Inside Economics considers the economy’s performance and prospects through the prism of the electric utility industry with the Chief Economist of American Electric Power, Dan White. It was great to catch up with Dan, a former colleague, and get his insight on how American households and businesses are doing. He also ponders the transition to green energy.
Inside Economics considers the economy’s performance and prospects through the prism of the electric utility industry with the Chief Economist of American Electric Power, Dan White. It was great to catch up with Dan, a former colleague, and get his insight on how American households and businesses are doing. He also ponders the transition to green energy.
Follow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight.
Mark Zandi: Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by my two trusted co-hosts, Mr. DeRitis. Dr. DeRitis, Marisa DiNatale. How, guys.
Cris deRitis: Hey, Mark.
Mark Zandi: And this is a special podcast. We've got an old friend, Dan White. Dan, how are you?
Dan White: I'm well, Mark. [inaudible 00:00:36] pleasure to be here.
Mark Zandi: Yeah, so for podcast listeners, you know that Dan was working with us for, I don't know, how many years did you work at Moody's Analytics, Dan?
Dan White: 13.
Mark Zandi: 13 years. And you moved over to AEP, the electric utility headquartered in Ohio. When did you do that?
Dan White: We moved over in March.
Mark Zandi: In March, in March. And how's it going? You miss us?
Dan White: I miss you guys terribly.
Mark Zandi: He's just making that up.
Dan White: I love working here at AEP but I miss the people at Moody's terribly. You guys are awesome.
Mark Zandi: Yeah, we miss you too. We miss you a lot. And you are the chief economist of AEP, right?
Dan White: I am. I'm the chief economist managing ... It's a mouthful of a title, managing director of economics and supply forecasting.
Mark Zandi: Oh, very cool. And you have a team of folks there? A number of economists, statisticians, or who-
Dan White: We do. We've got three teams of economists and data scientists who do a number of different forecasts. So, one team focused on load forecasting. So, how much electricity are our clients or our customers going to need and where are they going to need it? We have another team that focuses on supply forecasting, so how much is it going to cost to produce a kilowatt of electricity all the different ways, coal, gas, nuclear renewables? We forecast that across the whole country too, to see how we should be planning for the future to provide the electricity we need to everybody. And then I've got a third team who is really amazing because they can translate what those two teams put together into common English so that our executives and our stakeholders and investors can understand all of it.
Mark Zandi: I don't think people appreciate how complex a electric utility is, just the engineering and the science and I mean, the whole shoot ... just the process itself. It's an incredibly massive and complex system.
Dan White: Yeah, I certainly didn't ... There's a lot that goes on to make sure that the lights come on when you hit the switch. The guys here, I've got a bunch of engineers that work for me now and they're very gracious with me in terms of dealing with teaching me remedial chemistry and physics and things that I never thought-
Mark Zandi: Oh, wow.
Dan White: ... I would need to know again. So, I'm kind to them when it comes to financial modeling and they're kind to me when it comes to physics and we give each other grace.
Mark Zandi: Got comparative advantages, you can teach them that. There you go. And AEP, tell us about AEP. That's a very large utility in the middle of the country.
Dan White: So, American Electric Power, we own and operate regulated utilities across 11 states, from Michigan all the way down to Texas. So let's see if I can remember. Michigan, Indiana, Ohio, West Virginia, Virginia, Kentucky, Tennessee, Oklahoma, Louisiana, Arkansas and Texas.
Mark Zandi: So, your footprint is really a big chunk of America?
Dan White: It is. It's a very diverse chunk of the middle of the country. We are in a number of different states. We're usually the second largest provider in each one of those states. And we have a lot of rural areas, but we also have some big major metropolitan areas like Columbus, which I'm looking out at through my window here in Tulsa-
Mark Zandi: Great town.
Dan White: ... and Corpus Christi and a number of those mid-tier in terms of size metro areas, but some metro areas that really do hit above their weight when you look at their economic output.
Mark Zandi: So, I thought it'd be wonderful to have you on just because I miss you and it's good to have you back on. And when you were at Moody's Analytics, you were really focused on federal and state and local policy, government policy, and I want to come back to that at some point. I promise I'm not going to ask you who's going to win the presidential election?
Dan White: I knew you would. I don't have to do an election model anymore.
Mark Zandi: We just dusted that off today by the way. I had a meeting with Brendan LaCerda and Justin Begley, and we just dusted that off. So as I recall, and don't correct me if I'm wrong, but as I recall, my model was better than your model in predicting.
Dan White: As I recall, I was the first person in the history of Moody's analytics to get it wrong, running the model.
Marisa DiNatale: That's quite the distinction.
Dan White: The first one, not the only one, but the first one to get it wrong.
Mark Zandi: Get it wrong?
Dan White: In 2016, I got it wrong.
Mark Zandi: Oh, that's right we got ... Oh, that's the Clinton Trump election. We got that badly wrong, yeah.
Dan White: Yeah, I happened to be running the model the first time it was wrong.
Mark Zandi: And for the folks out there that don't understand what the hell we're talking about, we have this election model, electoral college level. We predict who's going to win each state and based on that, determine who's going to win the presidential election. We've been doing this for, I guess, it's 25 years, some long period of time.
Dan White: I think Gus Faucher did the first one-
Mark Zandi: Gus Faucher.
Dan White: ... in 2000 or 2004, a million years ago.
Mark Zandi: Chief economist at PNC, who used to be at Moody's Analytics as well. And so the last go around when we had Bernard Yaros managing things, we really extended out the modeling that we did. And we came down to three models to predict who was going to win the election at the electoral college level, and one was called the pocketbook model. One was called, I think the unemployment model. Now I can't remember, but-
Dan White: See, I blacked it out because we were all right, but yours is more accurate than mine, so I blacked it out.
Mark Zandi: Yeah, yeah, okay. Well, anyway, we just dusted that off and maybe we'll come back and talk about ... We won't talk about who's going to win the presidency, but maybe we can talk about policy in the context of all the things that you're dealing with with regard to climate and the green transition and that kind of stuff.
But anyway, so going back to the economy, just let me frame how I think about the economy and maybe Cris and Marisa, you can correct me, or adjust what I say, but it's turning out that the economy is doing pretty darn well. I mean 2023, calendar year 2023, even if the fourth quarter is soft, very little growth, we're going to get GDP growth of about 2.5%, which is pretty good.
I mean, most people would say, most economists, we would say that the economy's potential rate of growth, that rate of growth consistent with stable unemployment is around two, 2.5% is pretty good. And despite that solid growth, well, we've got a lot of jobs. Three million jobs are going to be created this year. Despite all that, unemployment is low. It remains very low. It's pushed up a little bit, but it remains very low around 4%.
And I should say despite all of that, inflation is moderating. Inflation seems to be coming in. So, you add it all up, and I'll stop there for just a second. Cris, would you characterize the economy differently than I just characterized it in 2023?
Cris deRitis: No, it certainly was ... Well, for many, it was a bit of upside surprise. I think even the optimists are surprised to the upside. So, much more resilient than we anticipated.
Mark Zandi: Marisa, would you disagree with that characterization?
Marisa DiNatale: No, I mean, I think it looks like growth is going to come in at least half a percentage point than even we were predicting at this time a year ago, right?
Mark Zandi: Right.
Marisa DiNatale: So, we were always on the optimistic avoid recession side, but it's even better than we've thought.
Mark Zandi: Right, right. So, that's the history. Is that consistent with what you're observing in your business, Dan? In terms of demand for electricity?
Dan White: We're definitely seeing the economy much stronger than we expected it to be. It's proven to be much more resilient to high interest rates. I didn't think we could handle interest rates as high as they've been for as long as they've been, as gracefully as we have, certainly. When we look at our load, our load is growing, but our load is growing because of some abnormal gains in commercial growth.
If you look at the underlying industrial growth and the residential growth, which is really more closely connected to the underlying economy, we're still seeing an economy that's growing, but it's slowing pretty significantly. And that might be to some of the things that I've seen you write about, actually I think all three of you write about it sometime or others, that a lot of our customers are in that bottom two quintiles of the income distribution. And so, we're seeing things slow much more quickly for them than we are for the economy as a whole.
One of the things we saw, or we've seen a lot, is our load per residential customer, so usage is down. So, the amount of electricity that individual household are using has been down pretty considerably over the last year. Some of that is secular, like people going back to the office. And so, maybe they were working from home five days a week, and maybe now they're going in the office three days, so their electricity usage is going down. But we've seen it, and this has been something that surprised me. We've seen much bigger reaction to changes in underlying prices, in underlying incomes in terms of electricity usage. I would've thought you go to school and you see electricity is like the definition of an inelastic good. You don't expect to see much change. But we've seen a much more elastic response in terms of usage, especially in those of our customers who are on the lower end of the income spectrum to higher prices and slower growing incomes than we expected to see, for sure.
Mark Zandi: Oh, that's interesting. And the way you framed it, I think is how most utilities think about demand for electricity. They break it down into residential, so that's you and I as households and the electricity we consume at home, commercial, industrial, that would be manufacturing activity, I guess maybe construction as well, or was that-
Dan White: Yeah, the good way to think about it is commercial's almost all your services, terms [inaudible 00:11:02] and industrial's most of your goods producers.
Mark Zandi: Got it.
Dan White: Not exactly but close.
Mark Zandi: Got it. And so, if you look at the residential, what you're saying is the demand for electricity has been on the softish side and that particularly among low income households ... and you're saying almost all utilities certainly nationwide jacked up their prices for electricity, particularly in end of '21 into 2022, going to the higher cost of energy, natural gas and-
Dan White: Yeah, there's two components. So there's the fuel and then there's the non-fuel. So, the fuel, electric utilities, they just pass along whatever the fuel price is. So, if our fuel price goes up-
Mark Zandi: That's true.
Dan White: ... we don't make any money off fuel, we just pass along whatever the cost is to customers. So, non-fuel revenue where though, we recover the cost of all the capital infrastructure investment that we've made. And so, the underlying fuel costs have gone up, which isn't really a price for us, it's not the price of electricity, it's the price of fuel. But because the cost of infrastructure has gone up so much with inflation, with all the steel and some of those things that have gone the last couple of years, there are some parts of the country that have seen electricity rates increase pretty considerably in the last two, three years.
Mark Zandi: And you're saying the folks in the bottom part of the income distribution, you mentioned the bottom two quintiles, so the bottom 40%?
Dan White: Yeah, those are households making less than like 55,000 a year.
Mark Zandi: They're very sensitive to that price and to any fluctuation in their income, and they've been very cautious and judicious in their use of electricity.
Dan White: Much more so than I would've expected looking at. So, we look at the amount of customers and then we look at usage per customer. We're fortunate in our footprint. We've got some really fast-growing areas, especially Ohio and Indiana and Texas. So, our customer counts are up pretty significantly year over year. But our usage per customer is falling so much that our overall residential load is actually declining this year relative to a year ago.
Mark Zandi: So, how do people conserve? Do they keep the temperature down lower in the winter and up in the-
Dan White: Most of it's thermostat-
Mark Zandi: Thermostat.
Dan White: ... that kind of stuff. It could be not putting up Christmas lights, it could be a number of different things that they can pull back, but it's been significant. At one point this year, our usage per residential customer was down almost 3%, which in such an inelastic good is electricity, that's really considerable.
Mark Zandi: Yeah, interesting.
Marisa DiNatale: Is that controlled for the temperature?
Dan White: Yeah, so we weather normalize all of our data. So, it's all based on weather normalization. But again, a lot of it is those lower income customers and even though wage growth is still pretty healthy and prices are coming down, one of the things that we've been looking at really closely, and I'd be curious, I think I stole it ... It's a chart I stole from you, probably Cris, the amount of cash that people have in their bank accounts from the New York Fed. When we look at that, adjusted for inflation by income quintile, which is why I keep talking about those, how we look at it, the two lowest quintiles, they're below where they were in 2019. So, they've taken all that pandemic stimulus money and they've spent it, it's gone.
But the folks who are in the top two, three fifths of the income distribution, they're either at or above. So, I think they're really driving a lot of the economy and there's some parts of the economy that are really getting left behind, and those are our customers. And so, our focus has to be on our customers and making sure that they're able to afford the electric bills that we're giving them.
Mark Zandi: And you can see the folks in the top part of the distribution or the middle top part of the distribution, they're still using electricity like they typically do. They've not pulled back in any significant degree?
Dan White: Yeah, it's tough to track one for one, but when we're looking at some of the counties that have higher average incomes and lower average incomes, we can see a dispersion in terms of their usage, for sure.
Cris deRitis: What about efficiency? I think overall the economy has gotten much more efficient with electricity usage.
Dan White: Oh, sure.
Cris deRitis: Is that a factor here that ...
Dan White: There's some secular trends too. So, the return to work is a trend that we're seeing. Most of that's played out because if you're going to go back to the office, you've probably already gone back to the office, but everything is getting more efficient. So, as we see all the appliances in people's homes are getting more efficient, as we start to see turnover in appliances, that happens for sure. So there's definitely a secular decline in usage, but we have seen some cyclical declines as well.
So, it really started in earnest last August, really, when we look at our data, which is a couple months after inflation peaked out in the summer of 2022. So because that's when we saw it, and we've also slowly seen the cash disappear from bank accounts in those lower income households, people don't feel as wealthy as they did, and inflation is still pretty high. It's causing people to pull back where they can.
Mark Zandi: So, that's the residential piece. How about the industrial piece? How's that faring?
Dan White: The industrial piece is doing better than residential, but it is definitely softened pretty considerably over the last six months. When we look at some of our large industrial customers, they're not running at peak loads the same way that they were a year ago or even two years ago. So they're still running, and it's not like we're seeing a huge pullback in industrial growth, but they're not running at full capacity compared to even just maybe six to nine months ago.
Mark Zandi: And I assume in your footprint, that the vehicle industry is a pretty significant customer, I would think, right?
Dan White: Yeah, for Indiana, Michigan, Ohio, especially.
Mark Zandi: And the UAW strike probably would have an impact, wouldn't it? Because it affected production?
Dan White: It did. It had a very small impact though. I mean, because we've been through this before, and so we can go back and compare to previous instances of UAW labor stoppages. I think the way that they handled the UAW strike this year really limited the impact, both economically and certainly on our load because they were very targeted in which plants that they were stopping work at, as opposed to just a mass walkout of all the UAW facilities.
And so, I think it certainly seemed to be very effective for the UAW, but it also seemed to be very effective in terms of limiting the impact and spreading the impact out. So, it wasn't just Indiana, Michigan that got hit, it was plants all over the country.
Mark Zandi: The UAW strike had an impact, but a really modest one. Can you tell from your data if the softness in industrial is broad-based, or whether it's a sector or two?
Dan White: It's pretty broad-based.
Mark Zandi: Broad-based?
Dan White: I'd be curious to hear what you guys think. So, a couple of the areas where we've seen the biggest pullback, and we have some theories of ours, but I'm curious what you think, chemical production, rubbers and plastics manufacturing have really pulled back more than usual, and our footprint is unique, but I'm curious if that's something you guys are seeing nationally or if that's ... We have a couple of theories about why it might be happening in our area, but I'm curious if it's ...
Mark Zandi: It's not something I've thought about at all, but that doesn't stop me-
Dan White: I know, I wanted to catch you [inaudible 00:18:55]-
Mark Zandi: ... that doesn't stop me at all from telling you what I think or at least throw out a theory, you know?
Dan White: I knew it wouldn't. That's why I want to hear [inaudible 00:19:04].
Mark Zandi: Yeah, yeah, okay. Could it be just that their cost structure is a lot higher? I mean, those are very energy-intensive industries, right? I mean, rely on oil, natural gas, and I guess electricity and the price for all energy rose very sharply, obviously in the wake of the Russian invasion of Ukraine. We saw oil over a hundred bucks a barrel. We saw natural gas. I can't even remember how ... it got to seven bucks per million BTU, I think at one point.
Dan White: Yeah, it was almost seven bucks middle of last year.
Mark Zandi: Yeah, right. We're back down below three but that ... So, maybe just the margins just aren't there, right? And that has crimped production. I don't know, does that resonate at all? Is that a possibility?
Dan White: It could a little bit. The only thing that makes me worry about that is that petroleum in particular, oil, has come down quite a bit. And so, the theory that some of our guys had, especially our guys down in Texas, was that a lot of those industries tend to be exporters for the US.
Mark Zandi: Oh, the strong dollar.
Dan White: And the US dollar has been so strong.
Mark Zandi: That makes more sense. Yeah, you were setting me up. You should have just said that.
Dan White: No, I was hoping you were going to tell me something, I was hoping you were [inaudible 00:20:23]-
Mark Zandi: Yeah, you could take back to them.
Dan White: ... the US dollar, because the US dollar's not going to reverse anytime soon. And if not, then we're not going to see those guys pick it up.
Mark Zandi: Yeah, no, that makes sense. That does make a lot of sense. Cris, Marisa, any other theories? This is what we do for a living, right? I mean, we try to explain the economic phenomena. I don't know, Cris, Marisa, any other theories as to what's going on there?
Marisa DiNatale: I thought about higher oil prices and petrochemical inputs into these sectors. I mean, could it be possible that they're buying oil, they're locked into longer term contracts and they takes a while bought at a high price and it just hasn't trickled down yet?
Dan White: I don't know, we'll check that out. Special shout out to Chad Burnett from our Texas office who came up with the dollar theory.
Cris deRitis: That's a good theory.
Mark Zandi: Well, I'm always leery of answering a question like that because my brother did that to me once. He threw up this chart of ... Carl, my brother, worked with us and he started the data group, now manages the business, our business, but he threw up this chart and the chart was going this and that and this and that. I'm sitting there explaining why it was going up here and going down here, going up here, going down there. And he goes, "Oh shoot. I forgot to multiply by negative one."
So, the chart went in the other direction. And of course, I'm pretty good at going with the flow. Of course, that's right.
Cris deRitis: That's even better.
Mark Zandi: It's even better. This works even better. It's very funny.
Dan White: Probably did that on purpose.
Mark Zandi: It's so funny, he didn't. He actually didn't do it. It was just so hilarious, so hilarious. Anyway, so residential is weakish, particularly for low income households, okay. Industrial's softish. As you point out, you're starting to see some softness in chemicals and rubber and plastics. What about commercial? Are you seeing any life there?
Dan White: Commercial is going gangbusters. Gangbusters, but only one specific part of commercial load and I'll let you guess what it is [inaudible 00:22:41]-
Mark Zandi: Data centers. Data centers.
Cris deRitis: Crypto.
Mark Zandi: It's crypto. AI and crypto.
Dan White: It's not all ... it's mostly data centers but there is crypto in there. But it's data centers and it's not just the fly by night guys, it's Amazon and Microsoft and Google and all these guys, just cannot build them fast enough. And we've been very fortunate because we were prescient enough to invest in some really stout and robust transmission infrastructure in Ohio and Indiana and Michigan, in Texas, that the data centers want to be in our service territory because there's that huge transmission infrastructure there. They can get turned on that much quicker than they can in some other parts of the country.
So, we're up. I think our overall load will probably finish the year somewhere up just north of 2%. But our commercial load is up almost 8%. And if we took data centers out of our commercial load, our commercial load would be flat.
Mark Zandi: I guess data centers would also be, I think, where AI would show up? Artificial intelligence.
Dan White: Exactly. So AI, all the server farms, things like that and some crypto. In Ohio, in the Northeast, we don't see much crypto, it's all data centers, especially hyperscalers. Most of our crypto seems to be in Texas there, and it's hard to gauge where they are or what they're doing because a lot of them are behind the meter. So, they'll build a big wind farm and they'll build the crypto servers behind the wind farm. And so, they'll use the wind farm to feed the data centers and only pull from the system if they need it, kind of thing.
Mark Zandi: Interesting. I was reading this New York Times piece that the Chinese crypto firms are building these huge facilities, very close to generation plants. Yeah, that sounds a little scary. I don't know.
Dan White: There's a lot of things that we need to know a lot more of, with the load and what's coming.
Mark Zandi: Okay, so you add it all up and what's your takeaway? That the economy is making its way through, but just not powering through, feels like?
Dan White: Yeah, I think the main takeaway is that the economy is definitely slowing, it's not contracting-
Mark Zandi: Slowing.
Dan White: ... but it's slowing, for sure. And it makes me wonder if we don't go into next year ... I mean, I think your guys' forecast is for it to slow pretty considerably going into next year. I think it's one of those situations where once we get to ... especially going into the election, you're going to have people coming out of the woodwork arguing, "Are we in a recession? Are we not in a recession?" And we're probably not, certainly not by the traditional two consecutive quarters of GDP but it might be like 2001 where you go from this 4.5% growth down to a 1% growth and unemployment's increasing and people just feel a lot worse than it really is, you know?
Mark Zandi: Mm-hmm, mm-hmm. I was looking at a chart, speaking of charts, of electricity production, industrial production, electric utilities, which I guess is ... do you look at that as well? Is that a pretty good, this is the Fed reserve data good, reasonably good, measure of output production?
Dan White: It's okay. Yeah, it's not as granular as we'd like to see it, so we have our own data that we look at. But in terms of top line numbers, it's not bad.
Mark Zandi: So if you look at that, if you go back a few decades ago, certainly in the '50s, the '60s, the '70s, the '80s, I guess even into the '90s, it looked like the increase in production was very steady, very consistent with growth in the economy and really showed no ... very little cyclicality. I mean, even in recessions, it looked like it managed through without much of a slowdown. But in the last, I'd say 25 years, I want to say, it's gone completely flat. There's been no appreciable change one way or the other in industrial production, excuse me, of electricity.
So, I guess that just reflects to what Cris was saying earlier, that we're all just getting better at ... we're becoming less electric intensive, or at least we had been up to this point in time, and we're getting more efficient in our use of electricity, is that what [inaudible 00:27:11] ... because it's no longer a barometer of ... If you look at that data, you'd say it's not longer a barometer of general economic conditions.
Dan White: I think in part, yeah. So, I mean, we've gotten a much more energy efficient in the last 25, 30 years, and we're becoming more energy efficient. But that could also be continuing on some of the demographic trends we've seen. The US populations slowed pretty considerably over that time. We don't have that same household growth that we had before. We don't have as much industry coming online in the United States that would ... or at least over the last 20, 30 years, we haven't had as much industry come online that would rely on that electricity. But I would suggest that that's going to change in the next couple decades because of the electrification of the US economy. Even as we get more energy efficient, there's just more things that run on electricity now, and with the data centers and all the dependence on AI and all that kind of stuff, that is going to need more electricity to be able to produce.
And even some of the new ways that we're producing electricity, you need electricity to create some of those fuels, like hydrogen. You need a lot of electricity to create hydrogen, depending on how you're doing it. And so, there's just going to be a huge increase in demand for electricity over the next 10, 20 years. It's a really fascinating time to be a part of the industry. One of the things, when I came in, all the people keep telling me, "You're lucky you're here because this is not how it normally looks. This is not normal, what we're seeing in terms of demand and all the changes that are going on." Because I keep saying, "I don't have the industry experience that you have. What should we be seeing here?" And they said, "You don't need the industry experience because I've never seen this before and I've been here [inaudible 00:28:55]-"
Mark Zandi: Interesting. And you didn't even mention the electric vehicles in that list of things that would power ... You didn't even mention that.
Dan White: Yeah. Well, electric vehicles are out there, but I think they're going to be much slower than we thought. Actually have a good statistic about electric vehicles.
Mark Zandi: Okay, well save it. Save it. Because we're going to play the stats game, right?
Dan White: Okay.
Mark Zandi: And I got a great story on EVs, so maybe we'll come back to the transition to green a little bit later. But I did want to move on to energy prices because the electric utility industry is a large consumer of natural gas in particular, a little bit of oil, coal, obviously nuclear, but it's mostly about natural gas. I'm sure you followed the oil markets carefully.
One big surprise recently has been how oil prices have fallen, we were ... If you go back a few weeks ago, certainly a couple months ago, we were over $90 a barrel, and it felt like oil prices were going to go a lot higher. I mean, we had Israel and Hamas and Russian sanctions and Chinese demand and Saudi cutbacks, and it just felt like it was going higher. But prices have come in and if you look at natural gas, that also ... it's been more stable, but it remains pretty low. I mentioned $3 per million BTU, that's the benchmark I've had in my mind. If it's at or below $3, that's pretty low by historical standards. Above $3, then it's starting to get a little higher.
So, has that surprised you that energy prices have come in? Like it surprised us that we've seen that kind of softness in energy prices, or is that something you expected?
Dan White: I didn't expect them to spike up too high, but I thought they'd spike up at least a little bit because of what's going on in the Middle East. I was really surprised that they didn't. I thought we'd be, at least for a couple of weeks, talking about a hundred dollar oil and everybody'd be freaking out. So, the fact that they've come down is a bit of a surprise. I think, I can't remember ... I don't listen to the podcast as regularly as I should, Mark, but I went back and I checked the last couple of weeks just to make sure that I was up to date on things. And I think Marisa, you said something the other week about how the growth in China ... When the really bad economic data came in from China, that's when oil prices started to level off a bit, right? So, it might be just a global demand issue or global demand impact. Is that right?
Marisa DiNatale: And supply's up in the US, for sure. There's more production, especially in the US.
Dan White: Mark, you were talking about us being the marginal producer for a long time, right? I mean, those shale guys, they can turn the spigot on pretty quick.
Mark Zandi: Interestingly enough, we had a webinar today on oil and natural gas markets. And one thing that came out of it was one of the big surprises was how much increase, how big the increase in production was in oil here in the United States. And we're now producing a record amount of oil. I think it's 13 million barrels a day, an all-time high.
Dan White: Wow.
Mark Zandi: Yeah, and at the same time that the number of oil rigs has been flat to down, and it goes to ... I'm spouting back everything I just learned earlier today. It goes to these so-called unfinished wells. There's a lot of wells that are-
Dan White: Oh, the DUC wells?
Mark Zandi: DUC wells, the so-called ... DUC is an acronym for something, I can't.
Dan White: Drilled uncompleted.
Mark Zandi: Yeah, that's what it is. Drilled and uncompleted. And apparently it's a lot less costly to pull oil out of those wells than to go drill a new well, which makes sense, I guess. And so, the oil producers here have been using their inventory of uncompleted wells to increase production. They can't do that forever. They got to start investing. But that's been a key part of the story, which was very, very interesting. So, in terms of the energy sources for AEP's electricity, is it mostly natural gas that you use?
Dan White: We have really an all-of-the-above strategy here, because we're committed to reducing our carbon footprint and trying to be as sustainable as possible. But at the end of the day, we want to make sure when our customers hit the light switch, something comes on. And so, for reliability purposes, we have to really go to everything. And so, in our northeastern area, so PJM, the RTO, which is you guys in most of the Midwest, we have mostly natural gas, but we also have a pretty good coal footprint and a couple of renewables, but it's mostly coal, nuclear and natural gas. And in the west, we call our western companies, we know they're not really western for everybody else, but Oklahoma, [inaudible 00:33:52], those guys. There's a lot of wind that's on there.
Mark Zandi: Wind.
Dan White: Wind and coal and some natural gas that they supplement that with. We expect that over the next five, 10 years, that coal's going to go away slowly and more of that natural gas is going to come on. But it's interesting, you were talking Mark, about the green energy transition. We're going to hit a wall here in a bit. There was a lot of that coal nationally, not just AEP but everywhere, that coal is falling off. And when you replace the coal with natural gas, the natural gas is more clean burning than coal. So you see a decline in emissions, but eventually, even if you replaced all the coal, which you can't really do yet, if you replace all that coal, then you flat line in terms of your emissions. And so, getting that natural gas off into other cleaner burning sources is where the really hard work comes in terms of the energy transition.
Mark Zandi: Like wind?
Cris deRitis: No solar?
Mark Zandi: Oh, sorry. Sorry, Cris.
Cris deRitis: No solar?
Dan White: Well, solar and wind. The sun doesn't always shine and the wind doesn't always blow. So, you need something you can turn on and turn off. Right now, when we do our modeling, our guys do our modeling, looks like the most economical alternative is going to be a hybrid of natural gas, and hydrogen being burned together will be cleaner. I think that if you look at the EPA's 111(d) stuff that they've got coming out, they're trying to incentivize more people to burn a mixture of natural gas and hydrogen together. And eventually, moving the technology to the more of that mix is hydrogen instead of natural gas, in order to bring that down. But there's a long way to go technologically before we're there for that.
Mark Zandi: The one thing that's affecting natural gas prices, and again I want to come back to the green transition, is the high prices, the very high prices for natural gas in Europe related to the Russian ... The sanctions on Russian natural gas, particularly Germany. And so, that's created this opportunity to ship a lot of US natural gas to Europe via LNG, liquefied natural gas. And that's expanding out pretty rapidly. And that has put upward pressure ... Natural gas prices are still very low here by most historical standards, but they have pushed higher and it feels like they're going to push even higher going forward just because natural gas producers can make a lot of money, even with the shipping costs in Europe. And so, that means somewhat higher natural gas prices going forward. Is that consistent with your thinking?
Dan White: So, we do see exports playing a bigger role, we don't see ... We were talking to Chris Lafakis the other day, we don't see natural gas prices climbing quite as high as he does.
Mark Zandi: I see.
Dan White: Mostly because, I mean, there are costs associated with it that maybe the cost on the European side, he might be underestimating a little bit in terms of how expensive that's going to be. But nonetheless, exports are going to make up a much bigger share of that. Natural gas used to be a very domestic thing to forecast. It was you only had to worry about production and demand on our side of the ocean. But now, it's much more global than we ever had before. And so, you have to take in some of the more global trade flows, much more akin to oil than we had in the past. So, it's a bit of a paradigm shift in terms of how we think about forecasting it.
Mark Zandi: Yeah, more of a global market. Used to be just a domestic market, now a little bit more global. And it will be increasingly so, just given the pipeline for new construction of lng NG facilities going forward but interesting.
Dan White: Yeah, it's going to take some time, but yeah, it's going to ...
Cris deRitis: Yeah, Europe's also tapping some other countries for natural gas, right? Algeria is supplying a lot and they're looking to the East.
Dan White: Right, [inaudible 00:38:01].
Cris deRitis: So, US will be a big player but there are some other players coming online too. That could keep prices from rising too much.
Mark Zandi: Let's play the games, stats game. And Dan, I don't know if you remember this, but we each put forward a statistic. The rest of the group tries to figure that out with the clues and deductive reasoning and questions. And the best stat is one that's not so easy you get it immediately. Not so hard, where you'd never get it. And if it's consistent with the topic at hand, all the better. And Marisa really wants to go first here. So, Marisa, you ready?
Marisa DiNatale: Yes. But I always go first.
Mark Zandi: I know. You always go first. You always go first. Yep, that's tradition. And we're not going to break that. Certainly not today. So, fire away.
Marisa DiNatale: All right.
Mark Zandi: And Dan, you're going to play, right? You said you were going to play. [inaudible 00:38:58].
Dan White: I may not get any of them correct, but I'm going to try.
Mark Zandi: Somehow, I feel like he's going to get them all.
Marisa DiNatale: [inaudible 00:39:03].
Mark Zandi: So go ahead, fire away.
Marisa DiNatale: 1.15 million.
Mark Zandi: Is it something related to the energy industry? Electric?
Marisa DiNatale: Yes.
Mark Zandi: Electric utility industry?
Marisa DiNatale: Tangentially.
Mark Zandi: Oh, okay. Energy more broadly, is that the number of charging stations nationwide?
Marisa DiNatale: No.
Mark Zandi: Am I in the ballpark?
Dan White: Is it having to do with natural gas inventories?
Marisa DiNatale: Mark is more in the ballpark.
Mark Zandi: Okay, it's something like that. I knew she was going to go there.
Dan White: 1.15 million?
Mark Zandi: Yeah, EV related.
Marisa DiNatale: It is EV related.
Cris deRitis: Sales of EVs.
Marisa DiNatale: Yeah.
Mark Zandi: Ah, that makes sense.
Cris deRitis: That's it.
Marisa DiNatale: Yeah, so it's-
Dan White: For what month? That's a different number than I heard last though.
Marisa DiNatale: This is through October. This is from the Argonne National Lab Data. This is sales in 2023 through the end of October of plug-in, either battery or hybrid EVs. So 1.15 million. That makes up 9% of all light duty cars and trucks sold so far this year. And this is the first year it's breached a million. So, last year in 2022, 931,000 ish EVs were sold. Again, this is just plug-in EVs, and the share of all sales was 6.8%. So, the share rose from about a little under 7% to 9% so far through 2023, over the prior year.
Mark Zandi: Is that hybrid as well, or just pure EV? [inaudible 00:40:55].
Dan White: [inaudible 00:40:56].
Marisa DiNatale: Yeah. It's plug-in, so either plug-in all battery or plug-in hybrid.
Dan White: So, not like a Prius, but one that you've got to plug in?
Marisa DiNatale: Right, right.
Mark Zandi: Should I tell you my EV story? Is this a good time to tell it?
Marisa DiNatale: This is a great time, yeah.
Mark Zandi: Okay, so I fly into Orlando Airport this a couple of weeks ago going to a Moody's off site in Florida, and we have Avis rent a car, and I go and preferred ... so you go right to your car. I go up right up to my car, I get in and all of a sudden, immediately I'm totally confused. It didn't look like a car, but it was within five seconds. I realized, "Okay, this is an EV." And I'm thinking, "Okay, I should know how to do this. This is a good thing to learn to drive an EV. But I don't really want to do it now, please." So, I go back to the Avis desk, they have a desk, and I said, "Can I just switch this out for a ... " I said, "A normal car," meaning an internal combustion car. And they go, "Oh yeah, sure, no problem. But it may take two to three hours for you to get a car." So, I said, "Oh, okay. All right. How hard can this be?" So I get into the EV and by the way-
Marisa DiNatale: Do you want to say what it was?
Mark Zandi: Yeah because I loved it. It was a Kia Niro, Kia Niro and I go, "This is great." No sound, drives well. Really well. The pickup is amazing. You could get on the highway very quickly, no problem. Again, I'm driving along, I'm going to my home in Vero, so that's like, I don't know, it's an hour and a half, an hour and 45 minute drive. And I'm looking down and I see these miles, thee numbers coming down from 225, 224, 223, and they're coming down pretty damn fast. It dawns on me that that's how many more miles I got to go. So, then I'm like on the MapQuest, how many miles do I need to get to Vero Beach? And I had plenty. I got to Vero, I probably had 50 miles left or something.
And by the way, I learned that by trial and error, if I have the air conditioning on and I'm blasting music, that's a problem. The miles are coming down fast, especially in hot Florida. And so, anyway, I get to Vero, that next stop is Fort Lauderdale, so that's another trek. There's no way I'm going to get from Vero to Fort Lauderdale without charging this up. I have to charge it.
I go, "I have no idea how to charge this thing." I go back to the Avis place in Vero and I said, "Please let me just get a ... " I called it a normal car. You know what? They would not give it to me. They would not give it to me. They said, "You have to charge the car." I go, "I don't know how to charge the car. I don't even know where to go to charge the car."
Marisa DiNatale: It's strange that they didn't tell you that when you rented it.
Mark Zandi: I know, right? I know, I know. Anyway, so, okay, they're not going to relent. And I used my Zandi persuasion on them and they ignore me. No, not happening. So I go, "Okay, all right. I got to go charge it." They tell me, "Oh, the nearest place is a Wawa." Wawa, thank you, Wawa. They're in Florida.
Dan White: In Florida? That's awesome.
Mark Zandi: And they have chargers. So, I go to the Wawa, it's 20 minutes away, near 95. I pull in and there's two chargers and there's two cars getting charged. I'm looking at this and I go, "I don't have a clue what to do." So I'm googling, "How do you charge a car?" And then fortunately, there was this couple that was charging their car, they were having lunch. I know this is a long story. Should I stop?
Marisa DiNatale: No, no, no. This is good.
Cris deRitis: No, we're invested now.
Dan White: Can't stop now. Now we're invested.
Marisa DiNatale: I know, I want to know what happens.
Mark Zandi: So the couple, the fella was so nice, really nice. And this is the best thing about an EV, you make friends, you make friends because you have to make friends.
Dan White: [inaudible 00:45:16] on the side of the road for half hour [inaudible 00:45:18].
Mark Zandi: Yeah. So he spends, I don't know, 20 minutes with me telling me, "Pull down the app. Here's how you do the app. Here's the charger you use." And okay, fine, okay. Then I'm still waiting for these two cars to finish. He finishes, but he says, "I need to charge it a little bit." He went to 80% or something, and he was going to take it to 90 and it slows down, something. The car next to him was completely charged, but the people were out having lunch or something and didn't come back. So, I had to wait another ... In total, I probably waited 45 minutes to get the charger. I get the charger, and then it takes me 10 minutes to figure out how to open the charger because I'm thinking ... I never thought it was a manual open. I thought there's got to be some button inside the car that opens the charger. But no, this is a manual open.
So, I finally figure that out. And then it takes 45 minutes to charge. No lie, I'm not making this up. Took me three hours from start to finish to charge this car, to charge the car.
Cris deRitis: But you got some Wawa coffee in the meantime?
Mark Zandi: No.
Marisa DiNatale: And you made a friend?
Mark Zandi: I made two friends. I made two friends. I made two friends. But I won't tell you about the second friend. That's just too much, too much information. Two friends. But here's the thing, now I'm driving to Fort Lauderdale and I'm sweating bullets the entire time, am I going to make it to Fort Lauderdale? Because I don't quite know exactly ... I guess there's something in the ... someone told me later, the car will tell you if you can make it to Fort Lauderdale, but I couldn't quite figure out how to do that. So I turned off all the air. I turned off all the music. It was raining, I didn't turn on the wiper because I was too scared.
Marisa DiNatale: Sounds awful.
Mark Zandi: It's crazy. It's crazy. It's crazy. Is this just me? Is this just me or am I ... Do I represent-
Cris deRitis: [inaudible 00:47:13].
Marisa DiNatale: No, I mean, well, I don't have experience driving an EV but I mean, I've been reading quite a bit about experiences and listened to a podcast the other day. Actually, it was a New York Times podcast about the Biden infrastructure bill, and it was talking about EV sales, and it said the number one reason why people say that they don't buy them is because they have this so-called range anxiety. They're afraid of running out of battery when they're driving, and it's really preventing higher sales.
Mark Zandi: That's what I had. Bad case. Bad case of that, yeah. So Dan, you were telling us folks in your footprint are pretty skeptical about EVs too, I guess?
Dan White: Yeah. This isn't my statistic, but a good statistic is ... So naturally Marisa, you were saying there's what, a million more than a million vehicles that have been sold so far here today? 1.2% of all vehicles in the US are EVs or PHEVS. So only 1.2%. So, even though it's 9% of new sales, only 1%.
Marisa DiNatale: Cars on the road.
Dan White: And our footprint, which again is Michigan down to Texas, three tenths of a percentage point is the [inaudible 00:48:27] EVs.
Mark Zandi: EVs, yeah.
Dan White: And it's because they're too expensive for most of our customers, just simply can't afford them. But it's also range anxiety and the infrastructure. It's a chicken in the egg thing. People don't want to build chargers, because there's no EVs and people don't want to buy EVs because there's no chargers. But then third is the preferences. The most popular vehicle in our footprint is a Chevy Silverado. And I know that there are a couple of pickup trucks that are EVs now. There's the F-150 and there's the Rivian thing, but they just don't have the capabilities that an ICE, internal combustion engine, pickup truck has. They don't have the towing capacity. They don't have the range, and so people just don't ... Our customers are telling us that they just don't want them.
Now, there are pockets within our area where they make total sense. So, in our area around Columbus is probably the most concentrated area of EVs within our whole footprint. And there's EVs all over the place, but they're all sedans. They're all people who are driving to work. They're not people who are driving to a ranch, or people who need to tow something, or things like that. So, until those technological capabilities can come online and they can bring the prices down and they can build up more EV charging infrastructure, we just don't see it, at least within our footprint as being-
Mark Zandi: Catching on, yeah.
Dan White: ... catching on.
Marisa DiNatale: But you made it, Mark?
Mark Zandi: Oh yeah, and I'm sure I'm just being a big baby.
Dan White: Change is hard, Mark. Sometimes it's hard.
Mark Zandi: Change is hard. Yeah, absolutely. Dan, do you want to go next? Do you want to do your statistic?
Dan White: Sure. My statistic is 3.4 megawatt hours.
Mark Zandi: Megawatt hours.
Marisa DiNatale: The time it takes to charge an electric vehicle?
Dan White: No.
No,
Mark Zandi: That's a lot of kilowatt hours, 3.4.
Dan White: It's 3,400 kilowatt hours.
Mark Zandi: 3,400 kilowatt hours. Is it the amount-
Dan White: [inaudible 00:50:35] gigawatt hours. By the way, first thing I learned when I moved to Electric Utility is that Doc Brown from Back To The Future is full of it. He doesn't know what he's talking about.
Mark Zandi: Oh, really? Boy, that's disappointing.
Dan White: 1.21 gigawatts, it's not a thing. It's one point 21 gigawatts.
Mark Zandi: Oh yeah, he said gigawatts. You're right, yeah.
Dan White: So, be the new guy who comes into an electric utility and says gigawatts on the first day. [inaudible 00:51:01].
Mark Zandi: "Who are you again?" That's funny. Well, is that the amount of electricity used by something?
Dan White: It is.
Mark Zandi: And we got to figure out what that something is?
Dan White: That would be helpful, yep.
Mark Zandi: Is that national or regional level?
Dan White: It's a per unit kind of thing.
Mark Zandi: Yeah, it's a per unit kind of thing.
Marisa DiNatale: In your footprint?
Dan White: Nationally. Nationally.
Marisa DiNatale: Oh, okay.
Mark Zandi: Nationally, nationally. I listened. And I don't really have a concept of how much, 30 ... what is it, 3,400 kilowatt hours?
Dan White: So, 3.4 megawatt hours or 3,400 kilowatt hours, depending on how you do it, is about enough electricity to run two refrigerators for a year.
Marisa DiNatale: A year. Oh, okay.
Mark Zandi: iPhone, charging an iPhone for a year?
Dan White: No.
Mark Zandi: No. Because I use a lot of electricity charging an iPhone.
Dan White: Although your iPhone might be that much, Mark. No, I don't think the average iPhone is [inaudible 00:52:10].
Mark Zandi: Actually, my iPhone gets very hot regularly, so I'm sure I've used a lot of ... Is it something in the house?
Marisa DiNatale: Is that kind of statistic? Like a utility, like an appliance or something?
Dan White: Yep. And I'll give you a hint. It's something we've been talking about a lot on the podcast so far.
Mark Zandi: EV?
Dan White: An EV, yep.
Mark Zandi: Oh, it's an EV, okay.
Dan White: The average EV uses about 3.4 megawatts megawatt hours of electricity over the course of a year. So in other words, if you bought an EV and you were charging at your house, it would be the same in terms of your electric bill, it would be the same as buying two new refrigerators and running them constantly.
Mark Zandi: Yeah. Yeah, that's a good one. Yeah, yeah. But I mean, that's the advantage of an EV. It does save money, right? Because I did notice when you charge, it's a lot cheaper, obviously, than filling up your gas tank.
Dan White: Yeah. And if you've got a home charger, it's really not a big deal at all.
Mark Zandi: Yeah, exactly, right. And you're not traveling long distance.
Dan White: To our point of view, especially in our footprint where we've got a very slow pickup in EVs, it is not a game changer in terms of load. Our residential load is not going to be double in 10 years because of EVs. It's going to take a long time for that load to pick back up.
Mark Zandi: Right, right. That's a good one. Okay Cris, do you want to go next?
Cris deRitis: Sure. I've got three numbers.
Dan White: He always has three.
Cris deRitis: 16.9 cents.
Mark Zandi: Stop, everyone stop. I know exactly what it is, and I want full credit for this.
Cris deRitis: You would know the other two numbers too.
Mark Zandi: The other two numbers-
Dan White: Oh, careful. This is like the guy jumping the gun on Jeopardy, Mark and doesn't listen to the question.
Marisa DiNatale: All right, let's hear it, let's hear it.
Mark Zandi: Okay, go ahead. Go ahead.
Cris deRitis: [inaudible 00:53:56].
Mark Zandi: What is it?
Cris deRitis: 12.6 cents. And 47.5 cents.
Mark Zandi: Oh, okay. Now it's more complicated.
Marisa DiNatale: Now it's more ...
Cris deRitis: What's the 16.9?
Mark Zandi: 16.9 is the cost of a kilowatt hour of electricity nationwide as of the month of September.
Cris deRitis: October.
Mark Zandi: Only reason I know this is because that's my statistic.
Cris deRitis: Ding, ding, ding.
Mark Zandi: Ding, ding, ding.
Dan White: [inaudible 00:54:22] utility coverage.
Cris deRitis: You looked like a genius, but not really. No.
Mark Zandi: Is it 12.4?
Cris deRitis: 12.6
Dan White: What were the other numbers?
Cris deRitis: 12.6 and 47.5.
Mark Zandi: 12.6.
Dan White: Those might be the different costs by class?
Cris deRitis: Nope.
Mark Zandi: Oh, boy. That would really be [inaudible 00:54:42].
Cris deRitis: That's what it was pre-pandemic or something.
Mark Zandi: No, the price.
Cris deRitis: It's the same release. It's the same month.
Mark Zandi: Oh, same month? Okay.
Cris deRitis: It's all BLS data, CPI.
Mark Zandi: Okay. 12.6 cents and then 47 something cents.
Cris deRitis: 47.5.
Mark Zandi: It's got to be related to electricity.
Cris deRitis: It is.
Marisa DiNatale: They're all related to electricity. All three.
Mark Zandi: They are?
Cris deRitis: They are. Yeah.
Marisa DiNatale: Is that a seasonal difference in price?
Cris deRitis: Nope. Oh, I thought Dan would be all over this.
Dan White: Well, no, the cost per kilowatt hour made sense, but I'm trying to think of what else comes out in that report.
Cris deRitis: They're all cost per kilowatt hour.
Dan White: Are they are all cost [inaudible 00:55:33]-
Cris deRitis: They're two different ... these are the high and low.
Dan White: Is it peak and off peak?
Mark Zandi: Oh, it's a different state. One state's Louisiana-
Cris deRitis: Different cities.
Mark Zandi: Oh, different cities. One's New Orleans.
Cris deRitis: No, no. Let me let give it to you.
Mark Zandi: But you know what I'm saying, right?
Cris deRitis: No, exactly.
Mark Zandi: Cheyenne, Wyoming.
Marisa DiNatale: And one's Hawaii or something?
Mark Zandi: No, Cheyenne ... Hawaii is good-
Dan White: One is Columbus, one is Philadelphia and one is Los Angeles.
Cris deRitis: That's a good guess. It's not Hawaii, but it's ...
Marisa DiNatale: Hawaiian-like?
Cris deRitis: Hawaiian-like.
Mark Zandi: Don't tell us.
Cris deRitis: Not too far from you, Marisa.
Marisa DiNatale: Is it LA?
Cris deRitis: Nope. A little further south.
Marisa DiNatale: San Diego.
Dan White: San Diego?
Cris deRitis: There you go, 47.5-
Mark Zandi: I thought you were going to say Guam. I thought you were going to tell us Guam or something.
Cris deRitis: Yeah, and the other one is St. Louis.
Mark Zandi: Oh, that's hard to believe.
Cris deRitis: That's the low, yeah, hard to believe, right?
Mark Zandi: I thought it would be-
Cris deRitis: I thought Dan could enlighten us with the-
Mark Zandi: Yeah, what's going on.
Cris deRitis: ... differences, yeah.
Dan White: Well, it's got to be on-
Mark Zandi: Is it regulation?
Dan White: I don't know if I'm familiar with that part of the BLS release, because we look at our own prices and we look at the national spot prices for electricity. But are those non-fuel rates, or are those all-in?
Cris deRitis: This is to the consumer. This is the average.
Marisa DiNatale: This is the price to the consumer.
Dan White: It's got to be the fuel price has got to be the difference. The cost of fuel in those areas and-
Marisa DiNatale: Taxes though?
Mark Zandi: Yeah, taxes probably.
Cris deRitis: Yeah, [inaudible 00:57:00] taxes, regulations.
Dan White: Yeah, taxes, but the riders that are included on it as well. There's a ton of different reasons why those could all be different.
Mark Zandi: Yeah. Huh, that was a good one, Cris. I only got to the top line number. I didn't get to the regional detail, but-
Cris deRitis: [inaudible 00:57:17].
Dan White: So, St. Louis was the lowest and San Diego was the highest?
Cris deRitis: San Diego was the highest, yes.
Mark Zandi: 47 cents sounds like a lot to me.
Cris deRitis: It is a lot.
Dan White: Well, it's also the fuel mix, right? So, one of the reasons that it's different. It's got to be, there's probably a lot more renewables going into San Diego, not less.
Mark Zandi: Yeah, probably, for sure, yeah, yeah.
Dan White: St. Louis is probably all natural gas and coal, which is super cheap.
Mark Zandi: Yeah. Hey, let's move forward. Since he took my statistic, I don't have a statistic, so game over. But I thought that was very instructive, particularly I had an opportunity to tell you my story about EV, I thought that was-
Marisa DiNatale: It was a good story.
Mark Zandi: ... quite therapeutic. I feel better now that I told you.
Marisa DiNatale: You're not alone. I don't think you're alone, Mark.
Mark Zandi: That's the key here. I don't want to be like I was a weirdo. Anyway, I am a weirdo, but I didn't want to feel like a weirdo.
Cris deRitis: Not for this reason.
Mark Zandi: Not for this reason.
Marisa DiNatale: Not in this way.
Mark Zandi: Not in this way.
Dan White: Mark, can I ask you, speaking of you being a weirdo, can I ask one very serious question of you and Cris? I know that you guys were in Chicago a couple of weeks ago for the conference, and I felt bad. I was going to go and heckle you guys from the back of the room.
Mark Zandi: That would've been great.
Marisa DiNatale: Oh, we were all there too.
Dan White: [inaudible 00:58:32].
Mark Zandi: Yeah, Marisa was there too.
Marisa DiNatale: All three of us.
Dan White: When you went, did you finally make Mark eat a Chicago style hot dog?
Mark Zandi: No. What's that all about? No one told me about ... no. [inaudible 00:58:44].
Cris deRitis: It's on the podcast.
Dan White: The last time I was on the podcast you were telling me about how you didn't even know that that was a thing.
Mark Zandi: Oh, that's right. That's right. I forgot all about that, yeah, no one-
Dan White: I remember, Ryan almost fell out of his chair, I think when you said that.
Mark Zandi: Right, that's true. That's true, I forgot all about that. No, no, no, they didn't ... I had a nice steak as I recall, but there was no hot dog-
Marisa DiNatale: No hot dogs were provided.
Mark Zandi: ... no hot dogs provided, right, well let's ... Gee, an hour has passed. Is that possible? Oh my gosh. Okay, I do want to talk about one last thing, and that is around the policy to facilitate the transition to green energy and the Inflation Reduction Act. Do you have a sense of that legislation and how well it's going and how well you think it will go? Any perspective on the IRA?
Dan White: It's definitely being effective at incentivizing folks to switch to lower carbon forms of fuel and electricity production. The PTCs and the ITCs in particular, are definitely incentivizing folks to do more in terms of wind and solar.
Cris deRitis: The tax credits, the production tax credits [inaudible 01:00:04].
Dan White: Tax credit and production tax credit. I think it's a dual policy measure. So, the IRA is definitely the carrot to incentivize folks to try and do more. The next thing that's coming in that we're all trying to plan around is the stick that might come from the EPA which is a 111(d) rule, which would give explicit penalties to folks who are burning certain types of fuel if they're not doing it the way that the EPA lays out. And so, I think that rule, it's been under discussion for a couple months now, and it probably wouldn't go into effect until next year. But going to your point earlier about the election, it's a very difficult time to try and put any sticks out there, especially three months before an election.
I think it's going to come, but whether it comes in its current form or not is ... but give you some sense of what that is, is it basically incentivizes folks to burn more hydrogen along with natural gas so it gets that next step, I talked earlier about switching from coal to natural gas is fairly straightforward, especially with the new IRA provisions.
But switching from natural gas to a new technology that's less of a carbon footprint than natural gas, that's where things really get hardened. So, you can't do it all on solar and wind alone something has to be able to ... you have to be able to turn something on and off. And so, building out new technologies around hydrogen is huge, but we don't produce enough hydrogen in the United States to be able to even come close to producing enough to do that yet. We also don't know how we're going to get the hydrogen to all the different places that we would need to do it or how we're going to produce the hydrogen. One of the cool things, this is where they were explaining engineering to me the other day and trying not to make me feel like an idiot. Did you know that there's like 11 different types of hydrogen based on how they produce it and they all have a color?
Mark Zandi: Oh, I thought hydrogen was just H. No?
Dan White: That's what I thought, but I've been wrong about lesser things. So, there's a whole rainbow of colors.
Mark Zandi: Oh, rainbow of Hs, okay. Didn't know that, no.
Dan White: Blue hydrogen and green hydrogen. Green and blue are the two that they're most focusing on. Blue hydrogen is hydrogen that's made from electricity, but it's electricity that's produced by natural gas. So, you're using natural gas to produce hydrogen to burn with natural gas to make electricity. And so, it's a roundabout way of doing things. And then green hydrogen-
Mark Zandi: Does that reduce emissions, Dan, doing that? Or it doesn't sound like it would.
Dan White: I need to have my engineers with me to tell me.
Mark Zandi: Yeah, okay, okay. Just curious.
Dan White: The other one that a lot of people are looking at more is green hydrogen, which is where you use electrolysis to create hydrogen using green forms of electricity, so solar or wind. And so, you would basically have a solar or a wind farm to create hydrogen, and then you would use the hydrogen to burn large scale for more electricity.
That is very low emission. But again, the reliability issues around wind and solar are just not there yet. And so, from an engineering standpoint, there's some really fascinating problems that need to be solved over the next five or 10 years. I think the policies that they're putting forward are trying to get people to think about that, but if they don't think about those policies with the end customers in mind, it could be a very expensive time for folks, as all the utilities across the country try and get these regulations under control.
Mark Zandi: Yeah, I might put you in a bit of an awkward position, and you can just tell me, "Mark, you're putting me in an awkward position," but my sense of climate policy is that the IRA is all about providing carrots to transition. You mentioned the various tax credits. They're subsidies, taxpayers are paying money to incent you and I as consumers and utilities and businesses to move over to cleaner technologies. That can only take you so far. It's very costly to the government, particularly given now that the federal government has these pretty serious fiscal issues, I mean, deficits, debt, now high interest rates, it's not sustainable. So, it doesn't feel like we can double down on carrots to make us move to something that is cleaner, lower CO2 emissions and more ... helps out the environment. It feels like we're going to have to go to a stick at some point.
And the economist's favorite stick when it comes to this is just tax the carbon, please. Put a tax on the carbon. Once you put the tax on the carbon, things happen pretty fast because people don't want to pay the tax, so they figure out technologies to do things without creating carbon. And that way, you could also generate some revenue. I mean, obviously there's issues with it regard to the regressivity of it or that it makes you less competitive against foreign producers that don't have the same carbon tax to pay, but there's clear ways of addressing those issues.
So, I don't know, it just feels like whether you think it is a good idea or a bad, it just feels like we got to get there at some point in time. There's just no way to do what we need to do with regard to reducing emissions to address climate risk without that. So, that's on my soapbox, and again, I don't necessarily mean for you to respond to that, but if you want to feel free.
Dan White: Yeah, I won't respond to whether or not we should have a carbon tax because I think you're right in that we're going to have a stick, whether we think we should or not, they're coming. But what we are most focused on is our customers. And what I'm worried about in some of the regressivity that you talked about, carbon tax would be very regressive for a lot of folks across the country. And if we put too much of a stick in place where the cost of electricity, a kilowatt hour cost that Cris is talking about, if that goes up, that's passed along to our customers and some of our customers, especially those folks at the lower end of the income spectrum, they could have real issues being able to afford their electricity if we're not careful in terms of how we design those policies to be in place. And so whatever comes, we want to make sure that our customers are first and foremost on our minds, but also on the utility commissioner's minds and on the federal policymaker's minds as they go about their policy-making.
Mark Zandi: Yeah, totally. I agree with you about the regressivity. I mean, what I do is I take the carbon tax, you generate revenue and cut everybody a check, and everybody gets a check for, I'm making it up, a thousand bucks. Whether you make 50,000 a year or five million a year, you still get a thousand bucks. So, that helps to address the regressivity, but nonetheless.
So we're running out of time, but I do want to end with a quick conversation around a listener question that we punted on. You might have heard the question, Dan, if you were listening in. The question is, what economic statistic would you want if you could have it that you don't have right now? Did I say that right, Marisa?
Marisa DiNatale: Yeah. And it could be anything, right?
Mark Zandi: It could be anything.
Marisa DiNatale: Could be some big data source or government collected statistic, anything.
Mark Zandi: So, Marisa, you're always first. So I'm going to start with you.
Marisa DiNatale: I mean, I think it would be ... And again, this is very pie in the sky. This doesn't necessarily mean this is a realistic thing to collect or have, but something that would be useful to have would be more timely measures of productivity, I think.
Mark Zandi: Okay, interesting.
Marisa DiNatale: So, we spend a lot of time pondering if various things are adding or detracting from productivity. AI, work from home, flexible work, all these things. And I think it would be really interesting to get ... somehow get data on that that is not six months old by the time we get it and quarterly. So, I don't know what it is or how you'd get it, but-
Mark Zandi: Yeah, yeah, yeah, no, I-
Marisa DiNatale: ... it would be really cool to have a more timely measure worker productivity.
Mark Zandi: And probably just a more ... a better one, right?
Marisa DiNatale: Yeah.
Mark Zandi: Because the way it's calculated is kind of a bit convoluted.
Marisa DiNatale: That's right.
Mark Zandi: It gets revised a lot, but that's such a key statistic because at the end of the day, our living standards are tied to our productivity growth. So that's a good one. Cris, do you have one?
Cris deRitis: Sure. I guess in general, I would say you probably have all the right statistics. We just need better quality, higher frequency, but if I had to choose one, it would be income. Coming from a credit modeling background, income was always the holy grail, you could accurately measure a person's income.
Mark Zandi: And the problem is guys like you with crypto winnings and bank accounts in Bermuda, and what do we do with you? I mean, how are we going to measure your income? Look, Dan, look how well he's dressed. Can you imagine?
Dan White: He didn't dress that nicely when I left. I don't know what happened.
Mark Zandi: Exactly, my point. Exactly my point. All right, I hear you. That's a good one though. Yeah, you're right. Income is a real ... it sounds easy to measure, but it's really difficult to measure.
Marisa DiNatale: I mean, it's kind of like the productivity thing, right? We get measures of income, but it's very lagged and it gets majorly revised.
Cris deRitis: Exactly. Exactly.
Mark Zandi: Yeah, that's a good one. Dan, do you have one you want? I'm putting you on the spot. You didn't have any [inaudible 01:10:21].
Dan White: I would echo Cris, and I think we've, I've got what I would like to have, I just would like to have it more often, and I would like to have it at a lower frequency. So, one of the things that's been frustrating about working here is that our footprint doesn't fit any specific metro areas or states perfectly. So, we have to aggregate up a bunch of county level data, and that data is just ... takes forever to update. And so, when we're back testing, doing things like that, it's difficult to tell whether the underlying economic data was correct in the first place because it's so lagged. So, I would love for that granular of geography to be available more often. And at a lower frequency, you would love ... Steve Cochran would be having a ball with some of our guys. We do a new spatial load model where we take the load and we-
Mark Zandi: He's a colleague. He's a colleague who's been with us forever, yeah.
Dan White: ... yeah, we forecast it at a circuit level. So it's like a neighborhood, there's like 2000 customers or so on a circuit. And so, being able to take not just how many EVs do we have, but how much EVs do we have on that circuit in Northwest Columbus, which is these three neighborhoods? Being able to have something of that granularity so that we can drive those forecasts would be the holy grail, to Cris's point.
Mark Zandi: You know what? That sounds like a business opportunity to me. I'm just saying. Guys? I don't know. It feels like that.
Marisa DiNatale: Yeah, I was thinking we can aggregate.
Mark Zandi: We can that.
Dan White: If only I knew [inaudible 01:11:44] figure out a way to do that.
Mark Zandi: Can't we do that? I think we can do that Anyway, I want better immigration statistics. That's so key to everything. Population growth, household formations, obviously by extension, housing activity, labor force growth, unemployment. How tight is the labor market? There's a lot of evidence that there's a lot more undocumented work, immigrants coming into the country, than has been the case historically.
In fact, I think when we get the data, historically we've ... the assumption is about a half a million undocumented come in every year. I think it's going to be two, two and a half million, something like that. And I think it goes a long way to explaining why we can grow 2.5% percent GDP which is where we started the conversation, with inflation not an issue. Inflation coming in, wage growth monitoring, labor markets is easing up, because we've got a lot more labor force out there than we think.
And by the way, that goes to your productivity point, measuring the productivity of those immigrants, really important to try and to understand what that means in terms of their income, their output, which goes to the fiscal situation and everything else. So, if you can't count the number of people in the economy, pretty difficult to get the economy right, particularly if that's changing a lot. So, just give me that. And by the way, that's a reasonable ask. You say, is it doable, not doable? That one is doable. We should definitely do that.
Anyway, that was a great question from the listener. And if the listener is listening, we'd be very happy to send you a cowbell in honor of the question. It was a really good question. So email us, let us know, and we'll send you a cowbell. And Dan, that was so good to see you. You look like you're doing really well. You still have a full head of hair look like Samson over there. I mean, they're not working you hard enough, is all I have to say. Not like Moody's Analytics. We worked you to death, we worked you. Although I have to say, look at Cris and Marisa, they look ...
Dan White: They look awesome, Mark.
Mark Zandi: They look awesome.
Cris deRitis: It's the Zoom filter here.
Mark Zandi: It's the Zoom.
Marisa DiNatale: It's the Touch Up My Appearance button.
Mark Zandi: It's the AI. Of course it's the AI.
Marisa DiNatale: But Dan also has ... I can see a hard hat on his desk.
Mark Zandi: Does he? Oh yeah, he does. Wow.
Dan White: Yes. I got to go visit one of our power plants the other day, and I only hit my head once. So, thank God for hard hats.
Mark Zandi: Very cool. Well, thanks Dan. It was really good to chat with you and hopefully we can get you back on. Hey, can I ask you a favor? If your business starts turning south or north in a meaningful way, could you just send off a flair so we can talk about it?
Dan White: We will let you know.
Mark Zandi: Let me know. Let me know, let us know and well, thank you. And with that dear listener, we're going to call this a podcast. Take care now.