WEBVTT - This Is How Electricity Rates Are Actually Set 0:00:02.560 --> 0:00:16.680 Bloomberg Audio Studios, Podcasts, radio News. 0:00:18.880 --> 0:00:22.040 Hello and welcome to another episode of the All Thoughts podcast. 0:00:22.160 --> 0:00:23.800 I'm Tracy Alloway and I'm Joe. 0:00:24.000 --> 0:00:24.759 Isn't it Joe? 0:00:24.760 --> 0:00:25.720 I have big news for you. 0:00:26.120 --> 0:00:26.400 Go on. 0:00:26.920 --> 0:00:29.560 I'm an electricity generator now, oh yeah, tell me what 0:00:30.160 --> 0:00:32.080 this is big news in my personal life. I am 0:00:32.120 --> 0:00:35.479 finally the proud owner of a pretty big solar panel 0:00:35.760 --> 0:00:38.240 that is feeding into the grid in Connecticut. 0:00:38.560 --> 0:00:39.559 How's that going so far? 0:00:39.800 --> 0:00:39.960 Are you? 0:00:40.320 --> 0:00:40.519 Has it? 0:00:41.159 --> 0:00:41.199 So? 0:00:41.360 --> 0:00:42.880 I got your lower electricity bills. 0:00:43.000 --> 0:00:45.360 I got one electricity bill so far and it was 0:00:45.360 --> 0:00:49.000 about twenty dollars for a few weeks, which is amazing. However, 0:00:49.240 --> 0:00:53.680 I have also experienced my own intermittent energy problems because 0:00:53.720 --> 0:00:58.400 we are recording today on December fifth, and in case 0:00:58.440 --> 0:01:01.240 you don't know, it's been snowing up in New England 0:01:01.440 --> 0:01:04.200 and the solar panels are covered with about eight inches 0:01:04.240 --> 0:01:06.360 of snow, so they're. 0:01:05.560 --> 0:01:06.800 Not producing any electricity. 0:01:06.920 --> 0:01:10.240 Yeah, all the electricity is out. We have a power generator, 0:01:10.400 --> 0:01:13.280 so that's kicked on. But I'm now learning one of 0:01:13.319 --> 0:01:15.040 the downsides of renewable energy. 0:01:15.400 --> 0:01:17.200 No, it's like perfect. This is the end of the 0:01:17.240 --> 0:01:19.319 conversation right here. It's cheap, but it's interman. 0:01:19.560 --> 0:01:22.360 It's cheap and intermitt Yeah, that's basically it. But you know, 0:01:22.480 --> 0:01:24.920 it got me thinking, I'm not in Connecticut at the moment. 0:01:25.000 --> 0:01:27.360 We are both in Washington, d C. For a big 0:01:27.600 --> 0:01:31.520 energy conference. And because I am now an electricity generator 0:01:31.640 --> 0:01:33.880 of sorts and I feed into the grid that is 0:01:33.920 --> 0:01:37.520 owned by a giant utility, we have never actually interviewed 0:01:37.640 --> 0:01:39.160 someone from a utility. 0:01:39.760 --> 0:01:40.280 That's right. 0:01:40.520 --> 0:01:41.120 I don't think we have. 0:01:41.240 --> 0:01:43.840 I don't think we have either there, and I have 0:01:44.000 --> 0:01:46.640 to say and that now this is certain makes sense 0:01:46.680 --> 0:01:51.120 to me that like how utilities work, how pricing in 0:01:51.240 --> 0:01:55.800 particular works for electricity, is this incredible black hole in 0:01:55.880 --> 0:01:59.400 my knowledge because this has come up. But you know, 0:01:59.680 --> 0:02:03.240 we're not called customers, we're called rate payers. And I 0:02:03.400 --> 0:02:06.920 know that in many markets there's this negotiation where there's 0:02:06.960 --> 0:02:10.519 some utility commission or something like that, and the utilities 0:02:10.600 --> 0:02:12.560 have to figure out, okay, we spent this much, and 0:02:12.639 --> 0:02:14.959 can we raise our prices this much, et cetera. And 0:02:15.040 --> 0:02:17.120 then you know, I know there's in some places sort 0:02:17.120 --> 0:02:20.200 of live auction markets and how the weather changes the 0:02:20.240 --> 0:02:23.799 price changes. But I really find this incredibly hard to 0:02:23.840 --> 0:02:26.359 wrap my head around. I guess basically the question of 0:02:27.160 --> 0:02:29.160 why you pay what for electricity? 0:02:29.400 --> 0:02:32.480 Yeah, so two things here. Number one, it seems incredibly 0:02:32.600 --> 0:02:35.480 complex because of all the factors that you just laid out, 0:02:35.560 --> 0:02:39.519 including the patchwork of different regulations for different states and 0:02:39.800 --> 0:02:43.760 the limits there, and also well the political tensions as well. 0:02:43.880 --> 0:02:45.760 That's one thing we can maybe talk about. But the 0:02:45.840 --> 0:02:48.560 other thing is it feels like the whole system is 0:02:48.639 --> 0:02:51.560 becoming more and more complex because you have more renewable 0:02:51.680 --> 0:02:54.840 energy coming on. A lot of that renewable energy, you know, 0:02:54.880 --> 0:02:57.280 you get credits for feeding that into the grid, which 0:02:57.360 --> 0:03:01.080 means special people like me are no longer actually paying 0:03:01.120 --> 0:03:03.519 that much for electricity, but we're still drawing on the 0:03:03.639 --> 0:03:05.040 resources of the utility. 0:03:05.360 --> 0:03:07.200 And I guess there's really two things, because there's this 0:03:07.320 --> 0:03:10.200 a rise of sort of distributed energy, rooftop solar and 0:03:10.320 --> 0:03:13.760 things like that, new forms of energy production. And then 0:03:14.000 --> 0:03:16.000 something that comes up a lot the resumption of load 0:03:16.040 --> 0:03:18.079 growth for the first time in decades. That's right, And 0:03:18.240 --> 0:03:20.720 so you have the renewables, you have load growth, You 0:03:20.800 --> 0:03:23.840 have this impulse from the public and the corporate sector 0:03:23.919 --> 0:03:27.359 to reduce emissions overall net zero, there's always net zero 0:03:27.400 --> 0:03:29.560 press releases going out over the years, and so how 0:03:29.639 --> 0:03:33.600 this all comes together wildly complex, and usually when people 0:03:33.639 --> 0:03:35.760 are explaining it to me, I have to pause them 0:03:35.760 --> 0:03:38.080 every five seconds, like what is that term? What's the 0:03:38.160 --> 0:03:40.080 capacity market? Again? All these things. 0:03:40.160 --> 0:03:42.080 So it's nice for you to warn our listeners in 0:03:42.160 --> 0:03:44.160 advance that they're going to have to pause this episode 0:03:44.240 --> 0:03:46.160 quite a bit. No, hopefully we'll be able to explain 0:03:46.240 --> 0:03:48.480 everything because we do, in fact have the perfect guest 0:03:48.600 --> 0:03:50.840 we're going to be speaking with Long Hubor. He is 0:03:50.920 --> 0:03:54.800 the senior vice president of Pricing and Customer Solutions at 0:03:54.920 --> 0:03:57.080 Duke Energy. So Long, thank you so much for coming 0:03:57.120 --> 0:03:57.520 on the show. 0:03:58.200 --> 0:03:58.800 Great to be here. 0:03:59.160 --> 0:04:02.720 Is it terrible for companies like Duke when their customers 0:04:02.760 --> 0:04:06.119 get solar panels? Is it bad? I keep hearing about 0:04:06.120 --> 0:04:07.400 the agility death spiral. 0:04:07.520 --> 0:04:10.000 It all comes down to pricing and the rate structure. 0:04:10.120 --> 0:04:11.640 So it's not an easy answer. 0:04:11.800 --> 0:04:14.280 If you have the right rate structures, it can actually 0:04:14.280 --> 0:04:16.920 be a beneficial thing, but a lot of times that 0:04:17.120 --> 0:04:21.080 isn't the case. And so in your Connecticut example, you're 0:04:21.120 --> 0:04:24.840 basically getting your fully bundled rate as a credit. But 0:04:25.000 --> 0:04:28.200 that fully bundled rate, although it's in kill a loot hours. 0:04:28.480 --> 0:04:31.160 It's actually made up of a lot of kW and 0:04:31.279 --> 0:04:36.039 fixed infrastructure cost. So that pole outside your house that's 0:04:36.120 --> 0:04:39.360 wrapped into an energy charge, even though as we all know, 0:04:39.440 --> 0:04:42.600 if your energy uses drops, that pole doesn't get cut 0:04:42.640 --> 0:04:44.679 in half. You can't just pull out that pole handed 0:04:44.760 --> 0:04:48.159 to your neighbor. That's fixed infrastructure, and that's seventy percent 0:04:48.240 --> 0:04:50.760 of the grid. Why don't we zoom out really big? 0:04:50.880 --> 0:04:54.200 What is the business model of Duke Energy? Ah, all right, 0:04:54.279 --> 0:04:58.479 this is good. So we have a franchise that enables 0:04:58.640 --> 0:05:02.760 us to for an low cost, reliable electrons as a 0:05:02.800 --> 0:05:06.080 precondition to economic vitality for our community. So we have 0:05:06.760 --> 0:05:10.760 essentially a set jurisdiction where nobody else can come in 0:05:11.200 --> 0:05:17.480 for certain services. And so we have our geographical jurisdiction, right, 0:05:17.600 --> 0:05:22.680 and we're supplying the wires in some cases the power 0:05:22.800 --> 0:05:27.800 generation to that territory. And again there's obligations and exchanges there. 0:05:27.880 --> 0:05:32.720 So we're under democratic control of those prices of the 0:05:33.040 --> 0:05:36.720 return on equity for investors in this long term infrastructure, right, 0:05:36.839 --> 0:05:41.000 So there's balances here. So you have this market discipline 0:05:41.200 --> 0:05:46.320 entity that still has accountability to local communities, to policy makers, 0:05:46.800 --> 0:05:51.760 and has a way to spread infrastructure costs in a 0:05:51.960 --> 0:05:57.080 structure that can make long term intergenerational sense for communities. 0:05:57.880 --> 0:06:01.120 So you mentioned economic vitality just then, and one of 0:06:01.160 --> 0:06:04.520 the things I often hear when I occasionally read books 0:06:04.560 --> 0:06:08.320 about electricity or the grid is this idea that electricity 0:06:08.400 --> 0:06:12.000 cost is still heavily subsidized in many ways because we 0:06:12.120 --> 0:06:14.400 still view it as a sort of social good that 0:06:14.600 --> 0:06:18.000 enables us to do things like manufacture stuff and power 0:06:18.120 --> 0:06:20.440 our homes. And I guess my question is to what 0:06:20.560 --> 0:06:22.239 extent do you think that's true. 0:06:23.000 --> 0:06:27.080 Well, it is certainly true that it is an inelastic 0:06:27.839 --> 0:06:31.960 you know, necessity to modern civilization, right, I agree, But 0:06:32.120 --> 0:06:35.280 for the most part, there isn't necessarily I would say 0:06:35.279 --> 0:06:38.080 a large amount of subsidies, at least on the state level. 0:06:38.160 --> 0:06:40.720 There's some federal tax credits, but again a lot of 0:06:40.720 --> 0:06:43.920 those apply more broadly to the sector. But you know 0:06:44.040 --> 0:06:47.320 what you could hear is well, certain types of customers 0:06:47.400 --> 0:06:50.520 might be subsidizing other types of customers, and so that 0:06:50.960 --> 0:06:54.560 can pop up where you have these certain classes, whether 0:06:54.640 --> 0:06:57.680 it's maybe the industrial class could be subsidized by the 0:06:57.720 --> 0:07:01.480 residential class or vice versa. That is inherent in a 0:07:01.560 --> 0:07:03.360 fixed network system. 0:07:03.520 --> 0:07:07.240 Or the non net meter customers paying the net meter customers. 0:07:07.279 --> 0:07:07.480 I E. 0:07:07.600 --> 0:07:11.080 Me, that's right, you explained what Duke is. What is 0:07:11.320 --> 0:07:15.280 your title is Senior VP Pricing and Customer Solutions, So 0:07:15.360 --> 0:07:16.080 what is that role? 0:07:16.400 --> 0:07:19.160 Yeah, so this is all about helping our customers out, 0:07:19.280 --> 0:07:23.400 not rate payers, our customers customers, right. So these are 0:07:23.440 --> 0:07:27.640 a large customers because the industry has changed a lot. 0:07:27.920 --> 0:07:29.800 Just I mean, when I first got in the industry, 0:07:30.360 --> 0:07:32.160 it was rate payer all the time. 0:07:32.400 --> 0:07:35.120 If I'm operating, if I'm operating that, if I'm operating 0:07:35.160 --> 0:07:37.320 on data information, then I'm happy to be correct you. 0:07:37.440 --> 0:07:39.200 But why was that the like, why was that the 0:07:39.320 --> 0:07:39.920 common term? 0:07:40.320 --> 0:07:41.920 I mean, partly there was. 0:07:41.960 --> 0:07:45.560 Just not the technology or visibility into customers. There was 0:07:45.960 --> 0:07:49.360 a mentality there too, a culture built up, but for 0:07:49.480 --> 0:07:51.800 the most part, it's like if you don't have any 0:07:51.800 --> 0:07:54.040 of the analytics, if you don't have the meters, if 0:07:54.080 --> 0:07:57.320 you don't have the communication back and forth, you're sort 0:07:57.320 --> 0:07:59.800 of at a distance, right, And all that has changed 0:08:00.040 --> 0:08:02.440 ramatically in every category. 0:08:02.720 --> 0:08:05.840 I'm updating. I'm updating. My mental framework of how you see, 0:08:06.000 --> 0:08:07.640 how you use is okay, So you go on with 0:08:07.680 --> 0:08:09.680 the customer, the pricing. 0:08:09.480 --> 0:08:12.640 As right, and so I've got economic development as well, 0:08:12.920 --> 0:08:15.800 and so that's new businesses coming in the existing businesses 0:08:15.880 --> 0:08:18.600 that are there that also want to grow, the pricing 0:08:18.680 --> 0:08:21.040 and rate structures all around that. And again this is 0:08:21.160 --> 0:08:24.280 for all of the Duke States and customer load analytics 0:08:24.640 --> 0:08:26.200 things of that nature to sort of make it all 0:08:26.240 --> 0:08:28.360 work and do an A to Z to solve customer 0:08:28.600 --> 0:08:30.680 problems or goals. So if a customers like, hey, I 0:08:30.760 --> 0:08:35.120 want to bring a new manufacturing to the state, my 0:08:35.280 --> 0:08:38.600 team will work in conjunction with the government and we'll say, okay, well, 0:08:38.679 --> 0:08:40.800 here's a great site or here's a great community that 0:08:40.840 --> 0:08:44.400 would really fit the workforce you're looking for, the size 0:08:44.440 --> 0:08:46.560 of business you're bringing that type of thing. 0:08:47.040 --> 0:08:49.720 So when it comes to actually setting those types of rates, 0:08:49.800 --> 0:08:51.680 can you talk to us about I guess the building 0:08:51.800 --> 0:08:54.199 blocks that would go into that, like what are you 0:08:54.920 --> 0:08:58.280 putting presumably into a giant Excel spreadsheet and then spitting 0:08:58.360 --> 0:08:59.760 out as the final number. 0:09:00.280 --> 0:09:03.520 Well, it all comes down to something called the revenue requirement. 0:09:04.400 --> 0:09:07.719 And the revenue requirement basically says how much money do 0:09:07.880 --> 0:09:12.080 you need to collect from your customers to cover your investments, 0:09:12.600 --> 0:09:17.520 to cover operations and then taxes returned to investors, so 0:09:17.720 --> 0:09:21.320 that is the big number. Then from there you slice 0:09:21.320 --> 0:09:24.720 and dicee that based on how the different classes are 0:09:24.800 --> 0:09:28.679 using energy, right, the makeup the load profiles and so forth, 0:09:29.000 --> 0:09:33.280 and you create pricing around that to collect that revenue requirement. 0:09:33.800 --> 0:09:37.280 But it gets really complicated because the easiest way to 0:09:37.400 --> 0:09:41.120 collect that revenue requirement is by just having everybody pay 0:09:41.160 --> 0:09:42.040 a big fixed charge. 0:09:42.120 --> 0:09:42.240 Right. 0:09:42.520 --> 0:09:44.160 That would be the easiest thing. If you know I 0:09:44.240 --> 0:09:45.839 need to collect one hundred from you, give me a 0:09:45.840 --> 0:09:48.880 one hundred each month, right, But that doesn't send the 0:09:48.920 --> 0:09:51.680 best price signals, does it right for you to conserve 0:09:51.800 --> 0:09:54.040 because you would just be using a huge amount of 0:09:54.120 --> 0:09:56.000 energy because it would be one hundred dollars every month 0:09:56.440 --> 0:09:58.160 no matter what you use for the most part, right, 0:09:58.200 --> 0:10:00.439 and there'd be a little bit of fuel there. And 0:10:00.559 --> 0:10:03.480 so that wasn't palatable that type of pricing to collect 0:10:03.880 --> 0:10:07.319 that type of revor requirement. And so then it was well, 0:10:07.360 --> 0:10:09.680 what's the next easiest thing to do given the state 0:10:09.720 --> 0:10:12.040 of technology that we have, And that's where you see 0:10:12.040 --> 0:10:14.280 a lot of the legacy pricing where it's mostly just 0:10:15.080 --> 0:10:16.480 usage kWh based. 0:10:16.720 --> 0:10:19.040 All right, let's talk about the different types of markets. Then, 0:10:19.160 --> 0:10:21.839 so there are markets where there's some commission right that 0:10:22.000 --> 0:10:24.040 determines a legitimate price there. 0:10:24.280 --> 0:10:27.720 Every state has a public utilities commission or okay, how 0:10:27.880 --> 0:10:28.719 they might label it. 0:10:28.840 --> 0:10:31.440 And so you talk to us about how you interface 0:10:31.520 --> 0:10:34.240 with the commission. What are the conversations like, how often 0:10:34.480 --> 0:10:37.760 are they and what are you actually talking about with them? Yeah, 0:10:38.280 --> 0:10:41.600 regulators are key to making this all work, and they 0:10:41.679 --> 0:10:45.160 have staffs that work and they scrutinize all of our filings. 0:10:45.520 --> 0:10:48.839 And so we're in there and there's just basic sort 0:10:48.880 --> 0:10:52.120 of automatic oh that's true up because the fuel went up, 0:10:52.240 --> 0:10:54.599 and you know whatever else outside of the control or 0:10:54.840 --> 0:10:58.439 we've got these programs that we're updating to more intensive 0:10:58.559 --> 0:11:02.480 processes like rate cases where you go in and you say, okay, 0:11:02.559 --> 0:11:05.080 well we have made these investments, we're about to make 0:11:05.160 --> 0:11:08.200 these investments, and you know, here's what we think is prudent, 0:11:08.200 --> 0:11:10.040 and here's where we think the capital markets are in 0:11:10.160 --> 0:11:12.360 terms of return and debt markets and so forth, And 0:11:12.440 --> 0:11:15.440 so there's a lot of scrutiny there. There's formal data requests. 0:11:15.480 --> 0:11:19.400 We get thousands upon thousands of data requests formal that 0:11:19.559 --> 0:11:21.679 come in and then they're on the record. Some of 0:11:21.720 --> 0:11:24.120 them are confidential and then only with parties that sign 0:11:24.200 --> 0:11:28.120 certain agreements. But everything is just very well scrutinized in 0:11:28.280 --> 0:11:31.959 these settings. Some of these proceedings are very contentious and 0:11:32.120 --> 0:11:35.719 you're under oath others, you know, most parties agree, they're like, hey, yeah, 0:11:35.760 --> 0:11:37.559 this is a good idea, Yeah, go forth. Or it's 0:11:37.640 --> 0:11:41.840 so routine that it doesn't have a big impact. Remind 0:11:41.920 --> 0:11:45.160 us how many states you're operating in six and seven 0:11:45.200 --> 0:11:47.920 if you included and only guests. Ye, supplies to it. 0:11:48.360 --> 0:11:50.599 So one question I want to ask, and you know, 0:11:50.760 --> 0:11:53.839 hopefully in a slightly diplomatic way, but what are the 0:11:53.880 --> 0:11:57.680 big frictions with regulators? Like is it mostly over cost 0:11:57.800 --> 0:12:01.640 and pricing structure or does it go to environmental Like 0:12:01.960 --> 0:12:05.480 what is it that you you fight about when you're specially. 0:12:05.200 --> 0:12:07.800 Ready that there's another key party involved in all this, 0:12:08.000 --> 0:12:11.360 and that's the consumer advocate. Most states have it. I 0:12:11.720 --> 0:12:14.480 used to be working in a consumer advocate office actually 0:12:14.720 --> 0:12:17.480 in the beginning part of my career, and they are 0:12:17.600 --> 0:12:21.079 meant to really, you know, scrutinize things from more of 0:12:21.360 --> 0:12:23.479 a using and consuming public lens. 0:12:23.800 --> 0:12:26.400 So that we're representing the criticisms about pricing and things 0:12:26.440 --> 0:12:26.559 like that. 0:12:26.720 --> 0:12:31.080 Yes, so they're representing a constituency there, and the Public 0:12:31.200 --> 0:12:35.520 Utility Commission is usually the entity in charge of balancing 0:12:35.800 --> 0:12:38.880 all the different parties and taking in this information. It's 0:12:39.000 --> 0:12:42.880 quasi judicial, and so you have they're the ones that 0:12:43.120 --> 0:12:47.439 everyone gets mad at. Presumably they're the public face sometimes 0:12:47.640 --> 0:12:49.880 a lot of it. And it really just depends on 0:12:49.960 --> 0:12:53.080 the state and what's going on. You know, you typically 0:12:53.280 --> 0:12:57.040 always push back on way to return, for instance, what 0:12:57.200 --> 0:13:01.600 you're you're paying for equity and and and that's sort 0:13:01.600 --> 0:13:04.360 of steady state. And then things can get controversial if 0:13:04.400 --> 0:13:08.319 something goes wrong on a power plant or something of 0:13:08.440 --> 0:13:12.000 that nature. But there's sort of that consistent rate case 0:13:12.520 --> 0:13:14.680 mode that provides some friction there. For sure. 0:13:30.240 --> 0:13:32.880 Let's get into the economics of different types of energy 0:13:32.960 --> 0:13:36.959 production and consumption and so forth. We've added tons of 0:13:37.120 --> 0:13:40.240 renewables to the grid over the years pretty much across 0:13:40.400 --> 0:13:44.040 the country. Some have gone really fast, like Texas and California. 0:13:44.200 --> 0:13:47.800 There's not as fast for obvious reasons. Why does that 0:13:48.040 --> 0:13:50.439 not cause the price of electricity to collapse? 0:13:51.280 --> 0:13:55.559 Great question, And it gets to all the different aspects 0:13:55.600 --> 0:13:59.040 of what makes up that electricity bill and So when 0:13:59.120 --> 0:14:03.080 I mentioned before that a lot of the costs are 0:14:03.160 --> 0:14:06.480 fixed infrastructure costs. Right, this is a huge grid. It 0:14:06.640 --> 0:14:09.880 spans thousands upon thousands of miles. Right, our grid can 0:14:09.960 --> 0:14:12.079 wrap around the world like you know six times. 0:14:12.320 --> 0:14:12.760 That's cool. 0:14:13.240 --> 0:14:16.360 That's how like just the mammoth that's just our distribution system. 0:14:17.080 --> 0:14:19.280 So that's how big that we're talking about. And so 0:14:19.640 --> 0:14:24.400 you have that fixed infrastructure, which includes power plants, the 0:14:24.520 --> 0:14:27.520 power lines, everything of that nature. You have the fuel 0:14:28.280 --> 0:14:32.400 and all the different fuel supply and administration and just 0:14:32.560 --> 0:14:35.240 everything from like tree trimming. Right, if you have that 0:14:35.440 --> 0:14:37.960 many miles, you have to think about the trees, and 0:14:38.000 --> 0:14:39.800 then what if a drunk driver hits one of the 0:14:39.880 --> 0:14:42.800 poles and our scorel starts gnawing on things. Right, there's 0:14:42.840 --> 0:14:45.520 a lot in that price of an electric bill. So 0:14:46.000 --> 0:14:48.640 if you have an intermin renewable resource, well, what is 0:14:48.800 --> 0:14:52.200 that good at offsetting? Well, it's good at offsetting fuel 0:14:52.240 --> 0:14:57.080 expense if it aligns with the peak of the utility system. 0:14:57.120 --> 0:15:01.600 It can also avoid future power plant or purchases on 0:15:01.680 --> 0:15:04.480 the market for capacity, But it all depends on the 0:15:04.520 --> 0:15:06.800 individual resource and the location to see if it can 0:15:06.880 --> 0:15:09.960 bring that capacity value. But at least it can provide 0:15:10.160 --> 0:15:13.640 a fuel savings, and so that's a smaller part of 0:15:13.760 --> 0:15:16.720 the bill, right, And so if you're only offsetting a 0:15:16.760 --> 0:15:18.640 smaller part of the bill, that's why you don't see 0:15:18.640 --> 0:15:21.200 that downward pressure. And another thing is a lot of 0:15:21.400 --> 0:15:25.520 different types of renewables are heavy upfront capital expenses, right, 0:15:25.720 --> 0:15:29.600 and so that initial investment puts upward pressure on rates 0:15:29.600 --> 0:15:32.080 even though it gives a nice long term hedge or 0:15:32.160 --> 0:15:32.960 discount on fuel. 0:15:33.440 --> 0:15:36.080 So you mentioned long term just then. And one of 0:15:36.120 --> 0:15:38.920 the things that I do not envy utility providers in 0:15:39.040 --> 0:15:41.800 having to do is to try to sort out immediate 0:15:42.000 --> 0:15:45.200 energy needs for the state of our economy and our 0:15:45.240 --> 0:15:48.400 society right now, but also try to make those giant 0:15:48.480 --> 0:15:53.120 capital investments for like decades out into the future. How 0:15:53.160 --> 0:15:55.280 do you guys think about that? That seems tough. 0:15:56.080 --> 0:15:59.840 It's a lot of responsibility and it's a collective decision, right. 0:16:00.000 --> 0:16:03.760 And I mentioned regulators and sumer eravocates, other stakeholders policymakers 0:16:03.800 --> 0:16:06.120 in the state. And if you look at utilities in 0:16:06.160 --> 0:16:09.440 the past, they have completely shaped the landscape of states. 0:16:09.800 --> 0:16:13.680 And so Duke Energy, for instance, I mean we were like, hey, 0:16:13.960 --> 0:16:17.320 Hydro and we built a huge amount of lakes all 0:16:17.360 --> 0:16:21.000 around the Carolinas to get that power. Then we there 0:16:21.040 --> 0:16:23.040 are a lot of lakes in the Carolinas, right, yeah, 0:16:23.080 --> 0:16:25.520 and some of them are artificial from from you know, 0:16:25.840 --> 0:16:28.800 from and that brings recreation, it brings you know, it 0:16:28.880 --> 0:16:31.480 brings so many different other things to the state. It 0:16:31.720 --> 0:16:34.480 changes the landscape, you know. Then you get into nuclear. Right, 0:16:34.560 --> 0:16:37.960 these are like eighty year assets, and back then you 0:16:38.120 --> 0:16:42.040 needed to have an even still today pumped hydro to 0:16:42.120 --> 0:16:44.880 store some of that nuclear during the down times of 0:16:45.000 --> 0:16:48.480 the day. And so now you're creating different lakes at 0:16:48.640 --> 0:16:51.400 elevations to move water up and down as the long 0:16:51.520 --> 0:16:52.400 duration storage. 0:16:52.720 --> 0:16:57.880 So these are like big landscape changing. So you have 0:16:58.040 --> 0:17:01.360 extras electricity at some point, maybe during the night with 0:17:01.520 --> 0:17:03.520 nuclear or during the day with solar, and use that 0:17:03.600 --> 0:17:06.479 electricity to lift water at a high elevation and then 0:17:06.480 --> 0:17:08.399 at night it rolls downhill and then it spins a 0:17:08.400 --> 0:17:10.600 wheel or something like that. That's exactly right. I've always 0:17:10.680 --> 0:17:13.800 thought that was just such a fascinating concept. But on batteries. 0:17:13.880 --> 0:17:16.680 So you mentioned that one of the issues with say 0:17:16.760 --> 0:17:18.879 solar or what we think of as renewables is that 0:17:18.960 --> 0:17:22.240 they're intermittent and so forth. Battery technology is getting a 0:17:22.240 --> 0:17:25.800 lot better. And I keep seeing stats about how again, 0:17:25.920 --> 0:17:29.720 in some markets like Texas and California, especially during high 0:17:29.760 --> 0:17:33.280 stress periods, you increasingly see grid level batteries playing an 0:17:33.280 --> 0:17:35.800 important part of the mix that's applying energy. In the 0:17:35.920 --> 0:17:40.159 last few years, how much have you seen batteries and 0:17:40.240 --> 0:17:43.280 the improvement in battery technology sort of change the economics 0:17:43.280 --> 0:17:43.919 of renewables. 0:17:44.840 --> 0:17:47.320 Yeah. Again, And this gets to the beginning of why 0:17:47.440 --> 0:17:49.720 this area is so complex, because not only do you 0:17:49.760 --> 0:17:55.040 have the patchwork of regulation and utilities, but each geographic region, 0:17:55.480 --> 0:18:00.000 when you have weather dependent generation, it brings something unique. 0:18:00.600 --> 0:18:02.840 And so a solar plus. 0:18:02.680 --> 0:18:06.160 Storage facility in Arizona is going to have a lot 0:18:06.200 --> 0:18:10.080 of different economics than say in North Carolina. Okay, right, 0:18:10.280 --> 0:18:13.480 And so you've got more sun, maybe cheaper, flatter land, 0:18:13.880 --> 0:18:16.600 and you have a summer peak that you really worry 0:18:16.640 --> 0:18:20.760 about in in Arizona, and so a four hour mixed 0:18:20.840 --> 0:18:25.040 with tracking solar can provide a decent amount of capacity 0:18:25.160 --> 0:18:30.960 value in Arizona. Switch to say Midwest, Well, where it 0:18:30.960 --> 0:18:33.080 can be the peak. The peak could be winter. Well, 0:18:33.119 --> 0:18:35.400 what does the winter peak look like? Well, it could 0:18:35.400 --> 0:18:38.000 be a week of cloudy weather where you see no 0:18:38.160 --> 0:18:41.800 sun and it could these very cold extreme weather events 0:18:41.840 --> 0:18:45.600 could last for many days. So that's a very different 0:18:46.119 --> 0:18:49.520 set of economics and outcomes, and so really depends on 0:18:50.080 --> 0:18:53.520 where you are. In general, batteries and around the four 0:18:53.560 --> 0:18:57.160 hour duration have really come a long way. Paired with renewables, 0:18:57.280 --> 0:18:59.520 especially in those markets where you have that summer peak, 0:19:00.040 --> 0:19:04.240 are still trying to crack the longer term extreme weather 0:19:04.280 --> 0:19:05.399 event type of peaks. 0:19:05.960 --> 0:19:07.680 So it is kind of true that at the moment 0:19:07.800 --> 0:19:11.919 we sort of perversely solve the problem of intermittent energy 0:19:12.280 --> 0:19:14.520 and the fact that you know, solar and wind tends 0:19:14.560 --> 0:19:18.639 to come on and off with more generation, right, so 0:19:18.760 --> 0:19:21.480 we don't store the extra energy. We just try to 0:19:21.520 --> 0:19:24.520 make up for it with generation from other sources when 0:19:24.560 --> 0:19:27.160 that goes offline, when the solar and wind goes offline. 0:19:27.920 --> 0:19:30.920 How far are we from solving that storage problem? Just 0:19:30.960 --> 0:19:32.600 to press on Joe's point. 0:19:33.160 --> 0:19:34.960 Well, that is the big question. 0:19:35.600 --> 0:19:37.960 Is there a startup out there that has the solution 0:19:38.080 --> 0:19:40.680 that'll be ready in five years and can scale with 0:19:40.880 --> 0:19:44.080 some type of new long duration storage technology. Right, there's 0:19:44.119 --> 0:19:47.040 form Energy, there's others that are out there that could 0:19:47.080 --> 0:19:50.840 be very promising, So time will tell when those breakthroughs 0:19:50.880 --> 0:19:53.640 will happen on the storage side. But to your point 0:19:54.200 --> 0:19:58.200 right now, it takes a great diversity of resources to 0:19:58.280 --> 0:20:01.200 make this all work in all the and that's why 0:20:01.400 --> 0:20:05.800 there's concern of when certain states or advocates say, well, 0:20:05.880 --> 0:20:08.280 we don't like that particular resource, or you know, we 0:20:08.359 --> 0:20:09.840 want you to do more of that. There has to 0:20:09.880 --> 0:20:11.800 be a balance there because they all sort of work 0:20:11.880 --> 0:20:14.560 in synergy, and there's really complex modeling that sort of 0:20:14.600 --> 0:20:17.560 shows how this all works to keep that reliability during 0:20:17.600 --> 0:20:20.399 those extreme events. But what you don't want to do 0:20:20.480 --> 0:20:23.280 is have to build two systems, a renewable system that 0:20:23.440 --> 0:20:25.720 is there when the weather's great, and then a tire 0:20:25.840 --> 0:20:27.040 backup fossil system. 0:20:27.160 --> 0:20:27.280 Right. 0:20:27.440 --> 0:20:30.320 Well, so the third thing that we haven't started talking 0:20:30.359 --> 0:20:33.160 about yet when you talk about like these different conceptual systems, 0:20:33.480 --> 0:20:36.879 the fossil fuel system, the renewables and battery system, and 0:20:37.000 --> 0:20:40.720 that's nuclear. And one thing that's come up on the 0:20:40.800 --> 0:20:44.159 show in the past is that some of the advocates 0:20:44.320 --> 0:20:48.760 of much more aggressive nuclear build out don't like the 0:20:48.840 --> 0:20:51.520