About This Episode
Jolene Thompson, AMP President and CEO, and Pam Sullivan, AMP COO and AMP Transmission President, join the podcast to discuss some of the most pressing issues in public power and the electric utility sector, including increasing electric demand, large load additions, supply chain constraints, regulatory uncertainty and more. This episode is part 1 of 2.
Transcription
The Public Power Line – S2E1
State of the Industry Part 1
Tracy Reimbold: Public power systems are the heartbeat of a community, powering the homes, businesses and schools across the country. But do you know all that goes into operating a public power system? So, whether you’re an AMP Member, employee, or partner organization, or you’re simply passionate about the energy that powers our towns and cities, we invite you to plug in and listen to this podcast where we explore the topics and issues most important to AMP members and public power. This is The Public Power Line. I’m your host, Tracy Reimbold, with American Municipal Power, the nonprofit wholesale power and services provider for more than 130 public power communities across nine states.
Today’s episode is the first of a two-part series featuring a discussion with Jolene Thompson, AMP President and CEO, and Pam Sullivan, AMP COO and AMP Transmission President, on some of the most pressing issues in public power and the electric utility sector. I’ve had the pleasure of working with both Jolene and Pam for many years now, and I am excited to hear their perspectives. Thank you both so much for joining us today.
Jolene and Pam, the power sector and public power are facing a number of challenges, including rising prices, increasing electric demand, new landscapes such as large loads and data centers, supply chain constraints, regulatory uncertainty and more. Both of you have over 30 years of electric industry experience. Have you ever seen so many challenges at once? Are these challenges unprecedented? And what are the top three or four electric industry challenges in your mind? Jolene, let’s start with you.
Jolene Thompson: Well, thanks Tracy, appreciate it. I look forward to the discussion and look forward to hearing what Pam has to say on this as well.
For kind of the past five or six years, I’ve talked about the changes in the industry as being more revolutionary than evolutionary. And what I mean by that is, in the old days, if you go back the 30 some years I’ve been working in the industry, often things changing in the industry happened as a result of some sort of a regulatory initiative that took a decent amount of time to get approved.
So, you would have years of that process going on and then there would be a change. So, that was much more evolutionary. Whereas today, what we are seeing is more revolutionary — it’s being driven more by technology, customer engagement. And then recently, as you mentioned, we have got a whole host of other pressure points on the industry, including data centers.
I guess from my standpoint, you ask if these are unprecedented. I would say that some of it is unprecedented, perhaps. The load projections — and let me stress, they are projections associated with data centers and the increasing importance of technology to our industry — you might say those are more classified as unprecedented. But I think there’s a whole other category of challenges that fall more into the classification of being failings of policy that are being exposed by developments over time. For instance, some of the regional transmission organization (RTO) policies and rules that, when you see an underlying change in the markets, bear out the fact that that rule or that policy was not really grounded in the correct assumptions for a long period of time. So that’s more of a failings of policy that are catching up to those.
You asked about pressure points. From my standpoint, one of the top ones is the lack of a coherent national energy policy. Frankly, I am not sure we have ever had that, but it has become more difficult to navigate not having that today, so, utilities have a difficult time planning for the future with confidence. We plan for asset investments that have a long life — 40-plus years in most cases — and what you see are policy swings back and forth, a pendulum between one set of preferred generation technologies to another. [This sentence has been changed for clarity] That puts pressure on our ability to make decisions over a long period of time, and takes away our assurance that our investment is not going to be riled by what is happening with respect to policy changes. Policy swings take the planning of the grid and the planning of our generation technology out of the hands of utilities and puts it in the hands of policymakers that do not have that direct responsibility to serve load, and that is problematic. So, I think if you let utilities make the appropriate resource decisions, they are going to do so in a responsible fashion. But again, it’s very difficult to make decisions when you know the affordability and the risk mitigation are a bit out of your hands because of the changes in policy.
Another one is just the proliferation of data integration for data analytics, technology integration for data analytics, controls, customer engagement. Technology equipment tends to have a shorter lifespan than traditional utility equipment, and that requires new expertise from a workforce aspect. I would also say the time it takes to successfully move from inception, so that the idea of doing a generation project to when you are commercially operating — for new, especially base load generation — it is a pretty significant pressure point. You have got signing, permitting, bogged-down interconnection queues, financing challenges, equipment lead times, construction workforce — it’s a pretty long list of different pressure points on new generation construction. That process is complicated. It is time-consuming. It can be conflicting between different regulations and different jurisdictions. There is certainly an effort going on in a bipartisan way right now at different levels to try to reform permitting processes and to try to speed things up, but that is still a multifaceted challenge, and that is only really one piece of the equation. So, just a lot going on.
The cost of building new generation has gone up, the time frames for which you can get equipment have extended, and all of that is bumping up against this load growth that we see projected. Then — not to get into a great detail — but for a fourth, if I am going to include a fourth, I would say workforce challenges, and that goes across our industry sector from lineworkers to management. But workforce challenges, retirements, that, I would say, is one of the fourth big industry challenges I think we have now.
Pam Sullivan: Yeah, I think, when you think back to the last time I recall in my career, these many challenges facing our industry at one time was back in the 2005, 2007 time frame. At that time, we were seeing extreme volatility in natural gas prices and energy prices. I don’t know if you remember this, Jolene, but back then we had a stock city council presentation that we would go around and do called Energy Markets, Surviving the Perfect Storm or something. We were trying to explain what was going on in the energy markets and why prices were going up, and it focused on — at that time — it was increased commodity prices and extreme weather events. We were shifting from a cost-based rate to market-based rate, increased regulations, a lot of the same things you hear now. But today, as you mentioned, we have other very big forces at work, including this load growth, scarcity and supply, and skyrocketing transmission costs. So back then and back in 2007, 2008 time frame, all that volatility, it came to an abrupt halt with the onset of natural gas fracking and an economic recession, and kind of changed the tide at that time. So, it is interesting, no one really saw those disruptors coming back then. So, it kind of makes me wonder; what disruptors is it going to be that may end up turning this current trend around?
Jolene Thompson: It is a really good point. That is the whole nature of disruptors. As you point out, you do not see them coming, and we have a number of them right now. The question is, how real are some of them, I think, in the long term?
Pam Sullivan: Right.
Tracy Reimbold: And given those different issues that you are trying to address, Jolene, do you feel like a more coherent national energy policy would help at least formulate some responses to those unknown factors? Or is that something that could open that door a little more?
Jolene Thompson: Well, sure, the whole idea of having a coherent energy policy that would give us the ability to have some certainty from a planning standpoint would be great. I appreciate that each different administration, both state and federal, has priorities. They do not always align with each other, and as utilities, we are left doing our best to mitigate risk to our customers and balance affordability and reliability, and it gets difficult. It really does. It is one of the things I hear most often when I go to conferences is just, we would love some certainty. Just tell us what the rules of the road are and what they are going to be into the future so we can make decisions.
Tracy Reimbold: And one of the things that has been talked about in the past, and that seems to be getting a lot of attention lately, is the concern surrounding resource adequacy. And for our listeners, the term resource adequacy means having power plants and other resources available to keep the lights on and meet the demand of consumers, along with an extra amount to cover any unexpected conditions like extreme weather. Pam, from your perspective, how does the challenge of resource adequacy in AMP’s footprint compare to other parts of the country?
Pam Sullivan: Well, I mean, Tracy, I believe that, you know, resource adequacy concerns vary by region throughout the United States. Some generation technologies are just not as viable in some areas of the country due to either a lack of fuel supply, the state legislation and regulation there, natural gas pipeline constraints, transmission constraints. The viability of technologies even throughout AMP’s footprint varies. Just throughout PJM, in the auction that cleared for 2027-2028, PJM did not clear enough capacity to meet its 1 in 10 reliability standard with the reserve margins. So, I mean, it is a very big issue, and we are seeing it throughout all the RTOs and specifically in PJM.
Tracy Reimbold: And what is one of the primary things, Pam, that you think is impacting that not meeting that reliability need in PJM?
Pam Sullivan: Well, like Jolene mentioned, I mean, you know, the rules change every administration, it seems. And, you know, these assets are 30- to 50- to 100-year assets, so you are making decisions — and very capital-intensive decisions — just not knowing what the rules are going to be. So, it is difficult to do, and a for-profit merchant is probably not going to invest in that when they just don’t know what the return is going to be. You know, we [public power] have a different business model. We are serving load, and we are serving that long-term for the residents of our community. So, we are more likely to invest in a long-term asset.
Tracy Reimbold: And Jolene, what do you think is driving resource adequacy concerns? And also, why is it such a critical issue for public power?
Jolene Thompson: It is a critical issue for everybody, not just public power. You know, there are certainly promising technologies. You have the future looking at not just standard traditional nuclear power plants, but also small modular reactors. But, you know, we are not interested, at least in typically being serial number one through ten on something like that. So, you need some folks to have success. There are some cost overrun concerns for traditional nuclear, and the small modular reactors need to prove out. They are very promising — but again, it’s not fast enough.
If you look at the process of trying to bring online nuclear, natural gas, it is many, many years. Maybe a couple decades, depending on the — more on the nuclear side — depending on how fast things can be expedited. So, there is a time crunch issue going on.
It is certainly something that has been identified. You are hearing the hue and cry about this from the North American Electric Reliability Corporation, which has responsibility for tracking reliability in our industry and enforcing mandatory reliability requirements. You have got the Federal Energy Regulatory Commission, every one of the regional transmission organizations, — and now the traditional press is getting interested in this issue about what will happen in the future, because it is such a storyline when you bump it up against what is going on with the projected data center load growth and just the sheer unbelievable volume of electricity that the data centers would be using if they all get built at the levels that are projected to be.
Tracy Reimbold: And that actually segues really well. So, when you talk about that large load growth, the increase in the electric demand and what we are seeing for the future, we know that is being driven by several different factors. How do you see these economic and business growths that are happening, shaping the electric industry over the next five years?
Jolene Thompson: Well, first of all, I think it is important that public power systems step back and take a look at, not only the benefits associated with economic development, but also look at: “What are the attributes? What are the special challenging needs with that sort of load growth? How do we go about making sure that we have the proper agreements in place to mitigate risk, take advantage of the of the positive side of the growth, but not have something from an unintended consequence end up being a penalty to the existing customers on a system?”
Right now, if you look at the projections for the growth in the next five years, it is just — there it goes back to your original question — the word is unprecedented. But again, how much of that is real? How much of that happens? How much of it is multiple developers who are out on a speculative basis, looking for sites, and so you may hear about ten different communities being approached, and how many of those are the same developer with the same potential load? And then, how much of that is wrapped around this whole AI bubble? You know, as AI goes forward, will it not become more efficient? And those types of things could drive down — balance that with the increased use of AI, because it becomes more integrated in our daily business. So where does it all pan out? You know, we are not big risk takers to go out and overbuild something that is not- You do no want to be super long as a utility, so you want to approach things in a thoughtful, judicious way to protect your customers.
There are just a lot of decisions that need to be made in the next five years or so.
Tracy Reimbold: And at the AMP Annual Conference this year in September, Jim Robb, the head of the North American Electric Reliability Corporation, or NERC — which is the nonprofit organization that establishes and enforces electric reliability standards for the bulk power system in North America — spoke about the disparity in the length of time it takes to build a data center versus the time needed to ensure there is power available to serve it. Pam, can you provide more insight on this issue and how the electric industry can or should approach the increasing electric demand of data centers?
Pam Sullivan: Sure thanks, Tracy. I have, you know, met with a number of data center developers that have been trying to locate throughout the AMP Membership, and you know, they typically have indicated that they can construct a data center in 12 months once they have the land purchased and zoning approved and the interconnection studies completed. So very quickly, and you know, the time to build the necessary transmission upgrades to serve these loads can be four to seven, eight years due to the lead times that Jolene talked about before on major equipment, the time to get right-of-way acquisition, the RTO approvals. But really, I mean transmission is a temporary band-aid to serve these loads, at the end of the day. Obviously, we need generation, we need capacity, and you know, the timeline — which Jolene also mentioned — on those has been extended as well. From a permitting perspective, lead time on equipment — we just recently studied the potential of putting in a new natural gas combined cycle facility in our footprint, and the expected timeline for land acquisition, permitting, transmission interconnection, equipment, construction, testing, it is, you know, between six to eight years. So, there is a real disconnect on when these loads are coming on, or perceived to be coming on, and when we can get the transmission and generation there to serve them.
I do not know. That is a real quandary. I do not know what the answer is to that. I mean, somehow the energy industry and regulators and government need to work together to find ways to shorten these timelines if our goal is truly to host these AI facilities.
Jolene Thompson: You know, I think that is a great point, and we can not just sort of wish it to be. You know, there can not be a declaration of “we are going to make this happen faster.” There are so many layers to it. When you are getting into putting online a new project, from start to finish, it is not for the faint of heart, and you have got local issues and regional issues and state issues and federal issues and different jurisdictions and regulatory folks. It is a pretty — public perception at the local level. Pam lists a number of the pressure points. It gets very complicated. It is not like you can just pass a law and it fixes everything. So, to Pam’s point, I think, people working together — which unfortunately is not what we see a lot of today, there is a lot of partisanship on things. I would like to think that partisanship could be set aside on this issue and people could all focus on making sure we have reliable, affordable power for everyone and we can serve growth and development. That would be the ultimate outcome and hopefully we will get there.
[Tracy Reimbold: Just as an off question — this is more from my standpoint — after having, you know, worked in those public power communities all those years, do you ever question the validity of the people that are stepping forward and wanting to build these data centers? Is it something that you wonder — do you take some of their requests with a grain of salt, knowing that it may never be anything that comes to fruition?
Jolene Thompson: Any time you are dealing with development, it may not come to fruition. I mean, that is one of the challenges of working in economic development, is you work very, very hard to have very few things get across the finish line. Typically — I mentioned earlier — you have developers, you have got different levels. You have got the actual hyper-scaler, so the very big data centers; you have got smaller, medium-sized data centers; you have got developers that are backed by one of the data centers; then you have speculative developers — and I may not even be covering the gamut of people that are running around right now talking to everyone. Do I think that all those developers that are working on a speculative basis are real? No, probably not. Certainly, the hyper-scalers, the actual data centers themselves, I have a lot more faith in.
I know Pam may have a different perspective, but I think some of this is not real, but I think a great deal of it is.
Pam Sullivan: Yeah, I agree with you completely, Jolene. I think I think we do see some — you know, they are going out to multiple sites to try to site a data center, and it might be for one data center, but they are testing the waters, if you will, in multiple sites. So, I do think there are some multiple countings, but yeah, you just really need to do background checks and research on who your counterparties are and who is backstopping the deal at the end of the day.
Jolene Thompson: Yeah, sure, you have got to make sure you are protecting your existing customers. A big, new load can be super exciting in a community for a lot of reasons, and we understand that, and that’s really the goal of all of our Members, is to grow in a way that benefits their customers. So just putting in place the right agreements and arrangements is really important, and we are happy to help with that. We have had the opportunity, from our vantage point, to see what is happening in a variety of different communities, as well as talk to our peers who are a year or two ahead of us on this across the country, and we have been able to get some of their lessons learned about things they wish they would have done in the early days, when this whole boom of data center development started in other parts of the country. It has made its way, now, to us, but we can learn from their lessons.
Pam Sullivan: Yeah, I think, Jolene, you mentioned that there is a large number of or percentage of data centers that actually have been located within public power communities throughout the country. I think part of the reason is that they just find public power to be more approachable, I will say, and more nimble in coming up with a solution.
Tracy Reimbold: Pam, do you see anything with a shift in these large data center developers actually talking about the idea of building their own generation?
Pam Sullivan: Yes, some of them have, you know, in discussions with the Members, stated that they would be interested in co-locating generation. We have not really gotten very far with that at this point, but there definitely is conversations around that.
Jolene Thompson: In many cases, the data center folks newer to the industry, right, they are very technically, you know, proficient at their side of the business, but they do not have, maybe, the experience or understanding of the unique nature of our industry.
Pam mentioned earlier, you have got different generating technologies across the country, different markets, different pressure points, and there was an assumption — I think — early on by some of the data center folks or the developers that they could muscle generation through faster than a traditional utility. In some cases, that may be true, but in the majority of cases, no. Now we are seeing repowering of retired generation by some of the really big data center interests, but I think they have an understanding now, more so that they are not going to get it done twice fast as we could.
Tracy Reimbold: That concludes part one of our two-part interview with Jolene and Pam on these vital industry issues. We invite you to join us next week for part two, when the discussion will cover artificial intelligence, cybersecurity, changing baseload generation and more.
I’m Tracy Reinbold, your host for The Public Power Line, where we explore the topics and issues most important to AMP Members and public power. If you like what you have heard on The Public Power Line podcast, please share it and subscribe so you don’t miss future episodes. Search for The Public power Line wherever you get your podcast. This podcast is produced by Zachary Hoffman, AMP’s Manager of Communications and Publications. If you have ideas for future podcasts, please reach out to AMP’s Communications Team at [email protected].