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Episode #54: Preparing Utilities for the EV Revolution with Kevin Hernandez of ScottMadden [an Energy Central Power Perspectives™ Podcast]

The electrification of vehicles has swiftly gone from a curiosity to a trend to an inevitability, and few industries are poised to be quite as deeply impacted as the power sector. Utilities are already seeing the greatest amount of new load demand added to their portfolios in decades, and they'll continue to have requests to build out new transmission and distribution infrastructure just to meet the growing electricity needs of electric vehicles. At this moment, utilities find themselves as a crossroads where they are reasonably able to keep up with these changes as they happen, but thanks to policies supporting vehicle electrification and falling EV prices the market will soon reach a pivot point where the adoption increases much more rapidly. As such, power providers are best served by preparing today for the coming EV revolution in the days ahead.

That message has been espoused widely by Kevin Hernandez, a Partner and Grid Edge Lead at ScottMadden. Kevin has studied the trends and the forecasts deeply, and he's measured them against the current capabilities of utilities across the country in a way that's highlighted where the energy industry needs a boost to properly prepare for the changes that are happening with increasing speed. To spread this message further to the utility leaders who must be making these investments today, Kevin joins the Energy Central Power Perspectives Podcast to chat with host Jason Price and producer Matt Chester about his observations and recommendations.

A special thanks to ScottMadden for supporting this edition of the Energy Central Power Perspectives Podcast. 

Prefer to Read vs. Listening? Scroll Down to Read Transcript.

 

Key Links:

Kevin Hernandez’s Energy Central Profile: https://energycentral.com/member/profile/kevin-hernandez-1/about

ScottMadden on Energy Central: https://energycentral.com/o/scottmadden

Did you know? The Energy Central Power Perspectives Podcast has been identified as one of the industry's 'Top 25 Energy Podcasts': https://blog.feedspot.com/energy_podcasts/

 

 

Transcript

Jason Price:
Hello and welcome once again to Energy Central's Power Perspectives Podcast. On this podcast, we strive to bring you timely and unique insights from the movers and shakers across the utility industry. We do that by featuring the heavy hitters and newsmakers in the energy sector. And today, it will be no different. I'm your host, Jason Price of West Monroe, coming to you from New York City. And joining me once again from Orlando, Florida is Energy Central's community manager and podcast producer, Matt Chester. Matt, how are you feeling about today's episode?

Matt Chester:
Hey, Jason. I've got my coffee ready and I'm excited to just sit back and listen to a good one today.

Jason Price:
Agreed. We're dipping back into the hot topic today, and that's how the power sector is going to react and repair to the coming electrification of the transportation. While penetration of new EVs on the road has been slower in the United States than some other countries, it looks like we're poised to hit an inflection point shortly. From federal funding and policy support, to an increasing number of more affordable models of electric vehicles, it's no wonder that 28% of Americans surveyed have said their next car will be electric. This transition will become even more dramatic in transportation fleets where the business case of switching from gasoline or diesel to electric are driving fleet owners to adopt electric at accelerating rates.

Jason Price:
While that trend is a positive one for those pushing the electrification of transportation, fleets transitioning to electric will be a greater and more immediate challenge for the utilities and grid operators to face because of the greater absolute power demand increases that it'll come with. Addressing this transition is key to utility leaders today. And to help them think through the problem, we have on today's episode a respected leader in this space. Kevin Hernandez is a partner at ScottMadden, where he co-leads their grid edge community practice. Specifically, in his 10 years of service at ScottMadden, Kevin has spent plenty of time assisting energy industry clients think through the challenges associated with current transformation, energy storage and, most importantly, transportation electrification. Kevin has spent a lot of time working through the challenges that will hit utilities in the grid when the transportation sector makes this dramatic transition, including key questions that we'll cover in today's conversation.

Jason Price:
Before we bring Kevin to the podcast booth, we do want to thank ScottMadden for their role and making today's episode possible. ScottMadden is a management consulting firm serving clients across the energy utility ecosystem. Areas of focus include: transmission and distribution, the grid edge generation, energy markets, rates and regulations, corporate sustainability, and corporate services. The firm helps clients develop and implement strategies, improve critical operations, reorganize departments and entire companies, and implement Myriad initiatives. So with that, let's bring in our guest. Kevin Hernandez, welcome to today's episode of Energy Central's Power Perspectives Podcast.

Kevin Hernandez:
Thanks, Jason. Thanks, Matt. It's a pleasure to be here.

Jason Price:
Kevin, you contend that the transition to electric transportation represents a once in a lifetime opportunity for utilities, not a challenge, but an opportunity. Can you start by talking a bit about that?

Kevin Hernandez:
Yeah, sure, absolutely. And let me be clear, there's no doubt that the transition to electric transportation will present challenges, right? And I think those have been pretty frequently discussed and talked about. But I think what we don't often talk about enough is the opportunity that electric transportation presents. In our view, it's really a once in a lifetime, or once in a generation opportunity. The infrastructure, the charging infrastructure, that is going to be required to build out just to meet EV charging needs is going to be significant, and it really represents this really unique opportunity for utilities to do what they do best, which is to serve customer load, and add to rate base in really a truly meaningful way. Particularly when you look at lots of parts of the country, where declining load growth has been a persistent challenge, this really represents something, an opportunity that, in our view, utilities should seize upon to really do what they do best, and that's to deliver service to their customers.

Kevin Hernandez:
I also think it's a really interesting way, and particularly on the personal vehicle side, the residential customers, to reconnect with customers. I think EV charging and EV load is going to be really different. And so, to the degree that utilities can help their customers manage their energy use, particularly when that energy use that was going to be much more dynamic occurring in something, in some cases, away from the home, I think that's going to give them an opportunity to connect and reconnect with those customers in a much different way.

Jason Price:
If the opportunity is there, would you say that utilities are doing what they can and should to keep pace with the rate of change in transportation?

Kevin Hernandez:
Well, there's no doubt that the pace of change is just off the charts, right? In every single in everyday, we're seeing a new EV model introduced, or everyday another announcement. I think, just this week, we saw Ford announced an $11 billion, a billion with a B, investment in battery manufacturing and vehicle manufacturing for electric vehicles. So the industry is really... I think the writing is on the wall. And we've said for a long time, it's not a matter of ifs, it's a matter of when, and I think the when is really becoming quite soon.

Kevin Hernandez:
The question of whether utilities are doing enough, I just think that they oftentimes don't get enough credit for all of the things that they're doing. We often hear these stories about the slow interconnection processes, or the fleets are ordering vehicles and the vehicles arrive, but then the utility's not able to charge those vehicles, but we lose track of all of the stuff that's going on. Those things happen because the transportation industry is just coming up to speed. They really don't understand charging as much, the infrastructure or the grid. So it was a lot happening in a lot of parts of the country, and lots of pilot programs, and lots of development is happening, a lot of really forward-thinking utilities. I just don't think we talk often enough just about all of those types of things that are happening.

Jason Price:
It's my understanding that it can take up to two years, in some instances, for even a local distribution grid to update their equipment to EV charging. What might happen if the power sector lags too far behind where the EV industry is and needs?

Kevin Hernandez:
Yeah, that's a great question. So we talked a little bit about the opportunity, but the real risk is that transportation simply moves beyond utilities and invest in their own solutions, whether that's behind the meter, or storage, DERs, whatever they perceive that they need to do to reduce cost and speed up their timelines, or refrigeration timelines, and otherwise meet their charging needs.

Jason Price:
Right.

Kevin Hernandez:
So if the timelines that transportation of fleets are on, are not in sync with the timelines that the grid and the utilities are going to be on, we're going to see a mismatch between those two. The risk of utilities is that those DERs and the sources of the solution is going to be put in, and the works that utilities are going to have to do to interconnect those assets and to manage the grid and everything else won't be any less than it will be to build out the infrastructure needed to serve that load to begin with. The only differences that the ownership of those assets might change, that rate base opportunity and the opportunity to make those investments on behalf of the utility's customers could go any other way, and it could be things that are then made by fleets instead. And I think that's the risk there that you're losing a little bit of the opportunity and also the opportunity to come and manage the grid and build up the grid in a way that balances the need for EV charging, but also balances the grid needs.

Matt Chester:
So, Kevin, do you think the utilities have a role to play for the individual customers, whether it's educating them or incentivizing them, or with what you're talking about, how they can harden the distribution grid? Do they need to be reassuring customers that the utility and its infrastructure are going to be ready if they decide to take the EV leap?

Kevin Hernandez:
Yeah. I think there's certainly a role and I think it's going to be really... I think it is debated quite a bit exactly what the role is of the utility. There's a lot of advocates. So utility outreach and education efforts is being a little self-serving, right? But at the same time, we talked about risk. Another risk is overbuilding the grid, or overestimating charging needs. And so, I think the utilities have an opportunity to educate the transportation industry and educate customers who will be switching to electric vehicles about how to manage their load, how to go about that transition in a way that results in grid upgrades that are needed, but not over needed, not overbuilt, that leads to electrification and, in a common sense, a pragmatic way rather than, "hey, we need multi megawatts of load serving capacity here," when that may not be the case.

Kevin Hernandez:
So I think utilities really do have a big role to play. And the advantage of them getting in early, if utilities taking really early steps in doing this, is that they can get out in front of this and, rather wait for an uneducated or a customer who may not be familiar with the way the electric industry works, to come to the utility and say, "I need X amount of load," they can actually go out proactively and say, "Hey, let's work on this together. Let's figure out together exactly what kind of load you might need, and then we can talk about how much it would cost and how long it will take you to do that."

Kevin Hernandez:
And then, that creates a dynamic where the customer and the utility can have conversations and say, "Well, what if we do this different? And what if we build this different? What if we select this type of charging, or move charging in a way that manages those grid impacts, that speeds up interconnection, it lowers the cost, and lowers the number of upgrades that might be necessary," which is in the best interest in the fleets. It lowers their costs, obviously, but also it lowers their cost for utility's customers who are going to bear some part of that infrastructure cost as well.

Jason Price:
Yeah. Kevin, I want to pivot more towards the electric fleet transition. So share with us some specific considerations beyond what you just described, that utilities should be looking at really to help motivate major commercial fleets to start transitioning to this area.

Kevin Hernandez:
Yeah. I think the big thing is helping to fill the knowledge gap. I'm sure, many of the listeners do attend to a lot of industry events, and it's interesting when I attend transportation industry events. There's lots of conversation about starting infrastructure, but usually very few utility representatives there to talk about the realities of the grid, and the same is true for the utility space. When I attend utility conferences, oftentimes, there's lots of talking about the infrastructure, but a few transportation industry representatives to talk about the needs of transportation fleets.

Kevin Hernandez:
So I think, any steps that can be taken to bridge those gaps and to sort of building that knowledge, I think that when we look back, I can't help but thinking that transportation is going to become a new customer class. We're going to have residential customers or traditional CNI customers, and then we're going to have transportation customers. And the reason that might be different than the CNI is because, one, you're talking about quite large load, similar to CNI, but also just a bunch of much more dynamic charging environment and much more the interplay between how the energy is used and provided is going to be a much more collaborative in the sense that utilities and the customers can work together to manage the impacts on the grid. So I think utilities getting involved early and filling in some of that gap, which is a really key component of any kind of program.

Jason Price:
Right, right. But it's not just the utilities, they need the cooperation from the regulators. So could you share with us your thoughts on what role does regulation play in this whole story?

Kevin Hernandez:
This is a challenging part of this, is that the current regulatory models, I think, do a very good job at matching the needs of customers with the utility's ability to serve that load, but also do that in a way that's responsible in terms of costs and not putting too many costs on the customers. That works pretty good with traditional loads coming on, or new customers, or new connections, but I think where it may not work as well, when you talk about these very, very large loads that might be coming on, is when we talk about fleet electrification.

Kevin Hernandez:
And so, maybe even just taking a step back when we talk about fleets and why that might be different is that we're expecting that we're going to see a lot of medium duty and regional fleets convert to electric vehicles fairly quickly, that's a use case that provides the best financial benefit, best operational benefit. And when you have that kind of local delivery or regional transportation model, oftentimes, those fleets are returning... Most of the time, they're returning back to a depot, or to a garage, some sort of facility at night for charging. Of course, what that does is it concentrates that charging load, right? For residential customers, they go home each night and charge. Those can be a lot less strain on the grid than when you see 50, or 100, or 150 vehicles all returning and trying to charge in the same window in the evening.

Kevin Hernandez:
So you're going to have these very large loads and then, potentially, those loads are going to happen very quickly. As soon as we see transportation industries, the vehicle availability is going up, the financial benefits are well-known, operational benefits are well-known. As soon as we envision that tipping point, where fleets are going to ever say, "okay, we're ready to pull the trigger on this, we're ready to electrify, let's put our order on these vehicles," and they're used to dealing with ordering vehicles and managing vehicle fleets, "let's order those electric vehicles," and then they're going to turn the utility and say, "okay, well, we have this two years," or whatever it is, "lag time". So how do we meet that gap? How do we fill that gap between pre-building infrastructure, getting infrastructure on the ground in order to meet this coming demand before the demand is absolutely certain?

Kevin Hernandez:
Current regulatory model really just, for obvious reasons, doesn't do that. So we're going to have to ask ourselves the question, "How do we go from a just in time model of meeting load to one that's really looking ahead and is load-leading? How do we lead load in terms of building out infrastructure?"

Jason Price:
I heard recently that the utilities view their future customer as the automobile, which is completely different than their traditional role of serving the residential and commercial customer. I think it's an interesting twist in terms of looking at their future load really being four wheels and a battery. Are the utilities positioned properly to manage and think through this? Are they on the right path to fill that role?

Kevin Hernandez:
I think they are, and I think that you've been thinking about it from that perspective is really pretty interesting, and I think that really highlights one of the reasons that transportation, whether those are commercial fleets or even personal vehicles, are going to be different, right? They're going to be a lot different than a traditional load, most in terms of just when they're charging and how they're charging and where they're charging. It's just the locational aspect of that. In some cases, you might see vehicles charging in one jurisdiction and even discharging, in the future, in another when we talk about V2G and building applications. And so, thinking through how energy has been produced and delivered and consumed in the past and how that will be in the future, I think is at the heart of why we think EVs are going to be different.

Jason Price:
Fantastic. It only seems that the utilities are dragging their feet in certain areas, but their work is cut out for them. Now though, it's time for a lightning round. We're going to throw a handful of questions that gives our audience a peek at who you are. You'll have one question or phrase to respond. Are you ready?

Kevin Hernandez:
I'm ready!

Jason Price:
All right. Who was your childhood hero?

Kevin Hernandez:
Easy, my dad. My dad was an engineer at Tennessee Valley Authority for 35 years, and so he's always been my hero.

Jason Price:
If you won the lottery, what's your first frivolous purchase?

Kevin Hernandez:
I'd have to say that I'd go back to my Navy roots and buy a boat, for sure.

Jason Price:
What's your go-to movie snack?

Kevin Hernandez:
Peanut M&M's.

Jason Price:
What's the best way to spend a Sunday afternoon?

Kevin Hernandez:
If I can talk the kids into going out and playing a few holes of golf with me, that's about as good as it can get.

Jason Price:
And what are you most optimistic about?

Kevin Hernandez:
I think, we've done this before. The electric industry has done this before. We electrified the nation. We've regularly responded to whether it's extreme weather events or other challenges. This is a challenge. Electrification of transportation is a challenge. I have no doubt that the industry will meet this challenge head on.

Jason Price:
Well stated. Kevin, you perfectly navigated the lightning round. For doing so, we can grant you the final word. So what's the lasting message you hope the utility audience listening in today takes away from those conversation?

Kevin Hernandez:
Yeah, thanks. I think I'd go back to where we started the conversation. I think the writing is on the wall, that this transition to electric vehicles, both with commercial electric vehicles and personal EV, it's well underway. It's not an if, certainly not an if, and the wind is going to be a lot sooner than we think. I think that's going to present some of those very real challenges for utilities, and there's just no doubt. But I think I want to emphasize that, for forward-looking utilities, this is going to be a real opportunity and I think it's going to be one of those opportunities that just doesn't come around very often, or certainly not often enough, and that opportunities to grow the utility business at a time where that's really hard to do in a lot of places.

Kevin Hernandez:
On the commercial side, that transition to electric fleets, I think it's important for utility leaders to view that particularly in some areas for some duty cycles, as the transition is going to happen probably a lot more quickly than we realize. I think it's going to seem very slow until we start to see some real action on the fleet side, and that's going to happen all at once. It's going to be very quick. That can really, from a load summary perspective, look like materialization of new load just really almost overnight. And so, being prepared and ready for that ahead of time, that's going to be paramount.

Kevin Hernandez:
Fleets are already beginning to build the business case for electric vehicles, particularly for light and medium duty delivery vehicles. And how that all is going to manifest is this convergence, and I think this is a fascinating topic, this conversion, so the transportation industry, the electric industry, and really also just technology, right? Technology as an enabler for all of these things. So you really see those three things coming together and creating this dynamic moment we're all facing now of change. And this change is going to require everyone to have a seat at the table, whether it's the end users, the EV users and fleet users who are going to be using energy in a much different way than they've used it in the past, when it was liquid-based. It's going to require utilities to think about how their customers are going to change, how their customers' needs are going to change, whether those are, again, residential or commercial, answering required regulators and other authorities to sit down and say, "Hey, do our frameworks, do our models work for this? Are we serving customers in the best way here?"

Kevin Hernandez:
We didn't talk about it earlier on, but another question to be asking is, how disadvantaged communities are affected by this? What are the societal benefits of electrification? How do we balance those things against the costs? So I think there's a lot of interesting questions, a lot of facets to this that go beyond just the technical, but I think it just makes it really exciting, but also just a really interesting time.

Jason Price:
Yeah, that's terrific insight. Kevin, we really appreciate you stopping by to educate us and talk us through some of these critical topics. I'd certainly be curious. How about you, Matt? But it's certainly curious to have you come back, Kevin, and join us again a year from now and check in and see how far we've gone. Until then, thank you again for joining us today, Kevin, much appreciated.

Kevin Hernandez:
My pleasure. Thanks for having me.

Jason Price:
You can always reach Kevin through the Energy Central platform, where he welcomes your questions and comments. And on behalf of the entire Energy Central team, thanks to everyone for listening today. Once again, I'm Jason Price. And the most relevant conversation of the utility industry today are happening in the Energy Central community, so we look forward to you joining us and sharing your insight in energycentral.com, and we'll see you next time on the Energy Central's Power Perspectives Podcast.

 

About Energy Central Podcasts

The ‘Energy Central Power Perspectives™ Podcast’ features conversations with thought leaders in the utility sector. At least twice monthly, we connect with an Energy Central Power Industry Network community member to discuss compelling topics that impact professionals who work in the power industry. Some podcasts may be a continuation of thought-provoking posts or discussions started in the community or with an industry leader that is interested in sharing their expertise and doing a deeper dive into hot topics or issues relevant to the industry.

The ‘Energy Central Power Perspectives™ Podcast’ is the premiere podcast series from Energy Central, a Power Industry Network of Communities built specifically for professionals in the electric power industry and a place where professionals can share, learn, and connect in a collaborative environment. Supported by leading industry organizations, our mission is to help global power industry professionals work better. Since 1995, we’ve been a trusted news and information source for professionals working in the power industry, and today our managed communities are a place for lively discussions, debates, and analysis to take place. If you’re not yet a member, visit www.EnergyCentral.com to register for free and join over 200,000 of your peers working in the power industry.

The Energy Central Power Perspectives™ Podcast is hosted by Jason Price, Community Ambassador of Energy Central. Jason is a Business Development Executive at West Monroe, working in the East Coast Energy and Utilities Group. Jason is joined in the podcast booth by the producer of the podcast, Matt Chester, who is also the Community Manager of Energy Central and energy analyst/independent consultant in energy policy, markets, and technology.  

If you want to be a guest on a future episode of the Energy Central Power Perspectives™ Podcast, let us know! We’ll be pulling guests from our community members who submit engaging content that gets our community talking, and perhaps that next guest will be you! Likewise, if you see an article submitted by a fellow Energy Central community member that you’d like to see broken down in more detail in a conversation, feel free to send us a note to nominate them.  For more information, contact us at [email protected]. Podcast interviews are free for Expert Members and professionals who work for a utility.  We have package offers available for solution providers and vendors. 

Happy listening, and stay tuned for our next episode! Like what you hear, have a suggestion for future episodes, or a question for our guest? Leave a note in the comments below.

All new episodes of the Energy Central Power Perspectives™ Podcast will be posted to the relevant Energy Central community group, but you can also subscribe to the podcast at all the major podcast outlets, including:

Thanks once again to ScottMadden for making this episode possible. 

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