty quick, depending on if there's

520
00:27:27,359 --> 00:27:29,880
Speaker 4: a site already ready. If there isn't, that will take

521
00:27:29,920 --> 00:27:32,600
Speaker 4: more time, and then they have to acquire the land

522
00:27:33,200 --> 00:27:35,840
Speaker 4: they have to build at the same time they're building

523
00:27:36,320 --> 00:27:40,840
Speaker 4: the utilities, building infrastructure, wires, infrastructure to serve them, and

524
00:27:40,960 --> 00:27:43,480
Speaker 4: so it could be a year, it could be five years.

525
00:27:43,560 --> 00:27:45,680
Speaker 4: It really depends on the site and how fast that

526
00:27:45,760 --> 00:27:47,840
Speaker 4: customer wants to ramp up. But we know a lot

527
00:27:47,880 --> 00:27:50,240
Speaker 4: of times to build a new manufacturer, they can't do

528
00:27:50,359 --> 00:27:53,760
Speaker 4: that overnight. And then you have the new complexity of

529
00:27:53,800 --> 00:27:58,960
Speaker 4: supply chain. There's supply chain constraints on some key equipment

530
00:27:59,160 --> 00:27:59,560
Speaker 4: out there.

531
00:28:00,119 --> 00:28:03,240
Speaker 2: This is our chance to talk about transformers, right, Yeah,

532
00:28:03,560 --> 00:28:05,880
Speaker 2: that's been going on for what like four years now.

533
00:28:06,720 --> 00:28:10,040
Speaker 3: So for the latest ism, electrical components have been in

534
00:28:10,160 --> 00:28:12,160
Speaker 3: shortage now for four years and two months.

535
00:28:12,240 --> 00:28:14,320
Speaker 2: That's crazy. How are you guys handling that?

536
00:28:14,800 --> 00:28:15,000
Speaker 3: Yeah?

537
00:28:15,320 --> 00:28:18,399
Speaker 4: Luckily, you know we can use our size and you know,

538
00:28:18,480 --> 00:28:21,000
Speaker 4: move things between states if we need to, and work

539
00:28:21,040 --> 00:28:24,440
Speaker 4: with suppliers. And there's the utility industry in general is

540
00:28:24,640 --> 00:28:26,960
Speaker 4: very collaborative, especially when you have emergencies.

541
00:28:27,359 --> 00:28:27,479
Speaker 3: Right.

542
00:28:27,560 --> 00:28:30,920
Speaker 4: So we when we were hit with all these hurricanes

543
00:28:30,960 --> 00:28:33,200
Speaker 4: this last season, we had to replace I think it

544
00:28:33,280 --> 00:28:36,159
Speaker 4: was like eighteen thousand transformers, right, and so there was

545
00:28:36,240 --> 00:28:39,560
Speaker 4: there's industry collaboration that makes that all work. But the

546
00:28:39,720 --> 00:28:44,280
Speaker 4: real issue gets into these large power transformers for large customers,

547
00:28:44,920 --> 00:28:47,400
Speaker 4: and you know, those just take such a long time

548
00:28:47,600 --> 00:28:51,440
Speaker 4: to build and there's limited production lines for them, and

549
00:28:51,600 --> 00:28:54,040
Speaker 4: so it definitely you know, keeps folks up at night

550
00:28:54,160 --> 00:28:58,000
Speaker 4: as we look to expand and reshore. Manufacturing.

551
00:28:58,240 --> 00:29:01,360
Speaker 2: Ye, so Joe asked you how long it would take

552
00:29:01,440 --> 00:29:05,080
Speaker 2: to plug in a battery manufacturing plant or something like that.

553
00:29:06,040 --> 00:29:08,800
Speaker 2: I'm not starting a battery manufacturing plant, I'm doing a

554
00:29:08,920 --> 00:29:14,040
Speaker 2: data center. How much more complicated or different is that process?

555
00:29:14,200 --> 00:29:17,240
Speaker 2: If I'm running a data center versus batteries might not

556
00:29:17,360 --> 00:29:19,400
Speaker 2: necessarily fit into this box, but sort of run of

557
00:29:19,440 --> 00:29:20,880
Speaker 2: the mill manufacturing base.

558
00:29:21,040 --> 00:29:25,120
Speaker 4: Ye, most standard manufacturers are a lot smaller in size

559
00:29:25,560 --> 00:29:28,720
Speaker 4: than a data center spertusly some of the newer data centers,

560
00:29:28,760 --> 00:29:31,800
Speaker 4: and you can think some AI data centers, those can

561
00:29:32,120 --> 00:29:35,120
Speaker 4: be a gigawot in most manufacturing. As you know, five

562
00:29:35,240 --> 00:29:39,280
Speaker 4: hundred megwats tops typically you always have outliers and for

563
00:29:39,360 --> 00:29:42,600
Speaker 4: the most part it's below one hundred megawats, So all

564
00:29:42,600 --> 00:29:45,719
Speaker 4: of a sudden you have this big size differential. There

565
00:29:45,840 --> 00:29:47,600
Speaker 4: can be a little bit of speed differential there too,

566
00:29:47,640 --> 00:29:50,800
Speaker 4: where the data center can move quicker. But this really

567
00:29:51,520 --> 00:29:54,560
Speaker 4: impacts especially smaller utilities. Douke has a huge system, so

568
00:29:54,840 --> 00:29:56,959
Speaker 4: you know, we can absorb some of this, But if

569
00:29:57,000 --> 00:30:00,440
Speaker 4: you're a smaller utility and you have a two gigawat

570
00:30:00,600 --> 00:30:02,680
Speaker 4: peak and all of a sudden a data center comes

571
00:30:02,720 --> 00:30:06,680
Speaker 4: in with a gigawat load, that's huge. And what if

572
00:30:06,920 --> 00:30:09,280
Speaker 4: they don't materialize, or what if they're in business for

573
00:30:09,400 --> 00:30:13,280
Speaker 4: ten years and then they go away? That fundamentally creates

574
00:30:13,360 --> 00:30:15,520
Speaker 4: the stranded cost that all the customers have to pay.

575
00:30:15,600 --> 00:30:17,959
Speaker 4: So these are the tricky issues that are popping up.

576
00:30:18,280 --> 00:30:22,440
Speaker 4: And then you layer on clean energy, right do you

577
00:30:22,520 --> 00:30:24,800
Speaker 4: want to have to build new fossil for that? And

578
00:30:25,040 --> 00:30:27,400
Speaker 4: a lot of data center companies also they have clean

579
00:30:27,520 --> 00:30:30,800
Speaker 4: energy goals. So how do you start to marry these complexities?

580
00:30:30,920 --> 00:30:31,320
Speaker 3: Yeah, how do.

581
00:30:33,960 --> 00:30:36,920
Speaker 2: Multi multi dimensional longs like how many more hours?

582
00:30:38,680 --> 00:30:40,880
Speaker 4: A lot of tools and tools. You start with smart

583
00:30:40,960 --> 00:30:43,720
Speaker 4: contracting and tariffs on the front end to protect all

584
00:30:43,800 --> 00:30:48,480
Speaker 4: customers in case something doesn't happen. Basically, it would be saying, hey,

585
00:30:48,560 --> 00:30:51,960
Speaker 4: you have obligations customer, as we build out the grid

586
00:30:52,080 --> 00:30:54,360
Speaker 4: for you to connect, it'll be X amount of dollars.

587
00:30:54,840 --> 00:30:55,640
Speaker 3: You've got to pay that.

588
00:30:55,760 --> 00:30:58,120
Speaker 4: Even if you don't just like a purchase commitment kind

589
00:30:58,120 --> 00:31:00,600
Speaker 4: of yeah, pretty much, so you know letter and then

590
00:31:01,160 --> 00:31:04,400
Speaker 4: there's longer term agreements too where and these are newer

591
00:31:04,640 --> 00:31:05,880
Speaker 4: where if you said you were going to use five

592
00:31:05,960 --> 00:31:08,880
Speaker 4: hundred megawats and you're only using two hundred, you've got

593
00:31:08,920 --> 00:31:11,040
Speaker 4: to compensate for a portion of that because we've had

594
00:31:11,080 --> 00:31:14,680
Speaker 4: to build new resources generation resources to handle you, right,

595
00:31:15,000 --> 00:31:17,040
Speaker 4: and so you've got to cover that, and then you

596
00:31:17,120 --> 00:31:20,840
Speaker 4: can get into different pricing elements where you have maybe

597
00:31:20,920 --> 00:31:24,320
Speaker 4: time of use based rates, and then you marry that

598
00:31:24,520 --> 00:31:27,120
Speaker 4: with new ways to bring them clean energy and for

599
00:31:27,280 --> 00:31:30,040
Speaker 4: them to contribute to clean energy. And that is really

600
00:31:30,320 --> 00:31:32,600
Speaker 4: sort of the frontier and the exciting stuff. And Duke

601
00:31:32,880 --> 00:31:36,320
Speaker 4: announced a partnership with a lot of the hyperscalers and

602
00:31:36,520 --> 00:31:39,760
Speaker 4: new Core earlier this year. That gets into execuve that

603
00:31:39,800 --> 00:31:42,600
Speaker 4: how do you accelerate clean energy in a sustainable way financially?

604
00:31:44,080 --> 00:31:47,280
Speaker 2: Is it inevitable that, like non metered, that system is

605
00:31:47,360 --> 00:31:49,960
Speaker 2: going to go out of style in a lot of jurisdictions.

606
00:31:50,000 --> 00:31:53,000
Speaker 2: I know Hawaii ended it recently, I think, And then

607
00:31:53,120 --> 00:31:55,680
Speaker 2: I think you guys did something in North Carolina relatively

608
00:31:55,760 --> 00:31:58,719
Speaker 2: recently that went to court. Am I getting in at

609
00:31:59,000 --> 00:32:00,280
Speaker 2: exactly the wrong time?

610
00:32:00,800 --> 00:32:03,719
Speaker 4: Well, you're probably getting in in the right time if

611
00:32:03,760 --> 00:32:06,960
Speaker 4: you're thinking about you individually and your maximization and not

612
00:32:07,120 --> 00:32:12,480
Speaker 4: societies and so because because a lot of times your

613
00:32:12,520 --> 00:32:15,000
Speaker 4: grandfather did once, you make that, so you'll be protected

614
00:32:15,080 --> 00:32:17,720
Speaker 4: for ten, maybe twenty years, So you probably made the

615
00:32:17,920 --> 00:32:21,920
Speaker 4: right individual purchase decision. Net metering has been reformed and

616
00:32:22,080 --> 00:32:25,080
Speaker 4: most major markets are ready and it's just reflecting the

617
00:32:25,160 --> 00:32:27,520
Speaker 4: fact of hey, does this add value to the network

618
00:32:27,640 --> 00:32:31,280
Speaker 4: or subtract value? Is it financially scalable? And then also

619
00:32:31,440 --> 00:32:33,640
Speaker 4: if you're a clean energy advocate, you would look at

620
00:32:33,640 --> 00:32:36,440
Speaker 4: the price per carbon saved And so in Connecticut you

621
00:32:36,560 --> 00:32:38,800
Speaker 4: have a lot of nuclear clean energy, right, and so

622
00:32:39,440 --> 00:32:43,360
Speaker 4: you're just how much COQO saving one clean energy for

623
00:32:43,400 --> 00:32:43,880
Speaker 4: another one?

624
00:32:44,000 --> 00:32:47,240
Speaker 2: There's actually not that much nuclear in my mind, because

625
00:32:47,280 --> 00:32:49,520
Speaker 2: I think we send it elsewhere is part of the

626
00:32:49,600 --> 00:32:52,000
Speaker 2: problem looking at the overall grid mix.

627
00:32:52,160 --> 00:32:54,719
Speaker 4: It's always good, it's always good to calculate what you're

628
00:32:54,760 --> 00:32:58,080
Speaker 4: paying per CO two saved. And I've done this for

629
00:32:58,160 --> 00:33:01,680
Speaker 4: Connecticut in my past life, and back then it was

630
00:33:02,080 --> 00:33:05,040
Speaker 4: one of the most expensive ways to reduce carbon was

631
00:33:05,680 --> 00:33:06,440
Speaker 4: solar in Connecticut.

632
00:33:06,480 --> 00:33:14,040
Speaker 3: So the future of solar is centralized solar farms or

633
00:33:14,160 --> 00:33:15,960
Speaker 3: if like somebody.

634
00:33:15,720 --> 00:33:17,280
Speaker 4: Like that, you know, we need we need it on

635
00:33:17,400 --> 00:33:20,040
Speaker 4: every scale. But really there's a lot of promise in

636
00:33:20,240 --> 00:33:22,640
Speaker 4: distributed energy resources. You just have to get the pricing

637
00:33:22,760 --> 00:33:25,400
Speaker 4: right and you have to get that combination of technologies right.

638
00:33:25,480 --> 00:33:28,480
Speaker 4: So at the home, if you had a controllable thermostart

639
00:33:28,760 --> 00:33:32,120
Speaker 4: and you had battery storage and things to complement that

640
00:33:32,360 --> 00:33:35,640
Speaker 4: solar system. Then it's creating all these other values. And

641
00:33:35,760 --> 00:33:37,680
Speaker 4: that's what we did in South Carolina and partnership with

642
00:33:37,720 --> 00:33:39,560
Speaker 4: the solar industries, we said, hey, how can we make

643
00:33:39,600 --> 00:33:43,960
Speaker 4: these resources more valuable and then form compensation structures that

644
00:33:44,400 --> 00:33:47,400
Speaker 4: the industry can sell customers on. And so that's what

645
00:33:47,520 --> 00:33:49,360
Speaker 4: we did, and so we launched power Pair, which is

646
00:33:49,360 --> 00:33:52,480
Speaker 4: a large solar plus storage program that does exactly that

647
00:33:52,720 --> 00:33:56,280
Speaker 4: encourages solar plus storage coupling, and then it's tied to

648
00:33:56,360 --> 00:33:59,160
Speaker 4: time of use rates and also controllable batteries, so we're

649
00:33:59,440 --> 00:34:02,240
Speaker 4: using that during peak time. So there's room for that,

650
00:34:02,480 --> 00:34:05,720
Speaker 4: there's good space for that, and including on like commercial

651
00:34:05,800 --> 00:34:10,080
Speaker 4: industrial scale, and then you also absolutely need the centralized

652
00:34:10,160 --> 00:34:12,960
Speaker 4: large scale that brings us great economies of scale to

653
00:34:13,040 --> 00:34:13,520
Speaker 4: the system.

654
00:34:14,560 --> 00:34:18,799
Speaker 3: What happened to the grid or the price that people

655
00:34:19,160 --> 00:34:22,880
Speaker 3: pay for electricity? So there isn't a lot of new nuclear.

656
00:34:22,960 --> 00:34:25,800
Speaker 3: There's some restarting of plants, and there's that one in

657
00:34:25,840 --> 00:34:28,880
Speaker 3: Pennsylvania that one of the big tech companies is behind,

658
00:34:29,480 --> 00:34:31,120
Speaker 3: though I don't even think it had been closed all

659
00:34:31,200 --> 00:34:33,600
Speaker 3: that long. The only like sort of like true recent

660
00:34:33,719 --> 00:34:37,120
Speaker 3: nuclear were those reactors in Georgia. What happens the day after.

661
00:34:37,520 --> 00:34:42,080
Speaker 3: So you spend billions of dollars on tons of upfront cost,

662
00:34:42,160 --> 00:34:45,320
Speaker 3: tons of upfront time getting these new reactors on what

663
00:34:45,480 --> 00:34:47,520
Speaker 3: happens to the next day when there's just tons more

664
00:34:47,840 --> 00:34:49,960
Speaker 3: at that point kind of free electricity on the grid.

665
00:34:50,960 --> 00:34:54,840
Speaker 4: Yeah, so it gets to unit order and dispatch, and

666
00:34:55,080 --> 00:34:59,480
Speaker 4: so grid operators are constantly trying to optimize the system

667
00:34:59,800 --> 00:35:03,799
Speaker 4: for economics for the most part, right, And so when

668
00:35:03,840 --> 00:35:06,920
Speaker 4: you have a new generation resource that has a very

669
00:35:07,040 --> 00:35:11,160
Speaker 4: low marginal price of production, that's going to then reduce

670
00:35:11,280 --> 00:35:14,600
Speaker 4: the output from plants out of a higher cost of production,

671
00:35:15,280 --> 00:35:18,440
Speaker 4: and so things sort of get restacked and reordered in

672
00:35:18,600 --> 00:35:21,360
Speaker 4: terms of the merit of what's going on in the system.

673
00:35:21,800 --> 00:35:24,960
Speaker 4: And that's why natural gas is such a versatile resource

674
00:35:25,080 --> 00:35:28,920
Speaker 4: because it can go from sort of higher output to

675
00:35:29,480 --> 00:35:32,800
Speaker 4: a lower output more of a peaking capability, and so

676
00:35:33,160 --> 00:35:35,840
Speaker 4: that's why gas is just such a great sort of

677
00:35:35,960 --> 00:35:39,640
Speaker 4: intermediate type of technology to balance all all of that.

678
00:35:40,160 --> 00:35:42,560
Speaker 4: And so that's essentially what happens. And then you know,

679
00:35:42,680 --> 00:35:44,959
Speaker 4: you have load growth and other things that then start

680
00:35:45,080 --> 00:35:47,800
Speaker 4: to reform the original set of conditions.

681
00:35:48,280 --> 00:35:51,759
Speaker 2: Okay, so you mentioned the revenue requirement as the sort

682
00:35:51,800 --> 00:35:54,520
Speaker 2: of all important number that you are working towards. How

683
00:35:54,560 --> 00:35:56,920
Speaker 2: do you actually start to design the rates so that

684
00:35:57,080 --> 00:35:58,600
Speaker 2: you hit that magic figure?

685
00:35:59,040 --> 00:36:02,719
Speaker 3: Great question. First, you've got different classes of customers.

686
00:36:03,040 --> 00:36:05,120
Speaker 4: Industrial load profiles are going to look different than a

687
00:36:05,160 --> 00:36:08,560
Speaker 4: residential load profile, right, And then you have classifications of

688
00:36:08,719 --> 00:36:12,520
Speaker 4: what type of system assets you're recovering for. So are

689
00:36:12,560 --> 00:36:16,640
Speaker 4: you covering for energy related, capacity related fixed infrastructure like

690
00:36:16,719 --> 00:36:19,360
Speaker 4: the pull outside your house, And so you break this

691
00:36:19,480 --> 00:36:23,239
Speaker 4: all up, and then you have certain methods to know, well, hey,

692
00:36:23,400 --> 00:36:27,560
Speaker 4: this customer class is using a lot more transmission first distribution,

693
00:36:28,000 --> 00:36:31,440
Speaker 4: and so you have these allocations. From there you figure out, well,

694
00:36:31,480 --> 00:36:35,399
Speaker 4: what pricing can I set to recover the revenue card,

695
00:36:35,440 --> 00:36:38,640
Speaker 4: because again, this is recovering the investment that investors have made, right,

696
00:36:38,680 --> 00:36:40,880
Speaker 4: Like this is critical, Like if you don't capture this,

697
00:36:41,160 --> 00:36:45,520
Speaker 4: your credit metrics just go south. And it's extremely expensive

698
00:36:45,719 --> 00:36:49,120
Speaker 4: to borrow money. And this infrastructure game is all about

699
00:36:49,239 --> 00:36:52,480
Speaker 4: long term investment, So a change in your borrowing rate

700
00:36:52,640 --> 00:36:55,480
Speaker 4: has a huge ripple effect on the costs for all

701
00:36:55,560 --> 00:36:58,640
Speaker 4: the customers in that jurisdiction. So that's why it's really

702
00:36:58,680 --> 00:37:02,160
Speaker 4: important to collect that revenor requirement. But at the same time,

703
00:37:02,600 --> 00:37:05,040
Speaker 4: you have to send the right price signals to customers

704
00:37:05,080 --> 00:37:06,800
Speaker 4: because you don't want to just have them pay that

705
00:37:06,800 --> 00:37:07,560
Speaker 4: one hundred dollars.

706
00:37:07,719 --> 00:37:07,839
Speaker 2: Right.

707
00:37:08,719 --> 00:37:11,040
Speaker 4: And in the past, it was all value metric because

708
00:37:11,080 --> 00:37:13,640
Speaker 4: we didn't have the meters. This is especially for residential

709
00:37:13,719 --> 00:37:15,800
Speaker 4: You didn't have the meters to do anything other you

710
00:37:15,840 --> 00:37:17,680
Speaker 4: can do a demand charge, you can do time of

711
00:37:17,800 --> 00:37:21,360
Speaker 4: use rates. At some point we actually did have meters,

712
00:37:21,400 --> 00:37:23,360
Speaker 4: but you have to roll out a truck to the

713
00:37:23,440 --> 00:37:25,560
Speaker 4: customer to get them on a time of use rates.

714
00:37:25,600 --> 00:37:28,080
Speaker 4: So you had to drive somebody there swap out the meter. Right,

715
00:37:28,320 --> 00:37:32,239
Speaker 4: it's incredibly expensive. We've now with advanced meter and we

716
00:37:32,320 --> 00:37:34,680
Speaker 4: can get around that. So now we can introduce price

717
00:37:34,719 --> 00:37:37,480
Speaker 4: and that's more accurate to like how the system actually works. Right,

718
00:37:37,760 --> 00:37:40,680
Speaker 4: But there's still reluctance to go much more complicated on

719
00:37:40,719 --> 00:37:44,480
Speaker 4: the residential side because of just how customers understand their energy.

720
00:37:45,040 --> 00:37:47,719
Speaker 3: Last question. When Tracy gets a big discount on her

721
00:37:47,840 --> 00:37:52,440
Speaker 3: electricity because of her solar, there's still all of these

722
00:37:52,560 --> 00:37:54,840
Speaker 3: costs that have to be born and you mentioned that earlier,

723
00:37:54,960 --> 00:37:56,080
Speaker 3: So who's paying the cost now?

724
00:37:56,960 --> 00:38:01,120
Speaker 4: Basically everybody else that does not have that solar It

725
00:38:01,200 --> 00:38:05,959
Speaker 4: gets reconstituted. Don't let you directly because this is a member.

726
00:38:06,000 --> 00:38:07,880
Speaker 4: This is a fixed infrastructure system. So this is not

727
00:38:08,040 --> 00:38:11,240
Speaker 4: like tennis shoes or candy, right. This is a big network,

728
00:38:11,239 --> 00:38:14,120
Speaker 4: one of the largest, most complicated networks, the first network

729
00:38:14,160 --> 00:38:18,600
Speaker 4: of modern civilization pretty much. And so that ncent infrastructure

730
00:38:18,600 --> 00:38:21,320
Speaker 4: gets just you know, spread out to others.

731
00:38:21,600 --> 00:38:27,319
Speaker 2: Right, So cry harder about con Edison. Joe, I'm free.

732
00:38:27,880 --> 00:38:32,320
Speaker 2: I'm an independent energy supplier now kind of, Lon Hubert,

733
00:38:32,360 --> 00:38:33,960
Speaker 2: thank you so much for coming on all thoughts.

734
00:38:34,080 --> 00:38:48,040
Speaker 4: Thank you for having me, Joe.

735
00:38:48,080 --> 00:38:50,160
Speaker 2: That was pretty fun to learn why I'm the problem.

736
00:38:51,200 --> 00:38:53,240
Speaker 3: We've discovered that you're the problem.

737
00:38:53,440 --> 00:38:55,439
Speaker 2: I mean, I do think like there are so many

738
00:38:55,640 --> 00:38:58,800
Speaker 2: renewable energy solutions out there, and all of them do

739
00:38:58,960 --> 00:39:02,600
Speaker 2: seem to come with some form of downside. Whether it's

740
00:39:02,719 --> 00:39:05,759
Speaker 2: like the very significant capital investments that you have to

741
00:39:05,800 --> 00:39:09,080
Speaker 2: pony up for stuff that ends up being like very intermittent,

742
00:39:09,280 --> 00:39:13,759
Speaker 2: whether it's the idea of net metered customers being subsidized

743
00:39:13,760 --> 00:39:17,560
Speaker 2: by non net metered customers for their grid use. Everything

744
00:39:17,760 --> 00:39:18,920
Speaker 2: just seems very complicated.

745
00:39:19,320 --> 00:39:20,960
Speaker 3: First of all, it's really helpful. I know this is

746
00:39:21,000 --> 00:39:23,759
Speaker 3: the most basic thing, but it's really helpful to remember that,

747
00:39:23,920 --> 00:39:27,000
Speaker 3: like fuel is just this marginal cost of what you're

748
00:39:27,040 --> 00:39:30,520
Speaker 3: paying for. Yeah, that there's everything. There's the line, and

749
00:39:30,760 --> 00:39:34,360
Speaker 3: there's the production. And he mentioned tree trimming, which is

750
00:39:34,480 --> 00:39:37,319
Speaker 3: huge because that's a source of wildfires in a lot

751
00:39:37,360 --> 00:39:40,120
Speaker 3: of areas when the lines touch trees. So there's all

752
00:39:40,239 --> 00:39:43,800
Speaker 3: these huge costs, and so it becomes very intuitive that

753
00:39:44,280 --> 00:39:46,440
Speaker 3: you can add a bunch of solar panels, either on

754
00:39:46,920 --> 00:39:50,160
Speaker 3: individual households or across the grid in general, and see

755
00:39:50,200 --> 00:39:53,120
Speaker 3: why not only does it not like move the dial down,

756
00:39:53,239 --> 00:39:54,960
Speaker 3: I don't know if it moves the dial at all. Well,

757
00:39:55,080 --> 00:39:56,120
Speaker 3: just move other people.

758
00:39:56,160 --> 00:39:58,719
Speaker 2: Well, he did say it was marginally helpful the fuel cost,

759
00:39:58,800 --> 00:40:00,600
Speaker 2: but to your point, the fuel cost are not the

760
00:40:00,680 --> 00:40:03,160
Speaker 2: big thing here. But it was also very interesting to

761
00:40:03,280 --> 00:40:06,440
Speaker 2: just hear how a utility kind of thinks about designing

762
00:40:06,760 --> 00:40:09,719
Speaker 2: those rates and all the different like considerations that go

763
00:40:09,920 --> 00:40:12,400
Speaker 2: into spitting those final numbers out. I guess I hadn't

764
00:40:12,440 --> 00:40:15,920
Speaker 2: realized like how individualized some of them actually are. Like

765
00:40:16,040 --> 00:40:19,120
Speaker 2: I know that we're not all paying a flat number, obviously,

766
00:40:19,600 --> 00:40:24,160
Speaker 2: but like the differences across residential and commercial and data

767
00:40:24,239 --> 00:40:27,440
Speaker 2: centers versus a battery plant or something like that so.

768
00:40:27,440 --> 00:40:30,560
Speaker 3: Also are here just very interesting hearing the different types

769
00:40:30,760 --> 00:40:33,600
Speaker 3: of because there's two things, right, There's different types of

770
00:40:33,640 --> 00:40:36,880
Speaker 3: electricity market structure, and then there's also different types of

771
00:40:36,960 --> 00:40:40,239
Speaker 3: markets by virtue of their weather. It's about Arizona versus

772
00:40:40,239 --> 00:40:43,120
Speaker 3: the Midwest versus the southeast. But it's interesting to think,

773
00:40:43,200 --> 00:40:45,160
Speaker 3: you know, like every couple of years now or maybe

774
00:40:45,160 --> 00:40:48,360
Speaker 3: every year, you hear about a blackout in Texas, and

775
00:40:48,480 --> 00:40:51,960
Speaker 3: Texas obviously makes it incredibly easy for pretty much the

776
00:40:52,000 --> 00:40:54,160
Speaker 3: producer of any kind of power to plug in and

777
00:40:54,280 --> 00:40:56,200
Speaker 3: start selling their generation instantly.

778
00:40:56,560 --> 00:40:59,080
Speaker 2: And they've got lots of sun, lots of others stuff.

779
00:40:58,880 --> 00:41:00,120
Speaker 3: They've got a lot of wind, they got everything. But

780
00:41:00,200 --> 00:41:03,760
Speaker 3: what they don't have is any guaranteed payments. That's spare

781
00:41:03,840 --> 00:41:06,359
Speaker 3: capacity that is not getting paid during most of those

782
00:41:06,400 --> 00:41:08,080
Speaker 3: sunny days, but then on the day when it's that

783
00:41:08,160 --> 00:41:11,640
Speaker 3: crazy sunny or crazy snowy or whatever, suddenly it needs

784
00:41:11,680 --> 00:41:12,239
Speaker 3: to be turned on.

785
00:41:12,480 --> 00:41:14,200
Speaker 2: Well, you asked that question about how do you like

786
00:41:14,440 --> 00:41:18,680
Speaker 2: actually incentivize big nuclear power plants that cost a lot

787
00:41:18,800 --> 00:41:21,520
Speaker 2: of money when you know someone knows that if they

788
00:41:21,560 --> 00:41:23,960
Speaker 2: build a nuclear power plant, they might not get like

789
00:41:24,400 --> 00:41:27,640
Speaker 2: a particular rate for x amount of years, and I

790
00:41:27,680 --> 00:41:30,280
Speaker 2: think we're back to why solar is the problem?

791
00:41:30,400 --> 00:41:32,239
Speaker 3: But no, I don't think it even just did it.

792
00:41:32,360 --> 00:41:34,160
Speaker 3: But I do think it's like, I mean, look, I

793
00:41:34,280 --> 00:41:37,520
Speaker 3: just think it'll be very interesting under this next administration

794
00:41:38,000 --> 00:41:39,840
Speaker 3: because I do think that there are a lot of

795
00:41:39,960 --> 00:41:42,760
Speaker 3: people who are like, solar is part of the solution.

796
00:41:43,760 --> 00:41:46,600
Speaker 3: Nuclear is part of the solution. And by when I

797
00:41:46,640 --> 00:41:49,239
Speaker 3: say solution, I mean the problem of how do you

798
00:41:49,280 --> 00:41:50,239
Speaker 3: get more electricity?

799
00:41:50,520 --> 00:41:52,640
Speaker 2: Right, not more, but put it all together?

800
00:41:52,719 --> 00:41:55,239
Speaker 3: And it's not really that they get together. And it

801
00:41:55,320 --> 00:41:57,480
Speaker 3: almost does seem, at least in some markets, like you

802
00:41:57,600 --> 00:41:59,120
Speaker 3: sort of have to pick one or the other. So

803
00:41:59,680 --> 00:42:03,040
Speaker 3: lots of fascinating I guess question marks about how this evolves.

804
00:42:02,840 --> 00:42:05,600
Speaker 2: Or figure out a new way to design the grid

805
00:42:05,920 --> 00:42:08,200
Speaker 2: or new storage is probably what we really need.

806
00:42:08,239 --> 00:42:10,120
Speaker 3: Battery breakthrough, ye, which could solve everything.

807
00:42:10,239 --> 00:42:12,759
Speaker 2: All right, someone, please, you know, start working on that

808
00:42:12,840 --> 00:42:15,839
Speaker 2: battery now, because you probably haven't realized it's this much

809
00:42:15,840 --> 00:42:18,120
Speaker 2: of a problem, so you can get started now, all right,

810
00:42:18,160 --> 00:42:18,839
Speaker 2: shall we leave it there?

811
00:42:18,960 --> 00:42:19,600
Speaker 3: Let's leave it there.

812
00:42:19,920 --> 00:42:22,480
Speaker 2: This has been another episode of the All Thoughts podcast.

813
00:42:22,640 --> 00:42:25,719
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway and.

814
00:42:25,760 --> 00:42:28,200
Speaker 3: I'm Joe Wisenthal. You can follow me at the Stalwart,

815
00:42:28,360 --> 00:42:31,359
Speaker 3: Follow Lon Huber on Twitter at Lon Huber. Follow our

816
00:42:31,400 --> 00:42:34,759
Speaker 3: producers Krman Rodriguez at Kerman Arman, dash Ol Bennett at

817
00:42:34,840 --> 00:42:37,840
Speaker 3: Dashbod and Kilbrooks at Kilbrooks. Thank you to our producer

818
00:42:37,920 --> 00:42:41,200
Speaker 3: Moses On. For more odlogs content, go to Bloomberg dot

819
00:42:41,239 --> 00:42:43,480
Speaker 3: com slash od loots, where you have transcripts, a blog

820
00:42:43,520 --> 00:42:45,799
Speaker 3: and a daily newsletter and you can chat about all

821
00:42:45,840 --> 00:42:48,160
Speaker 3: of these topics twenty four to seven in our discord

822
00:42:48,280 --> 00:42:50,960
Speaker 3: discord dot gg slash odlines.

823
00:42:50,719 --> 00:42:52,920
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824
00:42:53,120 --> 00:42:56,319
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825
00:42:56,360 --> 00:43:00,400
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826
00:43:00,440 --> 00:43:03,080
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827
00:43:03,160 --> 00:43:06,040
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828
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829
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