 Well, we're back. We're live. This is Energy 808, Energy and the Cutting Edge. I'm here with my wonderful co-host Jay Fidel, who I have always such gratitude to spend time with Jay. And I'm especially grateful and happy today to be on with my friend Eric Gleason of Next Year Energy. Eric and I go back now going on, geez, five, six years. And Eric's one of the most Akamai guys I know in the energy field. He has given considerable thought to energy dynamics here in the state of Hawaii, as well as energy in the US and energy across the universe, across the long and winding universe. So thank you so much, Jay, for being with me again. And thank you, Eric, my buddy for joining us again. I really appreciate it. Thank you. Hi, Eric, thank you for joining us today. It is a pleasure. Thanks. It's so nice to have you on the show. It makes me feel young again, which is not easy. So what are you been doing for the past couple of years? Well, we're trying to stay out of trouble, which now that I'm not in Hawaii is a lot easier. So I have two jobs, basically. You know, I'm obviously still with Next Air Energy, and we've got a lot of stuff going on. So one is I'm responsible for really a utility business in 11 states in Canada, and it's focused on high voltage transmission. So that's one piece of it. And then I have another day job, which is I'm responsible for strategy for what we call Next Air Energy resources, which is our renewable business and some other things as well. So between the two, basically, I'm very focused on the future direction of energy in this country and move into a high renewables power system as soon as we can and doing all the things we can to help facilitate that. You know, there's a lot of commentary one way or the other about how well the Trump administration has done or not during the four years just passed. I wonder, you know, how it's affected you, what your perception is and how it's affected Next Air? What, you know, how Next Air has participated or reacted? Well, we as a company did really well under the Trump administration. And our investors think we're going to do even better under a Biden administration. You know, if you watched our stock over the last year, depending on, you know, the ups and downs and expectations for both the presidential race and then, you know, the legislature. Every time it looked like things were going well for Biden or potentially a blue wave, our stock went up. The Georgia Senate race, you know, just outcome was like a 5% bump in our stock price. And so, so, so what's happening is basically our, you know, our biggest business is renewable energy. And renewable energy does well regardless of whether Republicans or Democrats are running the government. And so even though President Trump wasn't a big fan of renewable energy, the fact is a lot of renewable energy was was being installed in this country. And so we were doing well. But I think with President Biden, he's very focused on renewable energy. And so, you know, we expect to do even better. Yeah, there are, you know, the AOC crowd in Congress and a new green deal and all that. You, you would, you, I'm not sure where he's going to wind up because it's not yet settled exactly how green he's going to get. But but query, you know, how green do you think he will get? And how will how will that affect me? Could it be that we really move, you know, roll up our sleeves and move into green energy big time here in the next year or two? Well, we know the Biden energy plan because he published it. And it's even more aggressive than Hawaii's plan. The Biden energy plan is a zero carbon power system across the country by 2035. And net zero emissions economy wide by 2050, which I think isn't I think is in line with Hawaii. But the power, you know, ambition is about 10 years accelerated from from what Hawaii has set. And that's that's his that's his plan. I think even with a strong majority in the Senate, and all the so no real impediments to getting the plan enacted in law, because it'll need it'll need legislation to really happen on that kind of timeframe. It would be a challenge. It would be possible but a challenge, I think with with, you know, a divided Senate, it's it's that's going to be tough. I think that's not that's not our expectation. But I think the goal is is is noteworthy. It's certainly the most aggressive plan and targets by by any president of any party, you know, in our history. And and we think just based on economics, even if, you know, renewables don't come into that degree that soon, they're coming. And we expect that there's not going to be a lot of carbon emitting generation left in this country over the next couple of decades. I wonder, you know, if you look across the pond, so to speak, and to Asia, and make comparison about how things are doing or may do here. Are they ahead of us behind us? Do they have the same issues? Do they have the same aspirations? Where are we globally on this? Yeah, so I think so I think there's a couple ways to answer that. First of all, I think just in terms of actually getting renewable energy done. Right now, our our country's we can hold our heads high. Right. As a for instance, and this is just one example not to sort of beat our drum too much. But, you know, Next Air Energy is the largest, the largest power and renewable energy company in the world. And all we do is focused on the US a little bit in Canada. And so, you know, there's lots of giant energy companies around the world, lots of people focused on renewable energy, but no one's bigger than we are. So that doesn't say I'm not saying that to talk so much about Next Air Energy. It just says that our companies or our country is doing a lot of renewable energy. And so so that's one that's one way of looking at it. I think where we're behind is in terms of having a national goal for when we want to be at zero carbon emissions, zero or even better, zero greenhouse gas emissions, net zero. Most advanced, most developed economies in the world have adopted a goal of around 2050 for net zero emissions. And we don't have anything in statute or otherwise. You know, the individual states do, but as a country, we've really been a laggard. And so I'm hopeful that, you know, during during the Biden administration that we'll see that, that would be great to kind of join the rank of leading countries and, frankly, almost almost all developed countries and recognizing that we need to do something about climate change. And let's let's start with the things we can control, which is, you know, the energy system and then the economy as a whole. Yeah. Well, your point about Next Air being, you know, the biggest thing, I guess it's it's it's also because it's the biggest, it's also influential, if you will, in the in the energy sector. And there's a certain amount of leadership going on national leadership from from business from Next Air. What is what is Next Air's special sauce, Eric? You know, I'm not going to that's a great question. I'm not going to do it justice. I will say, I think we were fortunate in recognizing early, getting into the renewable business early. So we really got into the business in earnest, about 20 years ago. And that was key. And then we were consistent. We never stopped plugging away, getting better, learning, adapting. You know, we were at this point, we've developed a suite of, I guess, you know, strengths, things like, you know, our financial capabilities and, you know, the team we have and people in the culture and all that. But I think it really started with getting in early and sticking to it. And there's certainly, you know, it's not like we're the only folks in the renewable business. I mean, it's a very fragmented industry today. And a lot of people are coming into it all the time, because, you know, people can see the growth and anyone can see that this is a growing industry. It's important. There's a lot of socially responsible capital, you know, environmentally, we call environmental social and governance or ESG oriented capital that you would love to put money to work in renewables. So there's no shortage of people in the business and certainly no shortage of competitors that we have. But I think because we got in early, it's given us a leg up. You know, a few weeks ago, we heard from the intelligence agencies that Russia had hacked not only our federal government and various agencies within the government, but also large companies. And I wonder, you know, if that's a concern for you, either, you know, in the course of this current revelation or going forward, because we are, as you suggest, we are very dependent increasingly so on good energy, reliable energy and so forth. And it drives our economy. We all know that. So, query, how much of a concern would you have, would next era have about, you know, this initiative, probably right Russia, I would say by Russia to hack our systems? I would say it is a huge focus in our company at all the way up to Jim Robo, our CEO. And really in the industry, we're not unique. Cyber security is something we've all understood. You know, I guess I've been personally pretty cognizant of it for, you know, six or seven years. And I'm sure there are others here who have been focused on it longer than that. But, you know, China, Russia and other state agencies clearly are targeting our power systems as a way to totally disable our economy and our society. When you think about it, you could debate whether water or electricity is the most essential of essential services, right? You could debate because we obviously need water to live, but without electricity, you're not going to have running water at your home. And so it'd be very tempting for someone who, for a country, for a state actor that has bad intentions towards the United States to want to cripple our power system. And you've seen utilities have their systems hacked or penetrated. And so I can tell you it's a major focus in our company. I don't know that anyone's ever really totally safe from that. But, you know, we certainly are doing everything we can to make it very difficult for someone to do that here. I appreciate that. Marco, you must have a whole bunch of questions that you want to propose, propound to Eric. So let's have at it. Sorry, Eric. Thank you. God knows which follows now. Please, Jay, don't do this to me. I thought we were friends. I'd like to steer us back to the beautiful Hawai'i Island chain here, where two of the three of us are. And because Eric, I'm sure, has a number of very interesting things to insight to provide. So we had this performance-based regulation, which the decision in order was issued by our Hawai'i PUC on December 23rd. Last week, Monday, on the 4th of January, Hawaiian Electric filed a 95-page motion essentially for clarification and or reconsideration. And I'd like to ask you, Eric, first of all, if you could kind of give us the basic primer about what PBR is, how it differs from the the current long-standing regime of cost of services, a model typically for investor-owned utilities, and why, if any, why should we care? Is it a big deal, a middle-end deal or a small deal? So take it away. Well, let me start. And I know that folks who watch this show are a more, I'll say, energy-wonkish type of group of folks. So that's good because it's hard to have this conversation and not be a little wonkish. So I've read the order. And I understand that there's obviously, there is this pushback from Hawaiian Electric on some elements. So setting that aside, that's related to where you set the bar for cost reductions going forward for the utility. So let's set that aside. I thought I was impressed by the order. I was pleasantly surprised. And I have a lot of respect for the commissioners and the folks at the commission. But I still didn't expect them to come up with what they did. I thought it was very innovative. And we'll come back to your first couple of questions. But I think really the bottom line is, to some extent, the truth is, you don't really know if it was a great order and a great, if it's a great framework, until you get down the road and you actually see how it worked because it's quite innovative. But my sense is that people in Hawaii who care about energy should be very happy with this order or with this framework that the commission and stakeholders have come up with. It seems like they've really tried to find win-wins, which we don't see a lot in our country in the way we regulate utilities. And this gets to what it does. So typically, the way rates are set, let's go back to the basics. Utilities are viewed as natural monopolies. And so in return for getting a franchise to provide service, the rates have to be regulated because otherwise they can charge whatever they wanted. We all need electricity. So the rates are regulated. And the system we've evolved in this country is the general systems called cost-to-service regulations. So whatever the utility has to go into the regulator and say, here's my cost and I need my revenues to be set at a level that will allow me to recoup my costs, including a return on my investment for my investors. And that's the general way that regulation works. And it's a setup that served our country well for something like 100 years. So it's proven. But over the last 30 years or so, there have been some innovations in terms of trying to find a way to not just focus on the cost and setting the revenues to the cost, but providing some more incentives for the utility to maybe reduce their costs or maybe achieve some other policy or other objectives and give them really more skin in the game in terms of their performance. So that's what performance-based rate making is. And that's what it aspires to do. And I would say just as a philosophical point that there is no, I have never seen in my career, and I'm responsible for 12 rate-regulated utilities and been doing this for a while. I've never seen in my career a pure cost-of-service utility where the performance of the utility didn't matter. And I've never seen, you know, and I'm familiar with places like the UK where they've really were early pioneers in this. I've never seen a pure performance-based rate-making regime where the cost of service of the utility didn't matter. So to some extent, these are ideals that don't exist, but most utilities are more at the cost of service end. And I think what the commission in Hawaii is doing is taking HECO more to the performance-based end of the spectrum. It's interesting because what it's going to do is incentivize the utility to be much more focused on cost, and then in addition to deliver, you know, roughly 10 or 12 other metrics that will can enable them to actually make more money or less money, depending on how they do. So, you know, if you think that the cost of your electricity is important and you think that some of these other goals like, you know, renewable integration or reliability or what have you are important, then, you know, I think you should feel good about this new approach. Does that answer your question, Marco? Did I guess, maybe you could elaborate a little bit on why you believe that it is truly a win-win or why you believe that as it, and granted, we were just the beginning. Well, not quite at the beginning. We're a ways into it, but we haven't seen the implementation of PBR yet. That will be unfolding over the months and years to come. What do you think are the tangible prospects and benefits that will accrue, in this case, to the 400,000 plus or so ratepayers across the five islands that Hawaiian Electric serves? Can you try to, I'm trying, for someone who's not up on the verbiage and the concept of PBR and cost of services, you know, to the average bill payer across Hawaiian Electric territories, what difference is it going to make to them? So, leaving aside the cost savings that are in, you know, being debated as to that will be flowed through to customers in 2021 and beyond. Let me give you an example. And this is really why I was surprised actually at how far they took this. So, the Hawaiian Electric companies overall have about two billion dollars of shareholder equity invested in their utilities. And that two billion dollars needs to earn a return and that return goes in your rates. And, you know, roughly speaking, that is close to 200 million dollars of potential income to Hawaiian Electric shareholders every year, which, you know, they put two billion of capital up, they should earn a return on it. What the commission has done is said, you can actually earn a much higher return if you can earn a much higher return. But in order to get a much higher return of like, you know, potentially, you know, of that 200 million, you could go up 50 million or more. But in return for that, you have to find cost savings. And if you find those cost savings or perform on some of these other incentives that we have, these are things that are important for us. We want you to give the customers a better experience or we want you to give better reliability or we want you to do a better job of, you know, interconnecting generators or whatever it is. If you do these things that matter to our customers, to the customers of Hawaii and the residents of Hawaii, and or you save money, you can make more money. So that in and of itself is not a normal thing. Now, maybe you'd say, well, is that good for customers? It isn't. Well, I think, you know, and maybe I'm a bit too much of a capitalist, but I think if you give someone some skin in the game and you give them an incentive, you're more likely to get the outcome you want. And the regulators able, the PUC is able to say, well, we don't want to pay too much so they can calibrate how much of an incentive it is for the outcome. So the PUC is in the driver seat here. And so if they're setting up incentives that and the utility is signing up to it, you know, to the extent they are, the utility obviously is motivated. The utility is going to have to manage your business in a way. They're going to want to try to get those incentives and everybody's going to be better off. That's the opportunity. And it's with cost savings, it's even better because the way this works is for five years, the rates are set. Then there's a new rate, a new review of rates. If the utilities found, let's say 50 million of cost savings at the next rate review, I would expect that $50 million of savings will be passed through. So the utility has an incentive to find the cost savings. And then ultimately those cost savings are going to be passed through for customers. So it's a balancing mechanism that I think to a large extent aligns folks. What's surprising to me about it is I honestly would, you know, I spent a lot of time studying regulation in Hawaii in a past life, as you know, I would, you know, honestly, I mean, like the consumer advocate would be worried about every little penny. And I think the way regulation rate regulation in this country works is it tends to be very zero sum. Okay. If the utility is making more money, then they're taking that away from customers. We can't have that. And this is positive sum. This is positive sum thinking. This is how can we create win-wins? Oh, if we're really clever about how we set up the incentives, we can incentivize the utility to do things that they maybe wouldn't do to the same extent otherwise, and then ultimately find a way to benefit customers. So that's really the idea. And I think they took it further than I would have expected, because frankly, the opportunity is there, you know, if they've said it right, and I'm not, you know, picking aside on heat govers is what the commission's put out in terms of cost reductions. But if they said it right, the utility has an opportunity to do really well. And then ultimately, you know, pass through those benefits to customers to extend its cost savings. So, you know, I would have thought, based on the way regulators worked in Hawaii in the past and consumer advocate and others that people wouldn't have wanted to let the utility do that well, even if they did an amazing job of cost reduction. So that's what impressed me about it. So maybe if I could somewhat simplistically interpret that in my, in the Marco mind, which is the more Hawaiian Electric saves, the more they're able to make eventually, in terms of return on their investment, and just as importantly, if not most importantly, ratepayers will see if not lower rates, stabilized rates that would be better for them compared to the cost of services model. Did that more or less like that again? Yeah. Yeah. No, you did a great job of summarizing what I've blabbed on about for five minutes. It's not a given that rates will be stabilized. But it's, but it, but, but if this is done right, rates should be lower than they would have been otherwise. You know, Eric, is this something where, where there's a formula, a metric, you know, where you have a kind of an algorithm where you can put all the numbers in and it pops out. And there's various factors and variables and everybody can predict how it's going to work. Or is this something where the PUC is going to have to exercise discretion in order to allow these benefits or not? So I think Jay, the way there are, there are some off ramps. If things get a little out of hand, I guess I would say, if the utility is making too much money or not enough money and it becomes a concern. But generally speaking, what this is, is set the rules for five years and then let the utility go run their business. And so it's not just about, I don't think there is a secret formula because ultimately there's two elements to this. They're setting the rules and then there's a utility executing. But then there's a next step. And I've been watching, you know, I'm pretty familiar with UK regulation and they really pioneered this over the last 30 years. So what you're going to see, and I think the commission's envisioning this, they kind of talked about it in the order, is that at the back end of the first five-year period, they're going to look at what's working and what can be improved. And then they're going to tweak the rules and that'll set up, if they continue with performance-based rate-making, that'll set another multi-year period. So it'll be a work in progress. But I think for the first five years what this is really about is the commission setting the rules, taking a step back and letting the company execute with the confidence that the incentives are maybe more aligned than they were. And yeah, and with the full expectation at the end of that period, and conceivably before the end of that period, it'll have to be tuned based on how well it does, whether these, you know, goals are being achieved. One other thing I wanted to ask you is that it sounds like you're studying it because it may be coming to a continent near you. What I mean is, how much do we see PBR being implemented by regulators on the mainland and elsewhere? Is this something that's sweeping the country or what? So that's a great question. And that is one of the reasons why I've paid attention to this. You know, why is one of the jurisdictions, one of the really few jurisdictions that isn't just talking about decarbonizing the power sector, but is really getting after it. And so we follow it pretty closely. I think, you know, I suspect that, you know, some of the commissioners from the YEPUC are going to get a lot of questions from their counterparts at other commissions, because I think this version of performance-based ratemaking has some pretty distinctive characteristics. I think it's going to get some attention. Whether it is, takes the continent by storm, you know, probably not, I would say. I think the cost, the more cost of service, more traditional regulation has been around for a long time. Sometimes it works, you know, a lot of people are happy with their utility service and feel like they've got what they need. So maybe why change it? It's a huge investment of time and resources. I mean, this process has taken two and a half years in Hawaii and it's not done. So somebody's got to really want to make a change in order to initiate this. To this degree. But you know, it's not, it isn't unique to Hawaii. I mean, there were other versions of it in other places. As I mentioned, there's actually a more extreme version in the UK. I would say Hawaii is somewhere in between the UK model and the more traditional model. You know, in my business, we have a utility in Ontario that we've made an application for rates that's, you know, very similar to performance-based ratemaking. They call an incentive regulation. So it's not unique. I don't think it's going to take the continent by storm, but I do think it's going to get some attention. And I think in places, maybe in places like California or New York that have very ambitious clean energy policies, if I were a commissioner in one of those states, I'd be looking pretty hard at what Hawaii's done. You think this is ever going to be standardized on a national level, you know, where the federal government steps in and sets specific guidelines that would apply to all states? I think that that is very, it's almost inconceivable. But if I think about it sort of logically, how could that happen? I mean, if you had a strong enough democratic majority in the House of the Senate and the president had a policy like Joe, you know, President Biden's energy policy, President-elect Biden's energy policy, they might come to the conclusion that something like this. But I doubt it. I think there's just a ton of deference to state rights. We have a very balkanized power grid and regulation in this country is state-specific. It's always been that way. And we have a federalist system. So I don't think so. Okay. Marco, you probably want to ask Eric about Schofield and the project with Barcella, which we've had on the show here a few months ago, and what Eric wants to do, what next era wants to do in Hawaii going forward. You probably want to ask him that, Marco. Well, I beg to differ. Actually, I don't, Jay, because we're kind of short on time and I have a juicer question. First, let me make a statement before I question, which is I think it's really noteworthy and way cool that for a change, Hawaii is kind of leading the mainland in terms of PBR. And typically, we're followers rather than leaders. So I think that is way cool. And my question to you, my friend Eric, is it's been going on about six years since next year, first showed interest in getting in the game here with buying Hawaiian electric industries. So we're six years past that. My question to you is what, if anything, in your following things out here, what if anything has changed on the energy scene or not changed on the energy scene over the past handful or so of years? You have made Hawaii a particular focus of your interest. What has changed? What has changed to make Hawaii more of a focus of interest? Now, what has changed in terms of your history with Hawaii, which is going back now five, six years. How are things different now in terms of the energy scene here now in 2021 compared to when next era showed interest in 2014, 2015 and 2016? What as much changed as far as you can tell? Yeah. So I'm glad you asked the last part. I mean, the reality is I've been back to Hawaii, but not really talking to folks about energy. So I'm not as close to it as I used to be. So with that caveat, my broad sense is there was a period of time from about 2008 when the decoupling docket started until 2014 when we showed up publicly with Hawaiian Electric and then Meena Merida left the commission shortly after that. During that period of time, the focus of the commission was finding ways to basically encourage Hawaiian Electric to move towards renewable energy. Because before that, and I wasn't that close to it, but from talking to folks, really they weren't that interested. And so I think that was a very fertile time for the commission in terms of new initiatives, the PBR docket, and just encouraging the utility. And I think the utility responded. There was obviously a lot of uproar maybe over the merger and that sort of was a bit of a distraction for a while. But I think overall Hawaiian Electric has responded. They've talked a lot and I think they've done a lot around transformation. And my sense is that during that period from say 2014 to, and remember 2014 is when the commission published their inclinations and challenged the utility to develop a sustainable business model. My sense is from that time until basically the last year or so, last couple of years, and really Jake Griffin joining the commission and the commission totally changed you know. But during that time, my sense is you know, and maybe I wasn't close enough to it, but like under under Chair Wassey, I don't think they were very focused on new regulatory initiatives and really, really moving the ball. But, but you know, the utility to their credit was was working on their transformation. I think now you've got a commission again, for the first time in a long time, that is very focused on using all the tools at its disposal to encourage Hawaii's continued transformation and including the utility. And so I just feel like you've got a commission now with some real thought leadership that that is worthy of notice, you know, and discussion on the mainland that others could potentially learn from that. That's really what I see. Well, it takes me right back to the question that I that I thought that Marco might ask you, but I'll ask you. You, we know that you've worked on the Hawaiian Electric Facility in Schofield. And Varsilla has worked on that too, out of Helsinki. And I wonder, you know, what what that has been for you and what other what other projects might next year do in the future in Hawaii? So so we actually, other than during the merger and kind of being familiar with it, we really didn't have any role with the Schofield project. And I say that despite my first time in Hawaii, I was actually at Schofield Barracks with the Army. So I upon memories, that takes a while. We do have we have some solar projects on a Wahoo that are that are operating today. So we do have some ongoing operations, I guess I would say in Hawaii. Sorry, what was the rest of your question? What do you plan to do here? Anything more? Oh, what? Yeah, I think we're, look, we're a big player in the renewable energy business. Hawaii is very, very serious about moving to 100% clean, clean power and ultimately a zero carbon economy. We're gonna, you know, we've never stopped being open to doing business in Hawaii, where it makes sense. So, you know, we'll, I would expect over time, you'll see us do more renewable projects. Great. I think we're out of time, Marco. So Marco, why don't you take the lead on on saying thanks and farewell to Eric Gleason, next year at Energy. Well, thank you and farewell, Terry Gleason from next year Energy. It's always, always such a pleasure. And I really hope we can get you back on before too long because I think I know the energy situation out here, the energy dynamic, the energy scene is in fact very dynamic. And it is so way cool to have somebody like you, Eric, join us and give your both kind of insider combination insider and outsider perspective, which are relatively few people that I know can can do. So mahalo nui for your time today and may I'll go well for the rest of your being there and in beautiful Florida. Thank you, Eric. It's great to have you on the show. We go back, you know, and we really appreciate your interest in Hawaii. Thanks, guys. Always a pleasure. Aloha. Bye.