Is the competitive power market model broken? Why changing the rules around generation could be an answer to rising electricity prices.

26:54And so one of the things that we've done at Exelon is we've put in place what's called a transmission security agreement. And so the idea behind this is if you are a data center, a large load customer, and you come to us and say, I want to add a gigawatt of load to your system. I have a customer. I want to move forward. We will study that in a cluster. So we take a group of them and study them together. And we'll say, okay, here's how much your upgrades are going to cost. you're now on the hook. And what that means is, and they have 30 days to agree and they sign or they decide not to, what that means is that for the next 10 years, that amount of cost that we put into the grid that we would normally be charging customers, they are on the hook for it.

27:40Now, ideally, their customer comes in and it's all good. Their customer pays it like they normally would. But if that customer doesn't come to fruition and or if, let's say, they said they need a gigawatt and they only use 600 megawatts, what we don't want to have happen is those costs get socialized and spread to other customers. In other words, we want to make sure that other customers are not paying their bill for them. So this transmission security agreement ensures that they are going to commit that they will be paying this and making sure that other customers do not have have to pay this in the future if something changes.

28:16To date, we've had 15 approved transmission security agreements. So in other words, this is where we've given them and they've signed it and agreed. This has put over a billion dollars worth of customer protections in place. Had we not had these, if something had changed, that could be an additional billion dollars of cost that customers would have had to otherwise pay. So we think this is an incredibly important structure that's necessary to make sure that our customers stay protected. And then, Ed, to your comment about the backstop provision or other provisions, we are very much in favor of data centers bringing their own generation as they connect.

28:55That doesn't solve the affordability crisis that we're in today. It helps us tread water. So basically, you're going to add load, you're going to add generation, we're still in the same spot. That's important. But we're saying, when you take a step even further, we need more generation to be built. So yes, let's not make sure, let's make sure that we have at least enough generation to match the new load coming in. But we need more generation to drive these prices down to help deal with this affordability crisis that's facing our customers today. Every business has priorities to protect, goals to reach, and decisions that need to hold up.

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30:06So, Kareem, I have a question about that because you raise a really interesting point in the way you describe it. If I'm going to, you know, put my own, you know, natural gas plant near my facility off grid or I'm going to add batteries or whatever it is in solar, whatever it is that a center might do. Do you get a commitment from them that they're going to pay the upgrading costs for when they connect someday to the grid? Yes. Is that how this how the agreements work? It does. And so basically, we will tell them when we can upgrade when we can interconnect them to the grid. I will tell you, having talked to a number of these customers, they all want to be grid customers.

30:42So one of the challenges for them is if you were to go off grid, if you were to have just one source of power, what happens when that equipment fails? What happens when you have to if you're a nuclear plant, there's a big push about two years ago that every nuclear plant was going to get paired with a data center and be off grid. Well, these nuclear plants every 18 months go down for 20 or 30 days for refueling. Where are they getting their power from? So they have to be a grid customer. And because they're going to interconnect to the grid, they are going to pay their fair share for these upgrades.

31:14And data centers, when you talk to them, they're for this. Their primary goal is to ensure they have the reliability and interconnect as quickly as possible. So I have not, at least to the ones I've talked to, I've not heard anyone arguing that they don't want to pay their fair share. They're willing to do that, which is why these transmission security agreements, some of these larger hyperscalers, they've actually taken this to other states and said, this is a good model. Because the other thing this does is it weeds out the purely speculative developers. So we have, in some cases, developers that were building warehouses five years ago.

31:51So now they want to build a data center because they're similar. Well, these are very speculative. These are the ones that may come to fruition, may not. When you have them sign this 10-year agreement that they're going to be responsible for delivering, for paying for the upgrades, that gets real very quickly for them. And if they're not going to move forward, they don't. Are you taking a deposit? I'm hoping you're taking some giant deposits. We do take a deposit. So what I mentioned is we study this to understand what the costs are. Their deposit covers all the study costs. So again, none of our customers are paying for that.

32:21So we have study costs covered, and then they have 30 days to sign this, and then they're on the hook for 10 years. Or if they choose, you know, I don't have a customer or I'm not moving forward, they can choose to drop out. But either way, that gives us a real good indication of what load is truly coming and to make sure we can plan our grid for that. Now, with the actual, you know, you're talking about when there's like a developer building a data center for multiple customers. I mean, what about when it's just, you know, Microsoft or Google or Amazon? Do they also sign these transmission security arrangements?

32:54So anyone, so the developers might be working for them. So ultimately, yes, the customer, whoever ends up saying they're going to take the service, they are signing these agreements. Okay, so now I have the mean question, which is, okay, that sounds like that's going to take care of this main transmission line and the little distribution line to the data center. But what about all the distribution costs that need to be upgraded in general? when you, and then I have like a technical question that shows my lack of knowledge. So if I'm just doing this data center and I'm connecting it to the transmission line, that doesn't affect the distribution costs for all the different residences and other businesses in the region.

33:36That has to be met some other way. Can you help explain that to us a little bit? Sure. So when we look at our costs, obviously we look at the grid as a whole. And so what I would tell you is we are looking at ways to ensure that our grid can serve our customers. So if you're a data center and you're interconnecting, you're connecting to the transmission system. So really the transmission system is what needs to be upgraded. So that is covered there by that transmission security agreement. On the distribution side, we have another process where we'll go to our local regulators and we will talk about what are the needs to ensure that we provide a safe, reliable and resilient system.

34:17And so basically, that's what we go through when we talk about each and every day. What's interesting is, you know, our customers get a bill, and they get a bill from the local utility company. So let's say in Maryland, they'll get a bill from Baltimore Gas and Electric. That bill, they'll see it, and they'll see the reflection of those costs that we've had to say we need to incur to be able to provide safe service, safe and reliable service. But 25 % roughly of that bill is our services. The other 75 % is the generation supply portion. So this is entirely a pass through. So this is one of those generation companies, they sell us power at X, we charge customers X for that power.

35:00That's 75 % of that bill. As we go back to this idea of this demand supply imbalance, and it's getting worse and worse by the year, that portion of the bill is going up further and further. And so that's really, when I think about the affordability crisis, obviously the utilities should be doing everything they can to control their own costs. And we do do that. And when you look at our costs, we have and we continue to be below the rate of inflation. We're trying to manage costs, trying to get them as low as possible at all times. And really, our part of the process, we go through a 10-month or so rate case proceedings.

35:37So whenever we want to propose new rates, we go through 10 months where the commissioners and other stakeholders can intervene and ask questions and challenge. And then at the end, the commission will deem what's prudent and not. So there's a lot of review over our cost. This other portion of the bill, the 75%, doesn't get regulated by that because it's purely a competitive market. And so they charge us what they need to charge to meet their internal hurdle rates and to meet whatever returns they need to meet. And that's what goes through to our customers. That's the piece that we need to address.

36:09And that doesn't get addressed unless we build significantly more generation and increase that supply portion, supply, because the demand is going up as well. Right. And so to be clear about that, then your point would be that none of these solutions that have been proposed so far, not getting the hyperscalers and other data into operators to pay for it, not the old system of capacity auctions, not this new reliability backstop auction. None of these things are actually going to bring enough generation capacity that's new to the PGM grid. Is that right? Yeah. So I would say everything that's been proposed, important.

36:53We need that. But that's the way we kind of make sure the problem doesn't get significantly worse really quick. What we need is more generation. And Ed, I'm going to anticipate your next question. I'm going to tell you what I think we need to do. We need to obviously have reforms on the capacity market to try to drive the right signals, but that's going to take time. And we don't have time. We need to act now. What we are proposing at Exelon and what we've been proposing is we need to let the utilities once again own generation. Now, let me be very clear. I am not saying we need to re-regulate the markets.

37:25I still want to see the competitive markets, and I would love to see the competitive markets building more generation in our regions. But they're not doing that right now. The economics don't suggest that they ever will be doing that unless there's some kind of change. What we need to do is have the utilities, have the ability, have the right to propose solutions where they can own generation again. And these solutions would sit there, aside any competitive solutions that would be proposed, and then let our regulators pick what makes sense. Right now, the utilities could be out there working with developers that we work with on other areas.

38:03So we know these developers. We work with them on transmission and distribution. They're the same ones that can build generation. Work with these developers to build generation to start to add more supply to our mix. So, you know, you have these examples like AES with Amazon, where they're a regulated utility that's vertically integrated, and they were able to like go before the state regulatory commission and, you know, build the capacity with what they need. And they, you know, at some rate that everybody seemed happy with. But I'm not sure how that would work in a market where you have some independent power producers and an integrated utility.

38:43Can you elaborate on that a little bit, Karim? So what the state could do is they could put out a proposal saying we need three gigawatts of generation. People put in your proposals. The competitive IPPs can put in their proposals. Let the utilities put in proposals, too. And then all of a sudden they can look at these proposals. The utility has a different cost structure than a competitive market. Compare the prices, and then let the regulators pick what is the best solution for our customers. Really simply put, why would you ever want to take any tool out of your toolbox when you're facing a crisis, which I think we truly are in right now, an affordability crisis?

39:24So I'm not saying that all new generation gets built by the utilities. If the IPPs can build a cost-effective solution, and really, if they're willing to build in our region, fantastic. Let them build. The commission will ultimately decide that, but let the utilities come out. Effectively, let the utilities be the price to be, because the utilities are something, since we're fully regulated, that the commission can order to build. One of the things we see in our states in PJM, there's 13 states. About half, six of them, are vertically integrated. And so vertically integrated means the utilities still control the generation.

40:00So not every state deregulated. All six of Exelon states deregulated. So we're not in any of those states. And so when you think about just take Virginia, vertically integrated, they are building generation. Maryland, right across the Potomac River, we are building nothing. There is no new generation being built. How that shows up? In last year's auction, the capacity prices for Virginia went up$2. In Maryland,$18 on the average bill. That's the differential because, again, Virginia can look, their commission can say, hey, I see this much load. I see I need more generation. I see who's building, who's not building.

40:43Dominion, regulated utility, I need you to go build this much more generation. Now, what will happen usually is the utility will say, hey, I think we need more. They'll study it. And then it goes back and forth to your point, Amy, and then to get to a good place where the right cost and all that. This is what we need in other states. So you can have a structure where there's an RFP, and there have been RFPs in many of our states, but to date, the RFPs have excluded the utilities. And back to the IPPs, the economics aren't there to justify them making their investments. And so they won't. They'll go build elsewhere.

41:18There is generation being built in this country, just not in PJM. So let me ask again, so the economics of a vertically integrated utility versus an IPP, is it because you have income being generated from other parts of the business that you can afford? Is it the cost of capital? How does that shake out? So it's a mix of a number of things. One, it's our cost of capital. We're typically higher credit ratings than these IPPs, so we have a lower cost of capital. The other piece is the way the utility model works is you put an asset in what's called rate base, and then you earn your financing costs or your return on that rate base.

41:58That return is part of that overall case that goes 10 months, it gets negotiated, and it's whatever is a fair return to be able to cover our financing costs. So in a utility, we can propose an asset, and we do. And our assets, we can say for the next 20 years, here's what I'm going to charge you, because it's going to be what I paid, plus this return that I need to be able to pay for my financing costs. And that's what I charge. In a competitive market, the prices move with the market up and down. So in this model, and typically when prices are very high, the regulated model can yield a lower result because the hurdle rates, our return is lower than what the competitive market needs.

42:40So in this scenario, we can say, let us build generation, give us our financing costs so we can cover the financing of that asset. So that's that ROE that you hear about sometimes. And then the differential between that and the market, we can return to customers and allow them to have that benefit. So therefore, they don't pay as much for their power. And we can give you what the power is going to cost for the next 20 or 30 years, because it's just going to be that return times the rate base. So what about when the governor step in and say, hey, I'm going to simulate that by saying any entity can only make the following rate of return?

43:19I think that happened in Pennsylvania, correct? Well, they propose it. It did not pass. Because again, I think what needs to happen is, you know, you need to have a financially sound utility. So the danger of saying, hey, you can't earn more than this. Well, not so I'll take I'll go back. I always go back to Maryland because that's the utility I used to run. So I know the numbers best. About 97 % of the utility profits get reinvested in the business. So again, we are putting all the profits back in making new investments. A lot of our investments, our investments are far larger than the money that we bring in from customer rates, we have to finance them.

43:55So we go out and we get debt and we get equity from investors. When you start to limit the ability for us to pay them back, we have access to less and we can make less investments. So I wouldn't suggest you do that. But again, I think and what I would say is, again, it goes back to, you know, yes, we have to look at the whole bill. But back to the 75 % of the bill is the fact that we don't have enough generation. You know, people are focusing on the wrong part, if you will, entirely, they need to be focusing on the whole bill and solving that 75%. And the answer in my mind is, get every player to the table that's willing to build, including the utilities, and let's see them, let's see the proposals and let the commission have their processes to review and ensure it's best for customers.

44:42And from my perspective, I don't know why you would take that tool out of the toolkit of letting utilities participate. Well, I guess I can think of one answer, which is that if you are an IPP, an independent power producer, which is a non-regulated generator, you're not going to like the sound of this at all, right? Because this is saying, hey, there's going to be a lot of additional competition to you, which is going to come from companies that are regulated utilities that have guaranteed returns and a lower cost of capital, that's inevitably going to be bad news for these companies. Surely we'll end up squeezing some of them out of the market.

45:22And you might actually not get a net addition of generation capacity at all. I mean, is that something? I mean, I can see why this makes sense from excellence point of view. Why does it make sense from the market's point of view? Absolutely. And I'm going to take it back. I'm going to tell you why it makes sense from the customer's point of view, because that's what really matters here. So for three or four years, we've been saying this. And there's been the let the competitive markets work, let the competitive markets work. The last three or four years, nothing has been built. That's just a fact.

45:54Nothing material has been built. We have seen the retirement of other assets. And if there's any replacement, you're replacing coal and gas, which is baseload power, which basically means it runs all the time with some wind and solar, which is intermittent. That isn't apples to apples, and what's being replaced is far less than what's being retired. So what I would tell you is, okay, for three or four years, they've had the chance to build, and they haven't. We are facing a scenario where PJM is warning that in the central Maryland area, as early as next summer, we're going to have rolling brownouts because we do not have enough electricity being produced.

46:33That is a reality. And so for the utilities, our number one priority is to safely, reliably, and resiliently provide our power to our customers in the most affordable manner possible. And so we take that responsibility very seriously. And so we look at this and say, we don't have any more time. They haven't built. And by the way, I'm not saying they shouldn't build. They are still part of the process. But if you're a customer, why wouldn't you want the utility proposed to propose a price? And if that price can be beat by the IP piece, fantastic. Let them build. If it can't be beat, I'm getting the lowest possible price for my generation.

47:15That is the ultimate goal. How do we get the lowest price generation to the grid as quickly as possible? And again, like I said, we've been waiting for three or four years, haven't seen the build. We've seen builds elsewhere in the country. It's just not happening here. And the only states in PGM that have seen any build are those vertically integrated where the utilities are doing it. So, again, I would love to see a scenario where the utilities propose a price and every IPP comes in and offers a lower price. That's great for our customers, and we would be 100 % for that. But, you know, just waiting isn't going to work anymore.

47:52And I think we're already a year or two behind where we should be. Hey, Kareem, explain something to me about the electrons flow where they want to flow and you can't direct them. So if you have some vertically integrated utilities within the 13 states, why aren't they just expanding capacity like gangbusters and having the electrons flow to Maryland or some other state? Is there some barrier there that people like me who are just still learners are not understanding? I would say, so let's say, let's take Virginia. So if Virginia were to build excess capacity and then sell it to Maryland or another state, they could do that.

48:32But for them, that means they're asking their utility to build generation in their neighborhoods, in their communities that don't benefit their neighborhoods and communities. It can happen. And again, right now, Maryland. Maybe it's a NIMBY problem. It's a NIMBY. And I've even heard NOPE problem, which is not on planet Earth. So there's another one. But, you know, basically, I would tell you it's an issue that, you know, the utility is also trying to balance their communities and their stakeholders as well. You know, right now, Maryland, for example, we buy 40 % of our power mainly from Pennsylvania.

49:08We import 40 % of our power today. And that's before there's two more coal plants that exist that are being retired here in the next few years. It's just going to go up. That is not sustainable. We need each of our states to be generating enough power to be able to support themselves. But folks in Pennsylvania are saying, why am I building power plants and selling power to Maryland? You know, for them, they're saying, great, I'm going to use that power to supply the data centers that are coming in. I don't have to build anything else. Maryland, effectively, good luck. And so that is the issue that we're facing.

49:43And that's why we need more generation built in all of our states. Yeah, isn't it possible that you could make the case to the ratepayers of Pennsylvania that they could actually benefit from having a larger market if their existing infrastructure gets used more, if they're selling more power, not only to the data centers, but also to Maryland, then that might actually lead to the assets being used more efficiently. and therefore the cost per ratepayer could actually come down. That's an argument you hear made quite often about data centers and how data centers can actually benefit ratepayers in communities where they're being built.

50:20Is there something in there? So let me answer that question in two parts. The first part is what you just said. If you're saying, can't we build more generation in Pennsylvania and let that flow down to Maryland and then the ratepayers can benefit? it? The answer is today, no, because the utilities don't own the generation. All those profits go to the generators. So they don't share that with the customers. They don't have to. The second piece is, you know, is there a way to look at our grid and say, hey, can I squeeze more capacity out of this grid that we have already in existence today? And the answer is we do that every single day.

50:54We are trying to optimize the grid. And that's what I think is the reason why over the last three or four years, as we've seen no build, we've seen demand start to increase, and we haven't seen rolling brownouts yet, because we've been squeezing every megawatt we possibly can out of the grid. You know, at Exelon, for example, we're looking at GETS, which is grid enhancing technologies, every single day, we are testing them out. Some are very effective, some less so. But that is something that we take, whenever we do a project, we say, what is the way that we can get effectively the most bang for our customer's dollar.

51:30So again, ultimately, the customers are paying for this grid. We want to make sure they get as much value as they possibly can out of it. But being more efficient, having more optionality, being able to route the power, that's great. But ultimately, if demand is going up, at some point, I need more electrons. I'm going to run out of electrons. I can move them around for a while, but at some point, I just truly need more generation being built. So Kareem, I have this thing I like to say because I lived for many years in Houston, and I used to have to spend a lot of time either visiting with Enron or trying to go a deep dive on what Enron was doing wrong that wasn't transparent.

52:08Okay. And one of the things that happened with Enron, not making any analogies to any particular utility or region, is that they would have these incredible projections of where electricity prices were going or where the load was going. And so one of the things that I hear in utility world is I can't put in batteries right now to shift the time of day and to make the load more efficient because that's going to be burdening my rate payers with this higher cost of batteries. But if I just wait and plan a plant to be built in 10 years, then I can solve the problem in 10 years and I won't be double charging people.

52:49But, you know, you could put the batteries in now for three years and then, you know, pre-Enron, post-Enron, we figure out whether that 10-year forecast is really accurate as we move forward. Because you're telling me you're not going to do this thing you can do right away because there's something that's going to happen in 10 years which none of us can really forecast properly. But I have a solution I could do right now, but I'm not going to do it Because if it turned out that I need to build a plant in 10 years, that solution that would tide me through the next two years would wind up being a waste of money.

53:24I mean, I find that hard to deal with because there is a solution you could do right now. Yeah. So I would say so, Amy, let me let me say I'm going to thread this way. So understand one thing that we have to realize is plants, even batteries, anything. These take multiple years to build. So you have to kind of have a view of you going forward. So my opinion is that the batteries do not take multiple years if you have a supply chain. OK, yeah. They can be installed. I mean, I know people who work with Tesla and Sunrun, they can be installed pretty damn fast, as we've seen in California and Texas and Florida, where people had a lot of outages.

54:01Yeah. And when I say for batteries, I'm thinking, you know, a year to two years, because, again, I think on the utility scale, on a generation plant, you're talking seven plus years to do. What I would say is, you know, one of the things is that load forecast is incredibly important. So I'm going to jump back to when you think about what's driving the load increase that we're experiencing right now. It's largely not entirely, but largely these large hyperscale data centers. And that's why that transmission security agreement is so important, because it weeds out those that aren't call it real.

54:34So it kind of starts to really formalize that. But then to your question, which is saying, hey, why should I build a battery today when I can wait seven years? And if I build both, then aren't I double counting and aren't I building too much? What I would say to that is, one, we have an immediate crisis. I mentioned what PJM is warning about in Maryland, but you're going to see that more and more. You have an immediate crisis around reliability. So we need today's solutions. Two, if you get to a point, let's say in the future, seven, 10 years, and the load is somewhat less than what you experience, what have we done if we build both?

55:10We have increased supply and demand hasn't gone up by as much. So what happens? Our prices come down for our customers. We are in an affordability crisis. Right now, I don't see a realistic scenario where we can overbilled because the downside is basically, hey, everyone's prices just came down. So that's a good thing for our customers. Again, may not be good for certain companies' profits, but that's a good thing for our customers. And that's what ultimately matters the most. So from my perspective, what we've been advocating for at Exelon is we need an all of the above approach. The all of the above is we need batteries.

55:47We need solar. We need wind. We need gas. We need new nuclear. We need all of these things. And each of them come with their own timeline. But again, this is where it's so important to have the commissions involved to really develop what's called an integrated resource plan, a real 10 to 15 year plan that takes the load that's forecasted and what we have today, what are the gaps and what is the real plan to build this. But you can't do that if you don't let the utilities own generation, because ultimately they can't control the competitive market. So hold on, Karim, you said something that I found a bit counterintuitive, which was you said, if there's more generation, prices will be lower.

56:29I mean isn't it the case that when we talk about this issue the very standard argument that people make is if you invest in more capacity of any kind grid transmission distribution or generation you have to get a return on that investment somehow that investment has to be paid for and that ultimately means it's got to be passed on to customers' bills and maybe some of it can be managed through the tax credits or whatever. But essentially, if investment is going to earn a return, that means customers paying for it. And again, you can think about which kinds of customer pay and is it going to be regular households?

57:14Is it going to be data center operators specifically or other large loads? Whatever it might be. But it doesn't alter that fundamental fact. But you seem to be talking about, well, if you get more generation, then prices can be lower, and this can actually help the affordability issue. Sure. I don't really see how that works. Yep. Let me explain. So when you think about the utility, let's go back to the bill. The utility portion of the bill, what we control, 25%. The supply portion, 75%. If I'm able to, whether it's the utility or the competitive markets, if we build more generation, that supply of generation goes up.

57:56Demand and supply, just the simple economics, that will drive prices down. So what I'm saying is, yes, you may see a small increase in the 25 % portion of the bill because of the return, the financing costs that the utility needs to achieve to be able to build these assets. but in return, you're going to see that 75 % portion of the bill come down because we have more supply driving those costs down. Even better is if the competitive market will build it at a good cost that is a lower cost. But again, that's not what we're seeing today. So ultimately, our number one priority is to see more generation supply being built.

58:38And what we're saying is we've been waiting three or four years, we can wait no longer, Let the utilities start to build again. Keep encouraging the IPPs. And you see a lot of our states are doing a lot of things. They're passing permit reforms. They're trying to make it as easy as possible to build these generation assets in our states. But we're still not seeing any build. Right. So if people are listening to you on this podcast or listening to you in other forums and policymakers and regulators find your arguments convincing, what needs to change? As you were saying, there's no inherent contradiction between being part of the PJM market and having vertically integrated utilities.

59:18Several states do that. So does that mean? Is it a state level? Is it a state level issue? Yeah. So does it have to be state level reformers that you really need? Because it's not really a PJM issue, right? It's not a PJM issue. It's at the state level. And what I would say is, in all states, it could be making a legislative change where utilities are now allowed to own generation, which then allows them to go to their commissions and put in proposals and be part of RFPs. But in some states, the commission already has the ability to order a utility to participate. And we would encourage in those states, do that.

59:51Have your utilities sitting there in the RFP process, being part of the process, or even outside, ask them to give you a proposal of if I asked you to build generation battery, gas, whatever it is, if I asked you to build generation, what would that look like? And what impact would that have on the customer bill? We can do that. We can work with the right people to ensure that we have that in place. And then if nothing else, that becomes the price to beat. Right now, there's two pieces. There's the affordability piece, but I also don't want to lose sight of the reliability piece. We are about to get to a point where in some of our states, we're going to face rolling brownouts.

1:00:26This is not what our communities and our customers are used to, and nor should they have. We have to do, and that's what our number one priority is, safe, reliable, and affordable power. We have to ensure that's delivered to our customers each and every day. So when you go to state houses, when you go to state legislatures and make these arguments, how much progress do you think you're making? Do you think we are going to see widespread reforms in quite a few states on this? So I would tell you is, you know, because again, we've been doing this for a number of years. I think we're finding more and more progress.

1:00:59And the reason is just the history is played out. Like what we said was going to happen, which is no one's building is coming true. And the reason is the economics aren't there. The certainty of pricing for a competitive developer isn't there in PGM. There's too much uncertainty. So, you know, I understand why they're not building. But the answer is, and again, our customers, they don't care why they just need someone to build generation. And so I am starting to, I believe that you will start to see some of these states embracing the idea of the utilities participating in the generation process.

1:01:32And again, maybe the competitive suppliers will come out with better solutions. And that's fantastic. In the end, I always take everything back to the customer. What do our customers need? They need more generation. If they need more generation, if you're a state or a commission, why would you ever not want every single option at your disposal? It doesn't guarantee anything, but why wouldn't you want the utilities to put in a proposal and see what it looks like? And taking a step back then and looking at that broader sweep of regulation and the structure of the electricity industry in the United States over a period of decades.

1:02:09We kind of had that movement towards more competitive markets, which was particularly strong, as you say, around 2000, sort of late 1990s, early 2000s. And then there's been much less progress towards deregulating markets since then. Do you think we're now at the point where the pendulum is actually swinging back again, and we're going to see more regulation and markets becoming increasingly regulated and increasingly assets moving into the hands of regulated utilities? So what I would say, Ed, to that is I do think the competitive markets play a role, and they should play a role. What I would say is I think what we're going to see is the utilities being permitted to put in proposals, and that'll effectively be the cost to beat.

1:03:02So again, if I'm a state utility, tell me what you can do this for. And then if a competitive supplier can do it for less, great, I'm going with that solution. If not, I'm going to go with the utility solution. So I think there'll be a mix. And I think depending on what you're talking about, what you need, what state, what region, you may see a different, you know, some solutions will be more utility. So to Ed's point about, you know, how does that affect the competitive landscape? I mean, one of the interesting things when you're an academic is the academic literature that said DREG was going to lower cost to everyone was sort of a systems-wide cost structure.

1:03:41What it didn't capture was that somewhere between three to six million Americans have their electricity shut off a year because they can't afford their bill, right? And so, you know, I guess last question, you know, just to sort of understand this a little bit, if it turns out that the utilities have, you know, this ability to really beat everybody else out of the market, and we wind up with, you know, integrated utilities, and they're more competitive, And so we're rolling back, as Ed's sort of suggesting, we're rolling back DREG and we accidentally wind up back in a vertically integrated market.

1:04:22How do we take that formula that a utility uses on how they charge customers and make it fairer? Because there are all kinds of explanations that people give me about how we have to put these costs over everyone, including people who can't pay their bill at all. and then we're going to send them to LIHEAP or some other program to get a discount. I mean, don't we also have to change the way rates are set? So Amy, let me answer your question this way. So first, I'm not sure the utility rate will always beat out the competitive solution. I'm hopeful the competitive market will find a way to do it even cheaper than the utilities because, again, that's good for customers.

1:04:57The second is one of the beauties about being able to do this in the utility is you have that 10-month process where you can challenge costs, where you can review the rate structures. where you can talk about who's being charged who, different rate classes. So say in Maryland, we have a low income rate. So basically any of these costs that come from us go through different or are charged differently for low income customers to others. So these are the things we can kind of put in place. And with the regulated model, that's where the commission has full purview over being able to see what makes the most sense for each customer class, each customer throughout its region.

1:05:36So I would say, again, I just keep going back to the, it's another tool in the toolkit. Why would you not want the utilities to be part of this solution, potentially, and allow the commission, ultimately, who will have the final say over what gets built and who builds it, have them have all their options in front of them and say, all right, now you, commission, pick what's best for our customers from a reliability and affordability and whatever other aspect they're looking for. looking at, pick what's best for our customers, and let's move forward with that. But what we can't do is we can't keep arguing and discussing and theorizing over this.

1:06:15We have to see action taking place because, again, I'm increasingly concerned about the warnings that PJM has already issued, and next summer is for Central Maryland, but it's going to start spreading to other areas if we don't watch it and we don't start building generation here as soon as possible. Yeah, absolutely. Two quotes, actually, which I wanted to use during our discussion but didn't have a chance to get them in but just to underline your point Karim about concerns about future reliability when PGM held that capacity auction last month they said that they had capacity which was 6.8 gigawatts below what they would consider a safe level to be able to meet expected demand with a 20 % reserve margin and the quote here from PGM such a shortage does not necessarily mean that the PJM system will be unable to serve load reliably in the delivery year.

1:07:08It means that PJM would have to operate with slimmer reserves and a greater level of risk. So that seems like pretty strong language coming from the market itself. And I was just going to say, I think that highlights the exact point that I made earlier about the storm of Fern from earlier this year, is they're saying, hey, we're not having the capacity that we need, that we expect the amount of reserve capacity that we typically want to maintain doesn't mean there's definitely going to be brownouts, but your margin for error is very, very thin. In the end, this is equipment. One line fails, one thing goes wrong.

1:07:46You no longer have that extra cushion, that extra capacity to ensure that customers will not be interrupted. And so you can choose to operate on that razor's edge. That's not where we've ever operated before. And again, I don't think that's what our customers are expecting from their grid. And then even stronger language I had here from Laura Sweat, chair of FERC, these numbers compound the alarm bells for a call to action in PJM, she said. And that was just a couple of days ago. Maybe I'll just make a comment of what our CEO at Exelon says, Calvin Butler, and I think it's a great analogy. We are driving a car with the check engine light on right now, and you can choose to address the issue now and fix it, or you can wait till the car breaks down, which will be much more disruptive and much costlier to be able to prepare.

1:08:32So that's where we are today. And that's probably the best summary of the state that we're in. Yeah, certainly it's going to be a hugely important situation to cover over the months to come and also one with enormous implications for other power markets across the United States and indeed around the world. Unfortunately, though, we do have to leave it there for now, But it's been fantastic talking to you, Karim. Many thanks for coming on. Well, thank you, Ed. Thank you, Amy. Really appreciate being on and look forward to talking again. Many thanks, Amy, for joining us. Look forward to talking again very soon.

1:09:05Yeah, thanks for including me. Just a really riveting conversation. Karim, I think you did a real fantastic job just breaking it down for people who are not in the weeds of electricity every day. Well, thank you both. Yeah, it has been fascinating. Really great talking to you both. Many thanks to our producer, Molly Mowin. And above all, as ever, many thanks to all of you for listening. Please do leave us your feedback, leave a comment, leave a review, get in touch on social media. We really value your feedback. Please do keep that coming. And we'll be back very soon with all the latest news and views on the future of energy.

1:09:40Until then, goodbye.