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Episode #88: 'Eyes on Energy Efficiency, Grid Resilience, and Clean Energy in the Lonestar State' With Rudy Garza, Interim President & CEO of CPS Energy [an Energy Central Power Perspectives™ Podcast]

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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...

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Fair or not, the eyes of the utility industry have been on Texas in recent months. After Winter Storm Uri in early 2021 nearly brought the grid down completely, state lawmakers, utility leaders, and innovators have been seeking ways to ensure grid resilience is at the top of the agenda. And leading into the summer season, those new strategies appeared poised to be put to the test thanks to record heatwaves that would bring with them previously unseen levels of power demand.

At CPS Energy, interim President and CEO Rudy Garza has taken this spotlight seriously and leveraged the expertise across his teams to ensure that every tool in the toolbox has been tapped into to prepare the San Antonio utility for what's to come. From ensuring low-hanging energy efficiency fruit was tapped into to ramping up the additional sources of clean energy and peak load energy resources, Rudy has shown confidence that CPS Energy customers can count on the lights to stay on this summer. To dive into the lessons learned from last year and highlight the efforts that are continually ongoing, Rudy joins host Jason Price and producer Matt Chester to share his perspective.

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

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TRANSCRIPT

Jason Price: 

Hello, and welcome to this week's episode of the Energy Central Power Perspectives Podcast where we bring into the podcast booth leading voices in the world of power utilities to discuss the challenges, opportunities, and trends they see as transforming and modernizing our energy system and the utility industry of the future. And a quick to West Monroe, sponsor of today's show. Now, let's talk energy.

Jason Price: 
I'm 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, this week, we have the privilege of being invited up to the C-suite of the utility industry. Specifically, we're going to be joined by the interim president and CEO of CPS Energy out of San Antonio, Texas. The grid across Texas has been at the center of national energy related conversations since early 2021 when winter storm Uri highlighted some present risks of the grid related to generation capacity and necessary grid infrastructure. Ahead of the summer, the Texas grid is once again being watched very closely, and that's why leadership from people like today's guest is so important. Matt, can you summarize for our listeners what's going on in the Lone Star State that's holding everyone's attention?

Matt Chester: 
Sure thing, Jason. The grid in Texas is unique in that it's largely, though not completely, isolated from the rest of the national grid, being run by the Electric Reliability Council of Texas or ERCOT. As you noted, the winter storm in February 2021 created lots of challenges across the Texas grid as an unexpected confluence of factors came in to bring various gas, wind and other generation resources off the grid, and with the deregulated market in place, prices spiked to previously unheard of levels. The year and a half since has been filled with much research and analysis after the fact to identify what went wrong in that instance and ensure that the grid and resource reliability is prioritized moving forward across Texas. So that brings us to this summer where forecasters expect record levels of heat to bring an unprecedented amount of load demand. The eyes of the utility sector, they're on Texas to see if they'll be able to reliably and affordably keep the lights on during this first great test since Uri, watching the various tools and strategies that have come into place and prioritized since then, see how they play out.

Jason Price: 
Thanks for that, Matt. And yes, there were headaches in Texas after the winter storms to say the least, but the best type of leadership comes from building back from such setbacks and ensuring they don't happen again. And as I mentioned, we're excited to have one such leader join the podcast today. Rudy Garza is the interim president and CEO of CPS Energy, being elevated to that role last November after previously serving as the chief customer and stakeholder engagement officer with CPS. Rudy and his team have all been diligent in instituting all necessary resources and programs to prepare for this upcoming summer, including aspects like new clean energy generation coming online, emphasis on their energy efficiency and conservation programs, and more. We're eager to hear about these efforts from Rudy himself, so let's go ahead and bring him in. Rudy Garza, welcome to the Energy Central Power Perspectives Podcast.

Rudy Garza: 
Thank you, Jason, and thank you, Matt. I'm excited to be here with you today and I'm excited to engage in the conversation ahead so I appreciate y'all having me today.

Jason Price: 
Fantastic, and we're thrilled to have you here. So Rudy, congratulations are in order first for being named the interim president and CEO of CPS Energy. How exciting was it for you to take on this leadership role?

Rudy Garza: 
Well, at the time that we transitioned into my term as interim president and CEO, it was probably one of the most difficult times for CPS Energy here in the San Antonio community, and so I had a lot of folks question whether I was making the right decision, but I can tell you without a doubt that with every challenge comes tremendous opportunity and stepping in to the CEO role at the time that I did was necessary to stabilize our organization, to try to rebuild some trust in the community that we had lost for all kinds of reasons. And not lost on me is the fact that for a community like San Antonio that's 70% Latino, being the first Latino president and CEO of CPS Energy, even on an interim basis, is a privilege and an honor. I couldn't be more proud to be leading this fine organization.

Jason Price: 
No doubt, and I'm sure that it's been a bit nerve-racking, especially with the results of what had happened previously. So let's talk about a little of the reliability and resiliency questions that power providers across Texas were facing. What were your top priorities that you brought with you as you accepted this position?

Rudy Garza: 
Well, the good thing is the board and I have really great communication going on right now, and as I entered in, we agreed on what those priorities should be. Number one, we were in the midst of a rate case at the City of San Antonio that was not going so well, so I had to really reset that process and get the rate case on the right track. And I can tell you that we were successful in our request at the City of San Antonio, which immediately created some financial stability for CPS Energy. We got that done.

Rudy Garza: 
We had to get through the winter and now, we're in the midst of one of the hottest summers on record. We had to do that with our power plants operating as expected and so we made it through the winter season, through a couple of really difficult cold snaps without issue. And the lights stayed on and that was really important for our community that had suffered through the results of winter storm Uri, and so far, we're performing pretty well this summer and we've had no issues to speak of through some really, really hot days.

Rudy Garza: 
We had to stop the exodus of talent out of the organization and really focus in on employee morale, and so we have done that. We've restructured and really shored up our leadership team and I'm proud of the work that my leadership team and I are doing to try to lead this organization forward. And we just had to start building a dialogue with the community to take feedback and implement the things that we were hearing from the community, that they wanted us to focus on. And so when you look really at those four pillars, I think that the board and I feel like we've done what has been expected of us being a publicly owned utility.

Jason Price: 
Yeah, absolutely. And all those factors certainly help. Human factors of importance has been a big skill set dearth in the utility industry. And having that rate case behind you certainly gives you both the legal and financial abilities to make important decisions, so let's talk about that. What are some of the major projects and implementations you've been able to help shepherd onto the CPS Energy grid that should prepare you for the various challenges that you expect to face in the coming years?

Rudy Garza: 
Well, there's three or four things that I would probably point to as evidence of what we're focused on. Number one, in the past, the ERCOT market market in the Texas grid in general have really focused in on the extremes of the summer peak season, and what winter storm Uri taught us was that our infrastructure has to be resilient for all types of extreme weather, both summer and winter. And so at CPS Energy, a lot of the grid transformation investments that we're making are really intended to manifest our grid into a much smarter grid. We're installing a lot of reclosures right now that will allow us to operate the grid with additional flexibility. We're looking at the times of the year that we are weatherizing our power plants so that they're available through the extremes of both the summer and the winter extreme weather season.

Rudy Garza: 
And so our plants now and our plan to operate them is much more resilient, maybe than it's ever been over the years, and we've got a high growth community in San Antonio so all of that has to be done in meeting the needs of a growing community. So we're in the process of trying to move away from our coal operation, which means that we're going to have to invest in new technology in the coming years to be ready 10 years down the road for the growth that we know is coming now and into the future. And so when you just look at the blocking and tackling of running a reliable utility company, the work that we're doing today is really intended to make us much more resilient in terms of the climate than we've ever been in our history.

Jason Price: 
Rudy, I'd like to hear a little bit more about the cleaning of the grid to some extent. We all know that Texas is a national leader when it comes to wind energy, but it sounds like you're looking more broadly than that. So from your perspective, what's the ideal energy mix you would like to see, bring to your customers? And can that maximize affordability, reliability in carbon reduction?

Rudy Garza: 
Well, when you look at our history, back in the seventies, eighties, we were nothing but natural gas in terms of how we generate power, and what we found was that being a diversified utility in terms of our generation portfolio is absolutely key to ensuring affordability for our customers. So we diversified in terms of... And diversification over the years for our industry has typically meant fuel diversification, so we are part owners in the nuclear project over at South Texas Nuclear Project. We've got coal, we've got gas, we're number two in wind in the state of Texas right now and we're number one in solar and climbing, number five in the country in terms of solar capacity. And I just signed a deal with ConEd to bring us another 300 megawatts and I'm about to sign another 300 megawatt deal, which are two of the largest single projects in the state of Texas history.

Rudy Garza: 
So we are going to continue to be a diversified utility, but if you take coal out of the mix, then that diversity's going to look different. We've always been a leader in energy efficiency and conservation through our Safe For Tomorrow Energy Efficiency Program. We just got approval from our city council to re-up that program for a five year period. We're going to tweak it and make some changes to reflect what we believe the future will be, but we're also looking at other technologies. We're looking at battery storage and we're going to make a sizable investment in battery storage capacity. I don't know that we need more wind. I would take more coastal wind because it blows during the day, if I could get it, but we're really talking about solar. And then we're looking at some other technologies, some pumped hydro and geothermal technologies that we believe have a lot of opportunity here in San Antonio that we just have to get in the right price point to keep them affordable. So for us, we'll continue to be a diversified utility, but that diversification will come in technology rather than fuel mix.

Jason Price: 
Yeah, understood. And leading up to this program, we talked briefly about some of the other efforts that you're working on so I'd like to you to talk about that a bit further. And coincidentally, the clean energy movement that you're doing also coincides with Energy Central's Energy Efficiency Month, which is in July, so our listeners will be hearing this in real time. So I want you to go into and give us an update on the Sustainable Tomorrow Energy Program Plan, which is what you described. It's an energy efficiency implementation program for CPS Energy customers. How have you tweaked and upgraded this program, and share with us, how's the program preparing you for the expected record summer heat?

Rudy Garza: 
Well, there's two ways you can ensure affordability. Number one, you look at your rate structure and making sure that your rate structure is really intended to look at equity and utility burden in a different way. We just started talking about utility burden in our industry but there are some customers in San Antonio at the residential level that have a 20, 30% utility burden factor that you have to think about. Most people, they spend three to 6% of their discretionary income on energy costs. When you have low income customers that are spending 20, 30%, you've really got to look at that from an equity lens and say, what can we do to offload some of that burden? And energy efficiency and conservation is a great way to take housing stock and make it more efficient.

Rudy Garza: 
As we look ahead at the next iteration of that program, we will continue to do weatherization. I think for high utility burdened customers, we will probably do more. Typically, we would spend $4,500 on a house to do the simple weatherization work of insulation and tightening up the airflow in and out of the home because it's inefficient. We may spend upwards of seven, $8,000 to maybe upgrade duct work, maybe install an efficient air conditioning unit or something in a window to allow for customers to find additional savings. So weatherization will always continue to be part of this program. We also have residential and commercial energy efficiency programs where customers have to make their own investment, and we will give a rebate to change out old appliances to more efficient appliances, to upgrade your air conditioning systems and things of that nature.

Rudy Garza: 
But we're also looking at the future in terms of both how we incent solar. In San Antonio, our current solar incentive only paid maybe 8% of the entire solar system costs, and that tells us that the market is pretty mature these days. So we're looking to create incentives that really allow nonprofits, small businesses, lower income customers who maybe can't afford to finance a $20,000 system on their own roof, we'll find a way to allow them to buy a panel or two and still participate in the clean energy transition, and we can incentivize that for certain types of customers. But we also need to start thinking about how are we going to incentivize storage units for homes. The wall packs, how are we going to incentivize electric vehicle charging infrastructure so that people who are looking to buy an electric vehicle can install the technology they need at their homes to be able to charge overnight? How do we create the rate structures to incentivize them to do those things off peak?

Rudy Garza: 
So as we look to the future of our energy efficiency and conservation program, that's really the type of pivot that we're looking to make. And mind you, we're also going to really double down on demand response. San Antonio has about 250 to 270 megawatts of demand response capacity, when the entirety of the rest of the ERCOT market market only has about 350 megawatts. So I'm really proud of the type of program we've been able to build on the demand response side because there's a financial implication that benefits our customers by maximizing the amount of DR that we can call on here in San Antonio. So we'll continue to maximize that program and work with our partners across the community to lower our demand during those really high summer days where that keeps us from having to go out and buy additional generation.

Jason Price: 
Sure. All right. So those are some ideas of the future. Well now, and into the future. I would like to go into the past for a moment, and Rudy, I've asked this question from a number of energy leaders, both in Texas and outside of Texas. And the question as you probably can guess is basically knowing what we know now, storm Uri, what did we learn and what could we have done differently given what we know?

Rudy Garza: 
Well, first off, we participated in so many studies on what happened and what opportunities does ERCOT have? What opportunities do we have as an operator here in San Antonio to do better? And I really do feel like we've taken what we've learned through those processes and actually done something with them. What I would tell you is, again, we've always focused on the summer peak, and now I think as a market, we're focused on extreme weather instead of just a seasonal type of dynamic. And I think the reality, that those extreme weather events aren't necessarily black swan events anymore, unlikely to happen. They've happened now, and so you have to assume that they're going to happen again and you have to build your systems resilient enough to handle those type of extreme temperatures.

Rudy Garza: 
Winter storm Uri, the entire state of Texas was well under freezing temperatures for multiple days. That hasn't happened since 1896, by the Farmer's Almanac historical perspective. So even though it was a once in a generation event, we have to assume that we're going to be in that situation again at any point in the future, so how we manage the grid, when we're doing maintenance on power plants to ensure that we're not 20,000 megawatts short like we were during winter storm Uri, it's changed the way that we manage our infrastructure. It's also created some challenges when you don't have the entirety of the winter season to maintain power plants. You're squeezing all of that work into September, October, November, March, April, May, and so now, you're competing for contracting resources, you're competing for supply chain materials that you're going to need, and it just makes it more difficult to get those projects done in a timely manner, but we're dealing with that and that's one thing that we've learned.

Rudy Garza: 
I think another thing that we've learned is that when the ERCOT market does find itself short, when supply is less than demand, the only way you protect the system is to manage the load, and so that's what prompts controlled outages. Well, we have completely reprogrammed our controlled outage system so that when ERCOT does require us to reduce the amount of load on the system, we can handle an event even larger than winter storm Uri today, when winter storm Uri was five times larger than anything we'd ever seen before and our systems just weren't capable of handling it, so how we manage those controlled outages has improved.

Rudy Garza: 
And just overall, our approach to communication had to get better. Telling customers what we know, telling them what they can do to protect themselves and what's happening. We've learned that our community expects us to be much more proactive and work together with our city and our county and emergency officials across the community. We've got to do a better job in the future of communicating during these times of emergency, and I think we've learned a lot in that regard too. So those are really the few ways I think we've really come a long way from where we were 18 months ago.

Jason Price: 
Sure. What do you think about the policy and regulation side of it though? You talked a lot about the engineering side and the position of you as a power provider, but what role does policy and regulators have to play in this?

Rudy Garza: 
Well, in the ERCOT market, there's always been a commitment to an energy only market, meaning that price signals will determine how companies invest in generation assets. And what we found was while that certainly is great at keeping prices in the market low, it doesn't necessarily ensure that you have reliability during those extreme temperatures, and so this Texas legislature is going to have to continue taking these issues on. How do you ensure that you're focused on both affordability and reliability in a market that largely hasn't been focused on reliability? We've been pretty reliable but it's because we've kind of played the law of averages and now we've seen that that doesn't work when things get extremely hot or extremely cold. I think by and large, we do a pretty good job during the summer months, but that winter peak was something we'd never seen before.

Rudy Garza: 
So they're making tweaks to the market. They've lowered the system wide offer cap from 9,000 to 5,000. I think that's a step in the right direction. They're paying for plants to run, just to be available should we need them. That's a divergence that looks a lot like a capacity market. Even if you don't call it a capacity market, you're paying for reliability that customers ultimately have to pay for, and so I think the legislature's going to have to decide what major kind of modifications to the market need to be made to ensure that we have power, to ensure that we have gas. Gas supply was a huge issue during winter storm Uri and I don't believe that that issue has been addressed by the state of Texas. We certainly got impacted, as did every other gas utility and power generator that runs natural gas units.

Rudy Garza: 
Everybody saw the price increases. We continue to litigate those issues in state court, so I think those type of market reforms haven't completely come together that ensure that we have all of the value chain that it takes to ensure reliability all the way down to the gas supply and protects our customers. Our customers are going to be paying for what happened with winter storm Uri for decades ahead, and the state legislature has a responsibility, as does ERCOT and the Public Utility Commission to ensure that we don't allow that to happen again.

Jason Price: 
Yeah, no doubt. I think every state is contending with trying to figure out the value of resiliency and the value of reliability, and everyone of course has their own price point of that. Well, that sounds fantastic, Rudy. Before we give you the last word, we want to shift gears for a moment now. We want to learn a little bit more about Rudy Garza, the person, not Rudy Garza, the CEO of CPS Energy. So we have now the lightning round where we ask you a series of questions and you limit your response to one word or phrase. So Rudy, are you ready?

Rudy Garza: 
I'm ready.

Jason Price: 
All right. What's on your ideal plate of barbecue?

Rudy Garza: 
Brisket and sausage, no doubt. That is the winner.

Jason Price: 
If you could have any superpower, what would it be?

Rudy Garza: 
Well, for those husbands out there who struggle with this, much like I do myself, mind reading would be my top superpower.

Jason Price: 
Wow. I know exactly what you're saying. Best piece of advice you ever got?

Rudy Garza: 
Leading with humility. It's not about me, that's the best piece of advice I've ever gotten as a leader?

Jason Price: 
What motivates you during particularly long or stressful work days?

Rudy Garza: 
My team motivates me. I'm so proud of the work that we've done together.

Jason Price: 
And what are you most optimistic about?

Rudy Garza: 
I'm a glass is half full kind of guy. The future of our industry, we're seeing change like we've never seen before in my 30 years in this industry, and I'm just really excited about the future holds for the electric and gas utility industry. I think the future is really exciting and a great place to be right now.

Jason Price: 
Fantastic. Flawless responses, which earns you the right to the final word on the podcast. And knowing that your peers and partners across the utility sector are listening, what is the final takeaway message that you hope they will take away from today's conversation?

Rudy Garza: 
Well, my hope is that our industry will lean into the changes that are coming. We can't control customer expectations like we maybe have in the past. Customers are expecting more control, more influence, they want us to listen and give them service in the manner that they desire. They want to have solar and they want to have batteries and they want to buy EVs and they want to do all the really cool things technologically that are available to them today and getting cheaper by the day, and so as an industry, we have to figure out how to stay relevant. And to do that, we've got to listen and we've got to act, and we've got to really lean in to the transformation that's happening. And I think the quicker we get there, I think the better off our industry will be in maintaining relevance during a time where customers are as independent as they've ever been.

Rudy Garza: 
So that's what I hope you take away. I think CPS Energy, our mentality is that we're going to lean in and we're going to meet our customers where they are, and I think as an industry, we've all got to figure out how to do that together.

Jason Price: 
Well, you certainly sound a great asset and a great fit, hit the ground running at CPS since you've taken over, so kudos to you and the CPS family. I know that our community will feel enthralled with this conversation and I'm sure they'll have lots of questions and comments, Rudy, so be on the lookout. Until then though, we want to thank you so much for sharing your insights with us today on Power Perspectives.

Rudy Garza: 
Jason, Matt, thank you for your time today. I really appreciate being on.

Jason Price: 
You can always reach Rudy Garza through the Energy Central platform where he welcomes your questions and comments. And we also want to give a quick shout out of thanks to the podcast sponsors who made today's episode possible. Thanks to West Monroe. West Monroe works with the nation's largest electric gas and water utilities in their telecommunication, grid modernization, and digital and workforce transformations. West Monroe brings a multidisciplinary team that blends utility, operations, and technology expertise to address modernizing aging infrastructure, advisory on transportation electrification, ADMS deployments, data and analytics, and cyber security. And 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.

 


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.

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The Energy Central Power Perspectives™ Podcast is hosted by Jason PriceCommunity 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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