Hey, everybody. We have a real actually two treats. Uh three treats. Really. Uh This time as we uh come on with you here for y'all. At first treat is uh Jason Whiteley couldn't be here uh this time and that's just a treat every now and then, you know, sometimes you need a break. Uh He probably needed one too. So it's just Wheeler. Uh This time our second treat is uh our guest today who we've had on the program several times before, but we've never had you in person. Uh This is Ed HS. He is the energy fellow at the University of Houston. It's so great to be in person with you, Ed. Well, now, you know, it's just not an A I generation. Yeah, we see you in, in, in uh 3d here. Uh And then the third treat is, is that we are at uh Milo Butterfingers uh in Dallas, which is a really cool old bar that has been here for Eons. Um And Ed I'm gonna put you on the spot with some movie trivia here. Do you know what movie uh was shot here? If, if you look around in here There you go. But Ed's drawing a blank. It was born on the fourth of July uh Oliver Stone movie with Tom Cruise. And I, I'm one of these terrible people who has not seen that movie. I think I'm like the last one who hasn't seen it, uh at any rate. Uh He says, does it make sense now or you? Uh Yeah, they, they shot several scenes in here and uh I was speaking with the guy who runs the place and he says that, you know, they got a call one day and, and they said, yeah, we're thinking of shooting this movie there with Tom Cruise, whatever he's like, yeah. Ok, sure. You know, he hangs up, uh a week later. Uh, he's sitting at a table here, looks up and he thinks that looks just like Tom Cruise, uh had just walked through the door. Uh, and it was Tom Cruise and Oliver Stone, he says, and they took a look around, took like two steps inside before anybody could say anything to them. They were out of here. Uh But then, uh not long after they were back and they shot several scenes, uh the movie in this bar. Uh They wanted something that looked like 19 sixties era Long Island uh with the wood paneled walls and all of that. And this was it, this would be it. So this is it. Uh So we got some, some cool history. We're in a good place. Uh And we're talking about, uh, well, first of all, we're having uh some Texas beers here. Both of us doing a shiner uh this time around. Uh, but to just to celebrate the fact that we're actually in person and of all the places to actually meet up with you in person. Ed, um, we are in the shadows of, uh SMU Southern Methodist University here in Dallas. You are, you know, uh uh an icon there at the University of Houston. I graduated from the University of Houston and here we are, you know, right outside SMU practically uh for our first meeting. Yeah, big D is, is home to a lot of Texans. We can be here too. Yeah, I guess it's ok. We'll, we'll make the exception here. Uh So, you know, we got a lot to get into this time around. Uh And I think that, uh one of the huge things that's on a lot of people's minds is something that we've talked about many times before. Uh and that is as we go into a summer here, do the lights more importantly, does the ac stay on? Are we gonna have issues with that again? And we've seen some, you know, early signs that, you know, we're, we're still in the thick of having to watch on a regular basis to make sure that there's enough power to go around uh, here in the, you know, energy capital of the world. Texas. I'm afraid we may be short a few times over the summer, we came really close last summer to losing parts of the grid or at least going into rolling blackouts. You know, thankfully, the public responded to conservation calls and, and we could turn the thermostats up a bit cut back on the ac in the afternoons and shave 2 3000 megawatts off the, the afternoon peak. But keep in mind, we really haven't added any new generation and we've added a lot of solar. No question. That, that helps. But the solar ramps off as the sun goes down, we don't quite have enough batteries right now. Our natural gas fired power plants average 30 years in age. The coal fired power plants average 50 years in age and they break and we're not building new ones. Um, in fact, uh, uh, two of the natural gas power plants were just purchased over the last eight weeks, um, at prices less than 50 cents on the dollar of building new ones simply because, you know, they go looking ahead, the grid will not reward them for being there. Um, so wait, they were bought, uh, you know, at, at bargain basement prices recently. Um, and, and what becomes of those now? Well, they're the ones that cps in San Antonio bought those will be, uh, uh, replacing some old coal plants that CPS has. So, CPS is gonna clean up its emissions and get a more modern facility in, in return and essentially trading some dollars out. Uh We're retiring these old plants and so that's, that's taking capacity away from the Texas market. We've had about a million people move into Texas since 2021. Uh That's more and more demand. We're seeing a lot more growth in demand than anyone had anticipated. Uh This past week, we had a, a power peak well over uh uh the 71,000 megawatts and, and that was a peak just a few years ago for a hot summer day. So we are, we are transitioning more to the renewable fuel, the wind and solar farms, but we're not doing it fast enough. We don't have enough batteries and the legislature has, has been extremely slow to act in terms of giving anybody with the natural gas fired power plant a, a reason to come onto the grid. Now, the last time we had a legislative session, uh, they, you know, tried, you know, to put some things in place to, you know, quote unquote, encourage, uh, the construction of new gas plants here. Did that fall short of what was needed though? Uh It's totally inadequate. Uh, that $10 billion off to the side is kind of like pushing on a string. You know, even if you give me free money, uh, if I can't make a return on, it doesn't matter whether I pay you back or or not, I can't pay back the equity I have to have and, and Ed, if I were to give you something like that and you were to operate a gas plant, why can't you make your money back at this point? Well, because of the pricing that predominates across the grid during the day, so Texas generally operates an electricity only market. So, so I only pay you if I'm the state or, you know, you only get paid here in this state. If you're actually generating electricity that's being taken up. Exactly apart from this wrinkle that, that Ercot put in place last year that gave us this massive overcharge without giving us anything. Um Yeah. So if we, for example, let's say we had 15 power plants between us and uh we know that today uh is going to be a really hot day. I'd say Jason, we need all 15. Let's power up and, and you would look at me and say Ed, if we keep five of these offline, then we know Ercot is gonna be pushed into a squeeze and the average price in this grid will go from $50 a megawatt hour to $5000 a megawatt hour. And the 10 plants we have online are gonna make a killing. Why don't you sit down and have a beer and not worry about the rest of shiner there. We are. So, uh you know, there are people who would think that, you know, that's hyperbole that no there's no way that they're sitting on plants and keeping them idle and all of that is it that is that actually happening? Well, they certainly have some plausible deniability. It Jason my plants so old. I mean, gosh, it broke and, uh, if we look at just data and comparative data, you know, it doesn't really, Texas has more unplanned outages on really hot days or really cold days than other grids around the nation. And so for, for the layperson out there, unplanned, outages are outages that, you know, usually if you're going to take a big power plant offline to do some, you know, required maintenance on them. As you mentioned, they get old. Uh you, you know, let the grid know, hey, we're gonna have to pull this one off line for a while. It needs a new, this and a new that and we've got to spruce up this. That's a planned outage unplanned is when it's like surprise. Well, this one's not in the grid today. We can't help you out and generate electricity. And, and, and so what you're saying is we're seeing if you look across different grids around the country and of course, you know, Texas is notorious for having its own grid. Uh And it's managed by IC T the Electric Reliability Council of Texas, which uh you, you've been talking about here. So you're saying though, when you compare across these different grids, it's odd that you see this anomaly where there's more unplanned outage here than in other places. Exactly. So for example, PJM Pennsylvania Jersey, Maryland, a grid that stretches from the Atlantic seaboard, uh all the way to Chicago, in fact, uh much larger grid than Texas. Uh same profile in terms of aging plants, but less than half the, the unplanned outages on really, really bad days that, that we see in Texas. So there's, there's a gaming aspect here, There are more than 1000 generators on the CT uh network, uh the grid and if five or six of them go off line on at any time, that puts a strain on the rest of the grid to, to fill in behind them. And that can govern the price at a time when we, we have uh uh really not enough units to come on board. Now, during the better part of the day, for example, today it's, it's overcast. Yeah, we're not gonna get a lot of solar, but we're not gonna get a lot of demand either. And so that works out nicely. Uh Probably getting good wind, wind and solar, of course, don't have a fuel cost and, and they are advantaged, not only do they have a federal production tax credit, they get some tremendous state and local tax credit benefits as well. And so they can underbid natural gas, even natural gas pricing at less than $2 per 1000 cubic feet. They can come right in underneath them. And so if you and I had a, a gas fired power plant, we wouldn't be able to bid in and, and make any money. I see because you got uh competition out there that can do it so much more cheaply. And RCT will take that power first. And then if we get to an inflection point where suddenly it appears that we have much more demand than we have supply or, or getting close to that ct's goofy linear programming computer driven algorithm. Uh And CT management will throw the price up to $5000 a megawatt hour. Now, for the consumer, that's, that's $5 a kilowatt hour. So, so in other words, though, the, as a generator at that point, you're making, you're making good money. Now the generators would push back on, on this, this notion that there's a game that's being played. But as far as you see it, having done this and seen this for a long time across multiple grids, you see a game definitely being played. We teach this game. I have students who win this game. And so yeah, what do you mean when you say that? Oh no, we, we teach the game when you push the grid into a situation where there's a marginal supplier or, or someone with market power, the independent market monitor for Ercot will, will analyze the market across the entire year and then tell us, you know how much of that year, somebody controlled the, the marginal kilowatt hour going in and, and, and, and could, or did exercise market power. So, if we're short, just by a bit, we can drive that price up a huge amount. So students who study, uh, energy, uh, they, they learn this, they see this, I mean, these are the economics of it. That's right. And it's, it's not just in electricity markets and natural gas markets as we, as we've seen, uh in Texas, uh as we see with the ongoing litigation, uh uh down in, in Houston on, on gas pricing, gas price manipulation during that winter storm in February of 2021. You know, the state of Kansas has sued gas suppliers. Um State of Arkansas has sued, things definitely went haywire in February of 2021 when we had those roller, they weren't rolling blackouts, they were blackouts that stayed in place and made a lot of people suffer. Exactly. Hundreds died. The state lost anywhere from 100 billion to 200 billion depending upon. Yeah, Ray Ray Perryman estimated 200 billion. It's something you definitely would want to avoid happening ever again. And yet here we are, we're le leaving El Nino going to La Nina. It's supposed to be a warm, muggy summer, dry summer for Texas. Um But again, we, we just haven't built enough plants to meet the demand. Why would you and I build new power plants just to keep the price down when we can profit just from the ones that we already have on the grid. And of course, as the grid transitions to renewable, my new natural gas plant, which might not reach the grid for two years. If I already have an interconnect or four years, if it's a green field, the market's gonna be different. There's gonna be a lot more wind, a lot more solar, a lot more batteries. And I know that power plants going to be used less and less and less frequently going forward. There are people who would say, oh, come on, professor Hers, you're just being a cynic there. But if you think about it, um when, when was the last time a gas plant was built here in Texas, we built a few recently, um you know, famously uh Panda power built a couple of power uh gas powered power plants and then they filed suit against C because they couldn't make any money with it. Um And, and competitors see that competitors see that. Everybody sees that. Yeah, we are seeing some new natural gas power plants being built inside the fence behind the meter for the petrochemical companies and refineries down what is down along the Gulf. So they end up having their own power plants. They have to, to run their operation. Exactly. Dow Chemical has announced that they're going to bring in four small modular reactors into their Seadrift Texas facility. Uh Th this is not a new technology per se. We've been putting small reactors into nuclear submarines and aircraft carriers. So the technology is pretty well known, obviously it'll be a little different because it's a commercial operation. So, why are they doing that? They're building their own power plants essentially? Are they doing that? Because they don't feel like they can depend on the grid or are they doing that because it's more economically feasible? Well, if you lose power to one of these chemical plants, you can be in a bind for months. Uh One of the plastics plants in Mont Bellevue, Texas lost power during the, the winter storm in, in 21 and it was offline for 15 months. That's a huge hit to the owner. Um And Dow understands this problem. And so, you know, they may arbitrage a bit by selling some excess electricity from time to time back to Ercot, but they want to make sure they have reliable, power, reliable heat for the process. And of course, so they're getting a cleaner approach so they're building their own power plants uh so that they don't have to rely on a grid. Well, and how many of the, the viewers listeners have back up generators at home or putting solar panels on their homes with batteries. You know, that's what it's come down to. The, you know, China's great leap forward was, you know, power plants and backyards and, and smelters and this decentralized uh manufacturing and industrial work and, and the legislature is kind of forced us into that. Yeah. Uh, I want to ask you about, uh, the price of electricity because that's where most people, I think, you know, get caught up on this because you notice what your electric bill looks like. Um, I, I just checked prices the other day. I've been spot checking for several years now with a, you know, just one zip code and in the center of Dallas, uh just for comparison purposes. So it's not scientific but it, you know, it gives you an idea and I just checked yesterday and it was higher than what I have seen for the past couple of years. Which is odd because if I look at the price of natural gas, natural gas is about 1/4 of what it cost back in 2022. Uh Recently, it was at like 1/6 of the cost of what it was in 2022. We rely on natural gas to power most of the power we get here in this state. If natural gas is so cheap right now. Relatively speaking, why is electricity still so expensive? It's because of the construction of the CT market. It is, it is a uh uh construction that rewards um shortfalls, it encourages shortfalls, it encourages market manipulation. You know, nothing's more interesting than, than looking at um grid status dot IO which is a website that covers the grids real time and seeing that Texas would be powered more by natural gas. And, and then compare that with California whose primary power might be natural gas at a price. That's a lot less than ours in the wholesale market. The, the for 2023 the Energy Information Agency, you know, tracked the wholesale prices and, and yeah, the data don't lie. The price in Texas actually went up the price and all the other grids went down and actually went down below the Texas price. Um And the price volatility in, in Texas was the highest across uh any of the grids ranging from, you know, roughly zero, which happens, you know, on a on a very, very uh uh calm, comfortable, wonderful night and, and wind takes over and, and the price gets bid down to 0 to $5000 a megawatt hour, which is the the top end price allowed by Ercot. You now keep in mind, Texas is not a deregulated grid. It's just regulated differently. So this is uh this all goes back to what you were talking about then of there's a manipulation in play here. There is, it's the way that the market is designed here that even when gas prices are tremendously lower than what they were, we're actually higher electric rates. That's it because it cost the retail electricity provider a lot of money to lock in a rate for you for the next year or the next two years. Um, they have to contract with a generator to provide that power. Well, the only way you can actually contract with a generator that has that power is if they're, they can stay on all the time. And so one of the things that we found in this litigation is that everybody's pointing the finger this way and that way, you know, in the southeastern United States, if the power goes out, I call Georgia Power, I call Alabama power. And I've got one person to complain to, I can go to the state legislature and say, hey, Alabama Power is screwing me over in Mobile. I can't do that in Dallas or Houston. You know, here in Dallas Encore is like, well, not my fault. It's cot's fault or, or, you know, whoever the retail electricity provider is, you know, keep in mind gritty wasn't the one that was the most egregious. They actually told the consumers they were going into the wholesale market. They'd be exposed to that. The, the, the retail electricity providers that took your customers money and played the market with it and came up short. Those are the ones we're bailing out now with the billions of dollars of, of securitized payments over the next 20 to 30 years. And this is going back to that February 2021 storm when so much money was, uh made by some and lost by others and that's still being settled out. Um I, I wanna ask you about your, so you're on your way to Colorado. Uh, tell me about Colorado is, is not happy with us either. Now, the week after the winter storm, uh Colorado Public Utility Commission calls up and says, hey, uh, we've got this extra billion dollars that came flowing up on natural gas pricing. We didn't lose natural gas. Uh, we price off of some of the hubs in Texas. But, but my God guys, what did you do to us? So they paid a billion dollars more in natural gas prices than what they were expecting. Exactly. And because of what happened, plenty of natural gas facilities in Colorado. Um, the same in Oklahoma and in many of the states, you know, the, the, the activity in the Texas natural gas market is subject to a lot of litigation right now. Um So it was our problem because we, our grid is separated from everybody else's, uh, it was our problem but it spread to other places in, in some ways and, and people are still not happy about this. They, they still want this to, to shake out and, and, and be addressed, it's a network and, and if you think of this as, as a, um, you know, a lock and dams and, and water seeking its own level through the, through the, the network, if I can put a bottleneck at one node or if I can hold back natural gas or electricity at one node, I can drive the price up dramatically. So other states are, are definitely affected by what happens. Uh here in Texas, um you'll probably hear about this, I guess you hear about this when you go to Colorado and you know, here you are the energy fellow from, from Houston, you know, the University of Houston. Uh do they ask you like what's going on? Well, explain this to us, they're going to be talking that way for sure. And so one of the challenges is again, with the, with the network economy, regulatory oversight is, is kind of clumsy and uh it's often done in arrears and regulators are, you know, always answering rather than leaving regulators can't make investments. The Public Utility Commission of Texas cannot dictate investment. Ercot, which is the grid manager and also the market maker cannot dictate investment. Can't say, hey, company go over there and build some plants, we need them last summer. You know, in a winter two, we go through this where we're, you know, it seems like over and over again. It's another day where we got to watch the grid. We got to see those two lines does supply and demand, do they cross each other? And, and we get into one of these terrible situations. Um You know, we can only imagine as we go into this summer that we're going to, you know, have to keep seeing that uh for a number of days it seems like though every time that that happened last summer, you know, it, the day ended, you know, it was sort of anticlimactic, like, oh, yeah, there was enough, there, everything worked out fine. People pulled back, they, you know, raised the thermostat, et cetera. Uh, do you think that the day is coming though? Uh, that, that's not gonna be possible that the demand is, is, it's not gonna come down enough and, and we're not gonna have enough supply. It's really easy to see how that could happen. You know, keep in mind it's all run by, by people and, and some of the massive grid failures we've had uh uh recently across the nation. A tree limb fell in Cleveland and shorted out the entire eastern seaboard. Uh some poor operator in Arizona pushed the wrong button, took down Arizona and all of southern California. You know, just a misstep of switching one or two power plants around CC could cause a significant problem because it's that close. It's that close. So all it takes is one little error that on any regular day would easily be absorbed and it wouldn't be a problem. Nobody would ever know about it. That error when you're that close on supply and demand can be the difference between normal conditions and rolling blackouts. Exactly. And, and again, we're dealing with, with physical infrastructure that's old. Um, yeah, a coal plant blew up two years ago down in, in Fort Bend County. Um Yeah, that, that could be an issue. Um I want to ask you before I let you go um, about uh crypto. Um, because, you know, that's talked about a lot. Yeah. First of all, the crypto miners absorb and, and suck down lots of power. It's a lot of consumption and not just here in Texas, but this is national, but mainly in Texas. The crypto miners are using more power on a daily basis in the city of Austin. Wow. And um more so crypto miners who are, you know, where the computers are working to create these sort of locks. Um uh for these crypto coins, they're using more power in Texas than the city of Austin on any given day. Exactly. II I wanted to show you this map, this comes from the Energy Information Administration and it's, it's basically us Cryptocurrency mining operations and it shows all these bubbles and Texas has the most of these big bubbles in it. So that's the power that's being consumed in Texas. For Cryptocurrency. It's, it's, it's not just the power, it's also the economic terms. As, as Bloomberg pointed out in, in reviewing some of the, the financial published financial statements of the publicly traded companies. Um They buy wholesale power at 2.5 cents per kilowatt hour or $25 a megawatt hour and then they can sell it back to Ercot at a huge premium, hundreds thousands of dollars when the grids in a tight situation, they make good money off that. In some cases. In fact, riot Blockchain made $31 million in one month last summer they have because there's deals that, that CT has with some of these big consumers where Ercot says, hey, uh you know, use the power that you need. But on really tight days, we're gonna ask for that power back. And so basically we'll buy it back from you, but they're buying back at a premium. Exactly. And so there's some real issues here that, that I just find professionally and personally offensive. Um I, I wanna ask you this too. Uh I, I saw some headlines recently that artificial intelligence A I might help us, you know, because the, the computers can kind of think of some solutions here to, you know, keep us from running out power, help us to regulate this more efficiently. It is a double edged sword though because C NBC put this out said A I data centers alone are expected to add 323 terawatt hours of electricity demand in the US by 2030. Uh You know, I don't know how much a terawatt is, but that sounds like a lot when you start talking about 323 terawatt hours. Um and it says the forecast power demand from A I alone is seven times greater than New York City's current annual electricity consumption. Um because these, you know, these computers are phenomenal, the things that they can do, but they require a lot of juice. Uh, you know, your smartphone is listening to you all the time. The smart TV S around here are catching what we're talking about and you know, just wait for the ads to show up after we go off. Um That that's getting routed back to a central processing center. Siri is not self contained in an iphone. Alexa is, is hub into a main center for Amazon. Um That's where all that, that processing goes and uh and it requires electricity and a lot of it to know that you want a blue shirt versus a pink shirt. Now, that's a lot of processing to, to keep track of your, your own individual preferences. I mean, think about this, they will know you better than your spouse. Yeah. Um yeah, I can only wish, hey, what do I need to get for an anniversary? Just give me the answers and, and um so a I might help us to manage our electricity consumption, but it's also going to be using a lot of, we're not, we haven't built enough generators and, and until we start building the generators, we being society, you know, if Amazon wants to quadruple, what, what Alexa can do for us at home, they're gonna have to build some generators inside the fence of their, their plants just like Exxon shell. Chevron Phillips are gonna have to build generators inside the fences to maintain because they're liable to keep up with that. Right? You know, the Texas grid changed, you know, more than 20 years ago from a, a place where utility companies would come in and, and talk to the public utility commission and say, hey, we see Dallas Growing, we're gonna need to build some new plants here. This is a 3 to 5 year project. We need to get started. So, um it, it, it sounds like uh in the next few years because I mean, you see these data centers, a lot of these huge data centers, these computer centers are popping up in Texas as well. Uh And they pop up fast. Uh and, and, and so quickly, you know, you mentioned it used to be 3 to 5 years. Yeah, we'll see if we can add some power to deal with this big development that's coming. These things are popping up in a year and, and popping onto the grid and the grid can't handle that. It's really difficult to keep up and, and keep in mind the regulators we charged by the legislature with helping encourage business and business development. But, you know, no one has the tools to require investment to actually make the investment to go out and do it. My last question uh Before I let you go here is uh oil and gas. Uh just because you're the energy fellow, you're, you know, keeping up with all different kinds here. Uh The price of gasoline, of course, hugely impactful as is the price of oil in a presidential election year. We've seen some fluctuations recently. What do you see in the months between now and November? And does that affect the outcome of this election? Because I think the latest reading on inflation looked a little bit better, but it was gasoline prices. That was one of the things uh responsible for kind of keeping it stubbornly higher than where the fed would like to see it. Right. So, gasoline prices are up a little bit because we've gone into the summer months and that requires a summer blend, which is more expensive than the, the winter blend. Um Second, the, the cuts from OPEC plus seem to be holding uh Russia's production is absolutely down, you know, they're obviously we're boycotting uh buying Russian fuel and, and Russian oil. Uh But because the Western oil service companies have left Russia finally with somber leaving last year, uh they don't have the technical expertise to keep that production up and they're having to use a lot more of it to prosecute the war. Now. Uh Texas is doing its part to, to, you know, produce more and more oil. But a lot of the Texas oil, especially out of the premium, the light sweet oil is being exported because it doesn't match up. Well, with our refineries, we import 4 to 6 million barrels of oil. A day to match up with our refineries. We're very dependent upon the global market and that we don't hear that much anymore. We hear that, hey, we're, we're producing so much oil. We're, we're actually, you know, uh an exporter. You don't hear that. Well, we're still importing uh quite a bit because our refineries need the other kind of oil. Exactly. I spoke with a couple of ex congressmen last week in the offshore technology conference in Houston. Well, we're energy independent and it's like guys, you know, if you're mistaken, you bought into a myth. Um And because we don't have any barriers to enter or exit for our oil anymore, you know what the price is in the Persian Gulf that's reflected back to the Permian or North Dakota. So do so do we see a change in price of gas price of oil between now and November? Do you think, do you think this has an impact? I think it depends on whether or not OPEC Plus wants to see President Biden re elected or they want to try their hand with Trump again. Ed Hs, the energy Fellow from the University of Houston. Uh Thanks so much for, you know, kind of taking us around the world and giving us the, the deep dive. But the understandable dive into electricity, oil gas, natural gas. Uh it, it really is eye opening and it affects all of us and it's all interconnected. Uh but we don't sit and think about it, you know. No. Um, these, these reminders from every week now are reminders that the Texas legislature hasn't done its job. Uh, wanna put out the call though to you also, uh, to, uh, connect with us on email if, uh, you know, you're hearing something you like, don't like or if you would like to, uh, explore a time topic or know of something that you're like, God, why haven't they done this yet? This is such a great idea. Uh Email us. We are at y at W faa.com, Y at W faa.com. Uh Thanks as always for listening and for watching and we'll do it all again next week.
