Breakout 1: Power, Utilities Sector Update and Resiliency Efforts

Transcription:

Frank Reed (00:07):

So today's panel is going to be speaking about our power in Texas. We have a please. My name is Frank Reed and I'm with Oppenheimer. And please help me welcome our very distinguished panel. So Bhala is a Senior Vice President at US Bank. Chris is a Director with Assured Guaranty. Cory is the CFO for CPS Energy, and Julie is a Vice President and Analyst with Moody's Ratings. So we're going to have an open discussion and our panel is going to speak to some specific questions, but all of the panel is going to be jumping in and adding their contribution to many of these questions. So we'll start by asking Julie and Bhala about what the outlook is for electricity demand and the growth in Airco.

Julie Meyer (01:14):

Yeah, so real quick, we've all heard the growth story so far in the Bond Buyer this year. It's no secret eighth largest economy in the world, but just in terms of what Moody's is expecting, we're forecasting Texas population to grow on an average of 300,000 people a year for the next couple of years, like five to 10 years or so. So imagine adding a midsize city every year to the state's population so that along with the economic growth that's going to come with boat growth, but there are also some other forces that work here. Electrification of industrial sectors, electrification of transportation, electric vehicles, the oil and gas operations out in west Texas is electrifying. We're seeing more and more electrification on the ship channel. It's a lot that's going to be plugged into the grid, but something that's starting to grab more headlines lately are data centers, data centers driven by cloud computing and artificial intelligence.

(02:16):

These aren't like the data centers that we've seen that have been used for crypto mining, which are more price sensitive and can respond to prices. So when grade conditions get a bit tight, prices go really high. They can reduce their consumption. AI demand or AI data centers typically need more reliable round the clock energy. So that's going to cause some reliability issues. And this isn't just unique to Texas. So Moody's put out a piece about a couple weeks ago I was at National data center piece and how that's affecting utilities, more focused on the regulated utilities, but they're coming and they can be built really fast. So like a single data center thinking maybe 500 megawatts, how do you plan for that? To put that in perspective, a megawatt is 200 homes in Texas. Earlier today I was looking at a slide deck that was shared with the Ercot large flexible load task force for like casual rating as one does.

(03:20):

And it had a chart that showed large loads being interconnected, approved, I think 4,000 megawatts this year. But cumulatively through 2027 we're looking at 40,000. So before you gasp, not all that will actually get built. There's whole process. It has to be studied and approved and everything. But what CPS energy's peak demand is 5,000 in a normal year. Five, yeah, getting close to six with the growth. So why is that important? In general terms, you want to think about the grid that it has to be Bhalanced at all times. Every electron of demand must be met with an electron of supply.

Bhala Mehendale (04:13):

I'll feed off of what was said throughout this session, actually throughout this conference. And greed is good, but no growth is good. But it was specific to Ercot, really, if you look at just the last three years from 2020 through 2023, peak load has grown 15%, that's actual growth. And Ercot had a peak of about 85, 80 5,500 megawatts in August of 2023. The forecast is for peak load to grow at 6%. So you're talking about 4,800, 5,000 megawatts of additional capacity. Then you have a reserve margin on top of that, you're going to make sure this transmission, just because there's load doesn't mean there's generation out there. It is clearly a challenge. But look, you would rather have challenge problems of plenty than problems of paucity, right? So it's a good problem to have, it's a good challenge to have. Now you compare that with some of the other regions in the rest of the country.

(05:21):

If you look at PJM Miso, the Northeast, the New England region, typical load growth there is somewhere in the range of one to 2%. So it's a huge difference between what you're seeing out here and what you're seeing in the rest of the country. Now, I'll caveat that by saying that we are seeing pockets of similar planned load growth, and I'll use the word planned out in the Midwest, partly driven by data data centers, whether it's the Facebooks or the Linkedin or the Snaps or the Insta of the world or the Bitcoins or now the AI crunches of the world, if you will. So there is a little bit of that happening. It's a lot more organic here. I would say in Texas a lot more diversified. Yes, the drivers potentially could be the data centers, but I do see the growth being a lot more diversified and organic out here.

Chris Jumper (06:22):

Yep. Is it okay if I add something? So again, as Bhala mentioned, it's great opportunity, but there's also challenges of facing it. And one of the big challenges is, okay, you've got all this growth, but it takes a pretty long time to permit, to design, to build and connect a power generating station or transmission line. So there's going to be some probably disruption, some challenges that as they try to meet that as everyone tries to meet that demand further. Yeah, we are seeing pockets of growth not only in Texas. Texas is by far and away the biggest growth area, but even in Georgia and Southern Company announced that they're being hit with a tidal wave of new demand. So we're going to start seeing this more and more. US manufacturing is electrifying and is going to be leaning on that demand in addition to the data centers in addition to just the organic customer growth.

Frank Reed (07:34):

So let's continue our discussion on demand growth and maybe ask Cory to comment on City of San Antonio is one of the fastest growing cities in Texas, and what shifts have you seen in customer base for CPS energy and how are you managing the increase in load demand?

Cory Kuchinsky (07:56):

Yeah, thank you Frank and good afternoon everyone. So like Frank said, CPS Energy, electric and gas utility in San Antonio, Texas. We are growing pretty fast. I'll take your words. I mean it's a good problem to have and we're growing at about 145 megawatts a year, and that's without consideration of these large loads that everyone's talking about. I think the theme of growth that we're experiencing really isn't different from a lot of our larger peers and cities that are growing quickly. It is really interesting. And in terms of new customers, we're over 20,000 new customers a year, which it's a pretty fast clip for us. What's interesting, over the last two years you saw everything grow fast, whether it be single family, multifamily, commercial, what you're seeing now is a little more multifamily. But for us in San Antonio, the element of growth meant that we needed to think about our generation plan.

(08:56):

And so the big bogey that we all talk about is the assets that are coming offline, not just the ones that we need to bring online in Texas. So for CPS, we've had a long conversation in our community in San Antonio about our generation plan with our board, various stakeholders over the last year, and we're taking off 3000 megawatts between now and the end of 2030, but we're going to try and bring on about 6,000 megawatts of power. So just for us and our community, and that really actually was under the view of the world that didn't overly consider large loads that are coming to town. And you literally have folks coming to town saying, yeah, I need a couple hundred megawatts. And then someone right behind them says, I need another 100 and then the other one comes and I need 300 and they all want to be right next door to each other as neighbors.

(09:44):

And you're like, that's not going to work. And I don't think that's an atypical story. And so there's a lot of conversations that we've had from a generation perspective locally, a lot of our plan was to build until we decided to buy. About a month ago, we purchased about 1700 megawatts of existing gas-fired plants. So for San Antonio proper, we believe we have the generation to meet the near term midterm growth. And that was probably the number one question the business community would ask us. They'd ask Rudy, our CEO and ask all of our leadership team, do we have enough generation for the last two years? He'd be like, no, we don't. The state, I think we've solved a problem for ourselves a little bit, but it doesn't help the overall net problem for Ercot, which everyone's talking about. So it's an interesting story. We all have our own stories to tell. I think in San Antonio we've done a good job managing the generation needs and meeting that growth. But all said, growth isn't a bad problem, it's just a problem that we need to be strategic about and work together as a state.

Frank Reed (10:50):

So as we continue to speak about demand growth, let's ask Chris maybe what other issuers across the state are doing to prepare for the surge in power demand?

Chris Jumper (11:01):

Sure, sure. So again, we've seen a lot of, in the past retirements of old coal fire generation, natural gas, fire generation coming offline and it's being replaced by a lot of renewable generation, which they're signing PPAs and whatnot. The challenge with that is that as you're retiring a generating facility that is located close to a population center and replacing it with renewable that typically is located in west Texas, you've got bigger transmission issues that are arising. And so now we're seeing a lot of issuers not only building new peaking plants and whatnot, but also buying more renewable power and supplementing that. There's utilities that are looking to be a hundred percent renewable and are continuing on their path towards that. So it creates just additional congestion on the transmission lines and a need for additional transmission. So a lot of new growth in peaking plants, a lot more transmission I think is on the way.

Frank Reed (12:25):

Alright, well thank you for that. And we'll just put a question out for the panel in general. And so anybody who would like to speak to this point, Texas has emerged as a leader in renewable generation, so please speak to what this new fuel mix and how it's affecting.

Bhala Mehendale (12:49):

I can kick it off. Kick the start. It's great. It's lending itself to some diversity. I'll start at the national level. If you look at the energy mix for the US as a country, we've gone from coal being lopsided heavily towards coal. It was about 60% of the energy mix in 2005, 2006 to about 20% today. So as a country as a whole, the energy mix is a lot more Bhalanced, 20% coal, about 20% nuclear, 40% gas, and then everything else, hydro and the renewables makes up the Bhalance piece. Texas on the other hand is much like the rest of the country, but it's probably a little more pronounced here that the energy mix in the grid and specifically with the ercot is going more towards renewables and natural gas. Now I'm a big fan of all of the above. That's not to say I want a carbon polluter or an overly costly nuclear unit, but the problem with renewals, as Chris mentioned, A is transmission, but we also talk about intermittency, right? The sun is not up every day or is not, I mean it is up every day, but it's not.

(14:13):

It can be cloudy at some point in time. The wind doesn't blow all the time is what I actually wanted to say. But the problem with renewables is, and to explain it very simplistically, if you take a pound of coal in one hand, you take a pound of uranium in the other hand and take a cubic foot of gas or a cubic meter of gas, the amount of energy contained in these sources is a hell of a lot more than renewables. So renewables by the very nature are a diffused form of energy. You can't cook an omelet in sunlight unless you're in Arizona, maybe in July. Then you can on top of a black car, but you can't do that. So now you're taking a diffuse form of energy, you have to concentrate it. How do you concentrate it using a windmill or a solar panel?

(15:01):

And then when you concentrate it, you have to make it available when you want it because all of us want to flip the switch and want the light to come on and then you have to make it available when you want it. So maybe pair it with a battery interconnection and all of this has to be done in an economical manner. The one thing we always have to, and I'm sure Cory will appreciate this a whole lot more being as he's running a utility, is there's an affordability ceiling. Whenever we talk about a fuel mix, I can build any number of offshore windmills if I want to, but if my electric rates are going to triple, that's not going to work. So I think you have to look at renewables in this context of the diffuse nature, additional transmission requirements, intermittency, and then if you're backing it up with gas, do we have a radical back technological breakthrough in batteries, let's say so as to make renewables worthwhile?

(16:06):

And even if you do have a technological breakthrough, do you have the landmass to have renewables supply a large chunk of your energy on a countrywide basis? I think the answer is TBD. I would think the answer is no. I think we have to think about small modular nuclear, maybe there's a technological breakthrough there. Maybe there's a technological breakthrough on the carbon capture side of the house. Again, making sure everything fits within that affordability ceiling, right? Think about the ceiling here on the roof, you can't breach that ceiling and you still have to keep the lights in the room on. So that's what I would say about renewables and the energy mix as a whole.

Cory Kuchinsky (16:49):

I think to that point, we've talked about CPS energy, we're taking it all of the above approach. Everything's good and natural gas is going to be in the mix. Renewables are going to be heavy in the mix. The other thing that we don't often talk about a lot is demand response is actually part of the fuel mix. We've got one of the largest demand response programs in the state, over 250 megawatts that just doesn't need to show up. And so we've had a summer program this past winter, we did a winter program. But what's really interesting about how we're set up is even in the in-between space, the relationships that we have with our companies in San Antonio is such that on an informal basis we can have a Microsoft thank you for if there's a risk of a potential rolling blackout or cuts tight, they would prefer us give 'em a heads up so they can switch over to their generators as opposed to being kind of surprised. And I think that's something that, dunno how other utilities can do it, but there's a real opportunity to just not build anything and build a demand response program through these large states or cities rather in the state that can equate to a peaker. So anyways, I would throw that in. I think the affordability ceiling is an interesting topic in San Antonio. We talk about that a lot.

(18:08):

I always think very big picture, okay, there's an affordability ceiling if you take for granted as a constraint that we are going to evolve our generation to come off coal and kind of traditional fossil resources. So it is an affordability constraint because as a community, as an industry, I think we've accepted that. So it's also all relative is the other point that I'd make is what do we want and to what extent. And so I know for us in San Antonio, we're always looking at kind of where we compare, not just in absolute terms of rates going up, but I think as a cultural commentary that a utility needs to do is to get their local leaders accepting the fact that if we are going to go through an energy transition, it will cost money and that's it. And the responsibility upon us is the utilities to do that in the most affordable and balanced way possible.

(19:00):

But there's a value element to it. And I think in San Antonio we've done that. I mean you have a mayor and a city council now that have, when they talk, there is an acceptance that we are going to have multi-year rate increases over time to support this goal as a community that we have all agreed on we want. And I think that consensus building is incredibly important as a community, especially a large city to at least get the majority moving in lockstep. Otherwise you just got people yelling at each other with a different argument, which in many cases they just talk past each other.

Frank Reed (19:36):

Any other comments on fuel mix?

Julie Meyer (19:38):

Just on the rating side? So we tend to value diversity in fuel mix. Our methodology does focus on, we'll maybe score more harshly if there are any single points of failure. So we really do consider fuel diversity as we think about a generation portfolio. The issues though that we're also thinking about is that we built all this renewable energy, and I'm also of all the above perspective persuasion, but as we have built out so much renewable capacity, we're just frankly not building enough dispatchable generation that we need to considering all the growth that's coming online. And what do I mean by dispatchable? Dispatchable meaning touch of a button, you can turn it on or off. In theory that's oversimplifying things, but essentially something that you can control, not like renewables, which are intermittent in at the mercy of mother nature. So actually the Baker Institute, I think it's what it's called out of Rice University, counted the number of hours that we've exceeded the amount of dispatchable generation capacity. So we had a few hours in 2018, didn't really notice, but it is just really taken off to where in 2023 it was over a thousand. And so people remember we had a lot of conservation requests, conservation appeals from Ercot. So we're just going to keep having these reliability issues. So in the summertime, that's kind of in the evening hours, eight, nine o'clock. And then in the winter, that's the early morning typically.

Frank Reed (21:14):

So last November, the Texas voters approved a 10 billion Texas energy fund, which includes 7.2 billion of low interest loans and grants. So from our panel, maybe any updates on that program, where do we stand today and what do you expect in the future?

Chris Jumper (21:34):

Sure, I can take that. Yeah. And again, Texas has a reserve margin challenge. It's growing very fast. It needs to bring on more capacity. That's dispatchable, that's clear. So in November, as Frank mentioned, SB 26 27 was authorized the creation of the Texas Energy Fund. It roughly $10 billion will be used in the future. I believe 5 billion over the next year will be used for eligible projects to fund the construction, the upgrades, the modernization and operation of new generation primarily it seems to be targeting natural gas fire generation. It looks like battery storage is not included and renewables haven't been mentioned. The idea is that they need to get, the monies must be used for eligible projects that bring up to a hundred megawatts of new generation online. The timelines are, it has to be completed by, I believe 2029 the projects. So right now the PUC is going to administer it and it's going to decide who gets the money and who qualifies for it.

(23:07):

It'll be a combination of grants and low interest rate loans, I believe around 3% interest rate loans 20 years in duration. They're going to start to acquire or look for notices of intent from eligible projects and eligible borrowers by the beginning of May this year. And that'll extend through the end of May and then start accepting or reviewing formal applications in beginning in June. The money will probably begin to be dispersed in the end of 2025. But again, the process has started. There's a big need for additional generation. Just again going back to what happened in winter storm, Yuri, as well as the record heat waves that have occurred and the need, the calls for conservation and for reducing your usage. That creates a lot of challenges when you have a state that's growing as fast as it is. So that's kind of the high level. We can talk about it more if there's any questions on that, but that's the summary that

Cory Kuchinsky (24:26):

I have. We get asked a lot in San Antonio, Hey, you're going to participate in that fund. And I would answer, we'd like low interest loans. So that's a good thing we'll consider it. But I think if, correct me if I'm wrong, but to indicate your intent is still non-binding in May, I think you'll have a lot of folks, it's almost like, yeah, throw your hat in the ring as they still work to flush out the program more.

Frank Reed (24:51):

So while 10 billion sounds like a lot of money, maybe you can just speak to that

Chris Jumper (24:55):

Is not what the are. I believe what San Antonio is what, 5 billion?

Cory Kuchinsky (25:01):

Yeah. So when we put forward our generation plan a year and a half ago going out through the early 2030s nominally it was close to 12 to 13 billion of spend to build. So when I hear 10 billion, okay, I mean I'm sure a lot of folks have money. It's money. It's a good start. I mean it's money, right? It's a start, but it's really expensive to do what all the large utilities need to do. And it's all the same stories, not even just Texas, I mean SRP, these other big utilities, they say the same thing, we got a big capital plan, we're going to be borrowing billions of dollars and we're going to need rate increases. It's the same message everywhere and they're scared of supply chains. So that may delay some things. So yeah, 10 billion is a good start, but we will need a lot more for what we're talking about doing as a collective state and a country.

Julie Meyer (25:54):

And the hope is that it will add 10 gigawatts that seen out.

Chris Jumper (25:59):

That's the hope. Again, I can't help but think about the Joe Black Show movie where you take 10 billion and you multiply it by infinity and you start to get a glimpse of what's really needed. So there's going to be, a lot of it will be seed money that will also need to be supplemented by hopefully future issuances and whatnot. But again, it's going to need to be Bhalanced because you do have an affordability, John.

Cory Kuchinsky (26:26):

You'll definitely see us in the markets regardless for the next decade and we'll be out there borrowing.

Frank Reed (26:34):

So we've spoken about demand growth, but now let's turn our attention to transmission and the need for that and what ercot, what has said and where we go from here. Anybody want to speak to transmission? You want to go first?

Julie Meyer (26:57):

Yeah, sure. We need a lot of it Building a lot of renewable capacity out in west Texas, so that's not where as many people live. So you need to build out transmission out to the load centers or the population centers. I think one thing that actually Ercot does pretty well is that we can build things faster. That's actually kind of a problem in the rest of the country. So that's one thing that we do well. But yeah, we are starting to kind of see the cracks a little bit of say under forecasting demand. So we had an issue back in, it was either September 6th or seventh. I don't know how many people remember this, but its the first time Ercot entered into emergency conditions since winter storm Uri. I don't know how many people actually noticed it, but there was an issue where I think there were some thermal outages in north Texas and an abundance of wind in the south and not enough transmission to move that energy where it was needed in the north, and it was still pretty hot around that time. So there was an issue just I think a decline in frequency. And so they needed to curtail the wind. In any event, we dropped to I think an EA two, just highlighting that we need more transmission infrastructure built, especially in the South Texas region.

(28:17):

I mean, there's another project that's going on, the spirit of Texas, I get the name wrong every time, but it's a high voltage, long distance transmission line that's being built from Texas to Mississippi. I think there might be some court challenges. I guess people in Louisiana aren't too happy about it. They think that they're not going to be able to benefit from it. But yeah, again, from our point of view, this is definitely needed investment.

Chris Jumper (28:44):

Right? Yeah, I'll just chime in. Congestion is also a big issue in addition to serving the power that's being generated in West Texas, bringing it to the population centers in the eastern part of the state, you have congestion issues throughout older lines, smaller lines that need to be upgraded to handle the new loads that are coming on. And then just again, with the growing demand, you need to move more and more power.

Bhala Mehendale (29:16):

Yeah, I'll say this, we have a six lane highway, we need a 12 lane highway right now just because we get a 12 lane highway, does it solve the problem? I would say no, because you need rest areas. You need fuel stops, you need restrooms, you need food. And what do I mean when I say that You need ancillary services in addition to transmission, and that's an underappreciated part of the grid here in Ercot, especially if you look at the cost of offering ancillary services during winter storm URI or during any peak load event, they are astronomical. And not to get too technical, but just because you're generating in one end and consuming at the other end and you hook them up doesn't mean your grid is reliable, right? You need spinning reserves, you need regulation. And that's what I mean by ancillary services. You need the pit stops, you need the restroom. So it's an integrated approach. And I know people, I know issuers are addressing ancillary service as an issue, but it's an often neglected part of the grid, or at least the transmission grid. Cory probably has seen it firsthand.

Cory Kuchinsky (30:33):

We love congestion. No high quality problem, the hike. Yeah, no, I think you all stated everything correctly and we're involved in building where we can. And Julie, your point's, right, you just need to build.

Frank Reed (30:47):

So Cory, maybe you can expand a little bit on CPS energy's planning and your investing, the physical load demand and the fuel supply.

Cory Kuchinsky (31:00):

Yeah, I mean in terms of fuel supply mean, that's obviously been a focus area. There's a deliberate gas strategy at CPS energy to bring more gas into our service territory, whether it be for generation or just our distribution, transmission distribution in our community. So over the next five years, you'll see us likely partnering with different entities to build the infrastructure to bring that gas from other parts of Texas into San Antonio. That's a real need. And you see that with the growth that happens in San Antonio, it's kind of congested in the northwest side of town. And so you got to do some different infrastructure to relieve some of that. So I think it's deliberate. We get a lot of questions too after Yuri about suppliers. I think we've got a good set of suppliers from a gas perspective, but it really is getting the infrastructure into this city. So I mean, same theme. We got to build stuff and I think we have a good plan for that. The broader concept of reliability and resiliency, though I think post yeary, which I'm almost over guys the next time we're here next year, I'm not going to talk about it.

(32:09):

We did a ton of work and I think you've got a really interestingly educated, at least in San Antonio community that understands their utility in a different way than they ever have. And so when you go out and you talk to them about tripling the amount of tree trimming, they understand that's because the branches will fall in the distribution lines. And even if there's an issue with the state, I may still have a local problem. So I support you raising rates to do that. They understand what reclosers are now, and it's a way to isolate. So your outages affect less people. No one would've known what that is. And when you tell 'em you've got $10 million in your budget to do it, they're like, oh, you want to do more? And so I think from a broader reliability, resiliency element, whether it be fuel supply or just the infrastructure, again, it goes back to the community understanding what we're doing and what we're spending money on. And I think again, locally for San Antonio, there's just been a lot of discussion. And I would argue for a city it is really awkwardly focused on their utility. I grew up in Dallas and no one spoke a word. And even my folks living there after uri, there wasn't as much just local news coverage. And I think ultimately that's good because it brings everyone along as you go through a generation of transition, which is what we're doing as a community.

Frank Reed (33:25):

So just along those lines, we started the conversation about winter storm early. So how would we fare if we had another one today? So what has changed and how are we positioned?

Bhala Mehendale (33:40):

I mean, just anecdotally, and again, talking to a subset of issuers within the state of Texas, there have been about 10,000 critical infrastructure points, if you will, that have been weatherized. There's no question about that. I think the issue of also interconnecting Texas with the Eastern and the Western interconnect needs to be explored. And this is a unique problem to Texas because erhart is an island system, for lack of a better phrase. It is an independent grid, as many of us may know. It is not connected to the rest of the country, and it has always been an independent grid. So now we're trying to hook it up in order to facilitate, create a seam and facilitate import and export. Now it's very easy to say that the rest of the country has these imports and exports, and therefore their reliability is enhanced. Well, the rest of the country was interconnected to begin with from day one when PGM and MISO were created, the grids of the local IOUs there were already interconnected. You had a EP, you had first energy, you had Duke that span multiple states across both those regions. So it was very easy to facilitate, import and export of energy, which is not the case with erkart. So I think that's one solution that also can and maybe has to be explored in addition to your obvious solutions like weatherization and the infrastructure upgrade that Cory talked about. Yeah,

Chris Jumper (35:22):

And I mean, I'll do a counterpoint. Yes, it works in other places, but again, simply extending the lines and hooking up to another grid doesn't necessarily solve the problem if they don't have the adequate capacity on the other side to help you out when in your time of need during winter storm uri, SPP, which is the Southwest Power Pole as well as MISO, we're experiencing emergency conditions too. And I guess the question I would raise is was there enough capacity on that side to help Texas during that time? And I don't think there was. I think building new capacity is important. Maybe in the long run when you build a transmission line that is interstate that also has the support of additional capacity and you've coordinated that, it might be different, but that's going to be a much longer time period. I think right now at least focusing on building new generation, building out the Ercot system, is he, as far as transmission,

Julie Meyer (36:42):

Might put forward a different view. I've heard people like it when panelists disagree with each other. So I do think that more interconnection is better for reliability. I think if we were interconnected, maybe it wouldn't have been as bad as it was. I don't think we would've averted blackouts altogether. But I mean, winter storm MUR in Texas was just such a deeply traumatizing event and hundreds of people died. So that's where I come from. But on the other hand, I do hear some of the critiques that it will be really expensive to fully interconnect with the other grids. I've heard the CEO of Ercot liken it to flying a commercial aircraft. It's not just enough to land a plane on a runway, you also have to have a terminal, you have to have fuel facilities hanger or what have you. So you have to have the infrastructure around it and it gets very expensive.

(37:34):

So I don't have a number for that. I don't know how much it would cost and if the reliability benefits are worth that, but theoretically I think reliability would be better if we were interconnected. But it's a good question. I don't know if financially it makes sense, the question, what would happen if we had another winter storm today? You can just listen to the leadership at Ercot PUC, it's we would have rolling outages that would happen again, I think it was something like 92 gigawatts in their long-term forecast if we had another winter storm URI level event. And so last year the peak was 85 gigawatts in the summertime. So considerably more demand in a deep freeze. But from the conversations that we've had with utilities, we know that utilities have done a lot to protect themselves a lot better to really mitigate those risks, whether it be from winterization of their infrastructure. I think CPS has an interesting story about the distribution level improvements that you've made. I don't want to speak for you.

Cory Kuchinsky (38:43):

No, that's a good lead in. We didn't plan that at all. Frank, you didn't plan this question either. This is the what happens if you already question again? I think so your question's good on the distribution, but I'd go back a second to the question on gas supply. When you talk about winter storm URI is gas supply in the number one question you guys asked me and all the other rating agencies was talk to me about your gas supply. So when I talked to you about getting more storage, our withdrawal rates went up, but you still got to have the producers who are regulated by the railroad commission, which is different than the PEC. And those regulatory structures are not. You got to look at 'em together. And if you're not seeing enough headlines around gas generally, I mean you should ask questions about that.

(39:25):

So that's why when we have a gas strategy, it's about redundancy and suppliers and infrastructure because you don't have the supply of the fuel coming in. It doesn't matter whether you've weatherized your plant, it's just sitting there without fuel. So to your point about other mitigations, that's a hundred percent right. I mean, one of the big things we did, again, beyond just the kind of additional tree trimming and reclosers, I mean we rejiggered our entire computer system that helps do rolling blackouts across our community. And at the time we had it kind of structured where a third of our community could roll off at any given time, and that would be enough based on the worst Ercot had ever asked us to shed load. But then you already came and that was significantly more. So we rejiggered the entire city. And now if the equivalent level of winter storm Yuri came, we could rotate mostly all of our community 15 minute, maybe 30 minute intervals every hour, maybe two hours, but it would be much more tolerable.

(40:24):

And you could probably go through that event, maybe still have the same generation problem or fuel supply problem, but we have solved the local infrastructure of what we can control by just re-imagining how we can do load. She in San Antonio. And it was also a lot of partnerships with a lot of the big manufacturing and commercial customers, even hospitals and schools, things of that nature that are large loads working with them and working with saws, our water utility spoke earlier. They've been a fantastic partner for us to ensure kind of local redundancy with assets there. So to Julie, your point, maybe if you can't fix all of ERCOT, you can still work on your local area and improve what that experience would be. But I'm also with you too. I think you can solve everything a lot faster in Ercot as opposed to connecting to the rest of the state. And for all of its flaws with the Ercot and the PC, we still move faster. Julie, to your point, if we're going to try and build more transmission just locally, I say locally within the state. So those are my 2 cents.

Frank Reed (41:30):

So we have time for one or two questions from the audience. If there was a question, if you would step up to the mic and address the question to one of the panelists,

Cory Kuchinsky (41:42):

Definitely make it about Yuri.

Audience Member  (41:45):

 I'll skip Yuri. I saw something in the Wall Street about nuclear even being talking about in Germany of all places. Do you see that as part of the solving the equation here in Texas?

Bhala Mehendale (42:02):

I can start. We were very involved in the only two nuclear units that are being built currently in the country in Georgia. And I'll go back to the affordability metric and to the earlier points that came about that if we as a community, as a country, as a state need to decide, we have this energy mix and we need to move to why energy makes, and this is what it'll entail, and this is where the affordability metrics will change or will move. If you move from an X fuel mix to a Y fuel mix, new nuclear, presumably there is a learning curve. This is the first time in about 40 years that new nuclear units were built in this country. China is building 31. I think India has always stocked for a long time to build about eight or nine and until they've given up effectively, I think the affordability metric would have to be looked at personally to the extent small modular nuclear, even though from economies of scale perspective or a dollar per KW perspective, it's not as economical as a large 1100, 1200 megawatt unit, but the capital costs are potentially lower.

(43:24):

The DOE has supported small modular nuclear reactors for a long time and they are in operation right now throughout the world. Take a guess where

Audience Member  (43:36):

US Navy

Bhala Mehendale (43:37):

Submarines,

(43:39):

Aircraft carriers, they're small modular nuclear reactors. It's a 30 megawatt reactor in a nuclear submarine, and it's a lot more sturdier and stronger because you don't want a nuclear accident at sea. And it doesn't mean you want it on land, but my point is if you pick it out from a submarine or an aircraft carrier and you can do it economically on land, nuclear definitely can be an option. The cost, as people know, the Georgia plants have come in at nearly three times the original budgeted cost, which by the way was not different than the seventies or the eighties, the prior nuclear boom. So I'll say that it has to be part of the equation, but how do you thread it? Is it small or is it large? And how much?

Chris Jumper (44:29):

Yeah, I would say the Westinghouse bankruptcy in 2017, it cast a wet blanket on the whole continued to growth and really posed some challenges. I think Southern Company and Georgia Power pulled a rabbit out of a hat and proceeded stayed the course and got it built. They're running great, which is the vulgar units, which is a tremendous achievement. But I'm not seeing a plans for future large nuclear like that. Maybe small nuclear might be the way to go. Again, it's pick your poison though. Do you want emissions free power generation? That is by talk about density and density of power. These are dense power. They generate 24 hours a day, seven days a week, 24 hours a day. They're high density power generators, but at a cost. So I think it's anything else.

Julie Meyer (45:48):

I think we're over time, but I don't know that we're that great at building nuclear in this country. It seems like every nuclear project is so unique and bespoke and that's why we get into so much trouble with costs. So yeah, maybe in the future that's what it looks like is with small modular reactors. And so for background, these are, I guess as it sounds, small reactors that you can build in place and scale up. So that's probably the future of nuclear. I would agree with that as well. It's still just very spendy.

Chris Jumper (46:18):

But then with that, you also then have cyber security and threats along those lines. So unless you're placing them at military installations across the country, going to be hard to protect so many small ones.

Cory Kuchinsky (46:35):

We have no plans to build any big ones, so maybe small, but it's not in the plan for all the risks that we talked about, the cost and escalation and all that.

Frank Reed (46:47):

So let me conclude by thanking you, the audience for being here with us today and your attention. And please join me in thanking the panel for this discussion.