Exelon Corporation (EXC) Earnings Call Transcript & Summary

Welcome to the breakout session, power perspectives, current market trends impacting the Northeast region. I first want to thank Platts for hosting this 16th Annual Conference. And I also would like to thank the panelists for sharing their time and knowledge for this robust debate that we'll have over the course of the next hour. This session, I think, is better described as a look into the crystal ball. We are currently in an extraordinary time of a fundamental shift in energy across the entire landscape globally, but in particular, in the Northeast. Historically, major shifts in base energy have taken 100 years, wood to coal, coal to oil and like my 14-year-old daughter, cramming for a biology test last night, were trying to do this in the next 15 to 20 years. Not only that, we're doing it across every sector of the economy. So with that, I am excited, scared and curious on how this plays out. But luckily, I have fellow crystal ball readers here, in particular, Dan Dolan, President of the New England Power Generation Association; Bill Berg, Vice President of Wholesale Market Development at Exelon Corporation; Roger Kranenburg, Vice President, Energy Strategy and Policy at Eversource Energy. Jay Shrestha, Chief Strategy Officer of Plug Power; Kathryn Chelminski, Director of Policy and Strategy at Ameresco. They will each give a brief introduction, comments, and then we will do 1 quick poll from the audience and open it up to Q&A. So with that, I'll hand it over to Dan.

Great. Thank you, Sherman, and good afternoon, or I guess, late morning, everybody. So my crystal ball is about as cracked and cloudy as anybody else's. But from, I think, an overall policy perspective, as I see it within the context that Sherman just outlined, there are really 3 basic areas where I think we have a -- the challenge and the opportunity in front of us. And clearly, where a lot of the market development and policy development will occur at least over the next year and probably several years here in the Northeast and at the federal level. And it comes down to, first of all, being able to integrate the state policy resources into the markets overall, accounting for the reliability attributes of so many of these different resources in a way that has not occurred traditionally in the market. In my little sandbox in New England, there was attempts over the last several years through the competitive auction for state policy resources, CASPER, to do that. It has not met that initial intention. And now we see, led by FERC, an acceleration of going in that direction. With now the efforts, including just a couple of days ago at a technical conference of an unwinding of the minimum offer price rule to allow a more direct integration and participation in the market. How those resources get integrated and accounted for reliability is going to be a key challenge for the entire Northeast across the board. The second challenge is then post that first wave, how do we better integrate those state policies driving those resources into the market. Again, in New England, that is primarily decarbonization. It's not solely decarbonization, but that is clearly the primary driver. And so how do we put that in? For years, I think many of us have talked about putting a meaningful price on carbon, hopefully on a multi-sector basis, to get us there, and linking electricity with transportation and heating using that as a primary financing mechanism. I am less optimistic today than even a year ago at this time that, that's going to get there. The amount of opposition that we've seen at the state level has now driven to alternatives, things like a forward clean energy market or an integrated clean capacity market. But trying to find some market-based mechanism to account for the decarbonization attribute that is so critical as a new attribute to the market that hasn't been a recognized part is going to be critical. And then the third is what has always been job 1 in this industry, and it's ensuring that we maintain a reliable system. And because so much is being driven to decarbonization in other sectors of the economy, that electric reliability will become more important tomorrow than it even it is today and the societal impacts will grow. And the consequences for any failure will explode. And so how do we do that? How do we ensure that we are appropriately accounting for those reliability services, ensuring that we are then maintaining and sustaining the investments necessary for that invest -- for that reliability in a decarbonized and clean energy environment is a challenge that I think is going to require pretty substantial reform to the markets as they are today in terms of some of the individual mechanisms, while hopefully, maintaining the overall architecture and the bones of these markets that many of us have spent nearly 20 years building up and developing. I think the last component of that reliability mechanism is doing so in a competitive and a market-based manner. And here the -- I think there's -- this is probably the single area where there is the closest alignment across stakeholders, state policymakers and FERC. There has been a deep agreement that while we may have some differences of opinions on the tactics on how we get to that end state, strategically maintaining a market-based reliability system should be a priority. And so from that, how we get there, we all have different ideas and priorities that I'm sure we'll dig into a little bit here. But to me, those 3 elements of integrating resources, incorporating the policies and ensuring reliability has to be the foundation upon which we build. So with that, Sherman, I'll turn it back to you.

Thanks, Dan. With that, Bill?

Thank you, Sherman, and thank you, Dan. Good morning. It is still morning for everyone, and thank you for the opportunity to be on this panel and participate in this very important discussion. And as was mentioned, my name is Bill Berg, and I'm Vice President of wholesale market development for Exelon Corp. In this role, I have responsibility, market design responsibility for all the RTOs we operate in, which is, is all. And so everywhere I look these days, my crystal ball is as together as Dan's, but because I see new issues and challenges popping up, challenges that we, as an industry, have -- are new to us, and we haven't really wrestled with them before. We have no good, readily apparent solutions to accommodate these changes, and they're all being driven by this move to clean and kind of the changing load patterns as well as the resource mix. So where are we going? Similar to Dan's comments, and I'd say it a little differently. We have built up these markets over the last 20 years with 1 simple objective functions, reliability at least cost. That trend is -- I would change that objective function a little bit to say reliability at least cost after we properly accommodated and incorporated all the clean market resources. So what do I mean by that? I mean, we still want reliability. We still want lease cost, but we have to find a way to get clean resources and integrate into the grid. And from my perspective, I'm not sure we're moving fast enough as an industry, as organized markets to, kind of accommodate this change, which is coming really quick. And prepare for this new objective function. So what do I mean by not moving fast enough? I know there's been a lot of talk about the MOPR, and I won't spend a lot of time on that. But the MOPR is real. It's in place. It's slowing down this transition, I think, and it's kind of evolved from this place when we originally set it up 20 years ago, the was set up with the capacity market as a tool to mitigate fireside market power, which is a very narrow instance, to mitigating virtually all state sponsored resources, and there's really a lot of tension there. At Exelon, we've never supported kind of mitigating state-sponsored resources because it's -- because the states are stepping in, where the federal government has in terms of promoting clean resources. And that actually makes the markets more efficient. But rather than spend too much time on MOPR, which I think will be addressed very soon by FERC, I'd like to kind of highlight another area that Dan touched on, but I want to drill down a little bit further on it. And it's this notion of reliability. I think one of the challenges we have to wrestle with sooner rather than later, is to understand how the reliability needs of the system are changing, as the resource mix change. The reliability metrics we have in place today, and by extension, the market design we have in place today, is -- generally reflects kind of the past, a world where the resource mix was fairly narrow. It was thermal, nuclear and it was -- it all had predictable performance. And so long as we procured enough of that type of -- those resources with a little bit of cushion, we had a reliable grid. But -- and again, just to kind of emphasize, we've got -- the markets today are achieving that objective, but that objective changed, has changed or is changing. So what happens if the reliability metrics are wrong, then the market design is wrong and you have problems and distortions in the market and reliability could suffer? What are some examples of kind of the reliability issues I'm talking about? I have 3. Perfect example, fuel security in ISO New England. I think most people believe, even though they can't articulate it, there's a fuel security issue in New England. A few years ago, Mystic 8, 9 units that we owned were retained for fuel security reasons. That fuel security issue has been abated, those units are going to retire. But the -- there's still no clear definition of what fuel security means. And therefore, there's no market mechanism in place to satisfy that liability objective. We have to articulate reliability objective to hit the market [indiscernible]. But the missing reliability analysis, in my opinion, goes much further than that. It's really, centers around the fact that as the grid transitions to clean, it is becoming more intermittent. So those traditional resources, which we knew and understood over the last 100 years, how they operate, how they perform, they are going away. And that, with those resources going away, the reliability needs change as well. I think most people expect there to be probably 3,000 megawatts of offshore wind. And 1,000 megawatts of new hydro interconnected into ISO New England in the next few years, that's approximately 20% of the peak demand in New England. That shift in the resource mix in a very short period of time. And as you shift your resource mix, you really have to understand what new issues are we exposed to. Does the peak hour during the summer metric work? Or is -- do we now have more reliability exposure by season, by month, by time of day, and if so, we need to articulate that. And then once that reliability standard's articulated, we can design a market around it to solve for. And as Dan mentioned, and this is important for us to understand, as these new resources, these new state-sponsored resources are added to the market, there will be downward pressure on the overall capacity prices. That will incent the traditional resources to retire, but which resources to retire really depends on how well we define our liability objectives. Do we want to retain a 50-year-old oil plant with a 12-hour notice period simply because it burns oil, and it could help with fuel security? Or do we want to kind of design around the reliability needs such that nuclear plus [ beakers ] plus these intermittent resources is really the path we need to go down to reliability. And then just the final kind of reliability challenge I think we all face. Is just what's happening to the load? We are talking about electrification in a big way. I've heard that described as the largest increase in demand since the air conditioner was invented. And when those resources are charged, how is that going to impact kind of the patterns of the load? And then, of course, the final one, which we just witnessed in Texas, is just the severe weather events. They're happening more often. And are we prepared as a system to kind of deal with that? So just in summary, my message really is kind of -- it's back to basics. 20 years ago, we had a clear understanding of the reliability needs of the system, the resources that can satisfy those needs, and we learned how to do that through market forces. I think we can do that again. But it all starts with a clear articulation of what the reliability needs are of the system and a recognition that both the load and the resources serving that reliability are changing in a big way. Thank you all, and I look forward to the discussion.

Thanks, Bill. Roger?

Well, Sherman, thank you very much, and thanks for inviting me. And sort of share some of the perspectives from New England, Eversource and Northeast more broadly. So if you're not familiar with Eversource, we're the energy company of New England, but emphasis on energy, and I'll explain why in a second, as well as we have an offshore wind joint venture with Ørsted, building -- we've got leases that will accommodate about 4,000 megawatts of offshore wind, and we've won a contract for New York. So that takes us into New York and hence, broader New England. If I could step back a little bit, Dan touched on it a bit. Bill touched on it a bit, sort of a broader context of what is New England, for example, in New York as well, what are they trying to achieve? They're trying to achieve carbon neutral by 2050. And then we've also made an internal commitment as a company to be carbon neutral by 2030. It's a little bit outside of the context of this, but that's a bigger issue, a different issue, at least. So in achieving carbon neutral by 2050, what do you have to do? You've got to decarbonize the power sector. A lot of the discussion here was around decarbonizing the power sector. You've got to shift to zero carbon resources, you have to maintain your reliability. And I would emphasize resiliency of the transmission grid, the network, et cetera in doing that because as I go through this, you'll see, you're asking society to put more and more of their energy needs on the electric system. And what goes with that is you have to at least assure the reliability and probably increase it. If you think of stock markets, stock exchanges, clearing houses, are heavily, heavily regulated with all kinds of bells and whistles because they're so much relying. You've put so much concentration of risk on them. So I would make the argument that we'll probably have to improve the reliability and the resiliency of the system. So that's the power side. And then what's going on in transport. Where we're looking at shifting much of transport from petroleum to electric. Right now, it's consumer-owned vehicles. We're seeing fleets coming very quickly. And I would make the argument that we're at a turning point in that market where consumers will look at it as just a better product. And once that happens, this will take off like a rocket. I saw it happen in industrial systems. I was on the forefront of converting industrial drive systems from mechanical engines, et cetera, to an electric drive. And it was done in the -- for savings, saving fuel, et cetera. But once they start implementing it in these industrial drive systems, the users were like, wow, this is so much better than this engine. And when that happened, it really took off in the performance. And I think consumers will get there. You see some of the commercials, the guy pulling torque. You've got special forces saying it's nice and quiet. You've got off-roaders saying, well, I can control each wheel independently. You've got -- Ford came out and said, oh, you can use the batteries as back up for your house. So I analogize it a bit to -- a bit of a car fanatic, as Dan knows well. I analogize it a bit like -- as dating myself, the iPod. Remember, there was MP3 players all over the place. But when the iPod came out and put all the pieces together, consumers are like, this is what I like. It's got all the functionality. I don't care about MP3 player. I care about overall product and experience. So I think we're at the cusp of transportation electrification really taking off. Parts of that system, I am skeptic that will be converted to electric. And this probably plays into some of Sanjay's comments, but I'll emphasize 1 in particular, personally, this is a personal opinion. I just don't see a battery electric 18 wheeler. I just can't get there. I'm a pretty creative guy. But I just can't get there. So it would be parts of the market that will need an alternative. In that market, if I can just focus on that, it may just stay diesel. Or it may go hydrogen or it may be what Porsche is calling an efuel, and you take a zero carbon and convert it into a liquid molecules, et cetera. And then the other frontier, which is really tough for New England, is heat, building heat. The events in Texas, I think, showed a lot of things, let's just put it that way. It's a safety and health issue, and it's a really tough one in this frontier. In transportation, I can be creative enough, I can sort of work my way through that. When you get to heat, you've got a lot of challenges. You've got old housing stock. You've got high housing population density, you have -- it's a cold region with cold snaps. It was on the FERC electrification conference with Pedro Pesaro, who's from California and there are some others. And the chair asks, what are people's thinking of going from a summer peaking system to a winter peaking system, and they all said, ask Roger. He lives in the cold region. And then the other thing I think of is, I grew up in Texas, the heat in Texas and California is a very, very different story from New England. The heat of the summer is a safety and health issue in Texas. The cold in the winter is a safety and health issue in New England. And where that leads me to -- or leads us to is, how do we achieve both the comfort, but also the safety and health in an area that has all the characteristics I talked about, that is also -- fossil fuel is short, both in terms of supply but also transportation. The cold of the winter is where the system really gets stressed, both the electric side but also what I would call the molecule side. So in achieving that carbon neutral by 2050. And Europeans are kind of there, the molecules, be it gas or liquid molecules, and albeit decarbonized, are part of the solution in achieving this carbon neutral by 2050. And then you're going to have some residual that you just can't eliminate how do we -- what do we do with that? The region doesn't have a lot of geological resources to sequester carbon. But as I've learned over time, it has older forests, which apparently, if you do something different with them, they're great at capturing carbon. So those are some of the things that have to be worked through in achieving this carbon neutral by 2050. So there's no shortage of work. It's very exciting. I spent the last 20 years before moving up here in D.C., and what I learned very quickly is you can't look at the country as homogeneous and every solution fits every region. And the regions have very distinct differences, both in terms of needs as well as resources, structure of the economy, and I can go on and on that, but I'll spare you that. I'll turn it back over to you, Sherman.

Thanks, Roger. That's great. Sanjay, do you want to introduce yourself?

Sure, Thank you, Sherman. And again, thank you, everybody, super excited to be part of the panel here. So and Roger, thank you for that set up. Maybe I think I'll talk a little bit about not so much all the challenges we have. We all recognize that, right? I mean we need to get to where we need to get to from a zero carbon perspective. We've got to decarbonize the power industry. We've got to deal the transportation industry. We've got to decarbonize the energy industry. It sounds daunting when you think about everything, right? But I think, at least from our perspective, we at Plug, we're taking a view that let's try to sort of tackle them 1 at a time, if you would, right, which is why we're very focused on green hydrogen generation and again, by the way, by no means, I'm trying to suggest here hydrogen is the only solution. But it will certainly play a very important role. So we are focused on building the first of a kind green hydrogen generation network in North America. What benefit will that provide? And how it can actually tackle a lot of things. When you look at, I think, Bill touched on it a bit, which was all the wind power that is being added, all the hydro power that is being added and how that really end up changing the overall power market dynamics, reliability requirement, load profile, or that's where we can absolutely utilize our electrolyzer, thereby producing green hydrogen to really deal with the intermittency and therefore, enhance the reliability of the electric grid. Second piece on this is, as we get more and more down the path of electrification of the transportation industry, there'll be a light passenger vehicle where back to home charging infrastructure, not an issue, building a level 3 charge are not an issue. That will be a perfect solution for that, right? But when you start to think about long-haul tracking, fast fueling requirement, payload requirement, that's again where green hydrogen ends are becoming a very important part of the solution, and thereby even extends all the way to the energy industry by really reducing the amount of the diesel being consumed, the "green hydrogen" basically becoming the new diesel to further decarbonize some of the mobility application for light commercial vehicle, middle mile transportation, long-haul trucking, and we at Plug, right? I mean, we've been very fortunate at the fact that we have been successful in creating the first viable commercial market for hydrogen fuel cell and we're heads down focused on really providing a green hydrogen solution to meet all these requirements so that we can contribute and play the role in really helping us all collectively get to this net zero carbon goal by 2040 and 2050 time frame. That's what we're focused on. That's what we're trying to do. So I thought I'll kind of come at it from the perspective of what we can do. What we're bringing to the table, recognizing that there's a lot of challenges, but we're all going to have to work together with multiple solutions to make sure we get there because the option of not getting there really is not an option. We all have to think about how we get there. And it's of a paramount importance. Sherman, back to you. Happy to take some questions and looking forward to the discussion.

Great. No, I think that's important. I also think that from the standpoint of fuel diversification that Bill brought up, it's absolutely important that there's multiple tracks that we're taking, so. Kathryn?

Hi there. Kathryn Chelminski, I'm the Director of Policy and Strategy for Ameresco. Really happy to be here today. Thanks for the opportunity. So for those of you that don't know, Ameresco is a clean energy integrator and renewable energy developer as well as an asset owner and operator. We are headquartered in Framingham, Massachusetts, but we do have offices, 70 offices across the country and in Canada and the U.K. So as a company that's working on the renewable energy development side, we do a lot of work that's customer-driven. So working with federal municipal governments, commercial and industrial customers, higher education, K-12, public housing, community solar with -- even low-income projects. So we're kind of in a different position in the market. I mean it's really great to hear the perspective from all the other panelists and looking at how to solve for decarbonization. We are trying to provide these solutions to a range of different customers. And there's a really unique opportunity in the Northeast as kind of a leading region, trying to solve these issues. And for decarbonization, some of the major challenges that we're seeing in reaching, meeting the needs for decarbonization are threefold. So one is, on finding the appropriate institutional design that shifts towards to more smart, smart incentive or smart programs that really realizes the benefits that can be provided by distributed energy resources and storage. The second is integration of these resources into the grid, kind of touching back to the reliability and resiliency issues that the other panelists have brought up. And lastly, dealing with trying to meet the needs of all these customers, but in an equitable way and kind of overcoming the siting challenges of where to place these renewable energy assets that are going to be beneficial to customers, to the grid, to new state goals. And so kind of on the first point with the appropriate policy design, so a couple of things to mention here. One, it's amazing to see the trajectory and change in transformation that's happening across the country at the local, state and federal level, with regard to policies and incentives for clean energy development. It's an exciting time to be working in the industry with the Biden administration prioritizing decarbonization. That being said, there are -- there is kind of a shift that we're seeing from programs that incentivize renewable energy to programs that are increasingly more complex in incentivizing specific types of renewable energy development, particularly with distributed generation. And so we're eager to see kind of how states grapple with the build-out of renewable energy and create programs that really incentivize the siting of solar and storage assets so that they can bring the best benefit to the grid, reduce congestion, reduce peak demands. But a lot of that is driven through in institutional design. And then the other part of that is kind of coming up with the rules and processes for integrating distributed generation into the grid. So resolving issues with interconnection and congestion that we're seeing which kind of leads me to the next major point in challenges, how to manage the overwhelming positive response to incentive programs. So practically in Massachusetts, but we're seeing this in states across the region and in other regions. Developers are responding to these institutional indicators, really rating programs are leading to kind of a deluge of developers moving into a region, which is causing issues with concentration of DG and issues for reliability with the grid and so kind of find the way forward to resolve those issues. And hopefully, in newer markets to work proactively, to revolve that ahead of time, to avoid the pitfalls that we're seeing in some more mature markets. And then lastly, with -- going back to the offtake question, I mean, one thing that's amazing about working for a company like Ameresco is being able to work so closely with a range of different customers that they can realize the benefits of decarbonization, to have to work with schools and military housing so that they can have grid backup for their critical loads and using distributed energy resources. To mean their needs -- this is certainly a priority also for the Biden administration, looking at how climate justice plays a role and kind of working through ways to ensure that as we decarbonize that the grid, the benefits are transformation also to marginalized communities and a range of different customers. And so I think that's another unique challenge that states are grappling with as they create the next phases of incentive programs. So a lot of exciting -- it's an exciting time to be working in the industry and there are certainly challenges ahead, but obviously, enormous opportunities. So looking forward to talking to all of this with this panel.

Great, thank you Kathryn. A couple of things that a number of folks have kind of mentioned, and it's -- I find it interesting, but the word reliability, reliability and resiliency. And I think Roger, you really kind of hit the nail on the head is that, as we're electrifying the overall economy from a, to decarbonize the reliance of the economy on reliability just goes up incredibly. It is something that I hear often within the industry. However, when I step back and read the newspaper, I often hear much more about incentivizing more renewable projects and scant discussion about reliability. I'd be curious to the panelist, like are you seeing similar things? Do we believe that there's going to be a reliability gap coming up within New England? Is it one of those things you have to have your Texas moment or your California moment, before there's concentration on it? Or do you believe that the regulators that are moving towards reliability in a sound method? I'll open up first to Dan.

Thanks, Sherman. And that is the fundamental question, right, here because it, that is, I think, the single biggest risk towards progress being made on the decarbonization front, to the degree there is a major reliability of that. It could certainly undermine a lot of the progress in that direction. And so I think it's critical that it work hand-in-hand, as has been talked about by just about everybody here. To directly answer your question, I think the answer is no. I think there is an ability right now to not only have learned some of the lessons from Texas, because, look, we have extreme winter, too. It's just called February. But also learn the lessons from California. And the fact that we had those 2 in fairly different climates at different parts of the year with very different electrical systems happen months apart, I think, is meaningful. And then the third element is in a non-electricity function, is the colonial pipeline issue. And the fact that we now have 3, let's call them low probability, very high-impact events hitting across the chain here. I am seeing a refocus occurring not just in the private sector side but from regulators and public officials. I agree with you, I have not quite seen that same shift on the press side. But I am starting to see more of those questions and refocusing occur. And my hope is that it means we don't have to be the kid who has to touch the flame and touch the stove to learn it's really hot. But it's incumbent on all of us to continue pushing the momentum in that direction.

That's extremely helpful. I guess I would like to hear from Sanjay and Kathryn, whether or not you're getting customers that are interested primarily because they're seeing a reliability issue as it potentially comes up, because I think your companies provide, at least, if not a solution, a mitigation towards that?

Yes, Kathryn, maybe if I can just jump in here real quick, and I'll turn it to you. So Sherman, look, I mean, I think 2 things are happening, right? We're getting a lot of inbound from some of our, what we call a pedestal customer. Amazon and Walmart is 2 of the largest customers we have, right? And it's just -- and we've been in this growth rate with them for quite some time now over the course of the last several years. So we are getting a lot of interest from both of those parties on availability of the green hydrogen, #1 rather than just gray or blue, right, that's been an ongoing discussion with them. And the second thing is, as -- look, I mean, I think as you guys are rightfully pointing out here from a reliability perspective, one of the things is, in Texas when we had this unfortunate cold freeze go through it, right? Some of the sites that were running on hydrogen were actually able to operate, right? Even though the rules were terrible, even though power was out, we were able to -- wherever we could provide that supply of hydrogen in the best possible way. The sites were running, forecast were operating, distribution center was able to move the product. So I think clearly, I think that is further underscoring and highlighting the value proposition of what we bring to the table, right? Again, it's not 1 solution that fits all bill. So short answer is, I think it is becoming increasingly more clear to folks that the value that this solution can bring to the table. But has that really resulted into anything major at this point in time? Candidly not yet, to be very frank here, but it was, I mean we're very proud of the fact that we're able to keep the sites going during that time in Texas, and it actually worked out pretty well for them. Kathryn, please?

Thank you. So Ameresco is in the business of providing solutions for resiliency in particular. We were -- we have been seeing a lot of customers from a range of different market segments that are interested in resiliency solutions and increasingly so, particularly through public procurement on this fleet of schools, and municipalities that want to offer emergency shelters for when there are power outages. We work with the federal government and military bases to provide micro grid solutions for meeting their needs, for maintaining power for critical facilities for nuclear fleets, for example. So we have to ensure that our customers, that they don't lose power for even a second. And so our microgrid solutions do provide grid backup for that. I think the challenge in addressing this demand with customers is that there aren't really robust programs that put a value on resiliency at the moment. I think that a lot of states are working on that. In Massachusetts, the Clean Peak Standard, for example, is a program that is incentivizes renewable energy development and storage deployment for assets that help reduce peak demand. And we do have a multiplier for resiliency. So that was 1 example of 1 of the very few programs that provide incentives for that. I know there are -- that Connecticut was also grappling with that in their storage program as well, considering to put in some sort of additional incentive for resiliency. And certainly, California is a model, in terms of an early market that has offered some programs for that. So there are customers that are really eager to find these solutions or to use these solutions, to provide resiliency for their businesses, for their constituents and we're eager to provide the solutions, solar and storage, and their microgrids in a range of different -- covering a range of different technologies. But I think we're eager to see kind of how hub states prioritize us and kind of come up with unique revenue streams that makes sense to help incentivize deployment of these really vital ER solutions.

Sherman, if I may, can I jump in on this 1 quickly. I'll keep it brief. So we're hyper-focused on reliability, resiliency and so that kind of touches. We want to get ahead of this. Because our big fear is, if you have a big event, it can unwind this whole move to carbon neutral by 2050. So if we're getting it wrong and we have a big event, society will go, I'm out, not doing this, we're done, and that's not what we want. So we're hyperfocused in getting in front of the reliability and resiliency. When I think of that, I think of it just -- not just in electricity. I think of it systemwide, energy system-wide. If you look at a lot of other critical systems, I grew up in Houston, NASA, when you think of reliability and resiliency, they think of the entire space shuttle program. And that's really, really key when you look at this, because we're moving from a world where we've got diverse energy supply, diverse transportation, energy, petroleum, gas, electricity, et cetera, to a world where we're concentrating more and more into electricity, but the whole system has to work. And it has to work well. If not, we won't -- society won't allow us to keep moving down that path. One of the things that we look at is 1 of the beauties of the gas system is it's on the ground. It's less susceptible to weather. It's already been laid. And I think of my time and telecom, we didn't get to broadband by connecting every home with fiber. We got to broadband by figuring how to repurpose that 100-year-old twisted copper [indiscernible] phone service, and I was actually quite heartened to hear, in John Kerry, his address to Ceraweek, sort of his challenge to the oil and gas industry of, look, guys, you're part of this. You've got some great infrastructure. You've got some great businesses. We've got to work together and figure out how to use that knowledge and infrastructure in a different way, how to decarbonize it. And I was quite pleased to see that. I couldn't resist to jump in on that, Sherman.

No, no, that's great. And I think, in my mind, it's also -- I think you bring it up as well as Sanjay and Kathryn did. We all have to get out in front of it because I think you're right, the whole thing stops as soon as there's a major outage. The -- I think the real issue is like, are folks going to be willing to pay for it in advance. Before feeling the concern, because it does cost someone. Yes, it doesn't come for free. I have, let's say, we have -- I've been reminded, we have a poll question. So my problem is, I could talk about this stuff forever. So I need to get focus back. So the poll question is, and I'm hoping the audience can weigh in on to our collective crystal ball, is by 2035, what percentage of non-renewable generation will be fueled by hydrogen? And I think we probably should put in here not hydrogen, but really green hydrogen, if I may. I think it's -- I know it's a distinction, but and then you see the answer. So if folks can type in and do their polls, we'll get back to the results in a little bit. I did have 1 question before then, coming in through the screen. Which I think goes back to Sanjay is, what is the capacity factor of green hydrogen generation?

I just want to -- so I want to make sure, Sherman, I'm understanding that question correctly, because when we run our green hydrogen generation plant, right, we run it at a pretty high capacity utilization. Whether it's a liquid green hydrogen generation plant, it needs 24/7 power, which is why most of the architecture that we're looking at, right, some of the green hydrogen plant we're building, it's either getting powered by hydro or even when we have wind electricity, we're buying complement power, oversizing the wind farm to make sure that we have all the renewable energy credits needed for it to be basically 100% green electricity, if you would, right? Now another factor here also is, when we just think about the electrolyzer, and the potential of that electrolyzer to be able to load follow and really sort of take advantage of the intermittency of the wind, if you would, right? We can really run that electrolyzer down all the way to the 10% capacity factor and still ramp back up within milliseconds. We could do that, right? That would work from the gaseous hydrogen generation perspective. But when you're thinking about a large-scale liquid green hydrogen generation plant, you do have to run it at a pretty high capacity utilization because liquefier can't ramp up and ramp down that quickly, right? So that's -- I just want to make sure that -- hopefully, that was the essence of that question, and that's really how we look at it and that's how we think about it.

That's great. And I remind the audience, please jump into Q&A. This is your chance to get some wisdom. I personally have 1 other question in or focused on Bill. I think this is -- an interesting question is, one of the things that are necessary to achieve carbon neutral that aren't being talked about?

Yes. All right. I mean, yes. I mean, you did a little bit, because everything seems to be on the table. There's new ideas popping up every day. And so, it's -- you don't know what you're missing until it kind of reveals itself. I mean, I think the big ones, I think the electric grid itself has done a pretty good job and is transitioning there. I think electrification of the transport sector will make a big difference, as well as kind of converting some of the, [ builder ] buildings to electrification. I mean those are all the ones we kind of talk about. I think they're all essential to achieving them as is what Sanjay is working on, that is absolutely part of the equation, because having a green hydrogen fuel would solve a lot of issues. And it would certainly help transition it. So I think it's all in play. And if I had a silver bullet that says, if only we added this to the list, it would work. I'd share it with you, but I just don't have it at the top of my fingertips here, unfortunately.

No, I think that's right. I think there's yes, at least the way that we're looking at it is just there's a lot of stuff out there on the table. It doesn't seem like there's a lack of ideas. It's moving towards what's the best way to bring those into fruition. The quickest way is what I find interesting.

Yes. It's exactly that. And it's -- what's the best way, if you kind of go back to kind of the 3 pillars that I threw out, which is, we want reliability, we want least cost, and we want clean. And as these ideas come up, particularly as they kind of impact the electric grid and the power markets. I mean, they're going to ultimately get viewed and awarded or incentivized or whatever the right term is, through that lens. And I think that's the right lens for the good ideas or the best ideas to kind of rise to the top. And the creative, but not quite there yet, ideas, which we need them all, to kind of move to the back burner. But I think that's kind of the lens as I see and the big picture lens, that's going to help us sort through all of these acts in a way. And you would also add to that, that lens. And I think it's implied, but what is -- what are the potentials for scale? How fast can it be implemented? And does it resolve challenges or create new challenges? And I think that's all kind of implicit in all that. But I think it's all on the table it needs to be. And anyway, those are my thoughts on that.

And guys, if I could jump in, I think 1 element that we haven't spent a lot of time in this discussion talking about is cost. And making sure that as we're moving through this, that just as we're ensuring there isn't a catastrophic reliability issue that has the potential to unwind, I think there needs to be a similar focus as we're looking at that cost impact because that's the other area where there could be a very real societal backlash towards meeting important policy goals. And in particular, in a region like New England, we're insulated a little bit from that. In that the economy is less energy-intensive than it is in many other areas of the country. We've lost the vast majority of our industrial and our manufacturing base, a high portion of what drives employment and overall GDP in New England, are high tech, biotech, things of that nature. In fact, I represent the largest group of manufacturers left in New England. It's just they produce electrons instead of widgets. But that cost element and how that plays into the transition and more specifically integrating the cost of the carbon externality, I think is key. And in particular, within the bounds of New England is going to be the impact on low-income and the economic justice being married with the environmental justice movement and how all of that starts knitting together. Which is, I think, part of the reason doing this as competitively as market-based a manner as possible. I'm not going to say it guarantees any result, but I think it gives us the best shot towards getting there.

Hey, Sherman, and Dan touched on a lot of things, but -- and going through the structure of the New England economy, 1 of the things you realize is, reliability and resiliency is paramount because if you're running a biotech lab, cost is 1 thing, but you get a power glitch and there's a month's worth of work gone, beyond very expensive researchers. To your question, one of the things -- and it's definitely talked about but I think we all fall into this sort of supply bucket of -- let's talk about supply. One of the things that's really, really key to achieving carbon neutral by 2050 is energy efficiency. So if you look at, I'm a little bit of a geek, if you look at the sankey diagram for the U.S. or for Massachusetts or anything, what you'll see is on the right-hand side is all the uses of energy, but you'll see much of it gets thrown away. Transport's probably the most acute. The energy that goes in, people are interested in moving around. They're not really interested in gasoline or electricity or diesel, all of that. So I think if I remember rightly, almost 80% of the energy goes into transport gets thrown away. So energy efficiency is going to be a really, really key part of this move. And we all fall into the trap of looking at the supply and not emphasizing -- continue to emphasize as much the energy efficiency side.

That's a really good point. If we could, let's flip quickly to the poll results here. I'm kind of curious. So a strong below 10%, which goes into, I think, another -- which came up in the Q&A log, an interesting question, which I don't -- I don't want to keep picking on you, Sanjay, but you know hydrogen better than anybody else. But the question is, this respondent answered on the low side, the below 10%, I'm assuming, because he expects regulatory roadblocks around hydrogen transportation and storage. Obviously, it's combustible in a very explosive way. Do you foresee regulatory issues around transportation storage of hydrogen that's going to make it hard to deploy on a mass scale?

Yes. I mean, Sherman, that's a fair question, right? But let's take a step back. I mean the hydrogen industry has been around for a long time. Is this happens to be gray hydrogen, right? You already have today, when you think about it, right, there's about 250 tonnes per day of liquid hydrogen production existing in the U.S. today. But Arizona, the largest user of it, at about 40 tonnes a day, but that hydrogen has been transported, right? That hydrogen is being delivered. So it's not a new concept. Second thing, right? When you think about the industrial application, all the captive market as well as even supply to the refining industry, ammonia plant, that's a massive market. That's almost like 20,000-plus tonnes per day of capacity that is there, right? So there is a massive salt cavern already in Texas, right, where you can actually store almost 3,000 tonnes per day. So look, it's like any fuel, you have to treat it with care, right? You have to make sure that you're following all the protocols. And as a matter of fact, when we build our hydrogen refueling station to support some of this distribution center, we can actually do that in 16 weeks from start to finish, permitting, fire marshall being there. We follow all the safety code, all the safety standard. Look, 1 of the things is, as you said, right, hydrogen can be combustible, but at the same time, it's so light, right? If there is any leakage, it will be up in the air, by the time you snap your finger. But having said that, you got to treat it with care, like any other fuel, any other fuel mix. So I think, especially from the grid and tunnel perspective, you got actually have more favorable backdrop of policy in New York City, probably, right? But short of that, I think, look, we've been able to grow, we've been able to transport it, and we make sure that we're thinking about safety as a #1 priority, similar to any other fuel, whether it's diesel, gasoline, even a battery electric car, right? So it's an important consideration, but hopefully not an impediment to how important of a role hydrogen can play as a part of the overall solution.

Yes. No, that's very helpful. I'm going to close on 1 more question, and I leave it up to the panelist. How do you see corporate models change, given these power trends? Do you expect that we're going to have more pure-play renewable merchants? Yes, there's going to be more regulated gentailers. How do you see the corporate models more on the public side and on the private side, change or evolve, if you're looking 10 years from now?

I'll jump in and give some perspective on it. I think the short answer is, I don't know. If you look at our business and sort of what we focus on, we see increased value that we can provide to society in this transition. Kathryn talked a lot about the network side, interconnection. So if you look at how the network is used traditionally and what a traditional customer was, it was someone that was using energy and paying us for the use of energy. You fast forward today, into the future, a customer for us in the future is everyone interacting with the electric system and the gas system. They've got batteries, they're taking power and putting it back on at different times in different ways. You've got EV charging. You've got all of the customer sited solar as well as the solar development, solar farms. So there's a lot of interaction and complexity with the network, and that's what we do best. We run the network. And the thing that I emphasize both internally and externally is, we don't just run the network technically. That's one part of it. But the whole customer interaction, Kathryn touched on interconnection process, we've got to make that an easy, sort of simple process and a customer-friendly process. So we see ourselves playing more and more of a role. And again, if you step back in the energy system, because if you believe that what we're talking about of how this is changing, this transition and transformation, how you're moving away from petroleum, for example, and moving more load on to the electric system. So we see ourselves as playing a larger and larger role in society in this transition and transformation. That's why I put emphasis on a regional energy company, not a regional utility.

I could jump in as well. So kind of a two-pronged answer from developer perspective, but also from the customer perspective that we're seeing, we're excited to see that the opportunities for potentially more decentralized energy solutions and kind of what that means, having multiple providers, either meeting the needs for building decarbonization and efficiency for clean transportation, for grid backup and supply. I think as the market evolves in competition increases, we're likely to see a very different energy market in the coming years. And with that, it's interesting also to see kind of corporate customers that -- and how they've evolved their thinking not only for reliability and security of supply for their businesses, but also kind of responding to demands from their customer base and increasing regulations to work on their missions and trying to find solutions that make sense for their bottom line. I think there's increasingly a lot of pressure on companies to go green. And that provides a really remarkable opportunity for development of renewables, and we're likely to see kind of a range of responses from the market to respond to that demand. So it's a really exciting time for corporate development.

So I think we're out of time, but this has been extremely helpful. My understanding is that we're going through massive changes here. But there's a couple of key road blocks to -- if I could sum it up, to moving towards decarbonization. One is the reliability and resiliency of the grid and help solve by decentralized fuel diversity, and keeping those assets around that help intermittent load and the other major roadblock is affordability. And hopefully, as we dance between federal and state policies, competition and regulation, hopefully, we'll be able to resolve those. But thank you to all the panelists for their time and knowledge and sharing that with everybody. And thank you, Platts, for putting us on.

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Thank you.

Thank you.