How US utilities are adapting to a high-growth world for power demand. The head of America's largest electricity industry group explains the critical role played by regulators

0:00Look, I think that PJM is going to be really the poster child example of a broken market. And the customers that are in PJM are the ones suffering. It's easy to go to the White House and agree a statement and say, we want reliability at a low cost. Actually making that happen and implementing that in detail, that's much harder. Our members represent about 5 % of the economy, but it's the first 5%. And if that first 5 % isn't delivering the power, the economy doesn't work. At the end of the day, we still need more generation. And we're not going to be able to tech our way out of more generation.

0:48Electricity use is on the rise across the country, and America's electric companies are rising to the challenge. Governed by clear standards, accountable to their communities and committed to their customers, America's electric companies continue to meet the energy demands of today while strengthening the grid for the needs of tomorrow. So we can all stay safe, comfortable and connected, day in and day out. America's electric companies, powering the energy of every day. Learn more at energyofeveryday.com This message is sponsored by the Edison Electric Institute.

1:25Hello, and welcome to The Energy Gang, a discussion show from Wood Mackenzie about the fast-changing world of energy. I'm Ed Crooks. And on this special show, we're going to be talking about the US power industry, the challenges it faces, and some of the possible solutions. And to do that, I'm joined by Drew Maloney, who is the president and chief executive of the industry group, the Edison Electric Institute, the EEI as it's generally known. Hello, Drew, welcome to the show. Ed, it's great to be with you today. Yeah, thanks very much for joining us. So as I said, we're going to be talking on this show about the big challenges and questions facing the US power industry today.

2:00Before we do that, though, we always like to, when we have somebody new on the show, talk to them about their careers in energy, how they first got interested in energy, how they got to the roles they now hold. So could you tell us a bit about your story? What got you into energy and how did you get to that job you now have at the EEI? Yeah, well, thanks, Ed. again for having me on today. You know, my career in energy started when I was a young staffer on Capitol Hill. My first job, and as many people know, on Capitol Hill, you sort of divvy out the issue sets in an office. I was a 26-year-old kid, and one of the issues I was assigned was energy and electricity.

2:39And I was working for a Mississippi congressman at the time, now Senator Roger Wicker. And during that time, I remember part of our territory, we had Entergy and Southern Company, and they would come in and brief us on all the energy policy. And I sort of just got hooked as a 26-year-old on energy policy. And then I moved into multi-client work after I left Capitol Hill, did a lot of work with power companies, oil and gas companies. And then I went to work for one of my clients. And this is probably where I first met you, Ed, I worked for Hess Oil and worked on the crude export ban. So I've always really been interested in energy.

3:20I had a little sabbatical from energy when I went to the Treasury Department and worked with private equity, which, as we all know today, private equity is doing a lot of investment in energy and energy infrastructure. And then I came to EEI, and it's really the dream job for me because it's such an important industry at such a critical time. So it's very exciting for me to be at EEI, and it's great to be on with you today. Yeah, that really resonates with me, that story about you getting hooked, as you say, quite early on in your career. Very similar thing happened to me, sort of mid-career for me.

3:54I hadn't been educated or experienced in energy at all before starting to, what I started doing was covering it as a journalist at the Financial Times. And that just, it was sort of, I can still remember very vividly the sense of a whole world opening up to me and kind of my mind being expanded by that, just discovering about it for the first time and seeing just what a critical industry it is and just how it touches everything in our lives. and so you know it's so important so many different angles to it in terms of you know the political the economic the scientific the commercial all these different factors at play it's just a fascinating industry to be part of isn't it it's it it's an amazing industry um and you know at eei we provide power for 250 million americans um you know we're the organization that provides research and advocacy in front of state uh and federal policymakers to talk about you know What what does the industry need?

4:55How do we how do we provide that reliable, affordable power? And, you know, that's what makes this place unique is, you know, we have members in all 50 states. We have a CEO board, lots of engagement here in a month from now. We're going to have EI 2026 in Las Vegas, which is our annual meeting. We have Ruth Porat from Google coming. We have the head of Siemens. We have all of our executive teams will be out there for probably the most, the largest concentration of electricity experts, thought leaders, and people that contribute to the environment of our system all in one place. So very excited about that.

5:38Right. Absolutely. Yeah. As you say, very interesting, Ruth Perth there, senior executive of Google, going to be speaking at your event. And obviously, there are reasons why that is, and that particular connection between big tech and the power industry is very critical at the moment. We'll get onto that in just a moment. Just before I do, though, just to that point then about your membership. So, I mean, I think of the EEI as representing investor-owned utilities. It's got a private sector utilities. Is that right? Is that exclusive to your membership base? Do you have other members as well? No, that's exclusively our member base, the investor-owned utility.

6:09Got it. And as you say, that's so 250 million Americans. I can't quite do the mental arithmetic, but that's what sort of 70 percent of the country. Yeah, it's over 70 percent of all Americans get their power from our members. Fascinating, exciting industry to be part of. It seems particularly exciting at the moment. I'm always wary about using the word unprecedented. Often things that are described as unprecedented aren't really. there are historic parallels for many things that happened today. But that said, I think it is very fair to say that the demand growth we're seeing in power right now in the United States is certainly unprecedented in our professional lifetimes.

6:54In the careers that we've had so far in energy, we haven't seen anything like this. And it's obviously being driven by advances in AI and the excitement over the potential for that, which, if you believe the people in the industry who tell you these things will say, that is a genuinely unprecedented event in human history. Right. The advances in AI are absolutely dependent on the power system. So that gives the power industry today a uniquely critical importance, I think, in the future of the economy, arguably for national security, in terms of technological progress in general. So what does that mean for you?

7:39When you think about this at the EEI, when the US power industry, as you said, you're the largest body representing that industry, thinks about that challenge of rising demand, what does it mean to you? Look, I think if you look back, you know, as we're all celebrating, you know, America's 250 years, we look back at what were the transformational infrastructure investments over that time period. And you had the interstate highway system, you had railroads and you had the electricity grid. So almost 150 years ago, you had Thomas Edison that created the first power station in lower Manhattan to power Wall Street, to power the economy in New York.

8:19I have I have I just got to jump in here because I actually made a pilgrimage to that site. Have you been to see it? I have not been to Pearl Street yet. I have to tell you, it's very disappointing. It's a little kind of parking lot with some garbage strewn across it. It made me think somebody ought to kind of put up a plaque or something at least, because as you say, it's a historic site. It is a historic site. But I think what it demonstrates that at that time, almost 150 years ago to where we are today, we've had to, as an industry, invest and develop in what the most critical engine in America is, which is the electricity grid.

8:58You know, 250 million Americans plus, almost every American depends upon the power in their homes every day. And if you think about what's happened even over the last 20 years, inside of an average home, there are 75 connections to electricity in the home and 21 devices. So if you think of, you know, multiple iPhones, iPads, computers, televisions, et cetera, that number has doubled in the last 20 years. And we've been able to meet that demand. And I think you're right. Like this, you know, over the past, let's say our working lifetimes, it's been, you know, flat growth. And in the last two years, we've seen that double and And it will probably continue to grow.

9:49And that's why you're seeing, you know, throughout the country, these innovative solutions to try to figure out how do we make the grid work better? How do we make the grid more efficient? But at the end of the day, we need more generation and more steel in the ground. And that's really what most of our members have been focused on lately. Right. Absolutely. Yes. I think that's very important. We want to come on to talking about some of those solutions and some of those questions about how you get more steel in the ground, as you say, in just a moment. Before we do, though, I want to talk about a big issue that a lot of people generally are concerned about, a lot of politicians are increasingly concerned about, which is the question of what this demand growth means for electricity prices.

10:29I guess probably you'd say that in the past couple of months or so, gasoline prices have jumped right back up the political agenda again, and they're probably now people's main concern about the cost of energy. But until then, until February, it was definitely rising electricity bills that were dominating a lot of the political debate. I know for a fact, for instance, it was a very big issue with the White House. It was being discussed a lot there. And a lot of people were sort of drawing this connection and saying, well, look, this is why electricity bills are going up. It's because of all these new data centres that people want to build.

11:04And when you see opposition to data centers, which is strong and I think growing across the United States, it's very often the case that, oh, if we build these data centers, they'll push up our electricity bills. That's one of the main concerns that people have. As it turns out, though, that perception is not entirely rooted in reality. I mean, I think, you know, it's a complex picture. There's a lot of nuances to it. But, I mean, you know, let's just start with the basics, perhaps. I mean, how do you see the evolution of electricity bills and how do you explain what's been happening in recent years?

11:39Well, Ed, look, you're exactly right. I think there are feelings among the American households of a lot of different expenses going up. And when we look at the data out there, it's clear food and grocery prices generally lead that list. We're starting to see gasoline prices as a contributor. Health care is another big one. housing costs, and in some areas, electricity bills. But I think, as you well know, it's important to note that electricity prices really vary by region and by state. And we recently did a study that looked at all 50 states and what the electricity prices are, and found that about 34 states have been able to keep their rates below inflation over the last five years.

12:26Now, we are always focused on figuring out how do we provide that reliable, affordable energy? Because as we started, our members represent about 5 % of the economy, but it's the first 5%. And if that first 5 % isn't delivering the power to customers, to businesses, to data centers, to any other type of business out there, the economy doesn't work. So so we're we're laser focused on this going forward. Right. And so in terms of, as you say, the impact on bills and so we'll be saying there was 30, you say, 34, 35 states. Right. Where bills have not risen in real terms again. No. Or bills have not risen.

13:11What, at all? Or haven't risen in real terms? No, they haven't risen. It risen above the rate of inflation. Yeah. OK. Gotcha. Yeah. Right. And I think I mean, in fact, as I say, if you look at the picture nationally, the national average. There has been some growth in real terms since 2022. There's a little bump up in 2022, maybe a little bump recently. But actually, in real terms, power prices in the US have been pretty flat. They actually fell quite significantly during the 2010s. And so the narrative that says they're kind of roaring out of control ahead of inflation in other sectors, not really backed up by the evidence.

13:50I suppose, as you say, though, if kind of you have 35 states doing well, holding bills down, that still means there are some states where they are rising in real terms. And I guess probably those places where you're seeing stronger growth in bills, they're the places that will hit the headlines and raise concerns. Do you have a sense of kind of what's working and what isn't in holding bills down? What distinguishes the states that have managed to hold their prices down from the ones where prices are rising? You know, if you really look at the map across the U.S. and look at where you've seen sort of the price increases over the last couple of years, it's largely been in the deregulated markets.

14:37So, So, you know, California, PJM, New York, New England area. And we're in the vertically integrated markets. You don't see as much of that price increase. And, you know, I think, you know, up until that time, it was all pretty level. But in a high growth market, I believe that what we're seeing is in the vertically integrated places, They can work more closely with their state regulators and put together a multi-year plan to figure out what's the generation they need to build, what's the transmission and what's the distribution that they need. And you don't have that. And I know there's a lot of focus in the Mid-Atlantic on PJM.

15:18You know, that's totally dependent on capacity markets. So, you know, the capacity prices have been higher and higher. So customers are having to pay more and more. But our members aren't allowed to build any generation. So we're waiting on the market to determine whether they're going to invest in a new power plant, all the while customers are paying the bill. Yeah, that's really interesting. I think it is very important to try and think about what are some of the reasons why prices are rising and some of the reasons why they aren't. And I'm sure you're familiar with the Lawrence Berkeley National Laboratory study from October of last year.

15:56If anyone hasn't read that and is interested in this subject, I would encourage you to go and take a look at that. It's free to read on the internet. And it's just got a really good kind of breakdown of the factors that could be responsible for increasing electricity bills and whether they are or are not responsible. And one of the things, for instance, it knocks out pretty clearly is demand growth. It says that actually, at least in the data that they've got, which go up to 2024, it's not really the case that if demand grows a lot, electricity prices go up a lot. they also note that having a high proportion of renewable energy on the grid doesn't necessarily get associated with increasing electricity bills although they do say that a mandate to use more electricity does seem to be associated with higher bills there's sort of a lot of nuances there and as I say it's well worth going to look at the whole report but Drew then to pick up the point you're making then.

16:55So you think that what regulatory structures are playing a significant role in determining whether prices rise or don't? Exactly. Ed, if you look at even the LBL study, you look at the Charles River study, and look at the drivers in the areas where you've had large, you know, increases in rates, California, you have wildfire mitigation costs, right? And And that's probably a third of the bill now in California where you have to bury the lines, do other wildfire mitigation in New England and PJM area. You have capacity markets. There's just not enough generation and they need more generation. And as you have more growth, it's you know, it's driving the driving the prices because nobody's building that generation right now.

17:44And so you really do have to look at this at a state by state level, because it's the state PUCs that are also making policies inside those states that are causing the rates to go one way or the other. Right. And just as a footnote, I think that's something which is often difficult for people outside the United States to grasp fully. And probably even for some Americans, it's difficult to grasp fully just how complicated the picture of electricity regulation is in the United States and how fragmented it is and what a key role the states play. And so, as you say, you do get these very significant differences across the country.

18:22So given that, I wonder, what is the case for or is there a case for regulatory reform that if, as you say, some of these competitive markets don't seem to be bringing forward the investment in generation that's going to be needed? Does that mean that model needs to change? Do they need to do things differently? Look, I think that PJM is going to be really the poster child example of of a broken market. And and and the customers that are in PJM are the ones suffering because it's a broken market. And whatever the market signals are, aren't signaling enough for new generation to get built. I know that, you know, if you've listened to the last FERC open meeting, there was a significant level of frustration by the FERC and the chair, FERC, Laura Sweat.

19:13The White House, I think, has been frustrated. The governors in a bipartisan way have been frustrated. So I think you're going to you're going to see over the next six months or so people offering solutions to try to deal with this because it's not fair to the customer. And we have to have more generation. And I think ultimately, when the states look at how do you attract businesses, how do you keep people in your state? And one of the reasons for that is low cost, reliable energy. And I think that's why you're seeing a lot of these new data centers move to areas of the country and states in the country where the regulatory environment is set up, that they can quickly get approval and get adequate generation that they need with speed.

20:01Yeah, that's really interesting. And that certainly does seem to be borne out by our data at Wood Mackenzie when we're following data-centered projects and where they're being built. There's a lot of interest in building new capacity in PJM, a lot of interest in building new capacity in ERCOT in Texas. PJM, of course, includes Pennsylvania, Ohio, West Virginia. So they've got the gas resources of the Marcellus Basin. That's very important there. and also it includes Virginia so Northern Virginia data center alley traditionally that great center for the data center industry so you can see why and of course Texas is great appeal because it's somewhere that it's easy to get stuff built favorable regulatory climate low tax and so on so you can see why people want to build their capacity there but actually if you look at where capacity is going ahead and under construction, a lot of that does seem to be in those regulated markets.

21:03So, I mean, I just want to be clear about this argument and to kind of walk this through then. But the argument is that having a regulated market with a sort of a vertically integrated utility where you would have one company that would own generation and distribution and sales to customers, that could be superior or would be superior because what? What is the argument? Because they can plan the generation, the transmission, and the distribution and look at it over a long 20-year period. And they can spread the cost over a 20-year period. If you look at some of the recent announcements that I know, Ed, you guys have looked at and and have been published lately in Georgia, Alabama, Louisiana, Arkansas, even Indiana, Detroit and Michigan had some recent announcements that when these data centers are coming online and doing deals within their states, because most of these states have passed these large load tariff agreements, that it has a downward pressure effect on the on the rates.

22:20Because it's like if you're if you rent a bus for one hundred, one hundred dollars and there's 10 people on the bus, you split that cost evenly. If you add 20 more people on the bus, you're just spreading out the cost. And that's exactly what we're seeing with a lot of these states that are able to do it right and set up these agreements. in order to have a long-term lowering cost for the customer. I think we're going to look back, Ed, at this time period as a time where we really were able to build even a more robust and more resilient grid for customers across the country because of these new investment dollars coming in.

22:59But you're saying it's just harder to do that in a competitive market? In high-growth times like we're in now, it is harder. If you look at PJM and you look at the states that don't have the ability to build their own generation, they're struggling with with with higher costs. You can't plan. I was on a call yesterday with with one of our utilities who says their state hasn't had an integrated resource plan in 20 years because they've outsourced the generation. so you can't sit down and say, okay, what do we need for growth in our state to make sure that, you know, we can achieve, you know, affordable, reliable power over the next 20 years.

23:42I'm sure you'll get some pushback against this then, and you'll hear people will say, well,

23:50competition generally is what works best for consumers, and allowing different players in market to compete is the way that you will actually long-term drive costs down and deliver people the services they need. Is that not quite a compelling argument? I mean, just in general, as I say, consumers benefit from competition, right? Absolutely. But the problem, it works until it doesn't. And I think when you have a broken market that isn't sending the right signals, then nobody builds. And I think that's the challenge in a lot of, at least in the PJM market, is whatever signals the generators need to get to build new generation, they're not doing.

24:34So there's nothing happening except for generators are going to make more money because of the higher capacity costs. And we need a solution to this because the solution of not building anymore it does not work. And, you know, I'll give you an example. So PJM and they have this broad, you know, stakeholder process over there. And, you know, our members represent, I guess, about 20 percent of the of the sort of shareholder category. But we represent almost 90 percent of all of the of the of the infrastructure in PJM. So the other 80 percent get to dictate sort of what happens on the different market model.

25:17So, you know, look, this is going to have to change. I think the governors are frustrated. I think FERC is frustrated. I think the White House is frustrated. There has to be some sort of change that will signal to the generators that they can build and get a return on their investment over the next 20 years.

25:40as electricity demand rises across the country america's electric companies are rising to meet it governed by clear standards accountable to their communities and committed to their customers they're meeting the energy needs of today or strengthening the grid for tomorrow all while keeping energy as reliable and as affordable as possible because what they deliver is more than just power it's what keeps us all connected safe and comfortable from the lights in our homes to the hospitals, schools and businesses that our communities depend on. That's why they keep showing up every day, working safely and responsibly to deliver the energy that we rely on.

26:16America's electric companies, powering the energy of every day. Sponsored by the Edison Electric Institute.

26:28Right, and so if you accept that argument then, to that point about the US system being very fragmented and every state being different and so on. What drives change? Does every individual state have to move? And it's potentially quite complicated. So let's take PJM, for instance. I think there's 13 states served by PJM. Different states may have different views about how they want that market to develop and what they want the rules to be. Do they all have to be aligned together and agree what the right path forward is? As you say, those 13 states, their governors went to the White House. They agreed that something has to be done about PGM, and they absolutely agreed that there are problems in terms of kind of getting that balance right, making sure that you ensure reliability while holding costs down.

27:18But I expose what you would say is, or what I would say, put it this way, is that it's easy to go to the White House and agree a statement and say, we want reliability at a low cost. actually making that happen and implementing that in detail, that's much harder. There's no doubt about that. If it was easy, it would have been fixed already. It is hard. And it's hard because each of the 13 states, they all have different structures. Like, for example, in Virginia, Dominion is vertically integrated. They can build their own generation. They announce new power plants that they're building. So they can address the demand going forward, where Maryland, you know, you know, BG &E cannot build their own generation.