Untangling The Grid: 101

The transcription of the video is below.

Jon: Welcome back to Suncast and Solar Academy presenting on topics of interest around our clean economy. I am so glad to have our guest today. Really, this is a complex topic, so we’re going to break it up into three different sections. Today’s going be the 1 0 1, and we’re really trying to unwrap a riddle here.

And it’s something that unfortunately we all face, which is interconnecting, distributed generation to the grid environment. And it takes too much time and costs too much money. And so I’ve invited Ted Thomas on our podcast today to talk about his work, and also his past work. So he is working today and in the past on solving this issue of distributed resources, being in some cases excluded or penalized for their potential benefits to the energy customer, is what I like to call them here.

Ted, welcome to the podcast.

Ted: Thank you for having me to have this conversation.

Jon: Well, you are very welcome. So, I think that we’re going to treat this like a little bit of a classroom environment. I’m going to bring up some slides because it is always helpful. We’re going to have the slides in the show notes below so people can access the content as well, because we want this to be sticky and people to be well informed.

You’ll see that it is a 1 0 1 out of three. So, this is the first session of a three-part series. Ted and I will do a 2 0 1, and then we’re going have some very special guests in a round table on the 3 0 1 course. So be sure to access all three of these at the conclusion.

We hope you’ll be in the fully informed counterparty in the solar space, the wind space, the hydro space, the energy storage space, the EV space, because this affects, electric mobility stuff as well. So, the content here is untangling the grid. And, we are really trying to solve the question of why is it so expensive and time consuming to interconnect solar, wind energy storage, and EV charging assets to the grid?

As I said before, our guest today is Ted Thomas. He is currently the founder of Energized Strategies, working with companies to help solve this crazy issue. He’s also the former chair of the Arkansas Public Service Commission. Prior to that, he was a prosecuting attorney, and also a budget director for the state of Arkansas.

All interesting roles that play into the way he sees the world today; gathering information and preparing the ideas so that they are most effective to be heard and to be understood. I’ve found Ted to be an invaluable asset in understanding this incredibly complex world of energy, the United States Grid system, and who the roles and responsibilities.

So, we’re going to get started right now by Ted, talking about the alphabet soup of energy. So, Ted, take it away.

Ted: Yes, of course. It’s an acronym rich environment. We even have acronyms that are within words. You make an acronym and in one of the three letters of the acronym itself is an acronym, and then we turn the acronyms into words.

You get used to it after a while. It makes conversation easier among those that know about it. But among those that don’t, it’s very challenging because there’s so much of it. First on the top, we have the Federal Energy Regulatory Commission.

The Federal Energy Regulatory Commission regulates wholesale sales of electricity and natural gas. That is their core mission. They’ve got some other stuff. Of course, wholesale is sale for resale your state utility commission, if you look, four from the bottom Public Utility commission. Some call it Public Service Commission. Iowa calls it the Iowa Utilities Board.

They all do the same thing. They regulate retail. That is sale to the end user. If you’re using the power, it’s retail. If you’re taking the power and selling it to somebody else, it’s wholesale. FERC regulates wholesale, and the State Utility Commission regulates retail, independence and…

Jon: Just so that our listeners are clear, these state bodies are regulating the retail activity around the sales of electrons of natural gas.

And every state has one of these, and they’re all assigned by the governor of the state into these commissioner roles. At the state level, that is.

Ted: In about 30 to 35 states. The remaining states, they’re elected. Okay, so you’re on the ballot appointed. Yes. Okay.

Some are elected. Okay.

Jon: So, certainly a majority of the states are doing the political assignee, taking those roles as commission. Yes. Okay. That’s helpful. Thank you.

Ted: Yes. Now then the jurisdiction in each state also varies and it varies a lot in terms of whether the state has jurisdiction over municipal utilities and over co-ops.

Jon: Can you explain that a bit further, Ted? Because I think that is going to get confusing. So, the utility commission at each state level, in some cases, they’re elected on a ballot by the people. Yes. In most cases they’re elected by, or I should say, assigned by the governor of the state at that moment for an extended period of terms.

I think your Arkansas term was six years, is that right?

Ted: Four. No. Well, yes, six. Okay. And I got reappointed and then left midway through my second term. Partway through.

Jon: Got it. So, you’re saying that there are active bodies that participate in a retail sale of electrons and natural gas within a state that are not regulated by these utility commissions, and they’re called municipals, municipal utilities, or they’re called cooperatives. Is that right?

Ted: Yes, those are two separate entities. The municipal utility is basically a city owned utility. Okay. So, it’s a governmental entity. Okay. And cooperative is mostly rural. There was a program in the Roosevelt administration. It was basically a financing program to help, spread electricity to the rural areas.

It’s like broadband. It’s a population density issue. The more people are tight together, when you invest in the infrastructure, there are more people to share the costs. When you get to the rural area and folks are spread apart, there’s fewer people to share the costs. So, the costs on an individual basis are higher.

So basically, the rural cooperatives are owned by the members. Who are the customers and rate payers? The city government, the municipal utility is owned by the city. Sometimes those two combined are called public power. There’s a public power association that represents, municipals and co-ops, and some of them are very large.

There’s Sacramento municipal utility District that is huge. San Antonio has a huge, municipality. Then of course, a lot of them are very small.

Jon: I mean, I’m thinking out loud here a little bit, but wouldn’t it be smarter for co-ops if they’re focused on a rural environment to be supporting, a situation where they’re not required to?

Have these very long runs of transmission and distribution to support people way out at the end of a line, wouldn’t it be smarter to just simply island those people with a solar and energy storage system and service, and they would be considered serviced in that way.

Ted: The biggest problem with that is if you were designing a system. If it was the thirties and you were designing a system, you’d want to do that.

Of course, that technology didn’t exist then. The problem with all of this stuff is paying for the infrastructure that’s already been deployed. So, if you up with a no, if it were already paid for, then the fixed cost component of your bill would be zero. Yes. There’s some of the transmission assets that are completely reduced to zero.

And that’s one of the big problems that we’ll get to later. Okay, then, one other important difference is the difference in electricity and natural gas. Typically the electric, what you’re regulating with natural gas is the distribution network, the pipes. And they call it transmission.

And their distribution, level is divided by what they call the city gate and the electric system. That’s the substation and the natural gas system. It’s the city gate where you have distribution and you have transmission, which in gas is just larger pipes. But the gas itself is a commodity and it’s not regulated.

So, your bill has two components. Your regulated part, which is the fixed cost of the distribution system, and then the fuel part, which is the cost of the natural gas itself. And the gas prices do what they do when they spike from $2 to $8. Your bill skyrockets. The other part of your bill probably goes up a little bit.

But you don’t even notice that because you’re getting hammered. When the commodity price quadruples like it’s done in the last two years or so on.

Jon: Yes. I see. So, so the people that are transporting the natural gas are regulated, but the cost of the material in the pipe is not regulated and it floats towards a global marketplace.

And that’s why when you have disruptions in Ukraine and natural gas goes through the roof for any reason, I mean, there’s a thousand reasons why this goes up, then it is a pass through directly to the energy consumer.

Ted: Yes. Now there’s some regulation around the pass through, and in some places, you pick your own pass through entity and others you have a monopoly pass through entity.

Then they have what’s called basically a gas procurement plan. And that’s just to make sure, there’s no silver bullet on commodity prices. Given that industrial customers are large, what you don’t want the gas company to do is to systematically favor them over the competitive customers with their lower cost supply and then dump the higher cost supply on everybody else.

So, there’s some regulation to stop that from happening, but the price itself is set in the market. It’s not regulated. Now the other thing about gas is there’s a lot fewer innovations that change the interaction between the customer and the gas company. Most of the innovations are what you put in the end of the pipe, like renewable natural gas perhaps.

But at the other end of the day, there isn’t anything like solar and storage. Those technologies just don’t exist. So, a lot of these interconnection problems, don’t happen so much on the gas side as they do the electric side. But when people are thinking about all this stuff, it’s good to see those two worlds, collide because about 30% of our electricity is generated by burning natural gas.

So when the gas goes crazy, you not only see it in your gas bill, you also see it in your electric bill. So that, that’s why it’s important and it’s also often used as a comparison that it will go almost anywhere. Our wind is geographically limited, the best wind is in the high plains.

Not all of it, but a lot of it. So, gas is very flexible. So that’s often used as a comparison. When utilities are doing resource planning, they’re supposed to lay out comparisons. So, the comparison is often a natural gas unit. So, understanding how the gas market works, is often important. Now, the next two on your list.

Jon: Hang on. I, want to just unpack that a little bit. So you’re saying that the innovation around gas as a product for energy or heat or work, there’s not a lot of innovation there is what you’re suggesting? The only way to avoid those emissions or avoid those price volatilities is to stop using the gas and start using the electricity that you potentially can generate yourself through solar, electricity or micro wind or some other source.

Is that accurate?

Ted: Well, that or renewable natural gas. Renewable natural gas is not yet scaled. One of the prompts with the utility business is there’s lots of really cool things that you can do. But if it doesn’t scale, it didn’t happen. It doesn’t matter because the scale is so large, it’s just an asterisk.

It might be a good thing, but in a big picture, it’s just an asterisk. Yes, it’s noisy and so there is some stuff happening with renewable natural gas. You can draw it off of landfills, like you do with recycling, your various products, you can put it on a fast track, but still the amount of renewable natural gas that’s actually in the pipe is one or 2%.

It’s not as far along as, as the other technologies. And, when the light bulb goes off and you have a new technology, there’s often a significant delay between that technology and then actually becoming available. And whenever you start out, they’re always really expensive, and they have bugs you work out of, and then you work the bugs out.

And if the economics get it right, then you have what’s called the S curve, which is this massive adoption. So, following all these technologies and trying to think of that S curve and figure out where they’re at on the S curve is always something that you want to do. And the renewable natural gas. It is toward the back of the pack.

It’s probably in roughly the same place as where hydrant is. There’s some potential there, but there’s a lot of challenges there too. To your next terms, I don’t want to get hung up too early. Independent system operator and R t O really are the same thing. The system that they’re operating is the transmission system.

In electricity, you have generation, transmission, and distribution generations where the power is created and their voltage levels are different. The transmission is from the generator to the substation. Then it’s dropped down to a voltage level that where it’s safe to go in your house at the substation, and then the wires go from the sub.

To your house. That’s the distribution. The RTOs and ISOs are directed at the transmission. The transmission is owned by the utility companies. Municipals co-ops own some. Most of it is the larger investor-owned utilities. and even though they own it, in order to have competition between generators, What you don’t want to have is if a generator is owned by utility that also owns the transmission.

The thought is that it’s unfair for another generator, to have to go to their competitor to ask to be interconnected. And that’s the key reason why FE and all of this is wholesale. You have wholesale competition among generators because it’s sale for resale. So, the FE basically directed, well, they didn’t direct, they, they enabled utilities to join RTOs.

They’re not mandatory. That’s why we don’t have them in the southeast and we don’t have them in the west. And it’s to open up their transmission system to competition. So, while the utility continues to own the transmission system, they turn over operational control to the R T O or the I S O. And then in terms of scheduling and running a market and the day-to-day operations are done at the R T O level using assets that still belong to the utility in order to facilitate competition, between generators.

Jon: But the utilities, the investor owned utilities that own these transmission and distribution systems as their own assets on their own books have been built out on the back of the energy customers at a fixed rate of return. Okay. So, this is the only business in the world that I’ve ever seen where policy determines economic outcomes. So clearly, yes. Can you describe that with a little more clearly and what was the rational behind this?

Ted: The reason it is that way is because anything that has line, a highway system, a sewer system, a water system, an electrical system, excuse me, a natural gas. You can’t have competition unless you double your investment, and you have parallel lines.

This is what economists call a natural monopoly. So rather than have two telephone lines to every house, so you can protect, you can choose. What you do is you have one that’s a monopoly, and then you have access issues that you fight about in policy. Now, it actually worked pretty well in doing what it was intended to do on the phone side and on the electric side, and that’s to create universal service as rapidly and as inexpensively as possible.

It worked pretty good for doing that and for some reasons that we’ll get into later. That doesn’t mean whatever today’s challenges are, it continues to be good. But that’s the reason it’s a monopoly. It’s a monopoly that’s a private business. And that’s why you have regulation because, you know, we don’t regulate hamburgers.

Well there’s some health regulations, but there’s no quality regulation. Well, health is in that there’s no economic regulation. A person can sell their hamburger for whatever they want to and not violate any law, and that’s because you have competitive alternatives. You don’t like that hamburger. You go to a different place.

And so, if you’re a monopoly, it’s illegal for anybody else to sell. But the government’s going to set your price, and that’s the core function of the state commissions, is to set the retail price and the core function of the fir is to set the wholesale price.

Of course, wholesale being sale for resale, and then retail. Retail being sale for end user.

Jon: Just so people understand. The transmission and distribution system in the United States is at large, privately owned, but there is public access to it for services to be delivered through that line. Is that correct?

Ted: Yes. That’s probably about 70%. Okay. And that’s a guess. I mean, there’s some municipal gas utilities, the gas, I mean, electric is everywhere. Gas has a probably a 60 or 70% footprint, so there’s 60 or 70% that don’t have gas. You don’t have a universal service mandate with gas like you do with electricity.

And, you still have some of that with, with telecom, but that’s been swallowed up as it became competitive. Because with wireless there’s less of a natural monopoly. It’s that network that creates natural monopoly.

Jon: It’s what I was going to say, well, I mean, because with my finance hat on for a second.

What is this fixed rate of return that the privately owned transmission and distribution folks that go and build this stuff? What is their rate of return?

Ted: Right now, it’s probably six to 7%. Now you hear about ROEs that are higher than that. And they are, but the ROE applies only to the equity portion of their financing, not the debt.

So you take their actual debt level. And it’s usually about half and half, half equity, half debt. And then you take the ROE, which return on equity, which is set by the regulator. And it’s when you average those two together and apply, that’s what we call the weighted average. Cost of capital, and that’s applied to the asset base.

Jon: So, with 50 50 leverage, that’s process.

Ted: Yesh, it’s called cost of service rate making. Okay. Why it gets in the way sometimes, the reason I said it worked well is because it’s cost of service plus rate of return, not market value.

Now, when the market value might turn out to be different, either good or bad, the risk is on the customer, but the benefits are on the customer when it’s for the customer, when it’s good. And so, you know, we have a large nuclear plant in Arkansas called Arkansas Nuclear One. It’s one of the cheapest scaled producers of power in the world, but energy that owns that plant is not free to sell it to someone else who would pay.

They have to sell it to Arkansas. Now, over time, that’s been a great deal for Arkansas rate payers. Buying that power from someone else would’ve cost them more, but that’s the deal. You get your cost of service plus rate of return. You don’t get the market value. Now, when it goes wrong, the same thing happens when they build something that becomes obsolescence or doesn’t work out or is, or you could buy from the market and get it cheap.

Well, you’re still stuck with it because the system was planned for the rate payers. That’s why it looks like, why are we stuck with that? Well, it was planned for everybody and everybody has cost responsibility. So, when people leave, then they’re taking their portion of the cost they get put on somebody else under the cost of service, rate making.

Got it? That’s what drives the cost shift thing, and we’ll get into more of that later. These next two that an electric distribution company now a vertically integrated one that has generation, transmission, and distribution can fit into this category. But why it’s a separate category is for the ones that don’t, then they’ve going to buy their transmission and generation from somebody else.

Sometimes those are called when they’re by themselves, transmission dependent utilities. and this is drives why the FE bid, what it did in an authorizing IUs, say Arkansas, let’s pretend it only had one utility. That was a monopoly utility that covered the entire state and the city of Little Rock wanted to be a municipality.

Well, how would the city of Little Rock buy electricity from somewhere else? and how would they get it transmitted to Little Rock when energy owns all the generators that are close by, and energy owns the transmission network. So you can see an electrical distribution company, that isn’t in the transmission business.

They’re the ones that can get hit by the market power of the utility and the R T O. The purpose of an R T O is really to break that up and to give those entities more alternatives. Now a load balancing authority and load serving entity supply, the electricity is so complicated because supply and demand under the laws of physics have to match.

All the time or the system does stay wire, that is not the case. You have a lot of these network economics issues when you’re doing a water system right. But you have a water tower and when supply and demand are different. It doesn’t show up at your house. It just changes the level of the water tower. And the water tower gives you a cushion so that supply and demand don’t have to match all the time. But with electricity, it has to match all the time. And the load balancing authority is an entity that manages that when something goes wrong where they can’t balance, they have the kill.

Jon: So Ted, in your example just there, of the water system having a reserve in a standing water tower above the ground, they can service people. They’re basically, it’s a water battery for the water service is what, you were describing? Yes. Okay, got it. So, I just wanted to make that clear that’s what you were talking about.

Energy storage being a water tower, although that may eventually become a solution. Yes. But you were saying in an equivalent example of a shared network where people want high quality service, et cetera. Towns, you’ll see them, you come into town and there’s a big water tower and they’re using that. Yes.

Basically, a standing reserve where they can balance the needs of the system in real time within their own network. Yes.

Ted: Okay. Got it. So, there’s something other than, the first place you see it is at the…

Jon: house.

Ted: Now, when the water target gets empty, it shows up at the house. Yes.

But there’s that cushion. And the cushion is the key. Yes, the cushion is much smaller. Now, you could do that with batteries, but if you take that large water tower, and do a calculation. How long, if we put no more water in it, will people still have water? That time is a lot longer than if you had one huge battery and you had nothing else.

That time would be measured in hours, if not minutes, where it’s probably days, for those large water towers that you.

Jon: In an electrical system equivalent example, you’re suggesting that if you have a rightly sized battery system, the distribution network could use that battery system as the water tower equivalent for the electricity system in that network.

But today’s technology that the capacity of that battery for electricity is, not as robust in terms of time, duration of service. It’s smaller, yes. than the equivalent of the water cow.

Ted: It’s a steel problem. Got it. Okay. You could do it with enough batteries, but then it comes cost prohibitive.

Got it. Okay. The cost of the storage is just cheaper when you’re dealing with water than it is when you’re dealing with.

Jon: Electricity. I just wanted to get that. It’s a great comparison and I wanted to really tease that out a little bit.

Ted: Yes, so the load balancing authority is basically the person who orders units to go up and down to balance supply and demand in real time.

Jon: And is that here in California? Is, Cal ISO doing that or is another entity doing that?

Ted: Cal Iso about. Two thirds of the load with about half the geography of California’s in Cal ISO, and I don’t know the specifics, but generally the R T O takes over as the balancing authority.

Jon: So, the R T O actually acts as the balancing authority within the system?

Yes. Okay.

Ted: Got it. Now, when you don’t have an R T O, I mean there are probably 200. balancing authorities in the West. and it’s usually they’re just the utility jurisdiction. Now some, smaller entities like Munis and co-ops will do their own balancing authority, and then some will sign an agreement and join the I O U, even though they’re separate from the I O U and just have balancing authority only.

Jon: So the RTO, if they’re a bouncing authority, they’re actually contracting service from a variety of counterparties, or they’re buying on the market to cover shortfalls? Yes.

Ted: Well, it’s within the market rule. The spot market is going to be within the R T O rule construct. But the footprint that you’re balancing it in is what drives the value of the RTO, because what you’re trying to do is each time.

Power goes up by any unit, let’s just say one unit. What you are going do is look over your entire balancing authority and find the cheapest generation that is not already running and serve that load with that. And in the opposite is true too. When your load goes down one unit, you want the bouncing authority to find the cheapest one.

And if you have a larger geographic area, there’s going to be alternatives that are better. Just mathematically that at some point in the time when you have a larger area, there’s going to be a cheaper resource than in the smaller area, whether you’re ramping, upload, or ramping it down.

Jon: Wait, wait, wait.

So, I think you might have misspoken there, and I just want to make sure I heard you correctly. As you’re ramping up, you’re trying to find the cheapest. Resource to solve the next load problem. But as you’re ramping down, aren’t you trying to get rid of the, the most expensive Yes. Resources?

That’s correct. Okay. You said that in, so I want to just make sure that’s clear. As the grid is demanding more energy, the RTO or the load balancing authority is trying to find the lowest cost. Resource to solve the demand problem. Yes. And as you’re coming down where demand is falling, they’re trying to shed the most expensive resource.

And leave on the least expensive resource to the last minute. Yes.

Ted: Okay. Now there’s one additional complexity to that, and when you’re talking about this cost, it’s variable cost only, it’s not variable. Plus, fixed costs, which we call average total cost. It’s variable costs only because the fixed costs you have to apply to pay for anyway.

And in the utility world, that’s largely a fuel question. What is the cost of your fuel? And so solar and wind do re really well in that because they had no fuel cost, right? But it’s important to remember when you say solar and wind is the cheapest, that if you had a diamond and crusted gold-plated windmill, it would still be the cheapest for a variable cost.

Now at some point, the variable cost and the fixed cost are joined together when you get your bill. So, you’re paying all of it, but they’re running the system on the marginal cost, not the average total cost. And this is the, this is why when you look at price line and you get to the last minute, you can get a cheaper deal.

Jon: Right? Because it’s also higher risk because you may get no deal.

Ted: Yes, and that’s what you’re buying for with your fixed cost, right? You’re buying the certainty that you’ll have capacity, that you’ll have something to lose, to use. And the night before, if there’s a vacant room, they don’t need the total average cost.

They’re better off if they sell for less than. As long as they’re covering their variable costs, which in that is going to be a little bit of electricity, time on the cleaning crew, a little bit of wear and tear. But the mortgage, the big cost in a motel, they have to pay whether the room is empty or full.

Right? Right. So, you still have to pay for the diamond crested windmill if you have one. But when we’re talking about cheaper or cheapness, Dispatching electricity when load changes, it’s cheap because it has no fuel cost. That’s marginal. That’s what we call marginal cost, and that’s variable costs only.

Jon: Right. And a load balancing authority is going to layer in the, in their portfolio, they’re probably going to have a lot of fixed firm assets on contract. They’re going to have some portion that’s, you know, several hours ahead. And then they’re going to have a very small, marginal portion where they’re buying at the market rate at that moment to cover any sort of variability at that, at the edge there.

Is that a fair assessment?

Ted: Yes. Well, typically they have enough to meet the summer pmm. So, when it’s not the summer peak, they have more than they need. And it’s that surplus that drives that buying and selling that happens, but it’s the surplus. But then when you have an R T O, like Myo that goes from New Orleans all the way to Winnipeg, Manitoba, north of Minnesota and North Dakota, then you get benefits.

Because the summer peak, they’re going to have extra in Minnesota and during the winter, if you have a normal weather pattern, then the south surplus can be sold to help them meet their load when it’s colder. So, the geographic diversity helps you. That’s another reason a bigger footprint, saves you more.

Jon: Well, I mean, that would, that would make an argument for a federal national Grid network because, you know, one could potentially take Sun of Arizona and Service

Ted: Maine. Well, but it’s limited by the transmission system. But assuming that, and that’s why the fur has emphasized, you want it to be closer.

It can be done that way, but you ideally want it to be closer. But the, the, the value of the size of the network is the key driver. FE’S transmission policy. Got it. Now your second thing there is a load serving entity. Another complexity with the electric business is it’s basically viewed since the law requires universal service.

You have to serve everybody. If you try to go to a market, you have a question, well, what, what if there is no seller? So, it’s essentially you have, even when you have retail access, like they do in about 50% of the load and 40% of the geographic surface, well that’s more 40% of the population and about 50% of the load, you have what’s called a load serving entity that is the entity with the obligation to serve.

Jon: So they have to provide firm universal service.

Ted: Yes. If I’m in your service territory and I call, you have got to hook me up. Your market is going to walk away from an expensive customer. So even where you have a market, you also have an obligation to serve, and that entity has some extra cost that they’re often wanting to spread out to everybody because the universal service thing is a societal cost, not a business specific cost.

So, you don’t want one business incurring that cost and a competitive business avoiding that cost. And that’s a problem anywhere where you have retail access. So those two are a little different, but related, and we’ve already covered, P U C I U is the investor-owned utility that’s different from the munis and co-ops.

It’s a for-profit business. Then co-op, we’ve already covered that. It’s, it’s, those are mostly rural there. They’re, there’s a legal, cooperative and that ties into the Department of Agriculture’s finance structure. And most of the state laws allowed us, it’s basically an owner owned entity where the members are self-financing, but typically those are rural.

Jon: But who are they regulated by? Are they regulated by the Department of Agriculture?

Ted: The federal level? They’re some of mine that think they are, but they’re really not at retail. It’s a state law question, whether they’re regulated or. The state law might say we’re going to let them self-regulate if all they’re doing is managing their electric bill, because it’s not for profit, the costs are going to flow through.

There are no shareholders. So, some states under their state law authority to regulate retail have said you guys can regulate yourself. And the same is true with me, not with munis. So even though the state has regulatory authority, it might not choose to exercise that regulatory authority.

Jon: So that comes out of the state legislature, not necessarily, out of the Public Utility Commission. Yes?

Ted: That’s a state legislature decision. Whether they. The Utility Commission, that authority, and of course, the utility commission was also a, a creation of the legislature as well. Right. And the, the alternative is for the, the legislature to set the rate each session right now.

You know, they loved that if they had to vote on what the electric rates were, and so they set up the commissions. You know, not only for their technical expertise, but also, a layer of political insulation, from what are difficult decisions? Because when costs go up, rates go up.

Jon: and everyone

Ted: runs for coverage.

Our rate payers, you have residential then C N I is commercial and industrial, the variability of load drives the cost. and in the summer a lot of the variability of load is air conditioning. And the reason why variability of load, drives costs is it because when you’re trying to meet your summer peak, at the summer peak is a big flat line.

It’s pretty easy to figure out how much generation you need. But if it’s Peaky, if it goes up and down, The, the generation costs money 365 days a year. And you might only use it six or eight days, it’s who pays for that surplus. And the industrial customers have large flat loads, like think of a, of a factory that’s running all the time.

Their bill’s going to go up in the summer because of air conditioning. But because it has a huge base of usage to run the factory, it goes up a little bit where you’re home. It might go up, you know, a hundred percent and it’s that variability that drives the cost. So, the reason we have residential, commercial industrial is because their load profiles are different and there’s always debates and rate cases about cost, causation, who, who caused the cost, who should be assigned the cost and their loads have different, characteristics and that drives that.

Jon: This has been fascinating and thank you so much for really talking us through the basic building blocks. I am really looking forward to the 2 0 1 session we’ll do very soon about roles and responsibilities and complexities that arise from these various, intermingling and things like that. So thank you so much for being our guest today and, and educating our community on this very complex subject.

Ted: Thank you, sir, for your time. I’ll look forward to the next episode. Thank, I appreciate it.

Jon: Thank you.