Why Are Energy Bills Rising So Fast? A Conversation with Charles Hua

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.

Energy Capital is produced by ClarityForge Studios.

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