Leading Through Energy Affordability: The Watchdogs Inside the Room (S5:E8)

JUST POWER Leading Through Energy Affordability: The Watchdogs Inside the Room (S5:E8) Guest: John D. Wilson, Vice President, Grid Strategies CAROLYN PARRS: When electricity bills go up, most people assume it's just the cost of energy. But what if the real story is happening somewhere else - like in rate design, or infrastructure decisions, or regulatory processes that most people never see or even hear about? Welcome to Just Power.

I'm Carolyn Parrs, and this is our series, Leading Through Energy Affordability, where we're asking a deeper question: What do credible responses to this moment actually look like? And today we're going under the hood. I have with me John Wilson. He's the Vice President of Grid Strategies and a regulatory expert with nearly two decades of experience working across more than 70 utility proceedings in the US and Canada.

He often represents the other side of the fence - consumer advocates, environmental organizations, and public interest groups. He's the person who spends his time in the rooms where some of the most consequential and least visible decisions are being debated, challenged, and ultimately shaped. So glad to have you on with us, John. JOHN D.

WILSON: Thanks so much, Carolyn. It's great to be with you. What's Really Driving Affordability Pressures CAROLYN PARRS: You're sitting inside these proceedings across the country, seeing how decisions are actually being made. From your perspective, what's really driving the affordability pressures that we're having right now - and how much of that is visible to the public?

JOHN D. WILSON: Well, it depends on where you live, what's driving the affordability crisis. It's kind of an incredible coincidence - most of the country is seeing energy prices going up at rates that we haven't seen in a while. But the reasons really differ by location.

For example, I used to have a couple of clients in California - not currently working there right now - but wildfire costs related to building a system that could not start wildfires, and also would help customers ride through them even if they weren't directly impacted. Those costs are really, really high. Storm recovery costs on the East Coast from hurricanes, and that sort of thing. And then really, we're just seeing that the grid is aging.

We built this huge grid out in the late '50s through the early '70s when we had so much electric demand growth. All that stuff was bright and shiny new back then. Well, now it's 50 years old - plus, sometimes 60 or 70 - and a lot of those things have not been replaced, or only partially replaced. So that is also driving a lot of the costs.

Lots of other things too that we can get into in detail. Rate Design, Large Customers, and Who Gets the Better Deal CAROLYN PARRS: Parts of this rate design that we see - you've said - tend to favor large customers. But at the same time, I often hear utilities argue that large commercial and industrial customers often carry a significant share of the cost for residential customers. So when you look at the data and the cases that you've worked on, what's actually true?

JOHN D. WILSON: What I see in the data is that in general, the larger customers tend to get a better deal on electricity prices. Generally the worst off - and it varies again by location - but generally the folks who get it worse are the small businesses. They have the least power in the process.

They tend to not be closely represented by anyone. And so when a deal comes to be struck between the industrial and the residential customer representatives, it's the small businesses that are left on the floor. But the other thing is that industrial customers really have the inside track on access and leverage with the utility - for a lot of good, and maybe not-so-good, reasons mixed together. And so historically they've tended to get in place precedents - and precedents are really important in this arcane regulatory world - that favor their business needs and design.

And that then turns into somewhat lower bills than they might get if you had a built-from-scratch, fair system. CAROLYN PARRS: Okay, so help us understand where the actual costs are - how it really shows up. This is happening in how costs are defined, and how rates are ultimately designed from the beginning. So where does it really take shape?

JOHN D. WILSON: Well, rates are decided in what's called a rate case. And there's usually a regulator - called a public service commission, or sometimes a utilities commission, or sometimes an oddball name. The utility comes in and says, here's what our costs are.

Here's how we propose to allocate those costs out to customers. And here's the rates that we propose to charge to collect those costs. It's kind of a three-step process. And ideally you have a group of committed people who will review those costs and say these costs are fair - or they're not fair.

Then you'll have probably the same group or a similar group who will look at the other two steps in the process as well. In the end, the commission - or the board, or whatever it's called - will make a decision and approve that. And then that's what gets charged to customers. That's what happens for the vast majority of customers.

It's worth mentioning here that if you live in a region that has a municipal or a cooperative or some other public entity, the process is more of a single entity making that decision - not a regulator. So it can be a little more complex there. And then you can throw in wrinkles where some costs are under federal jurisdiction. So those rates and those components get handled yet another way.

It gets incredibly complicated. CAROLYN PARRS: Yeah. I mean, that was a great overview of what happens with rate design, but rate design is design, right? And we're talking about large customers, we're talking about small businesses, we're talking about real people that are struggling right now.

How does that all come together in a rate design? Is it all of those entities - I guess it depends on what's being proposed - but are all of them part of it? JOHN D. WILSON: Right.

So I think what you're getting at is, what does it look like behind the closed doors, so to speak. CAROLYN PARRS: We're talking under the hood today. JOHN D. WILSON: Yeah.

So essentially what will happen is the utility proposes it, and a lot of that information is public. It's interesting - in regulation, a lot of key information is confidential and you have to sign agreements to get access to it. Rate cases, though, are typically some of the most public proceedings. So if you have an interest in it, you can actually get a lot of spreadsheets and documents, read a lot of things, and know a lot about what's going on.

It's not easy. When I go into a new jurisdiction, it takes me at least a week or two to sort of figure my way around - like, where are the things I usually look for, and are they even on the record? Do I need to ask for them? Then the second thing that usually happens is people sort of come up with their positions.

Then it usually goes to a settlement discussion. Regulators, in theory, would hear all the facts and make a wise and judicious decision. What they really like is when different parties - like you and me - negotiate and say, we've all looked at this and we all agree that this is the fair outcome. And then the regulators say, let me look at that really carefully.

Okay, good. We don't have to decide anything. We're accepting the deal. I don't mean to be so cynical about it - it's a somewhat useful process.

But like I said, there are parties that have a long history and a lot of resources and a track record who tend to have the upper hand. And there are parties who are newer to the process who have to fight a lot harder to even get something in that settlement agreement. A New Era: Hyperscalers, Data Centers, and the Grid CAROLYN PARRS: So we're in a new era here. You said the grid is aging, and we have data centers that have shown up.

AI has taken over the world. We're entering this moment - and based on what you're seeing in how these cost dynamics play out, how are you seeing this play out now with hyperscalers and tech companies when it's a whole new, large load on the grid? JOHN D. WILSON: Well, it's a mix.

I remember a football team that used to play under a scheme they called controlled chaos. And I'd say that's about where we're at right now. There are a lot of rules of the road and a lot of structures that sort of guide people into certain patterns. And yet you've got this insanely large new customer group coming along in many regions.

I mean, there are utilities that are forecasting to double their load over the next five or 10 years. Now imagine if you're a home contractor, and someone comes along and says, I know you're building a hundred houses a year - I want to buy a hundred houses a year from you. You are going to pay a lot of attention to that new customer, right? And the other customers are going to get less attention because you've only got so much attention as a business owner to go around.

So that is what is happening. There's a lot of focus on the needs and interests of these very large customers. Set aside whether it's being done fairly or not - there is only so much attention in the world to go around, and it is being focused very heavily on these customers. And we have a tradition, a regulatory practice, where everyone has sort of a right to service - it's known in the industry as an obligation to serve.

So if I buy some property and want to build a house on it, and I can get a permit, then I want to connect to the power line. I get service. There's no question. It's not like a contractor who might turn down a customer just because they don't want to do business with that person.

When you're a business or an individual and you want to get power, the expectation is that the utility with that service territory has an obligation to serve you. CAROLYN PARRS: Okay, so you mentioned 'whether it's fair or not.' Many of the large companies - I've been reading about this - say, we'll pay full cost, we'll pay our fair share. Here in Colorado, there are a couple of rate cases happening.

When they say they'll pay full cost, consumers go, okay, I've heard that before. Will that really happen? From your experience, how straightforward is that really in practice - and where do you see the biggest gaps between the claim and how the costs actually get assigned? JOHN D.

WILSON: Yeah - I will say some of it is straightforward. There are regulators who are in very good faith trying to make this work. But it is complicated. Simply the definition of what is full cost is really hard to say.

You can imagine someone would say, well, that would be the cost of a transmission line to connect the facility and maybe a power plant to power the facility. And you could add those numbers up and that would be full cost. But the reality is, no one uses a single power line. They share the whole system.

They depend on it. Without the power grid as a whole, the power line outside your house won't work. It just takes that whole system to make it work effectively and reliably. You can go off the grid - and there are large data centers that are proposing to do exactly that.

They're going to build their own power plant. But those businesses are now in the business of running a computer center and running a power system, and that is going to be a double challenge where they had one going in. So most of them would prefer to connect to that wire and get power from someone who already knows that business of being reliable. CAROLYN PARRS: Any examples of that - a unit just powered by the company itself?

JOHN D. WILSON: Yeah. As somebody who works on regulation, those facilities are not regulated. So I don't really see them - I read about them occasionally.

If you own a thousand acres of ranch land in Texas and you've got a natural gas wellhead on your site, you could put a gas plant and a data center right there on that property. You'd have to get an air permit for the gas plant. And then the question becomes, can you run it reliably? What are you going to do when you need to take that plant down for maintenance?

There are all these challenges. Plus the impact on the surrounding community - sound, and all those things. But if you do that, then the world I live in - electricity regulation - is not going to see any trace of that facility. It just isn't going to come up.

CAROLYN PARRS: Okay. So this is all in play, right? Decisions are being made, and conversations are being had that have never been had before. JOHN D.

WILSON: Yeah. A really good example of that is one of the things people are asking for - going back to your point about what is fair - is long-term contracts with these facilities. And historically, I would say 99% of the contracts between a utility and its customer - even what was considered to be a large customer, say five years ago - were for one year, maybe two years. There might have been a scattering of five-year contracts, but in general, the idea was if you're big enough to come in and sign up for a big connection to the grid, you've got to pay for that immediate connection.

So the wire from your factory to the transmission line - you got to pay for that. And the assumption was you'd be around for a while. That worked fine for auto manufacturers, water treatment plants, university campuses, hospitals - lots of large customers with big connections to the grid, but on a year-to-year contract. The contract just says, here's how much power you're going to take.

Here's how we're going to behave. And that's important, because large customers can behave in ways with their electricity that can affect other customers. With my house, if I go flipping breakers on and off nonstop, that's going to mess up my house but it's not going to affect my next-door neighbor. But if a hospital went and shut down all its power and then turned it all back on, then shut it down again, the utility is going to call them up and say, that is against your contract.

You were behaving in a way that is causing us problems running our system and helping the businesses next door have reliable service. So those are the kinds of things that get written into these contracts. But they were always year-to-year. And now you've got facilities at the scale of the entire utility - a single facility that could double the demand.

All of a sudden they say, wait, we're going to build a bunch of equipment, transmission lines, generation plants, we're going to sign contracts - and we need you to sign up for more than a year. What's becoming apparent to me is that many of these contracts tend to be for 8 to 15 years. That's where most of this is being done. Whereas the cost recovery - the time over which a regulated utility is allowed to recover those costs and get paid by its customers - is usually more like 25 to 40 years.

So if that customer goes away in 15 years - and they might well; we've got such a fast-moving information technology world - it's very possible the energy demands could go down as fast as they went up. CAROLYN PARRS: So who pays that gap? JOHN D. WILSON: That later part, yeah.

And we've seen that in some other industries over history where the industry came in, there was a huge demand for power, then the industry went away and that power demand evaporated. CAROLYN PARRS: We see that with coal plants that have been closed, right? They were built a long time ago, now they're stranded assets - and who gets to pay for that? JOHN D.

WILSON: Right. A great example is actually the oil and gas fields. North Dakota right now has some of the fastest-growing load - and rates in North Dakota are actually going down, because you've got all this load coming in from oil and gas production. They had a lot of space on their lines to accommodate that, so they didn't have to build a lot of infrastructure.

When you've got new revenue coming in without adding a lot of costs, rates go down. Why was there all that space on that infrastructure? Because a decade or two ago, you had a lot of oil and gas facilities that were built, ran, and then shut down. They then dumped those costs onto all the other customers.

So this so-called North Dakota miracle is actually an echo of some cost impacts that people have probably forgotten - or prefer to forget. CAROLYN PARRS: Well, it started off as a mistake and it became a miracle. JOHN D. WILSON: Exactly.

So if these things come and go, that can be a real problem. That's one place we still haven't really figured out how to get right - these contracts and rate designs and tariffs. That's a big area. We could go through a longer list, but that's a good example for your listeners to think about.

What Does a Credible Response to Affordability Actually Look Like? CAROLYN PARRS: So we're talking about energy affordability - that's what this whole series really focuses on. We started off with data about what some utilities are asking for, like $35 billion in rate hikes. Then in Episode 2, we had real people come on who are stressed about their bills going up 40%.

So from your perspective - from a regulatory lens - what does a credible response to energy affordability actually look like? JOHN D. WILSON: Well, from my vantage point, it's not going to come as fast as people would like. And I don't have quick silver bullets, I'm afraid.

There's one regulator, for example, that put a rate cap in - this was in Canada - and they had the ability to step in and put a rate cap in. And it created an incentive for the utility to under-invest for a year or two until things were sorted out. And that has then backfired on everyone - both the utility and the customers - in the sense that now things are behind that needed to get done. So those quick fixes, I haven't found one.

The things I work on are more long-term investments in cost minimization. Making sure that large capital projects - like new transmission lines or new power plants or renovated power plants - are done with a high degree of attention to what is the lowest-cost alternative that will solve the problem, what is the most cost-effective way to contract for the assistance to do that work, and what are the ways the utility can manage that project to minimize risks and cost overruns. That's one side of it.

Another side is running the system - making good choices about fuel procurement, which power plants run at which time, and other kinds of operational issues. It's a multidisciplinary field, and you need people with all of those disciplines put together to make it really work. CAROLYN PARRS: Is there anything you're working on right now that's got you excited - or even just hopeful? JOHN D.

WILSON: Well, it's sort of hard to pick out which one is your favorite child. But I'll pick today. Earlier today I was in a hearing - my client is the consumer advocate in Nova Scotia. One of the practices they have there that's very unusual is an annual review of capital costs.

I've been working in these proceedings now for about seven years, and progressively the board has directed the utility to implement more and more effective measures to minimize costs in its capital spending. And I've seen the results in some areas of the utility be very positive. It's kind of like cleaning your house. If you've got a really messy house and you've let things get out of hand, you start with one room and get it straightened up - and some of the mess goes into the next room.

And then you go into that room and straighten it up. We've been kind of methodical, going through all of the different things that the utility is doing with its capital spending and gradually setting in place practices that we can review. We're seeing that the costs are becoming more predictable. They're implementing best practices in procurement and cost management in more cases - not universally yet, but it's getting better and better.

When you put the utility on its toes like that, they still have an opportunity to earn money. It's not going after their jugular. It's really saying, we think when we ask you what you're doing, we're not getting a comprehensive look. And a lot of times people fall into habits.

In the utility industry, because it's monopoly-oriented, you don't have a lot of change like mergers and acquisitions and businesses shutting down and new ones starting up. So things get entrenched. Which is good and bad. Safety culture is a big thing in the utility industry, and it's taken decades for that to really take root.

Well, now it's taken root. You see safety incidents in the utility industry way below what they were decades ago. We need to do the same thing for costs that we did for safety - have cost minimization be almost job one, right after safety. And that's something that is just utility by utility, department by department, process by process.

CAROLYN PARRS: And this is happening all around the US and beyond, right? This is not just US-focused. JOHN D. WILSON: Yeah.

Some better than others - and some utilities essentially have regulatory capture, where the regulator lets them do what they like. That is a situation where you don't see these kinds of improvements happening. So it's not happening everywhere. Technologies That Give Hope - and What Comes Next CAROLYN PARRS: You've been in this for two decades, in these regulatory proceedings - and they're different now.

There's data coming in that's predictive, that we can see going forward. What's giving you hope? JOHN D. WILSON: The thing that really puts a smile on my face is some of the new technologies that are coming forward.

One of them is in the area of transmission system management. There's what's called grid enhancing technologies - or advanced conductor materials, almost like superconductors. These advanced conductors mean you can go in and take an existing transmission line and, with technology and new conductors, you can double the amount of power carried on that same set of towers. That's really exciting - upgrading our grid at relatively low cost, compared to say, building a new transmission line in a new place where there hasn't been one before.

Another great example is enhanced geothermal energy. That's an area where I think a lot of the oil and gas expertise is going to shift over to. And there's more and more evidence that enhanced geothermal energy is not one of those news-at-nine stories that disappears after five years. It's really growing in momentum.

It could literally provide hundreds or thousands of gigawatts of power to the US, within 10, maybe 15 years. Combined with solar and storage, I think that would be our lowest-cost energy future. I'm not working directly on geothermal. I don't have any geothermal companies as clients.

I'm not advertising for one by talking to you about it. I just think it's a perfect fit for what we need. It's most effective in the West, but there are lots of places in the East too. I was just looking at a great new map from the National Lab of the Rockies showing where geothermal could build - and probably every county in the country is within 200 or 300 miles of a site that would be very good for enhanced geothermal.

It's a very low impact. You could imagine a power plant the size of a small city block being big enough to power that entire side of town. CAROLYN PARRS: Let me make sure I understand this. Even just five or ten years ago, geothermal was a sliver - not really even on the map when we'd look at our energy mix.

And now it's everywhere. Every trade show, every magazine. Is it that the oil and gas industry and some spent sites could be converted to geothermal? Or are we talking new production and new drilling?

Or both? JOHN D. WILSON: It's really new drilling. You're not going to be able to take the same wellhole and reuse it for geothermal.

But what transfers over is the technology and the skills from the oil and gas industry - not all of them, but many. And once you get the well drilled and the basic hydraulic operations worked out, the power plant that goes on top is actually a really basic power plant. It's not complicated to build, maintain, or operate. Other than the fact that we've got to build up the capacity to build a lot of these, it's as close to a silver bullet as I can think of that's out there right now.

But I'll be honest - those technologies are not going to help the guests on your previous episode with their power bills in the next few years. It's just not going to happen that quickly. CAROLYN PARRS: How long does it take for one of these plants to be erected? Natural gas is like five years, nuclear takes even longer.

Solar and wind are shorter, but then they're intermittent and we still need batteries. What are we looking at with geothermal? JOHN D. WILSON: We're in a bit of a wait-and-see mode - when they start building the 10th or 11th plant, then you'll have a better sense of that.

But my guess is we're talking months for the well, similar to a gas well. The time comes in with the power plant and the connection to the grid. So it's not really drilling the well that's the challenge - it's some of the other pieces. But it's not really that long.

And that's one of the great things about geothermal compared to say nuclear - it's going to be a lot quicker and safer to build in that kind of a time frame. Closing CAROLYN PARRS: All right. Thank you, John. We went off into technologies, which we usually don't - and I want to do a whole series around this.

Geothermal, you got me excited about that. What I'm taking away from this conversation is that energy affordability is not just about costs. It's about decisions - decisions that you might not even be part of - but it's also about innovation. Decisions on how we build.

Innovation about how we build, how we plan, and who ultimately pays. And thank you for being an advocate for the people - for being a checks and balances in this whole movement toward clean energy and an enhanced grid. That's exactly why this series exists. I think that's one of the answers - what a credible response looks like in this moment.

So thank you again for helping us understand a little bit more about what's going on under the hood. And for our listeners: if this conversation enlightened you - it did for me - inspired you, or even riled you, go ahead and subscribe to Just Power. That one action keeps this show going. It really matters.

Take a minute and subscribe. And if you liked what we talked about today, go ahead and leave a comment, because without you, these conversations don't reach the people who really need to hear them. So as always: we are all in this together.