WEBVTT - The Big Problem With the Modern Electricity Grid 0:00:02.520 --> 0:00:13.480 Bloomberg Audio Studios, Podcasts, radio News. 0:00:18.040 --> 0:00:21.840 Hello and welcome to another episode of the Odd Lots Podcast. 0:00:21.920 --> 0:00:24.200 I'm Joe Wisenthal and I'm Tracy Alloway. 0:00:24.880 --> 0:00:27.800 Tracy, I feel like we have already done kind of 0:00:27.840 --> 0:00:31.200 one episode or maybe multiple depending on how you define them. 0:00:31.200 --> 0:00:39.080 But you know, we're understanding the incredibly complex, opaque, crucial 0:00:39.120 --> 0:00:41.680 world of how electricity markets work in the US and 0:00:41.720 --> 0:00:43.600 what's good about them and what's bad about them. 0:00:43.840 --> 0:00:45.280 We just got we gotta do more. 0:00:45.520 --> 0:00:48.159 Here's what I've learned from multiple hours. 0:00:48.400 --> 0:00:49.839 This top serious summary. 0:00:50.280 --> 0:00:54.120 It's complicated, No it is, but that's it. And also 0:00:54.400 --> 0:00:56.600 also actually I'll add one more thing. It seems to 0:00:56.600 --> 0:01:00.080 be kind of the worst of multiple worlds. Like in 0:01:00.160 --> 0:01:02.840 a sense there's a lot of regulation, but in another 0:01:02.880 --> 0:01:06.160 sense there's a lot of deregulation. In one sense, you 0:01:06.280 --> 0:01:09.440 have these dominant players. And I have to say a 0:01:09.440 --> 0:01:12.720 lot of this is informed by my experience in I 0:01:12.760 --> 0:01:15.760 guess New York and Connecticut where you have con Edison 0:01:16.160 --> 0:01:18.679 and then ever Source, and so you have these big 0:01:18.720 --> 0:01:21.400 players that you have to pay a lot of money 0:01:21.440 --> 0:01:24.800 to in terms of distribution, but then if you want, 0:01:25.040 --> 0:01:29.080 you can go out to an independent energy supplier and 0:01:29.240 --> 0:01:32.720 pay them for the actual electricity that is going through 0:01:32.720 --> 0:01:36.119 the pipes or the wires of con ed or an 0:01:36.120 --> 0:01:39.600 ever source. But it never ends up making a difference 0:01:39.720 --> 0:01:42.199 as far as I can tell, because the distribution costs 0:01:42.280 --> 0:01:43.279 are still so high. 0:01:43.680 --> 0:01:45.959 Yeah, I mean, I think the part about it that 0:01:46.120 --> 0:01:49.480 like why it feels like a mess intuitively, is this 0:01:49.520 --> 0:01:53.440 attempt to essentially create a market on top of something 0:01:53.480 --> 0:01:57.160 that we know is a natural monopoly, right, because obviously 0:01:57.200 --> 0:01:59.920 you're not going to have like multiple companies or ideally 0:02:00.160 --> 0:02:01.880 I don't think it makes sense. Maybe it does to 0:02:01.960 --> 0:02:05.400 have multiple companies like running their own wires and distribution. 0:02:05.480 --> 0:02:07.520 I think we all sort of get why there is 0:02:07.560 --> 0:02:10.239 this natural monopoly aspect, But then of course you try 0:02:10.280 --> 0:02:14.880 to introduce market aspects and so different producers whether it's solar, 0:02:14.880 --> 0:02:17.400 whether it's nuclear, whether it's coal, whether it's natural gas, 0:02:17.639 --> 0:02:20.200 whether it's wins, et cetera, are kind of in a 0:02:20.280 --> 0:02:22.760 market and it depends. So I think in Texas there's 0:02:22.800 --> 0:02:25.160 probably different than Virginia versus Tennessee. 0:02:25.280 --> 0:02:27.320 That's the other thing. There's state by state differences. 0:02:27.400 --> 0:02:30.320 Obviously, Texas there's a lot of competition where you can 0:02:30.360 --> 0:02:32.520 basically just do whatever you want, and whoever is the 0:02:32.560 --> 0:02:35.560 cheapest price at any given moment, that's who is supplying 0:02:35.600 --> 0:02:38.639 the power. So you try to like overlay on top 0:02:38.680 --> 0:02:42.280 of this natural monopoly some sort of market ish thing 0:02:42.440 --> 0:02:45.520 where different people compete, and then of course you have 0:02:45.600 --> 0:02:48.560 the issue of because it's not a market. These utilities are, 0:02:48.600 --> 0:02:52.120 as you mentioned, heavily regulated, constrained on what they can invest, 0:02:52.240 --> 0:02:55.000 constrained on what they can price, constrained in the connection 0:02:55.080 --> 0:02:58.600 they can link between their own investment and say renewables 0:02:58.680 --> 0:03:02.920 versus then capture during that with higher prices, and everyone 0:03:02.960 --> 0:03:06.080 complains that for whatever kind of energy they make, the 0:03:06.120 --> 0:03:06.920 system isn't working. 0:03:06.960 --> 0:03:09.920 Well yeah, but I think you put it perfectly. It's 0:03:10.040 --> 0:03:14.360 like imposing market forces on a natural monopoly, and it 0:03:14.520 --> 0:03:18.080 just seems like there are some downsides to that model. 0:03:18.120 --> 0:03:20.880 I'm going to put it that way. Downsides for consumers 0:03:20.960 --> 0:03:23.720 and then downsides in terms of maybe the transition to 0:03:24.080 --> 0:03:25.280 decarbonized energy. 0:03:25.560 --> 0:03:27.560 And this is the key thing we are putting. There's 0:03:27.639 --> 0:03:30.720 so much riding at stake of the power system, right 0:03:30.800 --> 0:03:34.080 because obviously we're attempting to take the old model that 0:03:34.160 --> 0:03:36.360 was in place for decades and then replace a lot 0:03:36.360 --> 0:03:40.680 of the generation sources with zero carbon versions, whether they're 0:03:40.720 --> 0:03:43.120 solar or wind or maybe nuclear, though there's not a 0:03:43.120 --> 0:03:46.280 ton of nuclear construction, but that is one attempt. Then 0:03:46.320 --> 0:03:49.400 there's also booming demand for the first time in decades, 0:03:49.440 --> 0:03:51.400 and this is something we have talked about in the 0:03:51.400 --> 0:03:54.640 context of AI data centers. Tracy wrote that great post 0:03:54.680 --> 0:03:58.280 recently just talk about how like every question on analyst 0:03:58.360 --> 0:04:00.920 calls now for these companies is basically demand from AI. 0:04:01.080 --> 0:04:03.280 Oh it was crazy. I looked at the transcript for 0:04:03.640 --> 0:04:06.800 Dominion's most recent earnings call, and I think there were 0:04:06.840 --> 0:04:09.400 like five or six questions asked, and four or five 0:04:09.440 --> 0:04:12.000 of them more about data centers. And Dominion's doing a 0:04:12.000 --> 0:04:15.440 bunch of interesting things, but people only want to hear 0:04:15.480 --> 0:04:17.400 about data centers at the moment totally. 0:04:17.440 --> 0:04:19.400 So you have two really novel things. You have the 0:04:19.400 --> 0:04:23.240 decarbonization effort and you have the increase in load growth 0:04:23.240 --> 0:04:25.120 I think they call it for the first time in decades. 0:04:25.480 --> 0:04:27.799 And so it's like, are the markets that we've designed, 0:04:27.839 --> 0:04:32.400 this combination of natural monopolies with some sort of market mechanism, 0:04:32.720 --> 0:04:35.320 do they work for all this? And I think the 0:04:35.400 --> 0:04:37.680 jury is still out to save the minimum. 0:04:37.520 --> 0:04:40.920 I am ready to confirm my prior that this whole 0:04:40.920 --> 0:04:44.120 space is very complicated and I don't quite get how 0:04:44.160 --> 0:04:46.960 we ended up with this particular system, So let's do. 0:04:46.920 --> 0:04:47.400 It all right. 0:04:47.440 --> 0:04:50.239 Well, I'm psyched to say that we have two perfect 0:04:50.240 --> 0:04:52.839 guests to sort of help us understand how we got 0:04:52.880 --> 0:04:55.800 here in these markets and what the flaws might be. 0:04:55.880 --> 0:04:57.919 We're going to be speaking with Matt Huber, who is 0:04:57.920 --> 0:05:02.120 a professor at Syracuse in the Department of Geography and Environment, 0:05:02.320 --> 0:05:04.520 and we're also going to be speaking with Fred Stafford. 0:05:04.800 --> 0:05:08.680 He's a pseudonymous energy writer who works in a separate industry, 0:05:08.920 --> 0:05:11.000 but he's someone who's writing I have enjoyed for a 0:05:11.000 --> 0:05:13.279 long time. I've learned a lot from and so we're 0:05:13.320 --> 0:05:15.760 disguising his own voice so that he can keep his 0:05:15.839 --> 0:05:19.799 professional life and his writing life separately. So Fred and Matt, 0:05:19.800 --> 0:05:22.400 thank you so much for coming on outlaws. 0:05:22.080 --> 0:05:24.680 Thanks for having me, thanks for having us. Happy to 0:05:24.760 --> 0:05:25.080 be here. 0:05:25.520 --> 0:05:27.520 So why didn't I just start with the simple question? 0:05:27.600 --> 0:05:30.159 You two have been writing in various places at at 0:05:30.200 --> 0:05:33.920 piece recently, and I think Damage magazine and Jacobin and elsewhere. 0:05:34.400 --> 0:05:38.320 Why what is it about the nature of electricity markets 0:05:38.680 --> 0:05:41.200 that you feel like you have to write about and explain. 0:05:41.839 --> 0:05:44.120 So I love to answer the question why electricity hy 0:05:44.120 --> 0:05:47.560 electricity markets because for me, as kind of a stem 0:05:47.600 --> 0:05:51.320 brained person on the political left, I got excited hearing 0:05:51.360 --> 0:05:54.679 about things like nuclear power and that seems really important 0:05:54.720 --> 0:05:57.800 and really necessary for climate issues and so on. And 0:05:57.920 --> 0:06:01.960 what I found was that inlectricity, once you start looking 0:06:01.960 --> 0:06:04.920 at like why isn't there more nuclear power, you quickly 0:06:05.000 --> 0:06:09.960 run into this fascinating domain in which central planning runs 0:06:10.040 --> 0:06:13.520 right up against all these markets and this really interesting 0:06:13.600 --> 0:06:16.440 tension of some things are planned some things or markets, 0:06:16.839 --> 0:06:19.279 why is it like that? And then what I also 0:06:19.360 --> 0:06:22.200 saw on the political left is that nobody really was 0:06:22.240 --> 0:06:26.080 talking about this. There wasn't really any clear analysis of 0:06:26.200 --> 0:06:28.320 why there wasn't more nuclear power or anything, because I 0:06:28.320 --> 0:06:30.719 think a lot of this sort of discussion was really 0:06:30.720 --> 0:06:33.800 guided by kind of environmental politics. So that's really what 0:06:33.880 --> 0:06:37.000 drove me into this as like an intellectual subject. 0:06:37.760 --> 0:06:38.039 Yeah. 0:06:38.240 --> 0:06:41.400 Also, when you look on the political left, there's tendency 0:06:41.440 --> 0:06:45.359 to kind of fetishize the kind of like smallest beautiful 0:06:45.480 --> 0:06:51.359 vision of small scale decentralized energy generation, and when you 0:06:51.400 --> 0:06:53.720 look at the scale of the climate crisis, and how 0:06:53.800 --> 0:06:55.760 much we need to build and how much we need 0:06:55.800 --> 0:07:00.839 to transform. That vision of decentralized energy sits well with 0:07:00.960 --> 0:07:04.279 kind of decentralized markets and price signals, but it doesn't 0:07:04.320 --> 0:07:08.479 really sit well with the need for centralized planning for 0:07:08.720 --> 0:07:12.239 large scale building and investment and to try to deal 0:07:12.320 --> 0:07:16.000 with the kind of load growth that you both mentioned 0:07:16.000 --> 0:07:19.360 at the top, and so the smallest beautiful visions seemed 0:07:19.360 --> 0:07:21.120 to be totally out of step with the kind of 0:07:21.240 --> 0:07:24.200 large scale challenge we have in front of us and 0:07:24.800 --> 0:07:27.440 trying to kind of think through how we could reform 0:07:27.480 --> 0:07:30.000 the electricity system to meet that challenges. I think why 0:07:30.080 --> 0:07:31.520 we got into this topic. 0:07:32.120 --> 0:07:35.760 So I'm going to ask the obvious question then, which 0:07:35.800 --> 0:07:38.720 is how did we end up with this system? Because 0:07:38.760 --> 0:07:41.920 my understanding reading some of your work is that there 0:07:42.040 --> 0:07:45.080 was a time in the early nineteen hundreds where we 0:07:45.280 --> 0:07:52.640 had very centralized, very regulated power companies utilities basically, and 0:07:52.680 --> 0:07:56.400 then later on in the century we moved to this weird, 0:07:56.520 --> 0:08:00.680 sort of pseudo deregulated market where we had independent operators 0:08:00.760 --> 0:08:06.400 plus the regulated utilities. How did that transition actually happen? Like, basically, 0:08:06.480 --> 0:08:09.440 walk us through the history of the US energy industry 0:08:09.560 --> 0:08:12.080 in under twenty minutes, preferably. 0:08:12.400 --> 0:08:16.040 You know, it really does go back to early twentieth 0:08:16.080 --> 0:08:19.080 century where a lot of sort of progressive lawyers and 0:08:19.160 --> 0:08:23.560 progressive political thinkers sort of realized there were these parts 0:08:23.600 --> 0:08:26.520 of the economy that were seen as sort of essential 0:08:26.640 --> 0:08:32.880 services like water, like gas, like railroads even that were 0:08:32.960 --> 0:08:36.680 sort of not really best left totally to the private 0:08:36.720 --> 0:08:39.559 sector and totally to the market, and that are better 0:08:39.679 --> 0:08:43.400 sort of regulated as public utilities because there's a fundamental 0:08:43.520 --> 0:08:48.080 kind of public interest in making sure that those utilities 0:08:48.120 --> 0:08:51.360 are kind of running smoothly and offering those essential services. 0:08:51.920 --> 0:08:55.040 And pretty soon when electricity came on the scene, it 0:08:55.040 --> 0:08:58.800 became pretty clear that electricity was one of those essential 0:08:58.840 --> 0:09:04.200 services before it came under the domain of public utility law. Now, 0:09:04.240 --> 0:09:09.000 the problem was the sector of electricity was controlled by 0:09:09.320 --> 0:09:13.520 capitalists like people like Thomas Edison and others, and eventually 0:09:13.559 --> 0:09:17.400 like Samuel Ensall, who wanted to run the system for profit, 0:09:18.040 --> 0:09:20.199 and that kind of tension kind of played out for 0:09:20.280 --> 0:09:23.360 a while, but eventually they realized that, okay, doesn't make 0:09:23.400 --> 0:09:27.600 sense for society to have multiple competing electric distribution companies 0:09:27.640 --> 0:09:30.360 sort of laying wires against each other. So what we 0:09:30.400 --> 0:09:34.600 really need is to actually have a single electric utility, 0:09:35.080 --> 0:09:37.920 and the industry sort of fought and compromised to make 0:09:37.960 --> 0:09:40.640 sure that that electric utility would be run by a 0:09:40.720 --> 0:09:45.199 private investor owned utility. They'd be given a monopoly franchise 0:09:45.280 --> 0:09:48.480 over a given territory, and in exchange, they would be 0:09:48.520 --> 0:09:51.880 regulated by public utility commissions, which we still have in 0:09:51.920 --> 0:09:55.920 this country. They still regulate your distribution utilities, and they're 0:09:55.920 --> 0:09:58.160 supposed to regulate them for the public good, for the 0:09:58.200 --> 0:10:02.719 public interest, make sure these private utilities aren't like gouging consumers. 0:10:03.200 --> 0:10:06.800 And so that created a kind of compromise or utility 0:10:06.800 --> 0:10:10.640 consensus that lasted throughout much of the twentieth century. And 0:10:10.280 --> 0:10:14.600 these sort of monopoly regulated utilities. You know, they built 0:10:14.720 --> 0:10:17.080 the grid. You know, if we talked today about the 0:10:17.120 --> 0:10:19.360 return of load growth, there was a lot of load 0:10:19.360 --> 0:10:22.000 growth in the post World War two era, and they 0:10:22.200 --> 0:10:25.079 developed this model where their investments were regulated and the 0:10:25.720 --> 0:10:28.120 prices they charged to consumers were regulated. But they were 0:10:28.160 --> 0:10:31.240 really effective at at building out the grid and building 0:10:31.240 --> 0:10:36.079 out generation transmission distribution. Now by the nineteen seventies they 0:10:36.080 --> 0:10:40.080 started to come into disfavor. There was, as many would 0:10:40.160 --> 0:10:44.839 call it this kind of shift towards neoliberal ideology where 0:10:45.400 --> 0:10:48.880 really all the kind of big hulking institutions of the 0:10:48.880 --> 0:10:53.360 post war era, like government and unions and utilities were 0:10:53.400 --> 0:10:56.600 seen as kind of inflexible and not competitive, and we 0:10:56.679 --> 0:11:00.720 need to kind of really smash these institutions and deregulate 0:11:00.760 --> 0:11:04.160 them and break them into smaller and competing parts. And 0:11:04.240 --> 0:11:07.679 so at that point you get this long process of 0:11:07.720 --> 0:11:10.760 trying to break up this utility system that again used 0:11:10.760 --> 0:11:13.440 to be run by a single entity and they could 0:11:13.520 --> 0:11:17.880 use central planning, they could really invest with long term considerations, 0:11:18.240 --> 0:11:20.160 and then you break it up, and as you both 0:11:20.200 --> 0:11:22.960 talked about in the introduction, now we kind of have 0:11:23.320 --> 0:11:26.880 competition and generation. You have all these different independent power 0:11:26.920 --> 0:11:30.920 producers that are competing to sell electricity onto wholesale markets, 0:11:31.360 --> 0:11:34.640 and the wires, the transmission and distribution still tend to 0:11:34.679 --> 0:11:38.000 be owned by utilities, but they've also found ways to 0:11:38.120 --> 0:11:41.720 insert competition into the retail side, where consumers can have 0:11:41.840 --> 0:11:44.280 so called choice over things. And so what they've done 0:11:44.400 --> 0:11:47.640 is kind of broken up this highly integrated and complex 0:11:48.240 --> 0:11:51.600 physical system called the grid and broke it up into 0:11:51.640 --> 0:11:54.679 parts where they can subject it to competition and markets 0:11:54.679 --> 0:11:55.439 and price signals. 0:11:55.480 --> 0:11:58.000 Now, this is where we kind of. 0:11:57.960 --> 0:12:01.360 Reached this in pass where where if we really want 0:12:01.400 --> 0:12:04.920 to totally restructure the grid, totally grow it in ways 0:12:04.920 --> 0:12:08.760 that can serve decarbonization and AI and all this stuff, 0:12:09.080 --> 0:12:12.280 that perhaps, like maybe this sort of more integrated, more 0:12:12.320 --> 0:12:16.680 central planning, more coordinated and socialized investment model could be 0:12:16.720 --> 0:12:20.800 more useful than this very scattered and sort of fragmented 0:12:20.840 --> 0:12:21.880 system we have now. 0:12:37.040 --> 0:12:39.520 So Fred, why did you jump in? Because, as you 0:12:39.559 --> 0:12:42.080 said in the intro, you got interested in nuclear power, 0:12:42.160 --> 0:12:46.120 and in your view, the current market model is not 0:12:46.320 --> 0:12:49.680 amenable to the scale of nuclear power expansion we need, 0:12:49.720 --> 0:12:51.719 and we know that there's hardly any building. I think 0:12:51.720 --> 0:12:54.000 there was a new reactor last year, but was incredibly slow. 0:12:54.200 --> 0:12:58.160 What is the core flaw of putting nuclear into the 0:12:58.240 --> 0:12:59.600 existing electricity model? 0:13:00.160 --> 0:13:06.040 The major issue is that nuclear is this extremely capital 0:13:06.080 --> 0:13:10.560 intensive infrastructure that costs so much, and it produces very 0:13:10.640 --> 0:13:13.760 cheap power once it's built, where the operational expenditures are 0:13:13.840 --> 0:13:16.720 very low, and it does so in a way that 0:13:16.880 --> 0:13:19.520 is just sort of constant. It's not flexibly moving like 0:13:19.600 --> 0:13:24.000 power increasing and decreasing. It's just sort of dumping twenty 0:13:24.000 --> 0:13:26.960 four to seven what people call baseload power out into 0:13:27.000 --> 0:13:31.360 the grid, and because someone has invested so much capital 0:13:31.360 --> 0:13:34.120 in this thing, to recoup the costs, they have to 0:13:34.200 --> 0:13:37.199 run this and try to get revenues twenty four to 0:13:37.280 --> 0:13:42.319 seven max capacity. Unfortunately, the way that revenues are assigned 0:13:42.480 --> 0:13:45.720 and for power generators in these sort of restructured areas 0:13:45.720 --> 0:13:49.400 that are really dictated by marginal prices. At any given 0:13:49.480 --> 0:13:52.400 unit of time, the price of electricity on the market 0:13:52.559 --> 0:13:55.160 is the price of the marginal unit, which often tends 0:13:55.240 --> 0:13:58.040 to be a price of natural gas. Sometimes it's even 0:13:58.320 --> 0:13:59.920 close to zero because there will be a lot of 0:14:00.040 --> 0:14:03.520 renewables at that particular time and place. But you kind 0:14:03.559 --> 0:14:06.199 of lose the guarantee that you can recover your costs, 0:14:06.400 --> 0:14:09.360 you being the owner of the nuclear plant. So it 0:14:09.520 --> 0:14:11.960 just makes it very hard to know you're going to 0:14:11.960 --> 0:14:15.880 recoup that investment. It means that all this wind and 0:14:15.920 --> 0:14:19.280 solar energy, which is at any given time might be 0:14:19.320 --> 0:14:21.800 on the grid, maybe isn't, but when it is, it's 0:14:22.440 --> 0:14:26.640 bringing down the market prices. So it basically just disturbs 0:14:26.680 --> 0:14:30.840 this way that nuclear and hydro electric power, pumped hydro 0:14:30.880 --> 0:14:35.280 storage facilities, all these big, big infrastructures were invested in 0:14:35.280 --> 0:14:38.920 in the way they recouped costs, and because the utilities 0:14:38.960 --> 0:14:42.480 had this sort of cost of service regulation where the 0:14:42.560 --> 0:14:46.680 idea is they would invest in the infrastructure and they 0:14:46.680 --> 0:14:49.280 would get a profit on the capital investment. They'd be 0:14:49.320 --> 0:14:52.480 allowed that roughly nine to ten percent profit. But the 0:14:52.520 --> 0:14:55.080 total costs for everything that they had invested in and 0:14:55.160 --> 0:14:58.880 were spending to run the electricity system to provide electricity 0:14:58.920 --> 0:15:03.040 service to customers was being socialized to those customers. When 0:15:03.040 --> 0:15:07.040 you don't have that model, the revenues are less guaranteed. 0:15:07.080 --> 0:15:09.760 The revenues are just whatever the market revenues are. And 0:15:10.240 --> 0:15:12.840 there's just various reasons why that competition from the other 0:15:12.880 --> 0:15:15.400 forms of energy and the way the prices are set 0:15:15.400 --> 0:15:17.840 according to whatever the marginal unit of power is, it 0:15:17.920 --> 0:15:20.960 just doesn't work well for these big power projects. 0:15:21.520 --> 0:15:25.600 Wait, can you give us a specific example of a 0:15:26.240 --> 0:15:30.680 utility that might be doing something or have more money 0:15:30.840 --> 0:15:34.240 to make renewable energy investments. I'm sort of leading you 0:15:34.320 --> 0:15:36.960 on here, but one thing that you mentioned in your 0:15:36.960 --> 0:15:41.120 writing and going back to our intro, is Dominion building 0:15:41.240 --> 0:15:46.160 its own ships to install wind turbines. And that was 0:15:46.240 --> 0:15:48.360 kind of stunning to me. I hadn't heard that before, 0:15:48.440 --> 0:15:50.920 So talk a little bit more about like the concrete 0:15:51.000 --> 0:15:55.680 examples of utilities maybe doing this at a larger scale 0:15:55.720 --> 0:15:58.040 than some of the independent operators. 0:15:58.320 --> 0:16:00.560 Yeah, so I love the dominion example. Well, I think 0:16:00.640 --> 0:16:03.000 it's so interesting, and we do open our recent essay 0:16:03.040 --> 0:16:06.200 with that. So let's say you're a state and you're 0:16:06.240 --> 0:16:10.040 a state that has democratically determined that you want offshore 0:16:10.080 --> 0:16:13.200 wind to be part of resources that the state is using. 0:16:13.680 --> 0:16:15.920 That a result of some kind of democratic process. People 0:16:15.960 --> 0:16:19.080 might agree disagree with that, but that was a state 0:16:19.120 --> 0:16:22.040 policy aim. Now, if you're the state of New York 0:16:22.400 --> 0:16:25.040 and you want offshore win, you say, all right, we 0:16:25.120 --> 0:16:28.200 have some power markets already, but that's not going to 0:16:28.200 --> 0:16:31.040 be enough to attract any investors in this massive, massive 0:16:31.080 --> 0:16:35.000 capital intensive project that's long term infrastructure. So instead, we're 0:16:35.000 --> 0:16:37.160 going to design we the state, are going to design 0:16:37.160 --> 0:16:42.240 increasingly bespoke financial policy instruments called the Offshore Renewable Energy 0:16:42.240 --> 0:16:46.080 Certificate as a subsidy, and we're going to force all 0:16:46.080 --> 0:16:48.920 the utilities, like the con ads and your utility you're 0:16:48.920 --> 0:16:51.720 paying goes to to have to purchase a certain number 0:16:51.760 --> 0:16:55.160 of these instruments. These certificates, so that it's kind of 0:16:55.200 --> 0:16:58.960 socializing the cost of the subsidy among electricity consumers. But 0:16:59.120 --> 0:17:01.880 now we've designed this new kind of financial instrument. We 0:17:01.920 --> 0:17:04.840 are augmenting the existing power markets with this as a subsidy. 0:17:04.880 --> 0:17:08.760 Because the power markets weren't enough to attract investors. Then 0:17:08.800 --> 0:17:11.680 we're going to design the competitive auction process to take 0:17:11.720 --> 0:17:15.920 competitive bids. So we say, please, please somebody, Oh my god, 0:17:15.960 --> 0:17:18.359 we want offshore win. Please someone come and build it. 0:17:18.640 --> 0:17:22.120 Here's the subsidy on top of the power markets. And 0:17:22.440 --> 0:17:26.280 whatever forecasted revenues you think you'll make based on your 0:17:26.320 --> 0:17:29.479 forecast of the market price, you get to keep whatever's 0:17:29.560 --> 0:17:32.159 left place your bids. We want to procure it, and 0:17:32.240 --> 0:17:35.040 we'll see which one offers the best price for us 0:17:35.080 --> 0:17:38.639 the state. Now that is the kind of deregulated or 0:17:38.640 --> 0:17:42.480 restructured market approach this. Now let's look at Virginia, which 0:17:42.520 --> 0:17:46.800 has Dominion as an investor owned public utility. Virginia passes 0:17:46.880 --> 0:17:50.520 legislation we want offshore win. They then just task the 0:17:50.560 --> 0:17:55.040 public utility to build offshore wind Dominion. Then it doesn't 0:17:55.080 --> 0:17:57.600 need to No one needs to design all these additional subsidies, 0:17:57.600 --> 0:18:00.720 These additional markets or auctions or anything. Now, the State 0:18:00.760 --> 0:18:04.359 Public Utilities Commission just needs to be working in tandem 0:18:04.400 --> 0:18:07.600 with Dominion Energy to kind of approve whatever investments they 0:18:07.640 --> 0:18:10.919 think are needed, determine what's prudent of those investments, what 0:18:10.960 --> 0:18:14.679 they're allowed to socialize to the customers. And they have 0:18:14.840 --> 0:18:16.800 such a scale it's actually the largest of all the 0:18:16.920 --> 0:18:20.600 Atlantic Coast offshore wind projects by a fairly large margin. 0:18:21.200 --> 0:18:24.119 And because of the economies of scale here, well that 0:18:24.359 --> 0:18:26.440 you mentioned the ship. One of the major kind of 0:18:26.480 --> 0:18:29.719 supply chain issues that offshore wind projects are facing is 0:18:30.160 --> 0:18:33.119 there's not enough ships. Because there's this law that Jones 0:18:33.160 --> 0:18:36.080 Act from one hundred years ago that says it's a 0:18:36.119 --> 0:18:39.399 common Yeah, everyone mentions it, and everyone just acts like 0:18:39.440 --> 0:18:41.320 there's no legitimate basis for that. I'm not going to 0:18:41.359 --> 0:18:44.040 make that argument. That's a fact regardless. So there's not 0:18:44.119 --> 0:18:47.120 a lot of ships. So Dominion just says, Okay, we 0:18:47.200 --> 0:18:49.679 know we can recoup the costs of all this stuff 0:18:50.119 --> 0:18:53.600 because we're a public utility, a regulated monopoly utility. So 0:18:53.720 --> 0:18:55.879 we're just going to build a ship. And just a 0:18:55.880 --> 0:18:57.560 couple of weeks ago that ship was built and it 0:18:57.640 --> 0:19:00.119 sailed out of a port in Texas. It's called the Shribda. Yes, 0:19:00.480 --> 0:19:03.520 like Scilla and Shribdis, you know, questionable sea monster naming 0:19:03.560 --> 0:19:07.400 for your offshore win vessel. But now they can keep 0:19:07.440 --> 0:19:09.960 this project going despite what kinds of cost increases there 0:19:09.960 --> 0:19:12.679 are with supply chain issues and so on, Whereas in 0:19:12.720 --> 0:19:15.000 New York State, a lot of the contracts that were 0:19:15.000 --> 0:19:18.080 the results of these competitive processes had to be canceled 0:19:18.359 --> 0:19:21.760 because supply chain problems and other issues meant that the 0:19:21.760 --> 0:19:24.639 projects at the agreed upon contracts and subsidies were no 0:19:24.720 --> 0:19:27.560 longer profitable, and the state said, wholloa, we're not going 0:19:27.640 --> 0:19:30.840 to let you renegotiate the price. We're canceling it. Rebid later, 0:19:31.440 --> 0:19:32.800 all right, So what are the people of New York 0:19:32.880 --> 0:19:33.400 left with? Then? 0:19:34.119 --> 0:19:37.480 Tracy and I were just talking earlier today about how 0:19:37.520 --> 0:19:39.359 the Jones Act has probably now come up on like 0:19:39.400 --> 0:19:41.800 twenty episodes, but we've never actually done a proper Jones 0:19:41.800 --> 0:19:44.240 Act episode, and now I think we'll just never do one, 0:19:44.280 --> 0:19:46.720 so it can be this running joke of never having 0:19:46.760 --> 0:19:49.520 done a Jones Zach episode. Matt, I want to go 0:19:49.600 --> 0:19:52.360 back to you. You know, you said something that certainly 0:19:52.480 --> 0:19:55.479 rings true to me. In fact, I brought up recently 0:19:55.520 --> 0:19:59.600 on another episode, do you say the political left pushing renewables, 0:19:59.600 --> 0:20:03.040 the certain the fetishization of the smallest beautiful. I sort 0:20:03.040 --> 0:20:05.320 of put it as like the more bucolic forms of 0:20:05.480 --> 0:20:08.800 energy solar and wind. But what is the problem with 0:20:09.000 --> 0:20:11.440 relying on solar wind? Because as far as I can tell, 0:20:11.440 --> 0:20:13.639 when I look at charts, and especially when you augment 0:20:13.680 --> 0:20:16.359 them with batteries, it looks like we're installing more and 0:20:16.440 --> 0:20:19.960 more and more. Why is that not the path? If 0:20:19.960 --> 0:20:23.520 we're installing more under the existing market structure, why is 0:20:23.560 --> 0:20:26.640 that not the path towards decarbonization decarbonizing the grid? 0:20:27.040 --> 0:20:30.960 Well, it's certainly part of the path in one sense. 0:20:31.119 --> 0:20:34.119 We are trying to figure it out. But the intermittency 0:20:34.520 --> 0:20:38.119 issue is still an issue. You know, it's you know, 0:20:38.480 --> 0:20:41.359 you'll see headlines like once I remember the UK and 0:20:41.400 --> 0:20:43.440 the Financial Times that it was like sixty six percent 0:20:43.480 --> 0:20:46.040 of the energy was coming from wind one week, But 0:20:46.119 --> 0:20:48.680 if you read the whole article two weeks before that, 0:20:48.720 --> 0:20:50.879 two percent what's coming from wind? 0:20:51.000 --> 0:20:51.200 Right? 0:20:51.760 --> 0:20:55.880 And so there are challenges to what they call firming 0:20:56.200 --> 0:20:58.720 that intermittency, and you know, you can do some with 0:20:58.960 --> 0:21:01.760 lithium batteries. Those batteries can only last about four to 0:21:01.800 --> 0:21:04.960 eight hours, so there's really still a challenge of long 0:21:05.080 --> 0:21:08.720 duration energy storage that we're still told we're sort of 0:21:08.720 --> 0:21:12.159 a couple of years away from. But obviously solar and 0:21:12.200 --> 0:21:15.240 wind are going to be part of the decarbonization equation. 0:21:15.920 --> 0:21:18.320 One thing our writing has tried to point out is 0:21:18.320 --> 0:21:22.480 that because of this deregulation process, and because of very 0:21:22.680 --> 0:21:25.159 specific policy on the part of the United States to 0:21:25.600 --> 0:21:30.720 incentivize renewable energy production with tax credits, it's virtually ensured 0:21:30.760 --> 0:21:33.879 that all the solar and wind development, nearly all, is 0:21:33.920 --> 0:21:37.560 being developed by the private sector and by these independent 0:21:37.560 --> 0:21:40.760 power producers who are sort of dislodged from the old 0:21:40.880 --> 0:21:45.080 utility system. So one issue we have is that the 0:21:45.200 --> 0:21:48.920 large majority of solar and wind development, independent power producer 0:21:48.960 --> 0:21:52.800 development are kind of just these capitalists who are separated 0:21:52.880 --> 0:21:56.879 from the kind of social good of the utility system, 0:21:56.920 --> 0:21:59.199 where they kind of have to sort of, again like 0:21:59.240 --> 0:22:03.159 the Dominion case, justify their investments to a public commission 0:22:03.640 --> 0:22:06.720 and kind sort of try to integrate their investments into 0:22:06.760 --> 0:22:10.440