Episode #114: 'Cleaner and More Affordable Power for Long Island' with Tom Falcone, CEO of Long Island Power Authority [an Energy Central Power Perspectives™ Podcast]

On the Energy Central Power Perspectives Podcast, we strive to bring these leading voices to our community more directly than ever before, so when we get a chance to sit down with a utility CEO who's receiving high marks on their leadership and success rate on these and other goals, we jump at the opportunity. And that's why podcast host Jason Price headed to the headquarters of Long Island Power Authority for an exclusive chat with their CEO, Tom Falcone. In this can't-miss conversation, listen in as Tom explains to Jason and podcast producer Matt Chester the specific moves LIPA is making to bring new clean energy technology to its customers while assuring them they will never compromise on the reliability and affordability those Long Island residents have come to expect.

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Thanks to the sponsor of this episode of the Energy Central Power Perspectives Podcast: West Monroe.  

Key Links

• Thomas Falcone's Energy Central Profile: https://energycentral.com/member/profile/thomas-falcone

• 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: 

Welcome to the Energy Central Power Perspectives Podcast, the show that brings leading minds from the energy industry to discuss the challenges and trends that are transforming and modernizing our energy system. And a quick thank you to West Monroe, our sponsor of today's show. Now let's talk energy.

I am Jason Price, Energy Central podcast host and director with West Monroe coming to you from New York City. And with me as always, from Orlando, Florida is Energy Central producer and community manager, Matt Chester. Matt, Long Island is home to 3 million people on approximately 1,400 square miles. The island represents a rich mosaic of the country with dense urban areas to lush vineyards and sprawling beach fronts. It's a destination in its own right and a study in urban, suburban and rural planning. The island has it all and it has seen its fair share of hurricanes and major storms.

I've even lived through a few of these harrowing events. As a resident of Long Island, I can speak firsthand to the historical challenges the utility has faced. But looking at the current state of affairs, Long Island is leading the state in clean energy and as among the most reliable grids in the nation. Matt, what can you tell us about LIPA and its position in Long Island power? Where does its authority come from and who are the energy players in the Long Island landscape?

Matt Chester: 

I can give it a try, Jason. So LIPA was created originally in 1986 by an act of the New York state legislator, and it acts as a municipal subdivision of the state of New York, which has also since 1998, owned the electric transmission and distribution system that serves Long Island and the Rockaways. LIPA contracts with PSEG Long Island to manage LIPA's electric system on a day-to-day basis. But to get any further details of that, I think you actually have the perfect person with you to explain further.

Jason Price: 

Yeah, I would agree. So thanks for that background, Matt. The reason that we're talking so much about Long Island and its power sector is because we're excited today to welcome a very special guest to the podcast, Thomas Falcon, the CEO of Long Island Power Authority, or LIPA. Tom has been at Long Island Power for nine years, serving previously as a CFO and before that he was an investment banker and advisor to publicly owned utilities and state and local governments. At this critical time in the power sector, leadership is more important than ever. So we're thrilled to be able to pick his brain a bit in today's episode.

So with that, let's bring him into the conversation. Tom Falcon, welcome to the Energy Central Power Perspectives Podcast.

Tom Falcone: 

Thank you so much Jason and Matt. Delighted to be here.

Jason Price: 

Tom, we're always excited to continue our leadership series by interviewing a CEO, so we're thrilled to have you join us on Power Perspectives. But before we dig into the energy transformation on Long Island, share with us your journey to LIPA. Are you from the island? Do you come from a family of utility professionals? What were some of those steps early in your career that signaled that this is the direction you want to take?

Tom Falcone: 

That's a great question. I'm not from the utility industry or even from Long Island. So my particular journey was I went to school for finance and public policy and I joined an investment bank. I thought I'd go back to law school, but ended up being an investment banker, came out and realized pretty quickly all the attorneys I worked with, I had a more interesting job than they did, so I stayed in that field and almost like so many people's careers, random chance was that I started working a lot with public utilities. So just random career opportunities and it was a great field.

So I continued in that field, ended up working with a lot of the leadership of most of the public, large public power utilities in the country, including one called the Long Island Power Authority pretty much from its inception. The firm I was with was hired as LIPA's financial advisor in those early days right after they bought the Long Island Lighting Company and investor owned utility.

And so they had a very small staff at the outset and we worked on everything from their rates to their financial strategy and you name it from top to bottom. So it was a great opportunity to get to know Long Island and LIPA very well and the early leadership very well, and the rest is history. So I was an investment banker and an opportunity opened up at LIPA to be the CFO and I thought that'd be a very interesting challenge, and they were going through a challenging time. So I came in as a CFO at the beginning of 2014 and then became the CEO in 2015.

Jason Price: 

Thank you. I want to go back to Matt's intro. How did he do in describing LIPA, and maybe you could fill in some of the gaps for our listeners on the important role that you serve as head of the Long Island Power Authority. And since you are a power authority, describe for our listeners, how does the PSE view LIPA?

Tom Falcone: 

So a couple of questions in there. I think Matt did a good job. We have a unique history. It really comes out of a failed nuclear project, the shore nuclear power plant and Bill was passed in 1986 to facilitate the state of New York taking over the Long Island Lighting Company after that failed plant. People were not satisfied with the investment. They were also wary of emergency evacuation procedures around that particular plant. So ended up being that we had the world's only fully licensed nuclear power plant that produced about as much power that could run a tea kettle.

So all the costs of putting it together and all the costs are taking it apart. And so the Bill was passed in 1986, but the actual purchase of loco didn't happen until 1998. So we are a public power utility governed by a board that's all local citizens. Those local citizens are appointed by the governor in the state legislature and we have only one mission in life and that is the best interest of the Long Island, a clean, reliable grid, high customer satisfaction, making this transition and also doing it as affordably as possible.

Jason Price: 

So New York State has ambitious climate goals, including a zero carbon grid by 2040. Can you talk about your progress on clean energy and the changes it's driving for your customers?

Tom Falcone: 

Sure. I mean, we have very aggressive climate goals and that includes our magic dates. Many states have aggressive climate goals, but New York in particular. It's a zero carbon grid by 2040, not even net zero, zero. And it is an 85% reduction in economy-wide carbon emissions. Those are two of the key stats, and that's by 2050. So when you think of that, they're doing what many states are doing, which is we're going to clean the electric grid and then we're going to use the electric grid to power heating and to power transportation because 60% of the state's emissions are heating and transportation, and only about 13% are the electric grid.

So even if the electric grid carbon emissions go to zero, you don't get anywhere close to 85%. You have to use that zero carbon electric source to power everything else. And so we're on this journey of not only making the investments to clean the grid, building new generation, and that new generation is often in different places than the existing generation, which may necessitate transmission and in different sizes and it's intermittent.

And so doing that, but also helping our customers move to EVs, move to heating, so much so that New York gets about 20 to 25% of its energy needs from electricity currently and out 30 years, it maybe is about 70%. So it's a very big transition. What are we doing or where are we in that? We've taken on a pretty good clip. Between now and 2030, which is only seven years from now.

For a utility that's right around the corner. We'll add about 4,000 megawatts of clean resource, and that includes offshore wind. It includes solar and also includes a lot of storage. And that is enough to reduce our emissions, 70%. So by 2030, seven years away, we're making a pretty big dent. Over the next seven years, that includes some transmission investment, but the backend is really key. It's like many things in life.

The last 20% is 80% of the work. It's the same here. That period between 2030 and 2040 is going to be key because you can make a lot of progress. 70% emissions reduction. That last 30% is going to be an even bigger challenge. We have a lot of the technology to do it. Some of it remains to be seen and it's in development right now, and we'll have to see what comes up. Many of these alternative technologies and which ones we can use affordably and reliably.

Jason Price: 

Let's talk about wind power. LIPA was one of the first to sign a power purchase agreement for offshore wind. What is LIPA's role in this sector and how is the progress to date? Anything you can share our listeners who cover wind energy?

Tom Falcone: 

Sure. So on offshore wind, we're actually the first utility in the country to sign a power purchase agreement for a offshore wind farm to be built in federal waters. There had been one small project built in Rhode Island state waters near to where we're putting a plant as well. And so at the time, it was actually on the Wall Street Journal, the Japan Times, the Sacramento Bee that we had signed this agreement. And that was only 2017.

It was not that long ago, and it was not the largest investment, it was about 120 megawatts. What's happened since then is the state of New York, many other states have realized that the costs are there, the technology is there, and that you can do this in scale. I mean, we were just a step ahead of everybody else. The technology and the cost got to the right place, and it's like anything else.

There's kind of a lollapalooza effect. For a long time people doubted it and then suddenly everybody sees the same thing. And now there's about 20 gigawatts of commitments in the northeast alone for offshore wind. So our role has changed a lot. We signed the first agreement because we were looking for offshore wind, clean energy that would inject into our grid. We're an island. We jet a hundred miles into the ocean.

We have this great offshore wind resource. We're downstate New York, so a lot of the renewable resources in New York are upstate. It's hydro, wind, solar, upstate. Land costs a lot on Long Island. So here you had this big resource and it was right next to your service territory and right next to the load. And so that was very attractive to develop it. But like I said, now our role has changed because the state of New York has made a commitment for nine gigawatts of offshore wind, other surrounding states have, and it just makes more sense for us to partner with NYSERDA, the state entity doing procurements on behalf of the IUs, the investor-owned utilities, and to take a piece of those larger projects because there's huge scale economies in this particular sector.

So rather than take 200 megawatt projects, why don't we take 200 megawatts of a 1,200 megawatt project? So what we're really focused on though is make sure it works. So you have all this wind energy, 9,000 megawatts, and there's forecasts that in order for the state to meet its goals, we might need to get to 18,000 megawatts or even more. And so given that our role is, okay, how do you make sure that all that wind energy doesn't pile up like the Long Island expressway at rush hour? How does the grid actually work?

And so we're very focused on that rather than signing the contracts. The wind is going to land here. We'll take our proportionate chair, but the transmission investments that need to be made making the rest of the grid wrap around that large offshore wind resource. And then also think about it, there's an economic equation there if we're going to hit nine or 18,000 or whatever amount ultimately is hit offshore wind into the New York grid. How much is built on Long Island? How much is built on ConEd service territory?

It's very possible for economic reasons that will have a lot of offshore wind well in excess of what we need for our own grid. We currently have a grid that's about 5,800 megawatts. In 20 years, maybe about 7,000 megawatt peak. We're talking about could be 18,000 megawatts of offshore. It's very likely that you could have numbers that far exceed our average need or peak need. And so that try and plan for a grid like that is a very interesting thing. Are we planning for a 7,000 megawatt grid or are we planning for a 12,000 megawatt grid?

Because a lot of that is going to be export. Those decisions are going to play out over time, but it's a unique issue of being an island. And jutting out into the ocean, kind of being God's extension cord to the offshore wind resource for New York state. A lot of decisions will be made over time, but we're making a lot of progress between now and 2030, and we're very focused on planning the backend of this investment that is going to happen between really 2030 and 2040.

Jason Price: 

God's extension cord. I like that. Let's pivot for a moment to a recent announcement that the Newsday paper in No Long Island picked up. It was around the time of day rate modernization initiative. The title of the headline said promises money back if customer bills on the TOD rate are higher than on the flat rate in the first year. So while time of day rates are becoming more common, why are you transitioning to a TOD for standard rate offerings and why do you believe it's beneficial to offer a bill protection guarantee? Are you facing on Long Island, a reluctant customer base or have you seen this work successfully elsewhere? Overall, how are you managing this promise?

Tom Falcone: 

Sure. Couple of things. I mean, the electric utility industry is very interesting business, very complex, very interesting business. But sometimes we don't take lessons that are learned in other industries and apply them that fast to our industry. So we have a business whereby the majority of our costs are around meeting peak demand. So the whole system is built for peak and our generation needs, our transmission, our distribution needs, everything sized around peak.

So what is the maximum energy throughput we need to make on the grid? So our costs are very related to peak. We're moving to a very flexible grid that we talked about 70% of the energy coming from electricity rather than 20%. We talked about electrification of heating and transportation. Well, how can we make sure that the grid is used efficiently that rather than just add the peak, we can spread the load across the day?

Because if we can do that, that actually puts a downward pressure on rates versus if everybody combs home at 5:00 PM and charges their car right at system peak, we have to build a lot more infrastructure. So there's two ways this electrification can go. It can either put an upward cost or a downward cost. How do we make sure that our customers see our costs and we're a not for profit, but that our customers see our costs and that we're using the grid efficiently? Well, in most other industries, pricing is one of the tools.

Even if you ride the Long Island Railroad, the rail system here in Long Island, there's a peak and there's an off-peak. There's peak and off-peak tolls. If you want to travel the day before Thanksgiving, the price is a lot higher for the airline ticket than it is the day of Thanksgiving.

And yet we have 98% of our customers on a flat rate and we don't show them those prices. So how can we save money for the grid as a whole and how can we give that benefit to the customer? Also reality of it is we're overcharging that customer who's charging their EV at 10:00 PM at night if we're charging them a flat rate. Our costs to serve them are much less than if they charge it for in the afternoon.

And so 98% of our customers on a flat rate put in a time of day. We made a large investment in smart meters. It's not that hard to design a time of day rate. It is something we have to educate your customers and you have to say, "This is a great opportunity for you. A matter of fact, if you are a customer that has an EV, you're puts a storage in, you could save 50, $60 a month if you charge overnight."

If you're a typical customer, you're pretty much going to break even because most of your use, it's higher rates from 3:00 to 7:00 in the afternoon and lower rates the rest of your time. Well, 88% of the hours of the year are off-peak and most of your use is off-peak. So if you pay a higher rate from 3:00 to 7:00 in the afternoon and a lower rate the rest of the time, 80% of our customers will save a little bit of money, even if they do nothing. Pretty much break even save a few dollars a month.

For those that pre-cool their home because they have a smart thermostat or they put in storage or they have the pool pump operate off cycle, they can save money and we're just showing them the price of what they can save. So I think it's something that our customers are going to benefit from. It is a change. We're not the first utility to do it, but we are doing as a standard rate. We're putting everybody on that rate in 2024 and doing a massive customer education campaign.

You asked about why are we doing any money back guarantee? Well, I think for the same reason people have been doing money back guarantees since it was invented in the 1860s. It signals a lot of confidence in what you're offering. And it says to people, give it a try. If you try the time of day rate, we're going to put you into it if you try it and if it doesn't work out for you, we'll give you your money back and you can switch the rate at any time.

It's a pretty good reason to try. It's a one-sided bet. If you save money, you save it, and if you don't, we'll give you your money back. I think it shows confidence in the product. Madison Avenue, another New York industry has been doing this for 150 years and there's no reason not to try it here if you have confidence in your product.

Jason Price: 

Fantastic. So we talked about changing behavior with the time of day rate. Why don't you share with us what will be a sign of success? In other words, what does ultimate success and the time of day rate modernization initiative would look like?

Tom Falcone: 

Sure. Success is our customers are happy with the new rate. And keep in mind, we're going to do this in waves. So we're not moving everybody on one day and we're going to be doing customer surveys with each wave of customers we move to make sure that it's as smoother process as possible. People are educated, understand it, have the tools they need. They're going to be able to see it on their bill. They're going to be able to log into a website and see their usage, and they're going to see what the alternative is.

We're going to tell them, if you had been on the flat rate, you either would've saved money or would've cost you more money last year, and we're going to be a bill protection guarantee. So try and make it as easy as possible. Save after seven. Higher rate, three to seven, lower rate risk of the time. Satisfaction, customer satisfaction and customers staying on the rate is what success is.

I think if we can get 85 or more percent of our customers to try the rate, stay on the rate and be satisfied with the rate, that's our definition of success. And then those customers will change their behavior in little ways. Nobody is saying don't cook when you get home at 5:00 for your family, but if you have an EV, you don't have to charge your EV at 5:00. So lots of little things that you can do and you see the savings. So it's a great model. We think it's good for the customers. Other people have been able to do it and satisfy customers. We're going to do that as well.

Jason Price: 

Great. Okay, Tom. When we first met and talked about having you on the podcast, you said there wasn't anything we could ask that you likely hadn't already been asked before. So far, you've been handling the interview as a pro. But maybe this next set of questions will put you on your toes. It's our traditional lightning round. This is where we have an opportunity to learn more about you, Tom Falcon, the person rather than the professional. So I'm going to ask you a handful of questions. I'm looking for a quick one word or one sentence response. So, Tom, are you ready?

Tom Falcone: 

Sure.

Jason Price: 

Okay. Mets or Yankees?

Tom Falcone: 

More little league. I went to two basketball games over the weekend. There wasn't a single person over five feet on either team.

Jason Price: 

Okay. Jets or Giants?

Tom Falcone: 

That's the same.

Jason Price: 

And Rangers or Islanders?

Tom Falcone: 

Well, you got to do the Islanders there.

Jason Price: 

Okay. Who in your home tends to leave the lights on?

Tom Falcone: 

My home, as you might guess, is particularly literate with the electric bill. All our kids, they can cite their multiplication tables. They can also cite a kilowatt versus a kilowatt hour. So we're pretty good on that.

Jason Price: 

What is your guilty pleasure, meal or snack?

Tom Falcone: 

My guilty pleasure is when somebody else cooks the meal or snack.

Jason Price: 

Where is your dream vacation?

Tom Falcone: 

My wife and I have been fortunate. We've done a lot of traveling, especially before we were married and had young kids. And a lot of what we do at this point is we bring our kids back to places that we really enjoyed and let them experience it. And so a lot of our dream vacations are less about us at this point and more about bringing our kids to experience things that we thought were particularly worthwhile.

Jason Price: 

Who are your role models?

Tom Falcone: 

Yeah, I read a lot of biographies, a lot of management books. I generally look for people that are pretty honest in their assessments because you learn more from people's mistakes. But Henry Mintzberg wrote a book recently. I've read all his work, came out. He does a lot on organizational design. Peter Drucker is pretty good. Anything Warren Buffett writes. He is very honest about his mistakes. He's also in the energy business, so that's pretty fairly useful. Read a lot of annual reports and letters. And biographies. I just finished the Harry Truman biography. I'm about 30 years late, but David McCullough's biography. Well worth the read.

Jason Price: 

What will success look like for you at the end of your career?

Tom Falcone: 

There's another CEO of a utility I know that he has a great quote. He says that he's only one bad decision away from retirement. So we'll see what the end of my career is and I'm hoping to avoid that bad decision. But the reason I work in public power is because I have something to offer and I can make a difference and then help our customers. And so it's very rewarding into work every day. And we continue to make progress and a whole variety of things. Our board has, like I said, very high expectations on both the clean energy transition, reliability for customers, high customer satisfaction and affordability. So it's a tough goal, but it's something to make a lot of progress on.

Jason Price: 

Well done, Tom. As with all our guests, a successful navigation lightning round gives you the right to the final work. So despite the environmental, political, and economic uncertainties of our industry, what advice would you share with a newcomer considering devoting a career in our industry?

Tom Falcone: 

It would really be that almost every challenge you have someone else's solved. And being an investment banker was actually great experience to come into LIPA because I got to know the management at so many other utilities and saw the challenges they had and how they navigated it. And that worldview was a very interesting worldview. But you can get that worldview a lot of places and number of industry associations.

I would just say know your counterparts at other utilities. It will be very, very valuable because everybody has solved every problem. There's no new problems under the sun and 99% of your problems are, the utilities problems are more one of mindset than they are of actual problems that there's a solution to the problem that works for everybody and somebody's got the solution. You just need to find it.

Jason Price: 

Tom Falcon, CEO of the Long Island Power Authority. Thank you once again for your time in joining us today. We appreciate it, and with your thoughts and insights on today's episode of Power Perspectives Podcast.

Tom Falcone: 

Thank you so much.

Jason Price: 

We also want to give a shout of thanks to the podcast sponsors that made today's episode possible. Thanks to West Monroe. West Monroe works with the nation's largest electric gas and water utilities, and their telecommunication, grid modernization, and digital and workforce transformation. West Monroe brings a multidisciplinary team that blends customer experience, operational efficiency, regulatory, and IT, and digital expertise to address modernizing aging infrastructure, advisory on transportation electrification, ADMS deployments, data and analytics, and cybersecurity.

Once again, I'm your host, Jason Price. Plug in and stay fully charged in the discussion by hopping into the community at energycentral.com. And we'll see you next time at the Energy Central Power Perspectives Podcast.

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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.  

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