Utility Revenue Fundamentals

Watch the Full Conversation with Graphs on YouTube (Updated)

Utility bills are rising faster than ever. In the first half of 2025 alone, utilities requested $29 billion in rate increases, already a record for any full year, with months still to go. That’s more than double the pace of 2024.

If you’re wondering why, you’re not alone. I hear this question constantly: “If renewables lower costs, why is my bill going up?”

The answer: transmission and distribution. The costs of poles, wires, substations, and local infrastructure that move electricity from plants to homes is rising quickly, while the cost of generation is flat or declining in most places.

To unpack why — and what can be done to help struggling consumers — I sat down with Charles Hua, Director of Powerlines, a new national consumer advocacy group focused on modernizing the regulatory system.

The Real Reason Bills Are Rising

“Generation is not what’s driving up bills. It’s really the transmission and distribution piece.” – Charles Hua

Utilities are pouring capital into poles, wires, and substations. Much of it is necessary, but some isn’t. And because utilities earn profits on capital expenditures, they’re incentivized to build more; they are not incentivized to find cheaper alternatives.

The data is striking: wholesale electricity prices have been flat, or even declined, over the past 15 years. Nationally, retail prices for households, meanwhile, have jumped from about 12¢ to 16–17¢ per kWh. And gas utility bills have been rising faster than electric bills. Those gaps are revealing.

All Regulation Is Incentive Regulation

Utilities make money by earning a rate of return on capital projects. But operational expenses, like vegetation management that could prevent outages, or cloud-based outage trackers, do not generate profits. The result is a bias toward big builds instead of low-cost, reliability-focused fixes.

This is the system we have created and that needs reform.

Consumers know something’s broken. Powerlines’ survey shows 4 in 5 Americans feel powerless over their utility bills, across Democrats, Republicans, and independents alike. Many don’t know what’s driving costs, and rate cases remain opaque and inaccessible.

Short-Term Fixes: Squeezing More Juice from the Grid

We don’t have to accept runaway bills as inevitable. There are proven tools available now:

* Grid-enhancing technologies (GETs): Sensors and software that increase the capacity of existing lines. Charles calls them “ibuprofen for the grid.”

* Distributed energy resources (DERs) and virtual power plants (VPPs): Solar, batteries, and smart devices coordinated to reduce peak demand and defer new builds.

* Energy efficiency: Still the cheapest, fastest way to cut bills, though underutilized in Texas compared to other states.

Each of these solutions stretches the grid we already have, reducing the need for constant billion-dollar expansions.

Long-Term Reforms: Aligning Incentives with Outcomes

Fixing incentives is key. Options include:

* Performance-based regulation (PBR): Tying utility profits to outcomes like affordability and reliability, not just capital spending.

* Distribution system planning: Opening the “black box” of utility investment so alternatives like DERs can compete with substation expansions.

* Return on equity reforms: Expanding utility profit opportunities to operational solutions, not just capital-intensive projects.

None of this is simple, but without it, the trajectory is clear: higher bills and growing consumer backlash.

Why Texas Matters

Texas is ground zero for this debate. Utilities like Oncor have outlined multi-decade capital plans that could quadruple spending by the 2030s. If nothing changes, those costs land squarely on customers.

At the same time, Texas leads the nation in renewables, is building out batteries faster than any other state, and has the independent streak to pioneer smarter utility models.

As Charles put it, “Now is the time for consumers to get engaged.”

Final Thoughts

Utility bills do not have to keep spiraling upward. We need investment in the grid, yes, but smart, efficient investment that maximizes resiliency while protecting affordability.

This is where public utility commissions come in. Their decisions determine how much we pay, how reliable our grid is, and how fast we can adapt to rising demand.

The challenge is real. So is the opportunity. If we get this right, Texas and the U.S. can build a grid that is stronger, smarter, and more affordable.

Let’s make sure consumers have a voice in shaping it.

Timestamps

* 00:00 – Introduction

* 02:00 – Meet Charles Hua, Powerlines

* 05:00 – Why bills are rising

* 09:30 – Different types of utilities

* 12:00 – Profits and business model of T&D utilities

* 13:30 – Alternatives to rate-based infrastructure

* 15:00 – Why rates keep going up even as generation costs go down

* 17:00 – Texas rates are low but our bills are high

* 19:30 – Why 80% of consumers feel powerless over their electric bills

* 22:30 – How ratemaking works, difference between OpEx and CapEx

* 30:00 – All regulation is incentive regulation: moving toward paying for performance

* 34:30 – The coming CapEx wave as evidenced by Sempra/Oncor

* 39:30 – PUC engagement of the public; public interest in electricity and energy

* 46:00 – Near term solutions, including Grid Enhancing Technologies (GETs) as “ibuprofen for the grid”; time-of-use rates, distribution system planning, etc.

* 52:00 – Consumers aren’t represented at PUC’s now

* 54:00 – How the public can engage in Texas

* 57:00 – Different “win-win” business models that benefit utilities and consumers

Resources

Featured Guest & Organization

* Charles Hua – Director of Powerlines, a national consumer advocacy group focused on modernizing utility regulation.

* Charles Hua on LinkedIn

* Powerlines.org – Reports, resources, and ways to get involved in utility regulation

Mentioned in this Episode:

* Tyler Norris et al., Rethinking Load Growth (Duke University)

* Powerlines Report: Utility Bills Are Rising – Q1 and Q2 2025 Data on Utility Rate Increase Requests

* For help shopping for better rates, see Power to Choose

* Excellent Volts Podcast with Charles Hua

* Senate Bill 1664

* PUC Office of Public Engagement

* Office of Public Utility Counsel of Texas

Related Energy Capital Podcasts

* Octopus Energy US with Nick Chaset – discussion of EV rates and flexible load

* Zach Dell with Base Power Company

* Tyler Norris (Duke University) – deep dive on ERCOT load factor and grid efficiency

* More episodes on utility regulation, affordability, and grid planning are available in the Energy Capital archives.

Find More on Social

* Doug Lewin on LinkedIn

* Doug Lewin on Twitter/X

* Doug Lewin on YouTube

Transcript

Doug Lewin (00:04.78): Welcome to the Energy Capital podcast. I'm your host, Doug Lewin. My guest this week is Charles Hua, the director of Powerlines. Powerlines is a fairly new organization now, a little over a year old, that is focused on helping people understand the critical and important job that public utility commissions do day in, day out to increase reliability and hopefully keep electricity prices lower. I really enjoyed this conversation. Charles is incredibly smart and insightful. And we got into what I think is probably the most common question I get on Twitter and LinkedIn. Sometimes questions, sometimes arguments about why electricity prices are going higher. Spoiler alert, it is not because of renewable energy. It's because of the increased costs on the transmission distribution system, particularly on the distribution side. We did get into a lot of charts and figures and things like that. So if you're not already watching on YouTube, you might want to switch over there or if on Spotify you can see the video there, you should be able to see those charts, which I think really do tell a story and the graphs, which really do tell a story. If you want to watch it on YouTube, Doug Lewin Energy is the channel. You can find me there. This is a free episode of the Energy Capital Podcast. It is not free to produce. We really, really appreciate our paid subscribers. If you're already a paid subscriber, thank you. If you are not, please go to douglewin.com and become one today. You'll have access to the entire archives of articles of the Texas Energy and Power newsletter, all the paid episodes of the Energy Capital podcast, grid roundups, reading and podcast picks, special presentations, chats during ERCOT board meetings and most PUC open meetings. Public utility commissions, as Charles talks about, are incredibly important and I do follow them here at the newsletter and you can join and follow along. douglewin.com is where you do that. And last but not least, please do leave a five-star review wherever you listen. And with that, here is my interview with Charles Hua.

Charles Hua, welcome to the Energy Capital Podcast. Let's start from the beginning. What is Power Lines? And tell us a little bit in that intro to Power Lines about this fantastic report you guys have out. Utility bills are rising, an analysis of utility bills and how they're affecting American energy consumers and who determines them. So what is Power Lines? And tell us a little about this fantastic report on utility bills.

Charles Hua (02:35.95):

Sure. Well, thanks again, Doug. So Powerlines, we're about a year old actually, a national organization, a national consumer advocacy group focused on modernizing the utility regulatory system, really with two key objectives in mind. One is to lower utility bills and second, hand in hand, is to advance economic development and growth. You and I actually met in August of 2024 in Houston during a very hot and humid summer. So that was a month before we had launched. And I think the topics that we had discussed then very much, if anything, have only intensified in the national discussion since, which is the confluence of load growth and affordability challenges and how that's playing out both in Texas, but also nationally.

This issue clearly isn't going away anytime soon. And so we put out two reports over the course of this year, one looking at Q1, the second, of course, Q2 data showing that utility rate increase requests during the first half of 2025 totaled $29 billion, which has already set a record for any year with, of course, half the year left to go. It's about two and a half times the same amount during the first half of 2024. And so some of these challenges that we're seeing play out in terms of rising utility bills, rising electricity prices have very much materialized, unfortunately. And the trend lines suggest that this issue is only going to get worse over time. There are, I do think many opportunities though to be hopeful. And I know we're going to get a little bit into some of the solutions available today, but at a very high level, what I find optimistic is the fact that there is a lot of available juice on our existing grid that we are not fully taking advantage of. And that might be one way for us to address some of this problem of both meeting this insatiable demand for electricity, but also putting some downward pressure on our electricity prices.

Doug Lewin (04:33.698):

Yeah, the confluence of affordability and the data center issues, my goodness, has your timing been amazing for establishing this organization and working on the issues you're working on? Let's just start with, so you gave a pretty eye popping number there, right? $29 billion, more than any other time that we could find in recorded history. Why are utility bills rising that much? What is the cause of these rising costs? And I'll just say for the listener, we're going to put this one on the YouTube channel, Doug Lewin Energy. So I'll have some slides up during this if you want those visuals with it, but we'll talk about it so you can understand. What's driving this, Charles?

Charles Hua (05:18.456):

So I think this is a really important question and we are seeing a lot of different responses to this question. And, you know, I think it's important just to break down what even goes into a utility bill, of course. So there is the transmission piece, there's the generation piece, there's the distribution piece writ large, and of course some other fees and costs. But just focusing on those three components of our grid, it is really the transmission and distribution costs. So the grid infrastructure, the poles and wires, both the long high voltage poles and wires across highways that make up our transmission system, as well as the local poles and wires in your backyard, in your neighborhood that make up the distribution system. That is very much the lion's share of what utility capital expenditures are going towards. There was a statistic from Lawrence Berkeley National Lab in 2023 that said, if you zoom in just on the distribution piece, that made up 44% of all utility capex in 2023. And so there's a real need to take stock of what exactly is going on there in terms of the grid spending, what is driving that increase and what do we do about it? So on that piece, in terms of why grid spending is going up, well, there's several factors here. One is just the fact that a lot of our grid infrastructure is at the end of its useful life and needs to be replaced, particularly on the distribution system. And so some of this is just replacing aging assets and that cost is something that we're just going to need to eat up. Otherwise we are going to experience power outages and blackouts. But in addition to that, there are new dynamics, including for instance, rising electricity demand that is creating this near term urgency and pressure that a lot of the utility and other grid operators are feeling to build out some more grid infrastructure to be able to accommodate new load.

And it's not just data centers. You're going to need to, of course, upgrade the distribution system and those poles and wires for electric vehicles, for other sources of electricity demand as well. And then, you know, needless to say, the intense and more frequent extreme weather events are creating significant challenges for our existing grid. You know, you don't need to look any further than Texas for examples of that and the life or death implications of not investing in the grid infrastructure. So these are very material contributors to this challenge. And what you're seeing in this graph here is that really in the last three to four years, this issue of utility rate increase requests really picking up. It's as you can see, you're almost tripled, doubled certainly since the start of the decade. And so when you then look at that figure in 2025 around utility rate increase requests in the first half being at $29 billion and this trend showing no signs of relief, I think it really does raise questions around how can we better scrutinize these costs and make sure that on a dollar for dollar basis, any investment that we do make is ultimately benefiting consumers at an even higher clip than what we're spending into the system.

Doug Lewin (08:28.568):

Charles, I can't tell you how many times I see in Twitter and LinkedIn comments and all of that, that, you know, renewables, they keep saying renewables are lower costs, but how come my bill keeps rising? I want to put a finer point on this. It's a complicated confluence of different things, but to make it as simple as possible, the biggest driver is the T and D system, transmission and distribution. And among those, correct me if I've got this wrong, distribution is actually driving those costs higher, faster than even transmission. So if you're ranking them, it's like distribution, transmission, then a bunch of other things, three, four, five, six below that. Is that accurate or not?

Charles Hua (09:09.582):

That's right. That's right. And you wouldn't necessarily come to that conclusion if you're just looking in the news around debates over generation as it relates to clean energies and fossil fuels. Frankly, the data shows that really generation is not what's driving up bills. It's really the transmission and distribution piece. So I do think that that level setting around the facts of what is contributing to these rate increases is critical.

Doug Lewin (09:35.426):

Yeah, absolutely. All right. So, and we kind of know this, and your reports break this down really well because there are different types of utilities. And this is a really important thing to talk about for Texas. In Texas, we have lots of different kinds of utilities, right? There are transmission and distribution utilities like Oncor and CenterPoint, AEP, TNMP. Those are regulated monopoly poles and wires companies within the competitive areas. Then we also have municipal and co-op utilities within ERCOT. We have vertically integrated utilities outside of there. And as if that wasn't complicated enough, then there's gas utilities, right? And so gas utilities in Texas, most states have the PUCs regulate all of this. Texas has the Railroad Commission regulating gas utilities. So that was a little bit of a 101. I'm going to ask you to do a little 101 on rate making. For those that have been in this a long time, we'll have timestamps on there and you can fast forward through this, but I think it's really, really important to level set on all of this.

One of the reasons we know that renewables are not driving the prices higher is because you can look at the gas utilities, the local distribution gas utilities, their prices have risen at a faster rate. I believe your report has it at roughly 40% over the last five years compared to like 30% on the electric side. And if somebody would like to argue to me that renewables are making gas utility bills higher, meaning your gas bill at your home, if you're in Texas, that would be Atmos or Texas Gas Service, like the gas for heating that is directly to your home. If somehow renewables is driving that price higher, I would love for somebody to explain that to me. That is one data point that kind of proves this, but you guys are in the data. What else are you relying on to show that it is distribution and transmission and not renewables that are driving up bills?

Charles Hua (11:32.45):

Well, if you also look at what utilities are explaining in some of these rate case filings, for instance, in terms of why they are even proposing these rate increase requests, they are also saying that it's a lot of the transmission distribution infrastructure. You know, you point out the different types of utilities in Texas. Clearly everything is bigger in Texas, including the number of different types of utilities. But as you can imagine, if you are a utility company that only owns transmission and distribution assets. So just to dive into kind of the profit and business model of utility companies, generally speaking, utilities earn a rate of return on capital expenditures and operational expenditures. And so when you have an opportunity to invest in capital expenditures around new transmission and distribution infrastructure, that is how utilities in general capture more profits. And so from that standpoint, you can clearly see that there is an inherent hunger and motivation for those utilities to invest in new transmission and distribution. Now, to be absolutely clear, I think as we laid out the need for those investments is clear, especially clear in a state like Texas that is unfortunately grappling with some of these reliability concerns and these increasingly intense hurricanes and other extreme weather events.

At the same time, we ought to take a look, given some of these affordability pressures of, well, how do we minimize just the amount of new capital spend that we're doing and maximize the efficiency from the existing grid that we have? On the transmission system, how do we take not just look, but really accelerate our action on grid enhancing technologies across the whole spectrum? And I know that Texas has advanced some measures on that front that are quite promising. And then on the distribution system side, there's a whole slew of both policy and technology interventions, and we'll get into them later. But the notion of energy efficiency as sort of something that maybe in the last couple of years has lost the shiny appeal that I don't know if it ever had that shiny appeal, but it certainly ought to be a solution that we take a much closer look at now, especially when the need for electrons of all sizes, shapes and colors, although I think, you know, they're the same size, shape and color, but getting electrons on the grid now via efficiency is one such way that we don't need to just over invest in new capital infrastructure that's ultimately going to flow through consumers' utility bills. And again, we're going to need some of that, but the rate at which those bills increase is going to be quite important going forward as these affordability challenges intensify.

Doug Lewin (14:17.442):

Yeah, so you've just teed up so many of the things I want to talk to you about, including the OPEX versus CAPEX and energy efficiency. We're going to get into all of this. Before we move away from this though, I do just want to show this is another, and again, this is from the Powerlines report. We'll have a link to it in the show notes, but if you just Google Powerlines, utility bills are rising, it'll come up. What this shows for those that are just listening is the wholesale electricity prices are basically flat across the last 15 years. There's a huge spike in 2022, and you'll correct me if I've got this wrong, but I'm pretty sure that's the Russian invasion of Ukraine driving gas prices higher. And that looks like an outlier. It looks like a particular event that was driving wholesale electricity prices higher. Texas had an increase that year for sure, but probably not as extreme as this is a US number. But basically, if you look at 2010 and 2025, if I'm looking at that right, Charles, it actually looks like 2025 is lower. I don't know if you've inflation adjusted or anything like that. You could talk about that, but basically like lower wholesale electricity prices 15 years later. What could you think of that has actually gone lower in the last 15 years? But meanwhile, retail residential electricity prices are up significantly. This is a US average from 12 cents kilowatt hour all the way up to 16 or 17 cents. Anything else you want to say about this particular chart from your report?

Charles Hua (15:46.326):

Yeah, I think this pairing of charts is really important because you can see certainly on the right the retail residential electricity prices. They've only gone in one direction. They have only increased and this creates all sorts of questions in terms of how come, and certainly during certain periods like wholesale electricity prices at minimum you can see very clearly on that chart in the last couple of years have decreased, yet this is also coincided with one of the fastest growing periods of retail residential electricity price increases. So that raises some questions in terms of the, you can call it regulatory gap, essentially from wholesale prices and how that flows down to ultimately the price that you and I pay for our utility bills at the end of the month. And some questions around, well, how do those costs actually flow through the value stack essentially? And how do we make sure that we put some downward pressure on retail residential electricity prices because those are only going up based on that chart, but it doesn't have to increase at the rate that it has in the past couple of years for a variety of reasons.

Doug Lewin (16:51.222):

Yeah, that makes sense. And I also just want to show this one. This is also from the report. And what this one shows is it's kind of a heat map of the average US monthly electric bills by state. Texas kind of pops out at this one. It's not the very highest electric bills in the country, but it's in the top quartile. And this is an interesting one because this is where we need to distinguish between rates and bills, right? Texas rates are actually below the national average. Our bills are actually above the national average, and that's a function of it's a really hot state. And so we use a whole lot of air conditioning, and that's one A. One B, not to be lost, is we do a lot less energy efficiency than other states. So there's a whole lot of energy waste that is going into these very, very high bills. Anything you want to say about this one, and then we're going to pivot and talk rate making 101 and all that good stuff?

Charles Hua (17:42.264):

Yeah, absolutely. I mean, I think there's this general perception that electricity bills are only high in a couple regions, notably New England and California. And while some element of that is true, I think we can see that there are many regions across the country that are struggling with this issue of utility bills exactly in part for the reason that you talked about in terms of the fact that bills are what people ultimately pay and have sensitivity towards, not rates. You know, rates are more relevant perhaps for commercial and industrial customers, but for your average residential consumer, you care about your utility bills. So it does raise some questions around what we can do on rates, what we can do on energy usage, what we can do on bills. And I know we're again, we're going to talk more about that, but I think it's very clear that we need to be very specific when we talk about energy affordability and for whom and in what metrics we're using to define that.

Doug Lewin (18:40.43):

I also want to point out that in Texas, we just had a slide up that showed the average US rate is something like 16 cents. Last I checked, it was a month or two ago, but I don't imagine it's much different right now. The state does have a website to help people shop for electricity. Again, we have different kinds of utilities. If you're in Austin, San Antonio or a co-op area, you can't shop. But if you're in Houston or Dallas or Corpus or Laredo or any number of other places within Texas, you can. And you can typically find 13, 14 cents on there. You want to be careful, read the fine print. Some of them have a minimum usage. There's all sorts of gimmicks out there. I have done a couple of podcasts with retailers like Base Power and Octopus that are offering different kinds of rate structures, including things for like EV owners. I think some of the big ones, the TXUs and Reliant and that have some interesting rate offerings as well.

And I bring that up, Charles, because one of the most striking things to me in your report was the polling or survey work you did. And I believe the number was, I should have written this down before we started, but something like, was it two out of three or four out of five customers felt like they didn't have control over their bills. Like it was happening to them and they didn't feel like there was anything they could do. And that's really where both energy efficiency and retail choice and maybe some other things, maybe you can talk about that. Like what are some things that exist now and maybe could exist through some policy change that would give customers more control over their bill?

Charles Hua (20:10.68): So this I think is really important, right? Because, so the exact stat was that four in five Americans, which was a consistent number across Democrats, Republicans, and independents feel powerless over rising utility bills. And I suspect that there are a few reasons for that. One of which is that unlike many, if not any other products that you consume on a regular basis, the month to month fluctuations and volatility are very pronounced and confusing for a lot of folks. There's also very oftentimes limited visibility in terms of what's actually driving those costs to the extent that that's spelled out on a utility bill. A lot of people, you know, certainly how should we expect everybody to know what a fuel adjustment charge or a transmission charge or a delivery charge is? It's not like it's explained on the bill. And there's also very few products where you know how much you're paying for it as you're consuming it.

So I think there's something that's fairly distinct about electricity and gas as a consumer product that somebody consumes that makes this a particularly frustrating expense. You know, there's certainly more expensive items like rent, for instance, but I think as the egg price news cycle showed, it's not necessarily just the most expensive thing that leads to the most frustration. And why that matters is on a going forward basis, if there's going to be all these utility rate increase requests and there's not a commensurate effort to make sure that consumers actually feel represented in the process and the decision making and the outcome and they know what the PUCT and ERCOT is and they know what's actually driving these costs, then there's a huge risk that there's going to be consumer backlash where folks will simply not want rate increases of any level. I think there's an extreme version of that where then we don't invest in any grid infrastructure and that's not good either. And so I think what this does mean is that there's an urgency to make sure that on a going forward basis as the set of constraints around our utility regulatory system and grid infrastructure buildup become more and more constrained that we actually center consumer interests in all of these decisions going forward.

Doug Lewin (22:27.852):

All right, cool. So we're going to back up one step because we're going to come back to participation. Let's do the real quick Rate Making 101 though. A lot of people know this, but I think it's always good to have a refresher. And you're an expert, Charles, and you're a great communicator. I appreciate this very much about you because this is hard stuff to explain. But let's talk about, you started talking about this a little bit earlier. How do utilities make their money? There are certain things that they get merely reimbursed for, and then there's other things that they not only get reimbursed, but plus a rate of return, CAPEX and OPEX. And talk a little bit about some of the problems and tensions that are in the system that really has now been with us, what, a little over 100 years, right? We're going back to Samuel Insull, like the basic pillars and structure of rate making are pretty much what they were 100 years ago, and I think there's very serious cracks starting to show. So describe the way it is now, and where might this head to have a better system that actually fits better with our modern needs?

Charles Hua (23:36.172):

Yeah. So the way that utility rates currently, what that rate making process and infrastructure looks like is, and this is going to be somewhat of a simplification, but you generally have two major buckets of expenditures. So capital expenditures and operational expenditures. The capital expenditures are new power plants, not in Texas' case necessarily, new poles and wires, those transmission distribution projects that we talked about. So just new infrastructure build essentially. The operational expenditures can vary, anything from operations and maintenance of some of those infrastructure projects to fuel costs, to labor. And so in general, capital expenditures are what receives a return on equity for the utility companies. Essentially, you know, one can think of that as their profit. And that metric is really important for utilities and investors because that essentially determines if you're an investor of the utility, you want the number to be higher because ultimately that is in some sense what return you can expect for investing in the utility company.

And the operational side, you know, you need to prove, you being the utility in this case, need to prove that those costs were prudent, they're just and reasonable, that they were incurred and you're not just, you know, passing off any type of costs. So there's some level of scrutiny involved, but in many cases, generally, as long as there's some level of reasonable defense for those operational expenditures, you'll get, you use the word reimbursed, essentially, you'll get cost recovery or reimbursement essentially for those costs. I've actually seen in some cases, like in, I think it was New York where a utility started offering Ozempic as part of its employee's healthcare benefits, and that actually made its way into the rate case in terms of what was recovered as a cost. And so, but there's other things. There are things like, you know, political expenditures and things like trade association dues and other components of operational expenditures.

You know, I think it'd be an interesting exercise for there to be a systematic look at exactly what all is in there. But the point is that utilities are really focused on the capital piece because that is where they earn a return. Now, as you can imagine on the operational side for something like gas or other resources that have a fuel component and is subject to volatile global and domestic markets, then those price increases, there's a moral hazard there in terms of how those oftentimes just get passed on directly to consumers. And some states have essentially this fuel adjustment such that the utilities can pass on a one-to-one basis those costs. And so they don't either make profit or lose money off of volatile prices, but consumers do pay the price no matter what. But going back to the capital piece, this is why in the case like some of the utility companies that are seeking rate increase requests like Oncor that are on the T&D side, why the notion of spending more capital on transmission and distribution infrastructure is very exciting is because that does represent an opportunity to earn that rate of return on that increased capital that comprises the rate base for utility companies.

Doug Lewin (26:55.064):

Charles, what are we seeing around the country in terms of returns on equity, ROE, right? So this is when you're talking about the capital expenditures and this is generally where the utilities get excited because they can earn their return there. What are you seeing around the country as far as like a range of those and is there some kind of a... I'm not asking for you to know this like perfectly, but like kind of roughly and where is the median that you're seeing?

Charles Hua (27:21.806):

Yeah, it's generally, it's been hovering around nine to 12 percent. We have seen in a couple of states definitely recently some rate case requests land on the higher end of that spectrum. And so there has been more analysis around what a healthy return on equity is for utilities that can still ensure that utilities remain financially solvent and can attract capital from Wall Street and shareholders. But in general, it's hovered around nine to 12 percent.Doug Lewin (27:50.88)

And I want to just drill down a little bit more. We're going to talk about Encore in just a minute, because that is an active rate case in Texas right now. And I do want to dive into that a little bit. But I want to just give a couple examples for the listeners of the different kinds of OPEX versus CAPEX. So many of the listeners of this show are in Houston. Houston last year over the summer with Hurricane Beryl, several hundred thousand people were without power for a week. One of the things that emerged from the hearings after that, there was a hearing at the Senate, by the way, where they talked quite a bit about different kinds of performance-based regulation, which we'll talk about in just a minute. A lot of senators were very interested in trying to figure out how to better align utility incentives with the outcomes that their customers want and expect and deserve. But one of the problems that was cited a lot, both at the commission and in the Senate hearings, and there was a commission hearing that happened in Houston, by the way. I want to talk about that too, spreading commission. I know this was in your report of like commissions don't have to meet. Actually, I think you brought that up. I think I've heard you speak on a podcast, Volts, David Roberts, a great one. If people don't get enough of Charles Hua from this one, go listen to the Volts podcast, which was a great one too. And you talked about how typically commissions don't get out of their own cities. This was the first time in a quarter century, to the best of my knowledge, they got out of Austin, they went to Houston.

One of the things that came up over and over again in that hearing in Houston, and I listened to all eight to 10 hours, whatever it was of it, was vegetation management. They were not trimming the trees well enough. The hurricane came through, it was a category one, but that caused widespread outages. Vegetation management is an operational expense. A utility does not earn a return on equity for trimming trees.

So they have this sort of bias. And I want to be real clear. There are some things utilities do that I think are downright nefarious. And we can talk about those things too. I don't think this is necessarily a nefarious one. This is just like all regulation is incentive regulation. And their incentives are to spend more on capital and less on operational expense. I'll give one more example that I think makes this really clear. During Hurricane Beryl, their Outage Tracker, CenterPoint's Outage Tracker, famously failed.

People were using Whataburger app to figure out where there was power because where the Whataburger was open, they knew that there was power in that area or power was coming back in that area as it were. CenterPoint's didn't work. And part of the reason is they were trying to house the servers themselves because that's a capital expense. If they had done it in the cloud with somebody that would have had much better uptime, that becomes an operational expense. I think that is as clear an example of the problem here. And some may quibble and say, that's not exactly the way it was. But the point is the illustration of that should bring home to the listener, like there's a problem here. If you are driving utility to spend more and more on capital, need to have a system of regulation that drives to the outcome, not to the kind of dollar that you're spending.

Charles Hua (31:08.002)

I totally agree. I mean, and I will flag that I have used that Whataburger map in many presentations and talks that I have given since, because I do think to your point, it is a stark illustration in how the energy capital of the world, in the wealthiest country in the world, that we are relying on fast food chain maps for where there's electricity. I think that's a pretty stark dynamic there. But to your point, I think this is something that is certainly not expressed enough, which is that all regulation is incentive regulation. We are, whether intentionally creating what I like to say, capital I incentives versus lowercase I incentives in terms of the capital I incentives being that ROE being the rate base, what goes into all of that. And the lowercase I incentives also being things like regulators asking the right questions and doing their jobs to make sure that costs are properly scrutinized and things like that. The point is whether or not we are creating a performance based regulation regime or not, there are incentives at play. And I think it's very important to know what those are because the vegetation management piece is something that has come up, not just in Texas, but also in California. And frankly, as the risk of wildfires just significantly increases across the West, that's only going to become more and more relevant and more and more regulators are slowly starting to ask those questions. But in a state like California, the question is, do we bury all of these power lines?

Do we trim our trees more effectively? And so this is a very real dynamic. And I think the bottom line is like, it's going to cost money for all of this stuff because we do want more reliable energy. We don't want a power grid that's going to fail. Back to your point about, you know, defining and being very crystal clear about what the outcomes are. I think affordability and reliability is something that everybody should agree on. I think is something that everybody has agreed on. Unfortunately, as we're seeing across the country, in many cases, neither are being met. And so I think it really calls into question, is this utility regulatory paradigm as presently constructed, working the way that it should be if we are ultimately keeping the end user in all of this in mind, that being the consumers and that's the residential consumers, that's the small business consumers, that's the commercial consumers, that's the industrial consumers, that's the whole spectrum of consumers, everybody wants affordable and reliable energy.

And it's incumbent on the regulators and the regulatory system to make sure that those outcomes are met. So in some cases, as you alluded to, states have introduced legislation or regulatory action to create a performance-based regulation paradigm, which as the name or phrase suggests, is trying to tie utility earnings and profits to their performance, to specific outcomes and metrics that the commission is defining and creating incentive structures around. There aren't that many states that have gone through the full kind of checklist of what would constitute the full spectrum of PBR, let's say, that includes things like performance incentive mechanisms, multi-year rate plans, et cetera, where there's multiple components and in different ways to define that. Sometimes you can have too many metrics. Sometimes you can have too few metrics. Sometimes there's concerns about loopholes or gamification of metrics, but I think the bottom line is regardless of what the exact solution looks like in any given state or utility or PUC territory, that it's critical that we keep those end outcomes in mind, which is affordability and reliability.

Doug Lewin (34:31.982)

Absolutely. So we're going to talk more about performance-based regulation and what some of the intermediate steps could be to crawl, walk, run towards better alignment of incentives. But before we do that, I want to talk about Encore. We talked just a minute ago about how there's a rate case there. What I'm showing on the screen right now, describing for the listener, those that are viewing on YouTube could see this, but there's a slide from Sempra's investor call. This was from I think it's from February of this year, and they were telling Wall Street what their earnings opportunities are going forward, and they show a capital plan that has, I think the number is 36 billion in it over the next five years, including this year, with another potential for $12 billion in spending. They also have a potential capital opportunities 2030 to 2034 of somewhere between 55 and $75 billion. So that would be somewhere between 11 and $15 billion a year. I went ahead and put this into a chart to look at what they've spent over the last five years, what they are planning to spend over the next five, and what that would look like in the 2030s. And so for those listening, what you're looking at by the 2030s is a 5X increase over what was in the 2020s.

If this doesn't bring home to the listener or the viewer, the imperative to do something around changing the business model. And I want to be real clear here. I want to be fair to the folks that are working at utilities. Again, I am not ascribing anything even close to evil motives here. There is, as Charles, as you said earlier, there is a great need for more investment in the system. Let's just put that out there. Like spending is going to go up on the grid.

The question is by how much and at what point do consumers just kind of break, right? Because if you're telling me four to five don't feel like they have any control and also from your survey, Charles, and maybe you can get these numbers a little better, was, well, why don't I just ask you, what did people say about whether or not their bill was fair or at the right size or was too high? It was something like half thought their bill was too high or something like that, right?

Charles Hua (36:54.638)

Three and four were concerned about utility bills rising. And one thing that also flagged is that 60% of respondents, again, consistent across blue, red, and purple, Democrats, Republicans, and independents, said that they didn't believe that the state government was doing enough to protect their interests as consumers. I want to be clear, the fact that that was consistent across party was actually pretty surprising to us in terms of for something like your views on your state government and whether that's protecting your consumer interest. I think the bottom line is people don't care about all of the specifics on how to bring about more relief in terms of more affordable utility bills. They just want more affordable utility bills. And this chart that you're pointing out is very staggering because as we've talked about, expenditures are going to go up. That is a pretty significant 5X increase. I mean, I don't want to undersell that point.

Really we're looking at is a bar chart that shows how much people are going to pay for all of this, because it's at the end of the day, is consumers that, that foot the bill here. And so I think it's, it's a sobering forecast of what things could look like. And there are, you know, not to make this too gloomy, there are thankfully solutions that exist today that are cheaper today that we can deploy today that can put some downward pressure on those bars. And with the idea that hey, if we can spread out those costs over more consumers, such that the numerator of electricity prices being those capital expenditures and the denominator being consumers that we're serving. That's a huge point. Could actually decrease. Like that is on the table, but we are far from that scenario right now for a variety of reasons that we've gotten into and can continue to get into during this episode.

Doug Lewin (38:44.43)

A huge point, and I appreciate you making it because that actually is kind of a ray of hope or sunshine here. Well, sunshine, A, we've got a lot of renewables in Texas and that is going to put some downward pressure because renewables are putting downward pressure on the generation side. But on the T and D side, the transmission distribution side, you're absolutely right as you do get additional large loads and things like that into the system. If the system of transmission to distribution cost allocation, which is something the commission is going to be taken up this year, if that's done right, you could see those costs spread over more entities. And at least maybe that wouldn't cause prices to go down, but could at least relieve some of the pressure. But Charles, this is, I think, a good lead in to what I think is one of the most important points, and I think is really, at least as I perceive it, at the heart of power lines and maybe speak to whether that's true or not and how you guys are working on this, but how is the public engaged?

Because I can tell you for a fact, as somebody that has worked in this space for decades, I still find these utility convenings very, very difficult to follow because there are rate cases every four years, but that in between there are DCRFs, the distribution cost recovery factors, which is basically just a way to like, okay, we spent all this on the distribution grid, let us recover that plus the rate of return. Cost, transmission cost of service, EECRFs, energy efficiency cost recovery factors, which by the way, the utilities just got $100 million in bonuses last year on $150 million in utility incentive spend. There's so much going on and it is so difficult for me to keep track of it. I write a damn newsletter on this stuff and have a podcast on it and I have trouble keeping up with all this stuff. What is the average person to do? The person who's just like those four out of five that say, don't have any control over my ... How do they participate in these processes and how can the state policymakers and regulators make it easier for people to participate? And before you answer that question, I just want to say this. We were just talking about Encore and you saw or heard about all those rate increases coming. To my knowledge, there is not one single meeting in the Dallas Fort Worth area that the Public Utility Commission, a neutral arbiter, will hold in that entire service territory. Dallas, Fort Worth, or West Texas, they serve way out into West Texas as well. And that is standard practice. When these rate cases happen, there are no meetings. Now, the utility may hold some meetings, but the Public Utility Commission does not. We have got to find ways to make this more comprehensible to people and to bring them into a process that has such a huge impact on their lives.

Charles Hua (41:30.72)

Absolutely. And to give you an example in a neighboring state in Louisiana, there was a hearing on an energy efficiency rule that was held closer to Texas, than it was to the heart of Baton Rouge and New Orleans and where, who was going to be impacted by energy efficiency. It was, it was essentially a ruling to, without getting too into the weeds there, gut the notion of an independent program for energy efficiency. So there are ways also to abuse this in the other direction, but I think the point is that doesn't really make sense in our small D democracy here in terms of whether consumer interests are actually being represented when folks who are ultimately being impacted by those decisions don't really have any meaningful way to participate. I would say that it is not fair to expect consumers want to do all the work to figure out what a public utilities commission is and what an electricity market is. And then to be able to show up to a meeting, especially if it's not held during you know, convenient times for folks. And if there's no opportunity for folks to travel to that meeting, I mean, these things in a way sound squishy, but I just want to reinforce the fact that to your other question around how the public is engaging with this, they have fundamentally engaged with utility and energy affordability issues in 2025 in a way that I have not seen to this degree ever before. And this is now blowing up in TikToks on social media.

If you just look at the national and local news coverage on utility rate increases, certainly I can speak to the national level that has significantly proliferated in 2025. And, you know, we have a great comms team and I would like to take credit for our comms team on their behalf and their incredible work in trying to catalyze that national discussion. But frankly, this conversation is just happening out in the open in a way that it hasn't been. And so the mismatch there though, the challenge is that if consumers lose trust in the viability of this utility regulatory system, which again was set up in theory and in practice to protect the interests of consumers as the beneficiaries of the invention of and commercialization of electricity. But if we lose sight of that, then I think this whole project around our utility regulatory system has significant risks. I have seen both chatter from policymakers and consumers to abolish public service commissions. I mean, like some of this is not necessarily based in granted in reality, but the fact that these discussions were even happening, I think is cause for concern about the downside risks of not getting this right. And I do think that the question of creating more opportunities and accessibility for consumers and members of the public and not just them, but also other stakeholders that have interests at play here, local governments and large corporates that have significant energy use. If we don't create pathways whereby they can engage or at minimum that their perspectives can be incorporated, then what are we doing? And I think that to your point there on that specific example, there is a need for public utility commissions to also be proactive about identifying which communities, consumers and stakeholders are impacted. And then proactively go solicit that feedback and not just have this notion that, if they're not coming to us, then that means that they're not particularly concerned or motivated around these issues. In fact, it's quite the opposite.

Doug Lewin (44:53.75)

I think that's exactly right. And I think just like the commission held a meeting in Houston last year, they need to get up to the Dallas-Fort Worth area and West Texas during this rate case and hear from people. And I know there's all sorts of Byzantine rules around rate cases and what could be discussed with intervenors and all that kind of stuff, but they can hear from the public and take their input. They need to hear that real life experience of people. I will say Charles, I will give some credit to Texas on a couple of fronts. Number one, there was a bill passed during the session, Senate Bill 1664. That requires going forward any utility to describe to their customers in plain language what is happening to their bill in a rate case. Doesn't go in and affect it till September 1. Encore has already filed their rate case, so it won't apply to this one. But for any rate case going forward, there'll be some additional requirements to explain to the public the impact on their bills. In Texas, you can put a comment into the Public Utility Commission without a lawyer. I used to work at a company where I led regulatory, and there were a bunch of states where you couldn't even comment unless you had a lawyer. That is not the case in Texas, and there is a pretty good guide on the PUC website for how to submit comments. We will link to that in the show notes for folks that And I will put a link to the docket number for this Encore rate case. But I think you're precisely right. The commission needs to do more proactive outreach again. I don't mean this to just be critical because they are under-resourced. They do need more resources to do this. They did get additional resources in a recent session after Winter Storm Uri, and they did establish an Office of Public Engagement. We will link to that office, which I think is really an important step. But getting consumer voices more involved is really, really important. I want to talk about a couple other things that I think ... I want to talk about this, Charles, in terms of like a crawl walk run, because I think like, you know we're talking about performance-based regulation and that's like, like you said, just as you were talking about it, I'm like, my God, this is really complicated. It really is. There's just no other way about it. It's just really complicated and it's not the kind of thing that's going to happen in a few months or even a few years. That kind of thing will take time. But there are some things that we can do along the way. I want to give a couple of examples and then I want you to either talk more about those examples or add other ones that you think would be useful for the commission and for advocates and the general public in Texas to think about. Distribution system planning would be one of those. The data is showing us that the largest increase in utility bills are on the distribution side. How does the distribution system get planned? It gets planned internally at a utility with very, very little transparency. I would go as far as to say it's basically opaque. And so there are times where there could be a solution that a competitive provider out there could, instead of building this brand new substation, we could put out grid enhancing tech. Well, that would be like, instead of upgrading a transmission line, but like we could have distributed energy resources that would obviate the need for this new infrastructure or reduce the size of that substation. Maybe it doesn't need to be a $50 million. Maybe it could be a $30 million if we put these DERs out there and those cost less than the $20 million Delta.

But how would you know that? If you're a competitive provider in the space, you don't know what the utility's planning to spend outside of these great big aggregate numbers that we're talking about. I think there's also a ton of, I mentioned earlier PIMs, that's a good acronym for people to know, performance incentive mechanisms, right? There could be smaller ones that just say, hey, we're going to give you a cash reward if you achieve X. Like you're just going to make more money. Again, all regulations, incentive regulation, put the carrot out there. Get that outcome. The most recent, well, when this comes out, it might not be the most recent, but the most recent podcast of the day we're recording that went out was one with Octopus Energy US CEO, Nick Chubb. And we talked about they have a special EV charging rate for some of their customers that have EVs, but the transmission distribution charge is still the same, whether it's two in the morning and there's plenty of power or it's eight in the evening and the sun's gone down and we're in a period of high prices, the distribution charge is exactly the same. You could have some kind of time varying opt-in kind of a rate that would be revenue neutral, not required of customers, but people could opt into it. That would give them an incentive to use more when it's cheap, to use less when it's not. And then the public participation. Like to me, those are all things that could happen in the next six to 12 months without a massive heavy lift that would make a real difference, maybe six to 12 months is not realistic, whatever, in the short to medium term that would make a real difference. Comment on any of those you want or add to the list with things that you think in the short and medium term might make sense in the crawl of the crawl walk run.

Charles Hua (49:57.2)

Totally. I mean, I fundamentally agree with everything that you just said. You know, there's a couple of different ways to think about near-term solutions that can provide some immediate relief on the, on the technological side. You listed a couple of them. I described grid enhancing technologies or GETs as the ibuprofen for the grid in the sense that it can provide some immediate near-term cost relief in that it gets more juice out of our existing grid. It can accommodate some of, and meet some of this rising demand on a near-term basis. Those very customers want grid enhancing technologies, it's beneficial for consumers, it's an OPEX oriented solution. And so that's why in part, the notion that utilities are preferential towards capital investments that does come into play. But I think there's a near term dynamic where if we want some immediate relief on, on bills, this is one solution. You mentioned a couple others, virtual power plants, distributed energy resources, Texas, obviously actually in many ways leading the country in those fronts with still opportunities to further accelerate and we also touched on energy efficiency. Why are we not taking advantage of all of the available electrons that we have on our grid? You know you've had Tyler Norris on your podcast. He's had obviously an incredible great paper with, some of the other colleagues at Duke university where ERCOT's load factor is around 53%. What that means is that there's an opportunity for more juice for us to squeeze from the existing grid and let's do that. And then on the policy front.

The two that you mentioned in particular, distribution system planning and rate design reform, are two of the ones that we would certainly champion and espouse as things that states should at minimum be looking at, if not implementing, if it's right for the regulatory system in that particular state. That's only going to get more and more important, especially around the question of distribution capex.

Transmission planning is something that in general also is highly relevant in terms of taming some of the transmission costs and making sure that consumers are benefiting from new transmission investments at a national level. I know, some of the things that we're talking about here are for quarter 1920, which certainly doesn't apply in this context. But there are ways for us to just continuously improve transmission planning, interconnection. And this is also an opportunity maybe for AI and positive AI use cases for the grid to come into play to just speed up some of these processes as well in terms of getting more electrons on the grid to accommodate more load, but doing so in a way that actually again puts downward pressure on rates, which we are very far from in practice right now. And then I think it's really important just at a macro level, what I would just continue to emphasize is that consumers aren't really represented in the utility regulatory process right now in a meaningful way. And I think there is a huge need and an opportunity as more and more consumers are concerned about these issues or engaged on these issues, but maybe don't know what the PUCT is or maybe don't know what ERCOT is to understand that there are bodies beyond utilities that have a role to play here and they should engage. They should provide public comment in some of these proceedings because at the end of the day, it's a two-way street too. Like for consumers to be represented, I agree with you that public utility commissions in general should be resourced to be able to be more proactive in soliciting consumer feedback and input on decisions. But also in the meantime, in the absence of that, as consumers, we all should get more engaged ourselves to the extent that we can and participate as well.

Doug Lewin (53:28.654)

Yeah, absolutely. And I would point out that in that Encore rate case, there are a number of intervenors, organizations that have members. AARP is an intervenor. So if you're a member of AARP, you might look to get involved through that organization. Texas Consumer Association has members. They are an intervenor. Environmental Defense Fund. There is a state agency in Texas, the Office of Public Utility Counsel. Obviously most states have these. That is a residential and small commercial rate payer advocate. You can reach out to them. That is a state agency that exists for you if you are a residential consumer. And I would also point out there are cities, there's two different groups of cities that intervene. Now, they typically intervene looking out for the bills that the city pays, but there's no reason why they couldn't have a little bit more expanded role and look out for their citizens as well and what their bills are. So I would encourage folks to reach out to your city and to ask if they are an intervenor in the rate case. So those are just some avenues that I know it can be intimidating. And obviously, you could put comments in, but if you're not an intervenor, that comment will be seen, but it actually won't really be considered within the cases as part of that sort of Byzantine setup. So I would still encourage people to do that, to participate. One other note on this, Charles, again, there's a lot of negativity in a lot of these conversations, certainly not on your part. You've done a great job, but I sometimes feel like Dougie Downer in these things of all the, showing all these charts of prices going up. But I do want to say that Texas is making progress, and I don't want to give short shrift to where there are good things happening. Some of the reforms after Winter Storm Uri, there is a public comment period now on everything that comes up at the PUC. People rarely use it. You do have to come to Austin to use it. They don't give you a remote call-in option.

But if you're in Austin or near, or going to be visiting Austin, or whatever the thing might be, or if again, part of one of these organizations, you might coordinate with them to actually ... Because that is important. The legislature intended for the Public Utility Commission to hear more from people. It's kind of shocking that wasn't part of the normal way of doing things before, but it is now. At the beginning of the meeting, they hear general comments from the public, if there are any, and on every single docket they bring up, they've got to create that space for people to speak. So Texas has kind of taken some steps towards this. I think this is going to become just so vitally important because, and this is where I want to get to the walk and the run. Like what are the kind of longer-term things? Because Charles, as I've said a few times, and I'll say it again, there is this kind of tension here because I don't think anybody can look at the grid of the United States of America and say, yeah, we don't need a substantial investment in the grid. Like the grid needs investment. We need to put more dollars into the grid. That is a good thing. And I want to be generally supportive of that. We don't have any extra high voltage transmission lines in the state of Texas. In countries around the world, they're putting up hundreds and even thousands of miles of these things that we've got zero. Ohio has some, Texas, we have none. We need those, and that costs money. There's no free lunch. But we have to come up with ways to balance that to make sure that the bills aren't rising so fast that people can't keep up with that. So part of that is what you talking about earlier is making sure that some of the large loads are paying the cost. But then there's some other things too. So let's talk about walk and run. I'll throw out a couple ideas. I've heard you talk about these things, but I want to get your reaction to them. And again, you can kind of add to the list. One is to potentially go to a lower return on equity, but actually make that return on equity for what's called TOTEX. Instead of just paying, I don't know if I'm pronouncing that right, but I think I am. Instead of capital expenditures being the only place you can earn a return on equity, you would earn on capital and operational expenses, which would remove that bias towards capex. So then you'd be more likely to spend on things like cloud-based solutions or AI solutions or grid enhancing technologies or vegetation management or any of those things that aren't earning a return now, but in exchange, you would then have to have a lower ROE overall because like Encore and their rate case is asking for like 10.5, 10.6, something like that. If you spread that out over all the OPEX, now they're making a ton more money. So there'd have to be some balance point there. I also think figuring out a way, and this is, I think, related to the distribution system planning piece, where alternatives, what are often called non-wires alternatives, they're just, it's basically just a basic principle of can we have some competition in the system

And importantly, so that the utility just doesn't see this as a zero sum game and they're losing, some performance incentive mechanism tied to that. Hey, anytime you save your rate payers money, you could actually just get a cash payment. Let's say you just saved everybody 10 million by doing a bunch of DERs, we'll give you an extra million. Your customers still save nine, and that million wasn't even on capital you had to expend. So Wall Street loves that, right? That's pure margin, right? So there are win-wins to be devised there, if you can get to some kind of, and I think that all Charles kind of comes down to something that fits under the umbrella of PBR, of performance-based regulation. There has to be some kind of, maybe we need a different term to describe it, maybe the words aren't right, but that's kind of fundamentally what it is. So those are a couple of things that I think are longer. They're probably going to take a lot of like meetings, and hopefully commission can open dockets and start to explore these things. take time, but react to those. And then again, if there's other things that you think are on that longer term period, but we've got to start working towards now, I'd love to hear what those ideas are.

Charles Hua (59:19.916)

Well, I actually like the term PBR in part because I think one thing that the energy space should have is PBR happy hours. And that'll attract folks for perhaps two reasons. So I think that in general though, to your point, the notion that all regulation.

Doug Lewin (59:35.928)

I just got that. I'm embarrassed how long that passed through the ribbon. Okay, took me a minute. I'm embarrassed at how long that took me. Yes, okay, good. I saw it.

Charles Hua (59:46.424)

I saw it in your eyes for those watching on YouTube, maybe extra incentive for you to watch it on YouTube, There you go. It goes to show that there's two types of people in the world. Those who think that PBR is performance-based regulation and those who think that it's a beer. And there's nobody in between.

Doug Lewin (01:00:06.446)

We have to have all of them involved for this to be successful. We're going to need the people in this too.

Charles Hua (01:00:10.734)

Exactly.

Charles Hua (01:00:12.274)

And much more of the latter because as you know, not small the former is, we need much more of the latter. But I think that's exactly right. And again, going back to what you raised, is all regulation is incentive regulation, which is the fact that another way that I would put it is, let's keep in mind why we are doing all of this. All of this being our utility regulatory system where we're building new power plants and new poles and wires and serving customers is because at the end of the day,

Charles Hua (01:00:40.29)

we are providing in this whole system a critical resource, notably electricity and gas for consumers. And the for consumers part is critical because if you don't have affordable energy and if you don't have reliable energy, then you are breaking that that sort of social and consumer and public trust in the system. And so I do think that there's a need here to really course correct and make sure that as we tackle these issues going forward that we do keep that in mind now.

Charles Hua (01:01:08.91)

That's a little bit abstract. think in practice, some of the things that we want to see more states doing include developing an affordability action plan and being proactive about it. You know, this is something that as we're facing this inflection point of load growth and affordability and the potential rate of increase on both fronts really kicking into high gear, the need for this kind of quote unquote planning on the affordability question is only going to become more paramount. Some states have actually done a proactive job to investigate some of these questions around energy burden, energy costs, and how it's impacting consumers. This is something that in general, the PUC could do on its own, of course, is develop a kind of just North Star action plan for how to tackle this and stagger those recommendations short, medium, long-term. Part of why I say this is because the exact contents of that plan will look different depending on the state because we didn't really emphasize this necessarily, but the reasons why bills are going up does differ depending on the region and the specific profile of those drivers of transmission, distribution costs, extreme weather events, et cetera, fuel costs, just availability, things like that. So in New England, there's going to be a different set of reasons why bills are going up than in Texas, not to mention the differences, of course, in the electricity market structures in those different places. And so this is something where

I do think there is a level of engagement from governors and congressmen on these issues in a way that we also haven't seen to this degree in a while, where I have seen Governor Cox in Utah, governor Shapiro in Pennsylvania, governor Youngkin in Virginia, Gubernatorial candidate Mikey Sherrill in New Jersey, Governor Pritzker, Governor Healy, Governor Hochul in New York. I don't think that that group that I just mentioned hangs out together all that much, but this is a really bipartisan group of governors that are concerned in part because they're hearing from consumers about these issues. So to the point also about near-term things that you as a listener can do. One of them is after you've finished providing public comment on a rate case in front of the PECT is to go out and also let your other elected leaders know that this is a challenge that you're concerned about. And then this is something that we truly need. at the state, local, and national levels, a bipartisan framework to understand that this is a problem, that we do have near-term solutions like those technologies and policy fixes that we talked about that can chip away at this problem, us another day, and mitigate the concerns such that those medium and long-term solutions around affordability are not only going to be more feasible, but also more impactful once we do implement some of those measures.

Doug Lewin (01:03:53.73)

Yeah, and before I ask you what I didn't ask you that I should have, I also just want to reiterate, I don't know how anybody else approaches this area, but I know from you, from having talked to you in the past and from your reports and speaking for myself, this is not in any way meant to be kind of an anti-utility kind of thing. Utilities are very important. I think they're going to have a very important role for a long time to come.

As I said earlier, I think the investment in the grid is very much needed. I also think we're at a moment where this was a different discussion, Charles. I was having these discussions five and 10 years ago, 15 years ago. This is a different discussion because they can see how much investment is going to be needed. I think we might be getting to a point where utilities are looking at some of their own numbers and they have to be having the thought. Can our customers actually pay all this? There are going to be opportunities for them to earn a lot of money, even in an environment where grid enhancing technologies and energy efficiency and distributed energy resources are reducing some of the need to spend. They're still going to be spending a lot. So I think we're at a really important moment where not to be too Pollyannaish about it, but there is a potential win-win here. So feel free to comment on that and also what should I have asked you that I didn't that you'd just like to add? And let our audience know where to find Powerline stuff, where to hear more from you or read the reports, et cetera.

Charles Hua (01:05:29.15)

We've covered a lot of different turf here, so I don't think there's any other questions I would have asked other than why is there a Jordan Love poster on the back of your wall there, which I will give him a shout out. Go pack go.

Doug Lewin (01:05:42.242)

You just lost, we were talking to people in the DFW area, they were excited. They thought you were on their side with their utility and a rate case, and then you had to do that. Maybe we can edit that part out. It's very sensitive down here, Charles.

Charles Hua (01:05:59.886)

But on a more serious note, so I think that's right. mean, I also want to be clear, utilities are very concerned about affordability. know, we can look at the last 15 years in terms of why bills went up even without demand going up. know, second guess, are there things that we should have done differently? I mean, the reality is that ship has tailed. can't go back in time. I mean, that's just unfortunately the reality. What again, I think this does call into question is that on a going forward basis, if we're actually motivated to solve this problem, to really take a solutions oriented approach here, the line, the delicate balance of striking all of these priorities around affordability, reliability, and meeting these economic development opportunities, the need for us to thread that needle, that needle is only going to get thinner and thinner in terms of what is the range of prudent investments that's going to benefit all of these outcomes. And so what I do think that means is that going forward, especially in this affordability constrained environment, that utilities are, and they are doing this, is taking a closer look at what are the things that are going to benefit these outcomes. But they also need to hear from consumers too, in terms of how their decisions are impacting those very consumers that they're trying to serve. And so I think, you know, to give all stakeholders here some credit,

I do think on a going forward basis that there are opportunities for more constructive engagement in ways that benefit consumers at the end of the day. But again, we're not, you know, there's still daylight between where we're at now in that regulatory process and system and where we could go. And so what I do think that means though, is on a going forward basis, the role of consumers and making their voices heard in this whole process is going to become more important and also more impactful. So if anything, I see all of this as a clarion call for folks to engage. If they haven't engaged before now is the time because there's a broader set of stakeholders that are concerned about these issues. So you won't be alone and you haven't been alone, but you certainly won't be alone going forward. And it's very clear that this is not a blue, red, purple, green issue. This is an issue that impacts everybody. And so all of that is to say that I think that consumers have a key role in modernizing our utility regulatory system, which is what we're all about at Powerlines. And you can find more information about our work, our focus on public utility commissions, our focus on ensuring that consumers are represented in the public utility commissions and the utility regulatory system. You can find all of that at powerlines.org. And please do reach out if you have any questions, you want to get engaged, whether in Texas or elsewhere, but you know, in Texas, you're in good hands with Doug here, but there is a huge need for folks.

Doug Lewin (01:08:48.864)

Yeah, we need more hands. We welcome all the different groups and organizations and people. So do reach out. Sure, reach out to me, but reach out to Charles, too. I think the timing for this organization, Charles, is perfect. You kind of sensed a moment. I think you're doing a great public service with this because there is not enough attention on public utility commissions and utility regulation. It's a really important issue. And you guys are doing a great job of this. So powerlines.org. We'll put some links in the show notes so people can find you. But yeah, anything else you want to say? Thanks, Charles. I really appreciate it. This was great and looking forward to following your work and continuing to share it through the newsletter and the podcast. And yeah, thanks again.

Charles Hua (01:09:19.542)

No, that's it. Thanks Doug, appreciate it. Thanks for all your work.

Doug Lewin (01:09:34.231)

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