WEBVTT 1 00:00:04.759 --> 00:00:07.599 With a round Segal end from London and Gerard read 2 00:00:07.679 --> 00:00:10.720 from Berlin. This is redefining. 3 00:00:10.199 --> 00:00:13.400 Energy Today at Rated Finding Energy, we're going to talk 4 00:00:13.400 --> 00:00:16.960 about hyperscanners and the utility landscape. 5 00:00:17.160 --> 00:00:20.719 Yeah, because what it's crazy is we see the growth 6 00:00:20.760 --> 00:00:25.879 of demand is geometric, and the utilities the supply it's arithmetic, 7 00:00:26.280 --> 00:00:29.679 so there's really stress on the system. But first of all, 8 00:00:29.719 --> 00:00:30.839 from our partner. 9 00:00:31.039 --> 00:00:34.000 A b Loco Energy is Europe's premier leaser of ten 10 00:00:34.079 --> 00:00:38.399 foot container mobile batteries built in Europe with COTL best 11 00:00:38.520 --> 00:00:44.320 LFP cells. A Bloco Energy serves fourteen European countries, including France, 12 00:00:44.840 --> 00:00:48.520 Germany and the UK. Our Blocko's batteries can be leased 13 00:00:48.520 --> 00:00:51.679 for any duration between six weeks and six years and 14 00:00:51.719 --> 00:00:55.039 they are monitored by the Dutch award winning platform school 15 00:00:55.640 --> 00:00:58.759 a block O Energy. Make your life easier, make your 16 00:00:58.759 --> 00:01:01.920 business more flexible. Back to the show, Lauren, But let's 17 00:01:01.920 --> 00:01:03.880 be correct you that you're talking about us, You're not 18 00:01:03.920 --> 00:01:04.719 talking about Europe. 19 00:01:04.879 --> 00:01:07.400 Yeah, in the US, absolutely, because. 20 00:01:07.120 --> 00:01:09.359 In Europe are not saying that's called demand growth. That 21 00:01:09.480 --> 00:01:11.359 was saying in the States or anything like that. Yat, 22 00:01:11.400 --> 00:01:12.920 you know it might happen, but right now or not. 23 00:01:13.400 --> 00:01:16.519 In order to do so, we had invited, but unfortunately 24 00:01:16.599 --> 00:01:19.200 you could not come because of your knee operation. How 25 00:01:19.439 --> 00:01:22.519 it's getting better, Sliman. Our guest was. 26 00:01:22.680 --> 00:01:25.959 Chris Seipel, who is the vice chairman of Whatmark Power 27 00:01:26.000 --> 00:01:27.159 and Renewables Group. 28 00:01:27.680 --> 00:01:31.920 And really he has delivered a master's class describing the 29 00:01:31.959 --> 00:01:35.200 relationship between ut ties and I postcan. 30 00:01:35.640 --> 00:01:37.000 Well, let's bring them on the show. 31 00:01:37.640 --> 00:01:39.040 Chris, Welcome to the show. 32 00:01:39.560 --> 00:01:40.280 Great to be here. 33 00:01:40.719 --> 00:01:43.439 Well, Chris, we both have been working three years in 34 00:01:43.640 --> 00:01:46.640 LG and I've just a first question for you. Have 35 00:01:46.799 --> 00:01:50.120 you ever seen anything that what we're saying right now? 36 00:01:50.760 --> 00:01:53.560 Not in my thirty years of working in power business. 37 00:01:54.159 --> 00:01:57.799 I got into this business because in nineteen ninety two 38 00:01:58.239 --> 00:02:01.359 I was in graduate school and I had two professors 39 00:02:01.439 --> 00:02:04.439 from Washington, DC who would come up who were actually 40 00:02:04.560 --> 00:02:07.599 negotiating the Energy Policy Act of nineteen ninety two that 41 00:02:07.719 --> 00:02:11.439 deregulated the electric power business. And I got into this 42 00:02:11.479 --> 00:02:14.039 business because I thought that was such an exciting time 43 00:02:14.080 --> 00:02:17.199 because moving from monopolies to deregulation was going to change 44 00:02:17.319 --> 00:02:20.560 the business so much, and it was a very exciting 45 00:02:20.599 --> 00:02:24.159 decade as we went through that. But what's coming now 46 00:02:24.479 --> 00:02:28.759 is having a much more fundamental impact on transformation of 47 00:02:28.800 --> 00:02:32.120 the electric sector, which makes it just a super exciting 48 00:02:32.120 --> 00:02:33.479 time to be in this business. 49 00:02:34.000 --> 00:02:36.599 Yes, because for the past twenty years there's been a 50 00:02:36.680 --> 00:02:39.680 lot of technological changes, but by and large, the demand 51 00:02:39.719 --> 00:02:42.680 has been flat. So as we're going to try to 52 00:02:42.719 --> 00:02:45.479 analyze what's going on, they are really two different aspects, 53 00:02:45.479 --> 00:02:49.319 the demand and the supply. So first, probably let's jump 54 00:02:49.400 --> 00:02:52.400 into the demand. And you are very kind to send 55 00:02:52.400 --> 00:02:56.240 me this document called AI to War twenty seven, So 56 00:02:56.319 --> 00:03:00.879 probably first explain to our listeners what is that crazy document? 57 00:03:01.479 --> 00:03:04.240 It's a website. I spend some time in San Francisco 58 00:03:04.360 --> 00:03:08.240 lifes Fall meeting with people deep in a research and 59 00:03:08.319 --> 00:03:12.039 they all pointed me to this document and it lays 60 00:03:12.080 --> 00:03:15.680 out month by month path to how AI could evolve 61 00:03:15.960 --> 00:03:20.680 between twenty twenty five and twenty twenty seven. And a 62 00:03:20.800 --> 00:03:24.240 core thesis that they have is that while you and 63 00:03:24.319 --> 00:03:29.960 I are probably interacting with chat GBT and experiencing hallucinations 64 00:03:30.000 --> 00:03:32.319 and things that it gets wrong and seeing some of 65 00:03:32.319 --> 00:03:35.280 the limitations of it, all of the research that's happening 66 00:03:35.319 --> 00:03:39.520 behind the scenes right now is oriented around actually dealing 67 00:03:39.520 --> 00:03:43.360 with one of the biggest constraints, which is the availability 68 00:03:43.479 --> 00:03:48.319 of AI researchers to improve models, and the focus is 69 00:03:48.360 --> 00:03:52.280 on building the capabilities within the models themselves to become 70 00:03:52.400 --> 00:03:56.639 the AI researchers. And it lays out this thesis around 71 00:03:56.759 --> 00:04:00.680 how the pace of innovation in the AI model itself 72 00:04:00.800 --> 00:04:03.599 is just going to start to go faster and faster 73 00:04:04.439 --> 00:04:07.639 as the models are essentially able to work twenty four hours, 74 00:04:07.680 --> 00:04:10.360 and instead of having a limited pool of researchers, you're 75 00:04:10.400 --> 00:04:13.240 just limited by how much compute you can have in 76 00:04:13.400 --> 00:04:16.279 having researchers work on the model. And so it lays 77 00:04:16.319 --> 00:04:21.680 out this picture of just massive improvements in models achieving 78 00:04:21.879 --> 00:04:25.920 artificial general intelligence, which is models that are as smart 79 00:04:26.000 --> 00:04:30.240 or smarter than humans, and ultimately all of that resulting 80 00:04:30.439 --> 00:04:36.519 in massive increases in electricity demand as more compute is 81 00:04:36.560 --> 00:04:39.040 needed to transform industries and economies. 82 00:04:39.920 --> 00:04:42.680 I know nothing about AI except what I read, but 83 00:04:42.920 --> 00:04:46.279 I don't suffer from the dun Incog effect where liberally 84 00:04:46.360 --> 00:04:49.360 reads five articles and think is becoming a world expert. 85 00:04:49.959 --> 00:04:53.360 More compute I can buy, but with marked meat is 86 00:04:53.399 --> 00:04:56.920 the infamous Mark Mets. Twenty five years ago, we predicted 87 00:04:57.040 --> 00:05:01.120 that the Internet would don the planet and consume half 88 00:05:01.160 --> 00:05:03.120 of the world power by two oh ten, and of 89 00:05:03.120 --> 00:05:06.279 course nothing happened. So it's also realized a lot on 90 00:05:06.600 --> 00:05:11.160 how fast the chips and the softwares can get the efficiency. 91 00:05:11.720 --> 00:05:12.319 What do you hear? 92 00:05:12.920 --> 00:05:15.480 I love that reference to the Mark Mills study. It's 93 00:05:15.480 --> 00:05:18.720 a great case study. And for those who aren't familiar 94 00:05:18.759 --> 00:05:22.199 with it, there were US power companies that were telling 95 00:05:22.279 --> 00:05:25.360 Wall Street analysts that they were building so many new 96 00:05:25.399 --> 00:05:30.480 power plants because of this explosive demand in digital economy 97 00:05:30.600 --> 00:05:33.399 and the need for power to supply all of it. 98 00:05:33.920 --> 00:05:37.600 And if you look back on that study, one of 99 00:05:37.639 --> 00:05:39.959 the things that got most wrong was the extent to 100 00:05:40.000 --> 00:05:43.199 which the industry that was managing all of that information 101 00:05:43.279 --> 00:05:46.160 became so much more efficient than what it was in 102 00:05:46.199 --> 00:05:50.600 two thousand. I do think today is fundamentally different than 103 00:05:50.639 --> 00:05:53.920 when Mark Mills produced that study back in nineteen ninety nine, 104 00:05:53.959 --> 00:05:57.319 in the sense that here's just an interesting statistic for you. 105 00:05:57.920 --> 00:06:01.720 The hyperscalers, the large tech companies, all of them except 106 00:06:01.720 --> 00:06:06.639 for Amazon, actually publish their historic electricity consumption. And when 107 00:06:06.680 --> 00:06:10.800 you look at that data, even before AI was becoming 108 00:06:11.040 --> 00:06:13.759 the growth engine, like the large language models and data 109 00:06:13.800 --> 00:06:17.160 center compute, just the migration to the cloud and the 110 00:06:17.199 --> 00:06:21.319 need for cloud compute was resulting in essentially a growth 111 00:06:21.439 --> 00:06:25.199 rate where their need for data centers was doubling about 112 00:06:25.240 --> 00:06:29.040 every four years, and the data center industry has already 113 00:06:29.040 --> 00:06:31.360 gotten to a scale we're just like that doubling every 114 00:06:31.399 --> 00:06:35.759 four years requires a large amount of data center capacity. 115 00:06:35.839 --> 00:06:39.439 But so what's different is that there's this underlying trend 116 00:06:39.480 --> 00:06:42.120 that's been around for four or five years. There's a 117 00:06:42.240 --> 00:06:45.759 race to win in artificial intelligence with a lot of 118 00:06:45.800 --> 00:06:48.519 companies now trying to compete in this space and add 119 00:06:48.519 --> 00:06:51.399 a lot of data center capacity. And so over the 120 00:06:51.480 --> 00:06:54.399 next five years there's going to be a very large 121 00:06:54.759 --> 00:06:58.680 growth in data center capacity. But just like Mark Mills 122 00:06:58.680 --> 00:07:01.199 back in two thousand, as we move beyond that, like 123 00:07:01.240 --> 00:07:04.000 into the twenty thirties, there's a lot that could happen 124 00:07:04.040 --> 00:07:07.519 on the efficiency improvement side and the efficiencies of the 125 00:07:07.560 --> 00:07:10.279 models themselves and how much compute they require. 126 00:07:11.279 --> 00:07:15.319 There are as many numbers floating around as consultants, but 127 00:07:15.519 --> 00:07:18.240 one that I've seen kind of coming more and more 128 00:07:18.319 --> 00:07:22.600 is number of one hundred and eighty gigawa of US 129 00:07:22.600 --> 00:07:26.720 Electrictic commitments for data center for our listeners, that's one 130 00:07:26.800 --> 00:07:30.360 or eighteen nuclear plants by and large, knowing this about 131 00:07:30.399 --> 00:07:34.199 one hundred in the US. That is absolutely massive. And 132 00:07:34.240 --> 00:07:38.560 if I can give another number, the hyperscalers who've invested 133 00:07:38.639 --> 00:07:42.680 three hundred billion US dollars in capex into twenty five, 134 00:07:43.519 --> 00:07:46.480 I've all announced that for Tour twenty six that's going 135 00:07:46.519 --> 00:07:50.360 to be seven hundred billion dollars. Now it's not just 136 00:07:50.399 --> 00:07:53.480 going to be powered, mostly going to be chips. Now, 137 00:07:53.879 --> 00:07:55.720 if you look at the capex of a data center, 138 00:07:55.759 --> 00:07:58.959 about twenty percent is power and eighty percent is chips 139 00:07:59.040 --> 00:08:01.399 or you know, you'll tell me from right or wrong. 140 00:08:01.480 --> 00:08:04.879 So how do you interpret that thirst for energy? 141 00:08:05.399 --> 00:08:08.120 So let's take that one hundred and eighty gigawatts number. 142 00:08:08.680 --> 00:08:11.279 It would result in about a thirty percent increase in 143 00:08:11.839 --> 00:08:16.519 demand in the United States for electricity. It is equal 144 00:08:16.600 --> 00:08:19.720 to like two French power systems. 145 00:08:19.279 --> 00:08:20.839 That they would have to be rebuilt. 146 00:08:20.839 --> 00:08:24.240 To put it into perspective, the number that we are 147 00:08:24.319 --> 00:08:29.480 watching most closely is what have US utilities actually committed to? 148 00:08:29.920 --> 00:08:32.759 And what I mean by that is a data center 149 00:08:32.919 --> 00:08:36.559 has made an application to interconnect with an electric utility. 150 00:08:36.919 --> 00:08:40.240 The electric utility has studied what it's required for it 151 00:08:40.320 --> 00:08:42.879 to do to be able to accommodate that demand growth. 152 00:08:43.159 --> 00:08:45.240 It has figured out how much it's going to cost 153 00:08:45.279 --> 00:08:48.039 to add us to the system, and an agreement has 154 00:08:48.080 --> 00:08:51.600 been signed, and typically the data center company is making 155 00:08:51.679 --> 00:08:55.519 down payments to the electric utility for long lead time equipment. 156 00:08:56.039 --> 00:08:58.080 So that's where the one hundred and eighty gigawatt number 157 00:08:58.120 --> 00:09:01.480 comes from. That's what US utility have committed to at 158 00:09:01.480 --> 00:09:05.399 this point. And what's important to keep in contexts and 159 00:09:05.440 --> 00:09:09.440 the evolution of this is that for fifteen years, US 160 00:09:09.559 --> 00:09:12.159 utilities have had no growth, so they didn't have teams 161 00:09:12.159 --> 00:09:15.759 of people to respond to all of these requests. They 162 00:09:15.759 --> 00:09:19.799 didn't have a culture of dealing with growth. The regulators 163 00:09:19.799 --> 00:09:24.080 that regulate the utilities haven't regulated in an environment, most 164 00:09:24.120 --> 00:09:27.879 of them where the industry is actually growing. Industry is 165 00:09:28.000 --> 00:09:31.080 very unprepared for it, and a lot of change is 166 00:09:31.120 --> 00:09:34.000 happening as they respond to this one hundred and eighty 167 00:09:34.000 --> 00:09:35.720 gigawatts of commitments. 168 00:09:36.360 --> 00:09:40.279 Well, one or eighty, that's for real, that's extraordinary. But 169 00:09:40.360 --> 00:09:43.159 as you said, the industry has lost the muscile memory 170 00:09:43.200 --> 00:09:47.320 of growth and they've been mostly managing their dividends and 171 00:09:47.399 --> 00:09:49.960 you know, making sure the trees didn't fall on the line, 172 00:09:50.000 --> 00:09:52.720 but that was kind of boring, and now it turns 173 00:09:52.720 --> 00:09:54.399 out to be there in the one of the most 174 00:09:54.399 --> 00:09:58.360 exciting sector are going on. And Chris, the most extraordinary 175 00:09:58.399 --> 00:10:01.360 thing is you just tooking that center. So we're not 176 00:10:01.519 --> 00:10:05.960 even talking about the electrification of transport or electrification of heat, 177 00:10:06.639 --> 00:10:10.120 which in other countries are as big, if not then 178 00:10:10.200 --> 00:10:13.279 data center. So I don't know what numbers are going 179 00:10:13.320 --> 00:10:15.600 to look like because they're going to be antification of 180 00:10:15.600 --> 00:10:17.039 transport at some point. 181 00:10:17.360 --> 00:10:20.480 Correct part of the way I'm thinking about this is 182 00:10:20.519 --> 00:10:23.279 that what's happening in the US right now is really 183 00:10:24.159 --> 00:10:28.279 the first time that we have had a deregulated electricity 184 00:10:28.320 --> 00:10:32.399 market experiencing substantial growth, and this is kind of a 185 00:10:32.440 --> 00:10:38.440 precursor with provide lessons to be learned as other parts 186 00:10:38.519 --> 00:10:42.320 of the globe, like Europe in particular, where electrification of 187 00:10:42.320 --> 00:10:45.000 transports and heating likely become a bigger part of the 188 00:10:45.039 --> 00:10:49.039 story what those markets are going to go through in 189 00:10:49.080 --> 00:10:51.639 a few years as that becomes a bigger part of 190 00:10:51.639 --> 00:10:54.399 the story. But I would say in the US, though, 191 00:10:54.559 --> 00:10:58.120 the large loads are not confined to just data center demand. 192 00:10:58.279 --> 00:11:00.799 Data center demand is most of it, but we also 193 00:11:00.840 --> 00:11:04.519 have chip manufacturing facilities that are under construction. We have 194 00:11:04.960 --> 00:11:09.759 electric battery manufacturing facilities. Those are all large loads that 195 00:11:09.879 --> 00:11:13.399 are of a scale in size that the electric industry 196 00:11:13.399 --> 00:11:15.320 hasn't had to deal with in the past. 197 00:11:15.720 --> 00:11:19.320 And the interesting thing is that those clients can pay 198 00:11:19.440 --> 00:11:22.320 because what you used to have with big industrial loads 199 00:11:22.559 --> 00:11:25.720 is that those who are like large volume, low margin, 200 00:11:26.039 --> 00:11:30.039 like you know, steel or refining, where every sense petkida 201 00:11:30.080 --> 00:11:34.360 whateur would count was here. The margin on computer is 202 00:11:34.480 --> 00:11:37.720 so ginomous, and those people are willing to pay a 203 00:11:37.759 --> 00:11:41.399 lot in order to get their power fast, which was 204 00:11:41.480 --> 00:11:42.879 not probably the case before. 205 00:11:43.679 --> 00:11:46.440 Yeah, that is a super important point. The reason that 206 00:11:46.480 --> 00:11:49.720 I think that is so important is that you have 207 00:11:49.759 --> 00:11:55.039 a buyer that puts enormous value on something, namely electricity, 208 00:11:55.200 --> 00:11:57.519 that they're not able to get enough of right now. 209 00:11:58.320 --> 00:12:01.759 When you have those type of conditions, that is the 210 00:12:01.840 --> 00:12:05.559 type of condition the results in innovation that is difficult 211 00:12:05.600 --> 00:12:08.000 to predict. We don't know exactly where it's going to 212 00:12:08.039 --> 00:12:10.360 come from. But when you have somebody that values something 213 00:12:10.399 --> 00:12:13.519 so much they can't get that's when we see innovation. 214 00:12:13.639 --> 00:12:16.600 That's part of what makes this time period so exciting 215 00:12:16.639 --> 00:12:19.919 in the electric power business. As we talk, we're starting 216 00:12:19.960 --> 00:12:22.120 to see some of that innovation take place. 217 00:12:22.159 --> 00:12:27.159 Now. You have clearly defined the sector in the US 218 00:12:27.440 --> 00:12:32.440 as really been in two buckets, the regulated part and 219 00:12:32.600 --> 00:12:36.279 the unregulated part, which probably reminds you how you started 220 00:12:36.279 --> 00:12:41.000 your career. Let's dive first into the regulated part, which 221 00:12:41.039 --> 00:12:45.840 are regional, fully vertically integrated dutties, and then we talk 222 00:12:45.919 --> 00:12:50.399 about the unregulated market. So what's your take on the 223 00:12:50.480 --> 00:12:51.759 regulated utilities. 224 00:12:52.480 --> 00:12:55.600 The first thing I would say is there's differentiation happening. 225 00:12:55.919 --> 00:12:59.960 There are regulated utilities that are finding ways to transfer 226 00:13:00.320 --> 00:13:05.080 themselves to become a home for data centers, and those 227 00:13:05.200 --> 00:13:09.639 utilities are actually becoming growth stocks, not something you would 228 00:13:09.679 --> 00:13:13.720 normally associate with an electric utility. But let us focus 229 00:13:13.759 --> 00:13:16.919 on the ones that are innovating in what they're doing 230 00:13:17.159 --> 00:13:19.799 and the types of innovations that they're bringing to kind 231 00:13:19.799 --> 00:13:23.799 of become a home for data centers. Three years ago, 232 00:13:24.039 --> 00:13:27.320 they were getting inundated with data center requests. They have 233 00:13:27.399 --> 00:13:30.679 chip manufacturing facility under construction. They actually have all of 234 00:13:30.720 --> 00:13:33.200 the different types of loads I was talking about. They 235 00:13:33.240 --> 00:13:36.840 had no process whatsoever to deal with it. It's literally 236 00:13:36.919 --> 00:13:39.879 like a group of executives sitting around the table saying 237 00:13:40.159 --> 00:13:44.480 I'm going to prioritize that project, not that project. We're 238 00:13:44.480 --> 00:13:47.240 going to call this politician to tell them we're not 239 00:13:47.320 --> 00:13:51.320 doing the project that's in their district. And it wasn't transparent. 240 00:13:51.559 --> 00:13:54.360 Not a great way to communicate about it. You know, 241 00:13:54.399 --> 00:13:57.320 another thing about this electric utility, I don't think they 242 00:13:57.320 --> 00:14:01.759 had a single load over five megawatts in two thousand 243 00:14:01.759 --> 00:14:05.519 and twenty, and probably by the time that they get 244 00:14:05.559 --> 00:14:08.159 to two thousand and thirty two thousand and thirty, one 245 00:14:08.399 --> 00:14:10.480 thirty percent of all of their demand is going to 246 00:14:10.519 --> 00:14:15.120 be coming from just a few large load customers. So 247 00:14:15.320 --> 00:14:17.000 to deal with this where they have to make a 248 00:14:17.159 --> 00:14:22.159 large investment to support one facility, they've changed how their 249 00:14:22.159 --> 00:14:25.759 tariffs work. Historically, tariffs have been you average up all 250 00:14:25.799 --> 00:14:28.399 the costs of electric utility and you allocate that across 251 00:14:28.440 --> 00:14:31.960 all of the customers, with some differentiation in customer classes. 252 00:14:32.600 --> 00:14:35.360 What they're trying to do is develop tariffs that are 253 00:14:35.480 --> 00:14:38.000 very specific to this customer, where they allocate all the 254 00:14:38.000 --> 00:14:42.000 costs of serving that customer directly to that individual customer. 255 00:14:42.360 --> 00:14:46.320 And unlike electric utilities of the past, they have all 256 00:14:46.360 --> 00:14:50.679 types of credit requirements, they have minimum payment charges that 257 00:14:50.759 --> 00:14:53.759 this data center company has to make to be able 258 00:14:53.799 --> 00:14:57.600 to mitigate the risk of those costs eventually falling on 259 00:14:57.879 --> 00:15:01.159 existing customers if something went wrong. But what I found 260 00:15:01.200 --> 00:15:05.120 even more kind of transformational about this particular electric utility 261 00:15:05.480 --> 00:15:08.639 is that they're now able to analyze their system and 262 00:15:08.720 --> 00:15:11.440 have a conversation with a data center company, And this 263 00:15:11.519 --> 00:15:14.360 is a real life example where they can say, if 264 00:15:14.399 --> 00:15:19.000 you give us three hundred hours of interruptible power during 265 00:15:19.039 --> 00:15:22.679 the wintertime between the hours of eleven o'clock at night 266 00:15:22.759 --> 00:15:25.519 and seven in the morning, we can get you online 267 00:15:25.639 --> 00:15:28.679 four years earlier because we can meet your demand from 268 00:15:28.720 --> 00:15:33.360 our existing resources. So that's like an analytical capability that 269 00:15:33.399 --> 00:15:36.360 they didn't have before. Is kind of an example of 270 00:15:36.399 --> 00:15:39.000 them finding a way to get somebody online even faster. 271 00:15:39.159 --> 00:15:41.840 And now they've even gone beyond all of that to 272 00:15:41.960 --> 00:15:46.960 develop like a subscription model where they have acquired a 273 00:15:47.000 --> 00:15:49.519 site that they can put two thousand megawatts of gas 274 00:15:49.559 --> 00:15:52.919 fire generation on, so very large gas fired power plant, 275 00:15:53.320 --> 00:15:57.519 and data centers are basically bidding to subscribe to that 276 00:15:57.759 --> 00:16:00.759 capacity and to pay for the cost of building all 277 00:16:00.799 --> 00:16:03.240 of that capacity. So that's just kind of like one 278 00:16:03.279 --> 00:16:09.320 example of how a regulated electric utility has transformed itself 279 00:16:09.360 --> 00:16:11.120 in responding to this demand growth. 280 00:16:12.360 --> 00:16:15.200 And we've seen recently in the price a lot of 281 00:16:15.399 --> 00:16:20.799 announcement of hundreds of billions of investment from those regulator utts. 282 00:16:20.840 --> 00:16:25.159 So I'm going to name a few juke ANTLG Southern 283 00:16:26.200 --> 00:16:29.360 Center point to a lesser extent, those guys are really 284 00:16:29.559 --> 00:16:32.320 boosting their investment like we've never seen before. 285 00:16:33.159 --> 00:16:36.720 Yeah, And talking with one of the data center companies, 286 00:16:37.240 --> 00:16:42.000 they were telling me what their ideal energy supplier looks like. 287 00:16:42.519 --> 00:16:44.720 One of the things that they said was interesting was 288 00:16:45.200 --> 00:16:49.200 we want an energy supplier who can actually go into 289 00:16:49.240 --> 00:16:52.480 the local community and help us with the permitting of 290 00:16:52.559 --> 00:16:56.840 our data center and help change the zoning requirements that 291 00:16:56.879 --> 00:16:59.720 we need at a local level. They want a partner 292 00:16:59.759 --> 00:17:03.399 who who cannot just necessarily deliver energy to them, but 293 00:17:03.679 --> 00:17:05.960 knows the local community really well and can deliver these 294 00:17:06.000 --> 00:17:09.880 other benefits. And when you think about who's best poise 295 00:17:09.960 --> 00:17:13.240 to do that in the energy world, it's the regulated 296 00:17:13.440 --> 00:17:18.240 monopoly utilities that have really strong political connections, typically within 297 00:17:18.279 --> 00:17:21.880 their service territories. And you're seeing that, you know, most 298 00:17:21.880 --> 00:17:24.279 of the companies that you just mentioned are those vertically 299 00:17:24.279 --> 00:17:26.640 integrated regulated electric utilities. 300 00:17:27.160 --> 00:17:32.079 So now switching to the unregulated utilities, and here I'm 301 00:17:32.119 --> 00:17:37.519 gonna name a few Constellation, Vistra, and RG Those guys 302 00:17:37.599 --> 00:17:43.319 have mostly been busy buying existing assets, somehow bitting that 303 00:17:43.640 --> 00:17:47.240 the price on a regulated market would go up, whether 304 00:17:47.319 --> 00:17:51.119 it's on PGM, COT or is where those der regulator 305 00:17:51.200 --> 00:17:54.839 market looks very, very different from the regulator utilities. 306 00:17:55.680 --> 00:17:59.759 Yeah, let's step back a second and dissect the deregulated markets. 307 00:18:00.319 --> 00:18:05.039 In the deregulated markets, you have regulated utilities, but they 308 00:18:05.079 --> 00:18:09.200 only own the wires. They don't own generation supply. So 309 00:18:09.240 --> 00:18:12.440 that's how they're different from the regulated utilities group we're 310 00:18:12.480 --> 00:18:15.759 just talking about which are regulated. Their generation is regulated, 311 00:18:15.839 --> 00:18:20.160 their transmission is regulated in their service territories. The data 312 00:18:20.160 --> 00:18:22.119 center doesn't have a choice of who they buy from. 313 00:18:22.160 --> 00:18:25.279 They have to buy from the regulated utilities. In the 314 00:18:25.319 --> 00:18:29.680 deregulated market, the wires only utilities. They represent about half 315 00:18:29.759 --> 00:18:33.920 of the commitments to adding data center capacity to the grid, 316 00:18:34.599 --> 00:18:38.400 but when they study the request to connect somebody to 317 00:18:38.440 --> 00:18:41.759 the grid, they only look at what investment has to 318 00:18:41.799 --> 00:18:44.440 be made in the grid to accommodate this data center. 319 00:18:44.880 --> 00:18:48.960 They have no responsibility or obligation and for the most 320 00:18:48.960 --> 00:18:51.799 part aren't even allowed to participate in the generation market 321 00:18:51.880 --> 00:18:55.920 and figure out how to meet the generation supply to 322 00:18:55.960 --> 00:19:00.039 be able to supply power to that data center. So 323 00:19:00.039 --> 00:19:03.799 so it's creating a real kind of planning predicament for 324 00:19:03.839 --> 00:19:08.400 the industry. You have utilities in Texas, single state, that 325 00:19:08.440 --> 00:19:12.359 have committed to fifty gigawatts of new load coming onto 326 00:19:12.400 --> 00:19:16.240 the grid, and there's no coordinated plan for how supply 327 00:19:16.319 --> 00:19:19.319 will be brought on to match it. And there's two 328 00:19:19.400 --> 00:19:23.480 fundamental problems. The first is you can build a data 329 00:19:23.480 --> 00:19:25.640 center a lot faster than you can build a new 330 00:19:25.680 --> 00:19:29.680 power plant. That creates a mismatch and being able to 331 00:19:29.720 --> 00:19:33.640 maintain demand and supply. And the second problem you have 332 00:19:33.880 --> 00:19:37.920 is a political problem, which is the regulated utility I 333 00:19:37.960 --> 00:19:40.759 describe is able to allocate all of the cost of 334 00:19:40.799 --> 00:19:44.319 building its power plant directly to the data centers and 335 00:19:44.400 --> 00:19:48.160 the deregulated markets. The way it's supposed to work is 336 00:19:48.480 --> 00:19:53.400 Adam Smith's invisible hand and price setting mechanisms that result 337 00:19:53.440 --> 00:19:55.960 in new supply getting built. And what that means is 338 00:19:56.680 --> 00:19:58.720 if you look at the power markets right now in 339 00:19:58.759 --> 00:20:03.240 the US, our prices are at about half the level 340 00:20:03.480 --> 00:20:07.319 of what's required to provide a price incentive to build 341 00:20:07.319 --> 00:20:09.799 a new power plant, to get somebody like Vista or 342 00:20:09.839 --> 00:20:11.759 Constellation of the companies that you mentioned to build a 343 00:20:11.839 --> 00:20:16.440 new power plant. And if prices rise to provide that signal, 344 00:20:16.519 --> 00:20:19.799 then prices have to rise for our customers. And that 345 00:20:19.880 --> 00:20:24.519 has become a big political problem, as affordability of energy 346 00:20:24.799 --> 00:20:28.000 is one of the biggest political issues right now in 347 00:20:28.039 --> 00:20:29.200 the United States. 348 00:20:29.920 --> 00:20:32.599 So basically what you're saying is that something also we've 349 00:20:32.599 --> 00:20:35.559 seen all around the world is when the market are tight, 350 00:20:35.960 --> 00:20:40.960 government or at least a central command control is more efficient. 351 00:20:42.000 --> 00:20:45.240 Was when the market are laxed and over supply, This 352 00:20:45.319 --> 00:20:48.720 is where the market creates a good price discovery. And 353 00:20:48.759 --> 00:20:52.680 now as we are moving from one relatively laxed market 354 00:20:52.839 --> 00:20:57.279 to a more stressed one, it looks like naturally the 355 00:20:57.400 --> 00:21:02.599 regulated central command a more efficient into responding to this 356 00:21:02.839 --> 00:21:04.720 rise of demand. Yeah. 357 00:21:04.839 --> 00:21:08.759 I sometimes have a hard time emotionally saying this, Laurel, 358 00:21:08.920 --> 00:21:11.519 because I got into this business because I saw the 359 00:21:11.559 --> 00:21:16.240 promise of drying in all the innovation that it could create. 360 00:21:16.799 --> 00:21:20.519 But the reality of what I'm seeing right now is 361 00:21:20.559 --> 00:21:24.839 that the vertically integrated regulated utilities, some of them, not 362 00:21:24.920 --> 00:21:28.039 all of them, are doing a better job at responding 363 00:21:28.039 --> 00:21:30.960 to the demand growth. And I think there's one critical 364 00:21:31.279 --> 00:21:34.480 reason for this. It goes back to the story that 365 00:21:34.559 --> 00:21:37.920 I described earlier of an electric utility being able to 366 00:21:37.960 --> 00:21:41.519 communicate to somebody that if you give me interruptable power, 367 00:21:41.559 --> 00:21:43.400 I can get you online four years in advance. It's 368 00:21:43.440 --> 00:21:46.920 because the vertically integrated regulated utilities are looking at their 369 00:21:46.960 --> 00:21:50.559 system on an integrated basis what investment needs to be 370 00:21:50.599 --> 00:21:54.680 made in transmission and distribution and generation to most efficiently 371 00:21:54.920 --> 00:21:59.799 support this customer. In the deregulated markets, there's not co 372 00:22:00.079 --> 00:22:04.079 ordination in the planning right now between how generation gets 373 00:22:04.119 --> 00:22:06.880 added to the grid and how load gets added to 374 00:22:06.920 --> 00:22:10.720 the grid, and that disconnect makes it a lot harder 375 00:22:10.880 --> 00:22:15.000 to efficiently accomplish this. In the deregulator markets plusters the 376 00:22:15.039 --> 00:22:16.680 political overlay. 377 00:22:16.599 --> 00:22:19.160 Plus on the top of that, the price of equipment 378 00:22:19.279 --> 00:22:22.359 has gone Ballistick. You used to have your assistant BC 379 00:22:22.559 --> 00:22:25.279 at one that apple What now it's at three that apple. 380 00:22:25.279 --> 00:22:29.680 Wa So go get any type of LCE below one 381 00:22:29.720 --> 00:22:33.799 hundred that up and make what our those prices can't 382 00:22:33.799 --> 00:22:38.240 be done? Yeah? Sure, when we all know so, we'll 383 00:22:38.279 --> 00:22:40.079 always find this way. But you need a lot of 384 00:22:40.160 --> 00:22:43.039 land and some batteries. But so somebody don't mean the 385 00:22:43.079 --> 00:22:44.960 other day, I just puts it out on the roof 386 00:22:45.039 --> 00:22:48.039 of the data center, as my friend, you're gonna put 387 00:22:48.079 --> 00:22:51.000 the five hundred megawat data centers. Okay, you're gonna copy 388 00:22:51.079 --> 00:22:54.440 the roof. You're gonna get ten mega? What well the 389 00:22:54.519 --> 00:22:58.480 four ninety coming? And of course that opens a lot 390 00:22:58.519 --> 00:23:04.079 of fantasies around SMRs and fusion and whatever, because everybody 391 00:23:04.759 --> 00:23:09.480 who supposedly as a solution is going to propose whatever 392 00:23:09.559 --> 00:23:12.640 in their book. Chris, how do you see that playing 393 00:23:12.640 --> 00:23:14.400 out in the de regulated market. 394 00:23:15.000 --> 00:23:18.079 There's a couple potential paths that it could take, and 395 00:23:18.119 --> 00:23:22.319 this has important implications for investors in the sector and 396 00:23:22.400 --> 00:23:24.680 how things will work out for the companies that you mentioned, 397 00:23:24.720 --> 00:23:28.960 like the Vistras and the Constellation Energies. One plausible scenario 398 00:23:29.200 --> 00:23:32.119 is we actually see some reregulation of the market to 399 00:23:32.119 --> 00:23:35.480 some extent and allow some of the regulated utilities to 400 00:23:35.519 --> 00:23:39.319 get back into the regulated generation business, and some of 401 00:23:39.359 --> 00:23:43.279