Travis Kavulla Explains Why Electric Bills Shot Up

SPEAKER_2 (0:03)

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Joe Weisenthal (0:18)

Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.

Tracy Alloway (0:23)

And I'm Tracy Alloway.

Joe Weisenthal (0:25)

Tracy, it's been too long since we've done an electricity grid episode.

Tracy Alloway (0:28)

I've been avoiding it on purpose, Joe. In all honesty, I really find this particular market slash issue a difficult one to talk about, because it's impossible to talk about it in broad terms. And I know on Odd Lots, we try to avoid doing that generally, but even in an hour long podcast, even with multiple episodes, we could do an episode for each electricity market in the United States and still only scratch the surface, right? Like you have to talk about regulated monopolies versus competitive markets, and then you have to talk about what's an independent system operator and what's like, well, what's Texas? That's a whole other issue.

Joe Weisenthal (1:08)

What is Texas?

Tracy Alloway (1:09)

What is Texas?

Joe Weisenthal (1:10)

What is Texas would be its own episode. But yeah, that's right. You ask a question to a grid expert and their first thing, and they're like, wait, are you talking about a competitive market or a regulated market here? That always seems to be-

Tracy Alloway (1:21)

Is this a metered basis or unmetered or, I don't know.

Joe Weisenthal (1:24)

Yeah, behind the meter, et cetera. Yeah, but anyway, obviously with the sort of, Ian Dunning, who we recently had Hudson River Trading, he was talking about how their main constraint is power. And that's just a small, a very small, in the grand scheme of things, user of AI services. We were talking about using AI and high frequency trading. And he said, even more than chips, that the power constraints are their biggest constraints right now. And so I do think that one thing we have to think about is, especially how long can this AI boom go on, is what's it going to take to get all of this AI activity on the grid? Like, how constrained is it?

Tracy Alloway (2:04)

That's right. And we also recorded that episode with Sagar and Jeddy, and we were talking about the political controversies surrounding AI. And obviously power consumption is a big one of those. Because at a time when electricity prices have already been rising, is AI only going to drive them up further? Although that said, you can't even say that electricity prices have been rising, because in certain states, they've actually been going down on an inflation-adjusted basis. So even that is a nuanced picture.

Joe Weisenthal (2:32)

But by and large, especially since the pandemic, really, by and large, we have seen faster than normal increase in electricity price inflation, and we have the big AI question. So we really have to figure out, A, how is all of this new data center capacity going to come on to the market? Who's going to supply the generation? And then who is going to bear that cost? Is it going to be the consumers who are already generally speaking across several markets, seeing their bills go up?

Tracy Alloway (3:02)

If we have to talk about this rubber band ball market, then I'm glad we at least have the perfect guess to do it. That's all I'm going to say.

Joe Weisenthal (3:11)

We do, in fact, have the perfect guess. Very excited to say we're going to be speaking out. Someone's been trying to get on the podcast for a little while, Travis Kavulla. He is a VP of Regulation at NRG Energy. He's also been on a public commission in Montana, so he knows that side of the business in terms of how prices are set in those regulated monopoly markets. He's also an academic. Travis, thank you so much for coming on Odd Lots.

Travis Kavulla (3:36)

It's great to be here. Thank you.

Joe Weisenthal (3:37)

We're really excited about this one because there are so many questions. Why are we talking to you? Why don't you give us the brief intro of what you do and what your background is, so that our audience has some idea of why you're the perfect guest.

Travis Kavulla (3:50)

Sure. I spend my time on regulatory affairs at a company, NRG. We're a big producer of power. We sell power to end-use customers where that's permitted by law, where competition exists in the power and gas markets. So we've got about eight million end-use customers. And previously, I was the head of the Montana Public Service Commission, the rate-setting body for regulated utilities in the state. I headed up an organization that represents state utility commissions at the national level called NARUC. And I teach a little bit on the side at University of Chicago's Harris School of Public Policy, a course on utility regulation and electricity markets. So I spend my time thinking a lot about what goes into customer bills, both the stuff that we can control, being a company that is a provider and also stuff that are sort of upstream costs of goods sold that appear on my company's bills, the sort of poles and wires charges that go into people's bills. So basically, you know, there's two parts of people's bills, the commodity and the regulated grid charges that get the commodity to you. And both of those are subject to some form of regulation in this industry.