Sunrun Inc. (RUN) Earnings Call Transcript & Summary

All right. Good afternoon. We're back yet again. We're chatting here with Edward Fenster, Chair of Sunrun. That's our -- as I'd like to claim our annual GM session around our renewables symposium here. So it's pleasure to have you back, Ed. I'm disappointed not to see you in person here, although hopefully, I know in the last few years, I feel like we put you in the morning, bright and early West Coast time. So I suppose it's better off this year. But anyway, it's a pleasant to have you back regardless. So maybe at the outset, I mean, we have a bunch of people online, a bunch of people have sent me questions already. In fact, logistically, if people have questions, ping me, e-mail, chat, webcast, et cetera, whatever works, continue to ping, in fact.

And then, Ed, I would -- at risk, there's so many headlines out there right now. I feel like I'm obliged to ask these at the outset. Do you want to introduce the company, the size of the company, but then also there are these battery headlines out there. I'm just [indiscernible] right now, too. Where we want to start? But introduce yourself and the company first, please. But then subsequently, do you want to hit that and address how to think about that 5% exposure?

Yes, yes, yes. Sure. So first, good afternoon and good morning, everyone. Appreciate you taking the time, Julien. Thanks for having me. I'm Edward Fenster, Co-Founder and Executive Chairman of Sunrun. We are the largest residential solar developer in the United States by a long stretch. We believe we are the second largest owner of solar in the United States in any category behind NextEra and probably the largest by revenue. We started the company in 2007 with the view to bring clean, reliable renewable energy to homeowners directly. There were a few reasons we decided we like that business model. First and foremost was we felt like there was going to be a huge opportunity to deploy solar energy that there's been enormous upstream manufacturing investment. But there is going to have be a lot of work to get the trillions of dollars of the stuff installed. And when we looked at the market, we felt like transacting with customers directly was really where we'd rather be. The wholesale markets for energy, as you know, Julien, are like really tough and brutally competitive businesses. But sitting between those businesses, and customers are frankly kind of bloated monopolies that in most of the places that we operate end up charging 6x as much for retail power as they're paying to purchase it in the wholesale market and frankly, have extremely low customer satisfaction scores. And so we felt like by working with customers directly and providing a better level of service, we could be quickly growing business because, frankly, people didn't like the incumbents, and we could provide a better service. So that was the business. We also targeted the residential market because it has a big NIM, efficient scale. There's huge entry to barriers to operating nationally. I don't think there's been an example of a residential solar company operating in a sustainable sort of cash flow positive way, doing less than 80 megawatts a quarter. So we like that, too. And then also brought to the marketplace, the sort of power purchase agreement model where we pay to install the solar system and then enter into a long-term contract with the customer to purchase the power. This way the homeowner who is busy, the traditional customers like a dual wage earner with kids, doesn't have to figure out am I getting the right equipment, is the right person installing and how much power is it really going to make, what really is the useful life? It's just we'll pay you for the power that you deliver. So that was sort of the model. We took the company public in 2015 with the good help of some colleagues of yours. We became cash flow positive in the second quarter of 2017 and then it has continued to grow, and as I mentioned today, are by far the category leader. Maybe I'll pause. You're going to pause there and talk quickly about batteries since you've got some of the burning questions.

Oh my God. Do it.

So very quickly, there's LG Chem announced a very limited recall of some of its batteries. We've been aware of this for a little bit. It impacts 5% of our storage customers. We've already remotely stopped those batteries, brought them to a safe state of charge for shipping. We're about 1/5 of the way through the process of actually performing the recall swap-outs already and have had no injuries or anything like that amongst the Sunrun customers. And in fact, what's causing them to do this recall, there's -- nothing has happened in our fleet that caused them to want to do this. So this is a safety measure that we think is prudent and they're working with us to accomplish. And I think it's also just another great reason why customers would want to work with a large national company like ours who can be proactive and ensure the safety and the prompt resolution of a matter like this. We don't expect it to have any impact of any significance on the business at all, and we'll just complete the swap-outs on the schedules that are accommodating to our customer schedules.

Excellent. All right. Now, Ed, if I can jump in here. I mean you have so many things going for you of late. But maybe the key thing, if I can ask is, I'll start it this way, what about the integration, right? How is that going? How are you feeling about the trajectory there? I mean, it doesn't matter what kind of company you are integrating 2 big companies like this, especially in-flight with this kind of growth trajectory is difficult regardless. I mean how are you feeling about it?

We're feeling very good. And obviously, particularly in this quarter, the successful integration is our kind of #1 operational priority. We've got a bunch of synergies already in the bag. As we've said on the prior calls, we expect $90 million of synergies. We're very confident in that number. And frankly, the legacy Vivint team has been just a pleasure to work with. Their strongest leaders are complementary to ours. So it is, I think, very easy to figure out who's leading what. And the cultural combination has been going nicely as well. I think there's some rigor that we brought to the relationship. There's some get up and go aggressiveness that they've brought to the relationship. I think that's coming together really nicely. And I have lots of confidence and optimism for how that will go, both culturally and financially.

Got it. Sorry, coming back to what you were saying before. I just want to pin you down a little bit further. The financial impact you guys from this recall is, how would you characterize it? I just want to try to nail it down a little bit? And I'm getting a follow-up.

De minimis. I mean it's LG Chem, it's an investment-grade company. It's all warranted, like -- so maybe there's some opportunity cost or something or small costs around the edges, but I don't expect any material impact from the financial perspective.

Got it. Okay. So like [indiscernible] to go get this stuff, that's all and then. As you say, I think?

Yes. I mean, materially, all the costs, they're bearing.

Yes, yes, yes exactly. Excellent. Okay. Perfect. I think a lot of people were assuming it was warrantied, but obviously, the ability to actually extricate is probably in and of itself half the battle here. Okay. Excellent. Listen, I've got -- let's stick with our friends in abroad here. LG Chem, let's talk about SK as well, if we can. And this is -- we're going to have to choose our words wisely here because I'm not sure you're going to say much. But what is the nature of this relationship? And what is the opportunity here? I mean you guys don't frequently partner with a lot of external companies. And I mean I prefaced it that way, maybe you would disagree, but this seemed perhaps unusual. And so I'm curious on how you're thinking about this opportunity over time. What is this partnership?

So great question. And to your point, we've frankly been pretty deliberately stealth on the topic. I do sit on the Board of this company and so follow it closely and feel like it's progressing, frankly, ahead of my own expectations. I do think that if everything goes according to plan and the fullness of time, this could be a company that's incredibly valuable and important in the ecosystem, not unlike a solar edge or an Enphase might be considered today. So we have a lot of optimism around it. But in terms of the exact business plan and strategy and timing, we're playing that close to the vest for now. But over the coming quarters, we'll probably start to talk a little bit more about it.

I mean even the nature of, is this like an EV thing? Is this a home -- nothing?

Yes. Stay tuned. Stay tuned. 2 weeks. No, I'm not allowed to say that. I'll tell you more in 2 weeks.

2 weeks. All right. I've got it. I'm going to hold you accountable. Before 12/31, we get something right. Excellent. Well, I mean, so let's talk about this, right? I mean, all right. So there's other angles to your building out, right? I mean -- and I'm curious mostly because you guys are looking at different ways to monetize your business and frankly, your customer base, upselling. That's the new word, I suppose, in cross-selling, whatever it is. I mean what kinds of opportunities exist there to maximize your existing customer base and prospective customers? Not just solar, what else is it?

Yes. So let me talk a little bit about that. So the real business opportunity for us is not because we're a solar company or whatever, it's going back to the comment I made earlier, which is that electric monopoly utilities have extremely low customer satisfaction scores. They don't treat their customers well. I actually had an interesting meeting recently with the CEO of NL who said, can you imagine if when you move 3 blocks down the street and you called up JPMorgan to change the billing address on your credit card, they were like, well, you have to close your account and open it again. It's just not a customer-centric industry. And so certainly, the product that we got going on as a company and that has been great and hugely valuable has been solar and now solar and storage. But if you really think holistically to like over the coming years and decades, like what do customers really need? One, they want a company that respects them and treats them well. But two, they want to solve their high electricity costs and electrify their homes, right? And so that means supporting, to your point, electric vehicles. It means supporting, whether it's electric, hot water or heating. And we're in a really good position to deliver this for a few reasons. So the first one is we obviously spend a lot of time developing a relationship with the customer. We've a strong customer relationship, and we've discovered, particularly through storage, the marginal cost to sell additional things as well. Second, if you think about these devices like electric cars or heat pumps, electric hot water heater, things like that, they typically cost a little bit more to purchase. And so if you really want to make them pencil for a customer, they need a lower cost of fuel. And we're in this really unique position where -- while our average cost to install solar system might be $3 or $3.50 a watt, whatever will be in the near term, our marginal cost to make a system larger is like $1 a watt. It's extremely low. So the levelized cost of energy for us to build a larger system and use it to power more things in the home that have historically been fueled by other fuel sources is really unique to our business and one that we're well positioned to, to succeed at. In addition, we have mentioned this to you before, we've been piloting selling grid energy in Texas and have discovered that we're seeing churn rates that are 1/10 of what you might expect for a retail electric company when you can sell those 2 things together, which may be in 40% of markets, we'll be able to do. And that way also, you'll capture value over time as the solar system degrades. We've discovered our customers are much more likely to add electric cars and other people sees a lot of value there, too. So if I think about where we want to be in 3 to 5 years, if this -- holistic replacement effectively as the power company that is actually meeting customer needs and helping people electrify. Now obviously, to do that, there's a lot of technology that we need to deploy. And all of the core fundamental science and product necessary to do that already exists. But frankly, we've been a little underwhelmed with some of the companies in the industry's ability to productize it. Even just on the storage side, we've had long lists of things that we were hoping the solar edges of the world or other people would add that we haven't seen them really add. And so as we think about this future where we're doing a lot more, I think we felt like we needed to insert a company into the ecosystem that would be responsive and confident and quickly kind of productizing these sorts of devices at a cost point and with a feature set that we believe our customers want. And it's that vision that led us to the creation of this new company which we've co-funded with LG -- with SK, I'm sorry.

Yes. Just a tack on question around the upsell opportunity here. Could you just talk about in terms of -- just in terms of like the upsell opportunity on the various home electrification pieces, when would you expect to start pursuing that? And then the same question around storage?

Yes. So as I said, some of it we're currently piloting, and some of it will probably go into pilot in 2021. I think late '21 through late '22 is probably more when you start to see it at -- stuff other than pilot scale. But it's stuff we're actively now working on in the design phase.

Got it. So that's for home electrification. For storage, it seems like that's being pursued more near term. Can you talk about how you would structure the contracts around that? Would it be actually for storage and also upsizing the solar systems, given that you just mentioned that as well? Would that be new contracts going into place? Or would that typically be just like an incremental contract to the existing contract? How do you think about that in terms of like maybe even an early renewal as an example?

Got it. So some good questions there. So our contracts currently support fully all of the grid services type work that we're doing. And so there's no work that we need to do there. So for folks that know we have this burgeoning business in what we call virtual power plants or which we call grid services, where it's kind of like an Airbnb-type model, the principal value proposition for a customer of storage is reliability. The United States already is the least reliable grid in the OECD. It's getting worse. And in California, it's a total disaster because the utilities can't withstand -- can't provide reliable power in the late summer and early fall period and now also our short peak power at times in the summer as well. We're also seeing extreme weather obviously create reliability problems, principally in the Gulf and the northeastern United States, but like even in random, midwestern places now. So that principal interest for the customer is reliability. And the interesting thing about that, right, is it's enormously painful to have your power go out. But even in California, which is the worst offender, maybe it's 6 days out of the year. So what do you do the other 350, whatever days, and that's where we use these batteries to support the electric grid in times of need. And we do that through this virtual PowerPoint business where we can dispatch power from thousands of batteries to, a, just the overall performance of the grid. And we have arrangements in place that cover about 10% of our geographies today. We expect that can grow to 50% in the near term based on our pipeline. And so we will increasingly also be focusing our sales probably in those efforts. And as you know, that was also part of the strategic rationale for the Vivint acquisition as we think that the direct-to-home marketing approach is a really fantastic channel for servicing the grid services contract. So that's totally underway. Where you might see changes in the customer contract a little bit could be -- so as -- in the example I gave you earlier, our levelized cost of energy to make a system larger is extremely low, I think, lower than utility scale solar. And so in theory, if a customer's root sizes support a system that's this big, but their demand is only this big, you could just fill the whole roof and export the power and be happy at wholesale prices for the excess, maybe you sell that to another customer, maybe you just are a wholesale provider. As we consider stuff like that, there's some regulatory changes we'll need and there's some contract changes we'll need, but nothing extraordinarily difficult to figure out. In terms of early renewals, I think that was your last question. Our first customers went into service in any real scale in 2009 and had 18-year contracts. So I think we're still not totally right in that process. But I'm still very optimistic for the renewal business. And I think the key reason I feel that way is we now have hundreds of cases of where we've seen homes get foreclosed on or short sold or something where we have no recourse to our original customer. And by and large, we're achieving better than 90% recovery just approaching the next homeowner who ends up buying that foreclosed home for power, and that's just got to be a lot tougher than getting a renewal from an existing customer. So I think that we're very clearly when you get to the real stage in the position where we're providing that we're the cheapest cost of energy for the customer and in a strong position and there's high switching costs. So I don't know that early renewals this early in the process are that core priority to us because I think we're just generally so confident about it.

Sorry. Maybe just to rephrase that a little bit. I do want to touch back on grid services, but how do you think about not so much early renewals as like the contracts actually expire. But in practice, would you expect the actual incremental customer value to be more associated with, call it, upsells? Or are you down layer in a new contract or replace the old contract? That's what I meant by that term just as a clarification on either storage, call it, upside solar systems, et cetera. And there's one more on grid service, and I'll pass it back to Julien.

Yes. So great question. So we do think there is a lot of interest in retrofit, particularly on the storage side. The product of -- the storage products, you want to slightly different design storage system for retrofit than you want for a new installation for a variety of technical reasons. And the retrofit has been a little bit behind. And frankly, the opportunity for new customers is much greater. We have a finite amount of existing customers and an infinite collection effectively of new customers. So we are going to offer a good retrofit product to our customers. We do want to wait until there's a really great product. It's a great value proposition before we actually go and market it. And that will probably be in the next 6 to 18 months. It would be my expectation. But again, we're excited that we have 0.5 million customers, but the real opportunity is like the tens of millions we don't have yet. So most of our focus and effort is really on the new customer product side.

Hi Ed, just coming back to you...

Just real quick on grid services. Yes, just before we leave that subject there. Can you just talk about your expectations around like where are you pursuing these good services? I know you talked about being able to expand that to 50% of your coverage. Would that be call with more utility CCAs? Or are you expecting that to be more wholesale power markets?

So great question. So there are a lot of different people that we have contracted with and could contract for these virtual power plant type arrangements. So just recapping like some of the transactions we've already done. So there is the New England ISO capacity market. That's a traditional wholesale capacity market. We've partnered with traditional investor-owned utilities like HECO, the Hawaiian power company, like Southern California Edison. We've partnered with municipal company -- municipal power companies. We're talking to community choice aggregators as well. So when I think about the pipeline, it's really a mixture of kind of all of that. In addition now with this FERC order 2222, which, not to bore people, but basically really expressly requires wholesale markets to accept capacity from distributed resources. We think that the potential pool of counterparties is increasing, and we're currently building out the business models that we think we can address through that order. And that's in process and would be incremental to the existing pipeline, which gets us to the 50% number that I discussed.

Ed, I just want to come back to this cross-sell. One, I want to come back to growth in a moment, but this cross-sell piece, you mentioned reps, I believe you did a moment ago about really extending out the life of them. What's the opportunity to become a retailer yourself, right? I mean this seems like a natural fit. You have long-term customers, and you're not selling them electricity at the same time. I feel a long-term relationship like that, it seem incredibly valuable from that side?

Yes. So it's a great question, and it's something we would certainly think about. I think step one was let's just verify what we think is the case, which is that customers want the product and then it's sticky. So that was sort of step 1. And that seems to be proving out, as I mentioned, very strongly. I think then step 2, like any other vertical integration question is, it doesn't make sense to do it yourself or to partner with someone or do it on a captive basis, et cetera. And over time, if we grow the business, we might do it ourselves. We haven't made that decision. I think the thing that will be really interesting as we get smarter at it is particularly as we deploy more storage, we can really shape the load curves of the customer, like the shape of the demand that our customers would have from the wholesale grid, we'll understand and control better than anybody else. And so I believe that ought to offer us an outsized profit opportunity as a retail power company because that's really like what causes you to make money in that business. And so then the question is just like is it more efficient to borrow that from somebody else or to do it yourself. And I think for now, we feel like best to borrow it, but that's periodically something we revisit over time. Like, as you know, we have a huge leasing business on the solar side, and we've decided, we don't really want to be owners of consumer solar loans. And so we partnered there. Even though, obviously, if we wanted to take solar loans in-house, we could do it very quickly. So like that, it's when we think about both ways and just kind of make what we think is the better decision for the business.

Yes. Interesting. Can you comment very quickly here, if you don't mind, going back to the LG Chem batteries, you got a follow-up. What was the nature of the issue? You said, obviously, it didn't impact your deploy fleet. But just to understand a little bit of like what exactly happened?

Yes. I think there's just -- there's a lot that maybe wasn't manufactured perfectly the way they -- they had a couple, I think, just small examples of modest thermal events in a particular manufacturing lot or 2. And so I think just to be safe, they're saying, we want to take the lots back. I mean, I think these are questions that are better asked to LG Chem directly. But I think they're just saying, look, they've seen a couple of things happen that they didn't expect. And they've looked at like, what do they think is the broadest possible collection of equipment that could be impacted and let's do the right thing and take that back and replace it.

Got it. Excellent. Okay. All right. Well, let's leave that behind it. Let's pivot here. So...

No I should mention by the way, to put this in perspective, like we're talking about hundreds of customers, right? We have 0.5 million customers, and we're talking about hundreds of customers with this recall, like this is just...

Yes, sorry. Thank you for putting in perspective to -- yes. Yes. Yes. There will always be something that happens in some small contingent of them. Okay. So let's talk strategically here for a quick second. We've got your pal John Berger talking about repositioning their company strategically today a little bit, talking about getting more involved on the software side, expanding that side, they're talking about adding maybe more on the loan offering side. And it come to us -- because it just triggered the question because you specifically said, we choose not to a moment ago. And again, maybe you can clarify what you choose not to? And more importantly, listen, the stock is way up. Every stock is way up, right? You're giving a currency here. Is there something that you want to do strategically to accelerate your growth, however, you want to define that?

Yes. So great question. So obviously, when we think about what we want to do, we ask ourselves do we think it is a long-term profitable business that piggybacks on the existing competitive advantages that we have and creates like an enduring flywheel of value, right? And if it does, you absolutely want to do it. And if it doesn't, I think you're happy to partner. When I look at the return on equity for solar lending, particularly given the loss curves that I've expected to see and that you're now seeing, the solar loan business is seeing default rates significantly higher than the solar leasing business. One, I just don't -- it doesn't strike me as a particularly exciting product. But two, also, fundamentally, it's straight consumer credit. And the people who have a competitive advantage there are deposit holding banks. And I ultimately think they should just be the owners of that. Look, I just don't think our balance sheet is the right place to do that. And so that's why we've had that perspective. By comparison, where we're providing an awesome service and we have renewal value, and there's some complexity in managing the tax equity and the debt. We think that like owning those assets that are offered to our customers on a lease makes a ton of sense, particularly, we also want to control them and help with grid services and everything. The history of the company, if you look at it, we've done 3 acquisitions to date. All 3, the principal rationale has been -- we've identified like a capability that we want, where we felt like someone was really good at it. And we were able to buy the best-in-class, right? So initially, when we decided we wanted to get into construction, we had data from 40 residential solar construction companies. We thought REC Solar was definitely the best managed with the best numbers. And so we bought that company. When we decided that online customer origination, we thought, was important, there was an absolute clear leader in that industry, we bought that company. And then again, as we said, look, in our direct business, we've had a single percentage of customers coming through direct to home. It's obviously an important channel in this industry. And we thought, especially important, in the sort of future grid services world, it was very clearly that Vivint was the best operated company with that capability, so we bought that. We did get the special extra benefit in the Vivint transaction that we are expecting $90 million in synergies. So that's awesome. But that wasn't like the principal reason for the deal. We're very comfortable in those synergies. We're going to go get them, but that wasn't like what drove us to do it. So I think when you think about buying for scale, right? There, I think you're probably more price sensitive. The integration challenges, you have to think through the opportunity cost, you to think through -- and frankly, there's a pretty limited number of like really excellently run companies in our ecosystem. So it's certainly possible that we might do something here or there, but there's nothing currently in the pipeline, and certainly, nothing that's incorporated in our 2021 plan. But we're -- I would hope that one of the things that we're respected for as a company is that we're good allocators of capital. And I think if we found something that we thought was worth it, we'd do it. But I personally don't like think it's that different, buying something for cash or for stock, it's the total consideration, and you just want to make sure the numbers work.

Yes. All right. Excellent. All right. We're -- I got a ton of questions still, and we are running out of time already. So let me just pull this out there real quickly. Your competitor has been issuing primary stock. They've been issuing stock to pay for working capital because their business is accelerating, right? High-quality problem. But that being said, it creates this question about is there more equity to come across the space? How do you think about your cash management? I know you guys are in different places, in the integration synergies, et cetera. But the point is, where are you in the growth trajectory? And how are you thinking about the need for potentially more working capital and that weighing on your ability to show that inflection in cash flow that you talked about? And/or you need to fund that from an equity market perspective?

Well so we're fantastically well capitalized and so do not have any designs around like stock issuances. Core -- it's like people love to say that, and it's true that the weighted average cost of capital in our industry right now, as I see it, is 3% to 4%. It is not 3% to 4% if your average cost of debt is 7%, you're doing converts at 30 and raising common equity, right? Like -- so to really enjoy like the cost of capital that is available to you, you have to fund the business in the appropriate areas of the capital markets, like to realize that cost of capital that is available to you. So that's been our strategy is build an operating business where the unlevered unit economics of our new customers are sufficient that we can debt finance all of our construction costs so we don't have to invest equity in the project. So we have, in theory, an infinite equity ROE. Putting aside the small equity issuance we did for the company that we co-funded with SK, we haven't raised common equity since the IPO, right? As I mentioned, we've been cash flow positive since Q2 of 2017. And we would expect that to be the case. So certainly, as we look at opportunities to grow, might there be a working capital here or there, might there be places we want to invest capital, sure. Do I expect that's going to require equity issuance? No. So we're continuing to see improvements in the unit economics. We're expecting very significant synergies in the transaction. Our G&A per watt is by far the best in the industry and getting lower. I do expect we should have unit economics next year that -- I expect the aggregate profit that we will earn next year will be more than all of our competitors combined. And I think that feeds into our capital base.

Okay. Fair enough. Listen, you're a clear, not going there. All right. And I'm going to fire these off real quickly. What about NEM 3.0, California, the docket just kicked off? I mean, if I were to think about the regulatory side, whether it could be a challenge. I mean California, they're opening the question, right? So how do you think that question gets resolved here over the next few years?

Yes. So I mean, so as everyone knows, I lost count how many dozens of times we've been in discussions with regulators and utilities around net metering. Phase 1 in that discussion is always misinformation and fear. And then the final phase historically has been that we do really well. And the core reason that we do really well is a few fold. One, the data suggests that what we do is a societal benefit. And in particular, when you look at solar and storage together, like it's clearly a net benefit to the grid. Like we can argue with people and have an intelligent discussion around whether solar only is a full net benefit or not in super high penetration markets or not. But there's just nobody that could make a credible argument that solar and storage is a net benefit to the grid. Second, obviously, rooftop solar continues to be enormously popular. And in California, people absolutely hate the utilities. They've totally dropped the ball. The reliability is a disaster. And it's kind of politically untenable, I think, in a place like California to say, look, the utilities have totally failed you. We, obviously, as the government share some responsibility in that, and our solution to the fact that you don't have reliable power is to make it even harder for you to solve the problem yourself. I just think that's like a tough general message. And then finally, obviously, with storage, we're -- and part of the reason why we were so eager to invest than going in storage is you really become the controller of your own destiny. I would take Hawaii as a great example. So several years ago in Hawaii, the utility said, look, we have these teeny island grids, 1 in 3 homes has solar. We can't handle exports at all. No more exports. So we said fine. So we put storage on every solar system that we installed for 3 years. And those systems bleed out power 1, 2, 3, 4, 5, 6 and 8, 9 in the morning. And low and behold, what happened in the last year as HECO called us up, and they said, we really rather that you dispatch that power in the evening. Can we pay you more to do that, right? And so when you have storage, you really kind of control your own destiny in that regard. And fundamentally, solar and storage taken together is just lower cost than the energy that the California utilities can provide. And so you can push on the balloon in a number of different areas, but the fundamental underlying set of facts, is we just have the superior and more reliable product. So might you -- for sure, might we see things change through this discussion? Potentially, I think the discussions will take a year. The implementation, maybe a lot of time after that. Is it possible that the result is a significant increase in storage attachment rates in the industry in California, for sure. But fundamentally, I'm optimistic that when you look at the numbers and you think through the political dynamics and come to a holistic resolution, there will be a thriving market in California. It's worth also noting that there is a law in California like requiring that whatever changes are made to the rate structures, caused a continued growth in the distributed storage market -- solar market.

And if I can jump in, and I don't want to believe it is too much, but I mean, like what do you think happens like I get the arguments you're presenting, right? But -- and I don't think we're going to 100% storage only context is Hawaii, but are you worried about some degradation in the buyback rate, et cetera?

I'm not worried about the outcome. I mean, it's obviously -- look, this is a multiparty negotiation. It's just starting. It'd be irresponsible to predict an outcome. I think looking at its core, we provide so much value to the utilities. Like the California Public Utilities Commission called us on numerous occasions during the most recent power shortages, asking us, would we be willing to reprogram our batteries and help them out. Like it's obvious what we do is helpful, right? And so might there be some changes? Sure. We saw rate structures change from just volumetric based to time of use rates. We've seen fixed charges change slightly. Whatever, I'm sure rate structures will continue to evolve. It's also the case that the California utilities are so mismanaged, need to spend so much money that the underlying price at which they need to sell power to customers is going to probably grow 20% to 30% before we're even done with this process, right? So you've got that component at play also. And frankly, there's the last X factor, which is that, I think we can also demonstrate just how overcompensated from a return on equity perspective these utilities are. And I think if there is any mix, if there's any cost shift going on in the system, it's from customers in California to shareholders of the electric utilities. I mean I would love to see what happened if you got called in front of Congress under Oath to testify as to the true cost of equity capital for regulated utilities in the United States.

Let's have it. Okay. Fair enough. Well, just super quick, like last 60 seconds here. Refinancing expectations going into next year. Obviously, a lot of opportunities before you. What can you quantify here? What should we be looking for? We talk about this all the time. But what's the next round here? And really, how does that contribute to your FCF profile as you think about it?

Yes. So it's interesting. So we have a lot of opportunity next year and not just in sort of the traditional markets I think that we've been looking at, but we're starting to eye other markets and do a broader examination as well. There've been, for instance, a couple very attractively priced like Green Junk bonds in the marketplace, both domestically and internationally. I think as you know, for years, I've been saying, I won't rest on the finance side until our cost of capital is below the cost of capital of utility-scale projects. I believe that should be the case because I think the diversity of our pools, tens of thousands of customers, geographic diversity, equipment diversity, regulatory regime diversity, it's just so much more valuable than the simplicity of 1 weak investment-grade counterparty. And I think that's finally bearing out on the senior debt side. So what I'm hopeful we can do in 2021 is really make those sort of step changes as well on the subordinated capital side. And I think it's too early for me to predict success there even in what market that might occur. But we're doing a lot of work to investigate things. There are a lot more avenues available to us than before. So I would say stay tuned, and that's probably a topic we'll be talking about in the next call or 2.

Got it. Okay. Subordinated capital rise, I'm faster here. And by the way, last quick clarification. You said that there's a press release in 2 weeks?

No, no, I'm sorry. I was making a -- there is a famous world leader who I will not name, who often says, he'll tell you more in 2 weeks and then doesn't tell you anything. So I was just trying to make a joke alluding to that.

People took you seriously, sir.

I apologize.

That's all good. It's all good. All right. We'll talk to you. Be well and do the holidays. Be well.

Okay. Thanks, Julien.

Cheers.

Bye-Bye.