159. The Cost of Powering San Antonio: CPS Energy CEO Rudy Garza on Potential Increasing Rates, Sustainable Growth, and Grid Demand

WEBVTT

00:00:03.839 --> 00:00:28.079
Our guest this week is Rudy Garza, the president and CEO of CPS Energy, the largest public energy utility in the United States. The longtime energy executive oversees an energy portfolio here of over 10,000 megawatts,$15 billion in assets, nearly $4 billion in annual revenue, and a workforce of more than 3,600 people who work at CPS Energy.

00:00:28.940 --> 00:01:12.579
It's the 4th largest energy provider in Texas and the 5th largest in the nation for solar capacity and the number 1 utility deploying wind-generated power in Texas. Rudy oversees CPS Energy's diverse energy portfolio, includes nuclear, solar, wind, battery storage, natural gas, and coal, powering more than 1.4 million homes and businesses in South Texas. Rudy, welcome to Big City Small Town. Bob, thanks for having me. I'm excited. Great to have you here. And it turns out to be a little bit more of a newsworthy moment than we were anticipating when we started to plan this a couple of months ago. The first thing we want to discuss is your proposed record budget of$2.87 billion for your next fiscal year.

00:01:13.459 --> 00:01:20.500
That's been delayed after board members heard from you that it contains an undisclosed rate increase that has not been approved yet by city council.

00:01:21.060 --> 00:03:01.759
It's also budget-wise, a very significant increase of 15% over the current budget. I think I'm safe in saying that that's unprecedented in terms of an increase, although our growth is unprecedented in San Antonio and Central and South Texas, and it's no signs of it abating. So it's quite a moment for you. Well, this budget is really a level-setting budget, if you will. Don't forget, 2 years ago, we bought assets, close to $1 billion in assets. Down in Corpus Christi and Laredo, new generating plants that we needed to displace some of our older stuff. Natural gas plants. Natural gas plants here in San Antonio. And then last year we bought the assets in Houston, Peaker plants that were another billion dollars. So when you're adding assets, you know, you're also adding capital investment that needs to be made to assets that weren't there before and O&M, you know, to operate them. On a daily basis. So, you know, we're kind of level setting to our new asset base with some pretty significant acquisitions that are part of the story. And the other part of the story, well, two parts. Growth in San Antonio continues to remain, you know, one of the highest in the country. And so our budget has to grow as our asset base grows just to serve, you know, our organic growth in San Antonio. And then we're building more transmission at least it's in the plan to build more transmission over the next 4 or 5 years than we've ever built before. So $400 million of that capital budget is transmission build, which you take and separate that because we got to go to the Public Utility Commission in Austin to get recovery for that.

00:03:01.919 --> 00:03:23.650
So there are elements of this budget that are, I think, make sense for why the budget is increasing, but last year was a record budget too, you know, and we're just in a period of such high growth that, you know, we're going to, we're going to have a few years like this and then we'll get over the hump and we'll kind of level off in the years ahead. But we got a lot of work to do.

00:03:23.650 --> 00:03:31.289
You're an optimist. I don't know. I am absolutely an optimist. I don't know if that growth, Rudy, is going to abate at all.

00:03:31.289 --> 00:04:01.500
But yeah, we're going to talk more about growth and we'll talk about transmission lines too. Just staying on the subject for a minute of the budget, it's a little bit unusual. I don't recall a time in the recent past, at least, where you've gone to the board with a proposed budget before City Council really heard whether or not there was going to be a rate increase and whether they were going to go along with that. Am I getting my order mixed up here? I mean, our process always has to start with our board. You know, we don't go to City Council talking about a rate increase without board direction.

00:04:01.500 --> 00:04:24.040
And so Quite frankly, the council got ahead of us a bit, knowing that the likelihood is we're going to need to come in for a rate increase this year. They started talking about it. And I've been very careful to say, hey, wait a minute, I got to get my budget approved. That budget will contemplate whether or not revenue might be necessary to close whatever gaps might exist.

00:04:24.839 --> 00:04:58.149
But the other element of that is normally our process is We come in in one year for a budget, I mean, a rate conversation that goes into effect the next year. So you're not voting on a budget generally before the rate increase has been approved. In this case, what you'll see is, hey, there's a$50, $60, $80 million gap that either we're going to close with the rate conversation or we're going to cut things out of our budget that we need to cut to right-size it, or revenue will show up from the wholesale market., which happens as well.

00:04:58.149 --> 00:09:48.129
And maybe we don't need the rate increase that we needed, or maybe we need it but not to go into effect instead of October, not going into effect till February of next year. So, I mean, our business, it's not linear the way maybe the city's budget, you know, is. There are so many things that happen within the given budget year that are going to change the picture of what it looks like at the end. The process, though, for this rate conversation that we anticipate having this year, with the community is just a dynamic of kind of being off cycle. We were supposed to go in last year, which would have impacted this year's budget. That didn't happen. We had a new council, and quite frankly, they weren't ready to vote on a potential rate increase. There was some education that had to happen with so many new council members that drove us into kind of pushing it off and just tightening our belts and figuring it out, which we did. So, so that's the reason, you know, kind of why we are where we are. But it always starts with our board and then we will take it to council for consideration. Rudy, the rating agencies and economists in general, they much prefer what CPS Energy has been doing, which is periodic incremental increases, as opposed to what the city has done, which is for a long time it's touted the fact that we haven't had a tax increase since 2004. They now find themselves with multiple years ahead of budget deficits coming even before we get a new police contract. And they're in the very uncomfortable position of having to introduce the topic of a tax increase more than 20 years after it's been seriously considered. So I think most people will, at least on the outside, will be saying the expectation is that CPS Energy and SAWS, the water utility, need and should be asking for rate increases and keeping the increase rate as low as they can. But keep them incremental and coming when they're needed and not wait until after deficits develop and you face budget-cutting situations. Keep the revenue and the expenses aligned. Yeah, I mean, that has been, you know, my strategy from day one being, you know, responsible for this organization is I'd rather ask for smaller bites at the apple more frequently than wait 8, 10 years, which we did. And got us into the winter storm Uri, you know, kind of situation we hadn't been in for 9 years. So we absolutely had to have one coming out of that. And so that's been, that is our financial plan, whether we need a rate increase or not. I think it's healthy for us to go to talk to the city about our financial condition. And if a rate increase is necessary, you know, go through that process. And I'd rather ask for, you know, 3, 4, or 5% maybe every couple of years than push it off and need 10, 15%, which some utilities, if you do research, there are utilities who are asking for 5, 6, 7% a year for 5 years because they put it off for so long. I'm not going to put the community in that position. You know, you're an engineer by training, but in the position you're in, you've got to understand politics too. So you mentioned the new council last year that was finally seated after the June runoff in full. A lot of people would argue, Rudy, that it's still a very new council, that it's— we have a mayor that's on the eve of being censured by city council. That may have happened by the time this airs. We have several new members of council that were elected on very progressive agendas of funding anti-poverty initiatives at new levels. Now they're all having to confront those realities I talked about, the tax base not supporting operations in our fast-growing area. I wonder how much of a concern that is to you and your board of can we go to city council and get the hearing that we need to get? Well, I have to believe, and again, this is me being the eternal optimist, that when I go to city council, regardless of what the political dynamics are, that I can get 6 votes for what I need because we're too important to the community. CPS Energy cannot fail. We just cannot fail, and we all have to be committed to ensuring that we're doing what we need to do as a community to make sure we're successful. And so I spend most of my time dealing with those dynamics. I mean, I know the mayor's having trouble, a bit of trouble over at City Hall, but she's been— so far, her and I's relationship is good. She's been inquisitive. She's asking good questions. She's taken the votes she's needed to take over at our board. She's on your board, you know. Yeah, I mean, and that's, you know, I have to work with the mayor, you know, to the best, you know, extent possible because she's on my board and she's at city council. So, so I think we try really hard to be collaborative and be transparent and be accountable, go talk to the community so that, you know, the council members shouldn't have to go out and convince their constituents that I need a rate increase. That's my job.

00:09:48.129 --> 00:10:58.240
I'm going to sound like a cheerleader here, but for newer members of our audience that aren't familiar with the history of our city, CPS Energy provides 14% of its revenues to the city budget, which we would be a very different city without that revenue. It's significant every year. Sometimes I believe it's as much as 30% of the operating budget and the general budget. That's remarkable. As a municipal utility, the ratepayers are your shareholders. We've had some of the most reliable and least expensive energy, not just in Texas but around the country, of any major city. So we've benefited from not having what I would call merchant utility ownership over the decades, where, you know, private shareholders are, are the ones that the utility answers to rather than ratepayers. But it is an interesting situation that we're in that I don't think we've seen this kind of almost perfect storm where Saws needs its rate increase. CBS needs its rate increase. City Hall doesn't have the funding that it's accustomed to. We've seen, you know, market forces lower the amount of tax collections for the city. Sales taxes are off because of consumer spending.

00:10:58.240 --> 00:11:54.480
And so it's, it's, it's going to be a fasten your seatbelt year, I suspect. Yeah, I spend zero time, you know, you know, worrying about how much money I'm sending over. To the city as they return. My job is to send 14 cents of every dollar that comes into the city. And this year we sent, you know, right under half a billion dollars over to the city, which they take and do all the great things that they do. So, yeah, I mean, we're in a moment where the pressure on our community, you know, for all costs going up is a challenge. But again, you know, Costs for everything are going up. My job is to deliver a reliable system, you know, reliable energy to our community at the lowest cost possible price. We're the most reliable, you know, big utility in the state of Texas. We have the lowest electric and natural gas combined rates in the state of Texas.

00:11:54.480 --> 00:14:26.700
We have phenomenal customer satisfaction scores because guess what? We work real hard to communicate what's going on at CPS Energy. With our community so they're not having to question us about why, you know, we need the rating, you know, why we need support from time to time. So, you know, when you look at all the measures, I think we're doing, you know, my team and I are doing a pretty good job. But these conversations are meant to be difficult. And it's not lost on me that everything's getting more expensive. We, you know, we deal with that by having a really strong affordability program. You know, for the people, for those who are high utility burden customers that spend over 6 to 10% of their, or more, of their total discretionary income going to energy sources, we've got programs for them. You know, and we work hard to get the customers who are eligible onto them so that we do what we can to support them. But again, I know it's the narrative is going to be, well, you know, well, we can't consider, You know, we shouldn't be considering rate increase when our customers are struggling with affordability. I got to deal with affordability as a program. I've got to deliver a reliable system because when I start cutting back because, you know, the community has an aversion to a rate conversation, that means reliability suffers. Well, we can't grow as an economy without energy demand being met by supply. You do have a lot of affordability programs, and I don't think we have a whole lot of time to talk about those today because so much else is on the agenda, although That gives me a good excuse to invite you back down the road to talk about those. But I want to go back to demand because we've both been in this community a long time and the growth in the San Antonio-Austin corridor is just beyond description, even for those of us that have watched it build. And we're seeing a lot of growth in our advanced manufacturing sector here in San Antonio, which is an energy demand sector of the economy. And even more so with the advent of so many data centers as AI, artificial intelligence, just takes over everything. And I just wonder, is it possible with our levels of growth and the levels of increased demand, can you meet that demand? Is it possible? Are you constantly in a, in a, you know, a sort of chicken and egg situation of trying to acquire more energy to meet the demand and always being somewhat behind from a capital investment point of view? I think because we've been so proactive in the market over the last few years, We're a little bit ahead of it right now. You know, we've planned appropriately.

00:14:26.700 --> 00:16:05.789
We've got a generation strategy that our board has been committed to, that we're executing to. But, but the minute we take our foot off the gas, to your point, we're going to get behind and we're going to stay behind because in the midst of the acquisitions that we've made now, we've got some larger load dynamics going on that our industry has never seen before. And the calculus has changed for what we're trying to solve for. And I think, you know, that is the reason more than anything why, you know, we're going to need the community, you know, to help us solve some of the challenges that we have ahead of us. Because, you know, there's a lot of great growth, great revenue for us, great revenue for the city. But it's going to take, you know, it's going to take a lot of effort to get there. Some of the members of your citizen advisory board are not happy that you're acquiring natural gas plants. They wish that the conversion away from coal would happen more rapidly, even though that is underway. I happen to be somebody, and I'm a boomer, not a younger member of our society that would think otherwise, including my children. But I no longer think the 2050 carbon neutral goal is realistic. I look at our city's climate action and adaptation plan, which called for that. There's no real milestones and dates and hard deadlines in that plan. And we're now less than 25 years away from that date. And I just don't see that we're on track for that. I wonder, despite your growing renewable portfolio, do you personally hold the view that it's, that it's no longer responsible to adhere to that 2050 goal?

00:16:06.389 --> 00:19:36.750
Or when you're talking among your your experts and leadership group, how are you looking at that portfolio going forward in terms of renewables versus, you know, hard energy that's available 24/7? I do a lot of these conversations, Bob, and like, that's the first time somebody's asked me that question in that way. So well done. We have a climate action and adaptation plan that we're committed to.— we have to be because, you know, it involves in large part the work that we do at CPS Energy to get there— that do have general 2030, 2040, and 2050 goals. Our generation strategy, the path that we've been on, would get us to the 2030 and close to the 2040 goals, which is kind of net zero based on 2016 emissions. That's kind of the standard. And you get 40% by 2030 and I think 70% reductions by 2040. And then you're net, you know, net zero by 2050. It's going to take new technology such as small modular nuclear micro reactors or something new that is zero emitting if we're going to stay on the path of having any chance to achieve the 2040 and 2050 goals. But you're right on the money. If our load is changing to the extent that our whole portfolio is going to grow, then that makes that— that's going to make it almost impossible to meet those goals. That doesn't mean we don't continue to pursue the strategies that we've been pursuing. I always want us to be a leader in solar and a leader in wind, and we will be a leader in battery storage in the near future as our contracts start getting built out and we get there on that. But we're also in the state of Texas. You know, natural gas is going to You know, gas is going to be king in Texas, you know, long after I'm, you know, retired and out of this business. And at least today, you know, the current administration up in Washington is also making it difficult, more difficult for us to shut down coal plants, you know, make it more difficult for us to acquire solar and wind, you know, which we're going to continue to do, but it'll be at a higher cost, you know. So there are dynamics to your point that are going to make it difficult for us to meet these goals in the future. It's a remarkable and I would add disturbing political moment we're in on that realm. And I wonder and I want to give you an opportunity, Rudy, to talk about your RFPs for solar and where we are on that, because I know there's a March deadline looming and I've been looking at the way Austin's doing it where they're just out there saying anybody in the market that can provide reliable solar, we're going to give you a 20-year contract at X price and I'm wondering what you think of that, that model versus yours. But first, let me just say that we saw in the last legislative session in 2025 a number of initiatives on the part of the governor and other state elected leaders to elevate our, our support for the oil and gas industry in any way that we could and encourage more growth on both fronts. At the same time, we started to penalize and disincentivize any renewable operators coming into the state, expanding, making investments or whatever. How at the local level is that impacting the way you're managing your portfolio and where we'll be, let's just say, 10 years out or 20 years out in your, your, your own climate adaptation plan and in continuing to add solar, continuing to add wind.

00:19:37.069 --> 00:20:18.960
And also, I think more importantly, one of the things we want to look at is the the growing availability of battery storage? Yeah, what I'd say is that, you know, we don't just accept any contract that's, you know, responsive to an RFP here at CPS Energy. That's a shot. The way that we, that we have kept our rates low is because we, we just consistently churn those processes to achieve what we, what is competitively priced renewables. And, and we're doing it at a scale so large. I mean, I don't go out and buy 100 megawatts of solar. I'm asking for 600 megawatts of solar. I'm asking for a gigawatt of battery storage. And we know what price point we want to pay for that.

00:20:18.960 --> 00:21:03.750
And that price point is going to keep those resources competitive for what we're paying for natural gas generation. And so either you're going to put one RFP out and get all the capacity you're looking for, or you're going to keep picking away at it. And you're going to look up over the next 3, 4, 5 years. And guess what? We'll still be number 1 in solar. We'll still be number 2 in wind. And we'll be leaders in the solar— I mean, in the battery storage, because battery storage, the way we source generation is changing, Bob. You know, used to, we build a 600-megawatt gas plant or a coal plant or whatever, you know, big, big, big scalable generating unit.

00:21:03.750 --> 00:24:35.009
Now what you're solving for, most of the time you've got plenty of generation. Maybe it's, you know, 60, 80, 100 hours a year that you need that extra bump in capacity to ensure reliability. I don't think the state's policy has gotten that right yet. So what's really, you know, what you need during those time periods is peakers. It's the 50-megawatt units you can turn off and on real quickly so you're not overinvesting in those baseloads that are going to sit there not earning a return most of the time. That's our strategy, right? That's why we bought those Houston assets, because all of those assets, 1,700 megawatts worth of capacity, they're peakers. They're super valuable and they really only need to run, you know, 50 to 100 hours a year, you know, to, to be a really good investment. And so, so we've got some work to do as a state. To get the policy that drives market, you know, signals that will get that type of investment. Because, you know, we don't need to be building 6, you know, these huge power plants anymore because that's— because you're not solving for that right now. The other aspect of it is, you know, when I go up to the legislature and I testify on behalf of CPS Energy, you know, my ask of the legislature is pretty simple. Just if you'll just let us do our jobs and not make it more difficult for us to acquire resources, we're going to figure this thing out, you know. But when you put up unnecessary roadblocks in an era where we got to have every megawatt we can get on the system for the next 5 to 8 years, then you can be picky and choosy once we get ahead of it. Well, then that's— we're talking about a different story. But that's not where we are today. And I'm, you know, and I mean, I said this with a prominent Republican senator from North Texas up in Austin on a panel the other day. I said, Senator, just, man, just let us do our jobs and I promise you we'll get it done. But unfortunately, that's not the environment we're in right now. I have a wild and crazy question for you on the battery storage front, Rudy. And it comes as I'm watching the R&D space and watching manufacturers realizing that with the the credits that have been cut out for electric cars and some other developments, interest rates, they're switching their manufacturing strategies from automobiles to battery storage for home and commercial use. And I see that Elon Musk now is gonna build a battery factory in Houston. And when I look at his assets from Houston to Austin to Monterrey, I'm wondering that as crazy as his politics are, Are we crazy as a city not to be trying to sit down with him and get him to do something here in the realm of battery storage? We— you'll recall that I guess probably it's been 10 years now. We lost out to Reno, Nevada, on that particular battery production facility. We came in second, which is not bad, but it's not first. And I just wonder, is San Antonio the obvious choice for him with an obvious need on our part with somebody that's proven to be a game changer from SpaceX to Tesla to to you name it? You know, Elon Musk is an option. Guess what? There are other options. There are other places we can go that are in the battery business as well, that where I do think bringing jobs to San Antonio are possible. I've never sat down with Elon Musk. I know people who've done business with him. Some, some of that has been good. Some of those stories have been good.

00:24:35.410 --> 00:26:37.529
Some haven't. But, you know, to your point, I think it's worth a conversation. To see if there's any interest. But I will tell you, there are a lot of other battery producers that we're working on. I mean, anybody who comes to San Antonio wants to do business with CPS Energy has to either create jobs here or make an investment in the local community if they're going to get our business. That is what we do best as a publicly owned utility is we find ways to find partners, even if they're South Korean companies like OCI. Great partner of CPS Energy. They've got a great office in San Antonio, built Mission Solar, you know, which the market's kind of shifted on them a little bit and they've struggled. But that's not, that wasn't, you know, that's not their fault. But I do think to your point, there's a huge opportunity we have on economic development to create some of these new emerging technology manufacturing facilities right here in San Antonio. I don't know if you travel much on these kinds of projects, but it seems like the epicenter of all this is over in China and South Korea and Japan. I've been to South Korea twice. That's how we got our first battery deal done, because I just, you know, I wasn't willing to take no for an answer. So, and we got it at a really good, you know, a really good market rate for our customers. So, um, to, to— when you're talking about new stuff that hadn't been done before, you got to get aggressive about it. And, and I love— I've actually developed a huge love for the country of South Korea. It's a beautiful Beautiful country. Well, before we leave solar, let me just point out again to our audience, we're in, I think, the 4th year of your$350 million Sustainable Tomorrow Energy program. How does that look now that it's almost at the end of that cycle? And will it automatically renew into a second 5-year cycle? What were the goals there and where do we stand? Yeah, I think we're about 70% of the way through our goals. So I think we're coming along fine. We did an update to the board at the end of last year. And, you know, we didn't get any direction from the board to change course.

00:26:37.529 --> 00:27:19.130
We're continuing to try to add new programs. You know, we had a community solar initiative that pretty much maxed out on subscription. We're trying to do another community solar, a newer community solar program. We've got an RFP out there to do like parking lot solar, whatever, you know, the market brings us. But again, we're not going to pay more than what we, you know, what will allow us to continue to keep rates low. So we're going to pick, be choosy, you know, with the type of programs we put together on that. But, but yeah, I think we'll, I think we'll be able to finish out our current program. There's all kinds, you know, I mean, folks, there's some folks out in the community that want us to bring back the solar rebate.

00:27:19.130 --> 00:29:04.609
I don't know that that's necessary, but it's always an option. For us in the future, but not this year, but the end of next year. We'll have to decide what comes next for that program. But I'll tell you, based on my current makeup of the, of the board, I think there will be support for continuing that program into the future. I think as a homeowner, we're interested in that rebate program being born again. I don't know that this is true for a fact, but a friend of mine in the solar industry told me it doesn't pencil out right now for someone like you to do a residential solar, particularly if you have to borrow the money for it because of interest rates. And I wonder on your commercial side, what has stopped every public entity in the city from saying, Rudy, we want solar on our rooftops, whether it's parking or whether it's a UTSA building or the city of San Antonio, Bexar County? Why aren't all of them embracing solar? As a matter of fact, somebody told me that the solar project on the Bexar County jail annex hasn't worked for years. It's water solar. I don't know if you know about that, but that it, it costs millions and millions to install and that it's been nonfunctioning for years. Well, we still do rebate solar for nonprofits and for public entities. There's a cap on it. So once, you know, we, we spend the money, it's gone, the money, you know, we start over the following year. So there's limited funds there. But I think you started this conversation on the reason why. I think it's just, you know, a lack of discretionary, you know, tax revenue or however they bring in revenue and other priorities, you know. But I do— but we, you know, we're talking the Opportunity Home, and, you know, we've talked to a lot of the school districts.

00:29:04.609 --> 00:29:28.769
There are entities in town that are exploring adding solar to their portfolio, to their buildings and their portfolios, you know. But It's a little slow. Let's talk about coal briefly, and then I want to go to nuclear. Is anything in the economy causing you to either change your plans for shutting down coal or shuttering coal?

00:29:28.849 --> 00:33:36.950
You know, those— Yeah, those units have not been— they've given us problems. The engineering of those units wasn't great. And every year, you know, the units fight us when we need them. The most. And so I'm having to balance, you know, the need to have capacity with wanting more reliable capacity than what, quite frankly, those units have given us over the years. But we're on the path to convert Spruce 2 to natural gas, and I think that would actually help with some of the reliability challenges we've had with it. Spruce 1, we would require some environmental upgrades, assuming that the Trump administration just doesn't do away with those environmental upgrades, then it might be worth considering. But our community's been clear with us, you know, they want us to shut down the remaining, you know, coal operation that we have. And, you know, one thing that I hope the community recognizes about me, I'm not, you know, I'm not philosophical about my job. I want the community to tell me what they want, and I want to give it to them at the lowest possible price. So if the community wants us to move away from coal, then it's our job to figure that out. But we got to do it, you know, you know, but, but I got to focus on what I can control. And I'll tell you, you know, that's another area where the Trump administration is starting to get more active. You know, they're, they're, they're, they're making it difficult for utilities trying to shut down coal plants with life on them to do that. So I, I'm not really interested in making us a poster child, you know, in that space. But I'm going to continue down this road until the community tells me to do something different. Let's talk a little bit again of audience education alert about the South Texas plant, the South Texas Nuclear Generation Station, which is just outside Bay City, Texas, toward the coast. That's been almost 40 years of reliable, safe energy. Now at a rate that you just couldn't match. Nuclear is incredibly expensive to build, but once it's going, it's going and it's clean. Then we had a very strong and with good reason anti-nuclear movement in our country and around the globe after what happened in Japan and what happened in the Soviet Union before that. That— Northeast. Yeah. And of course, Three Mile Island, for those of us that are old enough to remember, which, by the way, is being recommissioned. I'm sure you know that. And It's going to be back in operation. Now we're looking at these small nuclear plants that Bill Gates and others are investing in to see if we can build pilots that work. Are you enthusiastic about that? I think at one point we got in the high 20% tile of our energy from nuclear. I'm not sure if that's still the case. Probably 14, 15%. Okay. So it's still a sizable component of our portfolio. I am bullish on small modular nuclear and micro reactors because I just think that, you know, there's enough technologies out there. There's probably over 20 different, you know, designs for small reactors in the market today. You know, we've got to pick as an industry a couple, you know, maybe 2, 3, 4. And I think there's a role for the federal government to play in helping us buy that cost down to make it affordable. And then there's some regulatory reform that has to happen to make the permitting process a little bit more efficient. But I believe that we can get there by, you know, the early 2030s if we, you know, commit to a path. And I do believe that If decarbonization continues to be a goal for society, which is a question, quite frankly, right now, at least folks who have influence are pushing us away from, from that desired end, then, then small modular nuclear is going to have to be the way to do it. We're not going to build more big reactors because the community has summarily rejected that proposal.

00:33:36.950 --> 00:34:06.750
You know, before my time, when I got here, when we were considering STP 3 and 4 units, which were permitted and ready to go. The cost is too expensive, you know, and I don't know that we have the capacity, even if we did have the community support to do it, to fund it at CPS Energy. So I do think small modular— I mean, you can daisy chain those things around our existing nuclear plants and, you know, in south of Houston and, you know, strategically here in town.

00:34:06.750 --> 00:35:10.980
I mean, The military wants to do a microgrid with nuclear technology. So we're incentivized to try to figure that out for one of our most important customers in San Antonio. Do you think that'll happen in your time? I don't know that I'll see a reactor in service. I mean, I think we'll make progress towards it. But I am hopeful, if the good Lord allows, I am hopeful I will see one in my lifetime. I don't know that I will see one in my time as CEO at CPS Energy, but I am— we're driving our team to try to figure this out. It's hard to look at that sector of the industry and figure out exactly where it's at in terms of development. Well, just everybody's fighting for jockeying position on, you know, who's going to get there, going to get to commercialization the quickest. And so that's part of the problem is you know, you're investing, you're seeing investments in, you know, 20 different technologies when we need to put all that money behind, you know, one or two, you know, because they all kind of work similarly.

00:35:10.980 --> 00:35:58.320
They're not— the technologies are different, but they all do the same thing. And, you know, so we've got a good partner, I will say, in our STP plant in Constellation that I believe has put their money behind a particular technology, and I'm hopeful our partnership with them will allow us to get there, to get that technology to market the quickest. Okay. Yeah, I heard from quite a few people after I let it be known that you were coming on, Rudy, who are San Antonians in the ranching community of the Hill Country that are up in arms over the Howard Solstice transmission line, which, as I understand, would span roughly 375 miles between San Antonio and Fort Stockton.

00:35:58.320 --> 00:36:47.539
And at 765 kilowatts, it would be one of the first and largest extra high voltage lines ever built in Texas, part of a$33 billion grid expansion in the state that's obviously aimed at improving reliability in these peak winter and summer events. It's, you know, bringing reliability from the Permian Basin as far out in West Texas as you can go into the urban core here on the I-35 corridor. As I understand the landowner's objection, they see you taking the crow's flight distance through their private properties at Heritage Ranches where they want you to go along, I guess, I-10 and the right-of-way, which would be longer and more expensive. Am I simplifying it, or is that where the rub is?

00:36:47.780 --> 00:37:33.179
Well, I think I mean, there's a line that goes from south of San Antonio to Fort Stockton, west of Fort Stockton, and it's never a straight line. You know, it's always, you know, you're looking for the path with the least amount of habitable structures. That's what you're, you know, there's a criteria that you have to file a proposed route with at the PUC that takes all the feedback we've gotten into account and tries to create a pathway that is most publicly acceptable, even if, you know, there are certain ranch owners, you know, who are going to see the line on their land. But keeping it out of population— dense population zones— that's right. Goal number one. That's right.

00:37:33.579 --> 00:38:11.519
And, you know, look, you know, I've met with a lot of the same folks who you've talked to. And personally, I mean, anybody who's asked for a meeting with me, on this topic, the Howard Roto-Soltis line, has gotten a meeting with me. The line is going to get built whether CPS Energy builds it or not. And, you know, we'll take the line out from our switchyard to a little, you know, east and north of Del Rio, and then AEP will pick it up from there and we'll meet in that spot. But they'll take it to Fort Stockton. And that's an acronym.

00:38:12.000 --> 00:40:02.210
American Electric Power. They're a transmission provider that serves various parts of Texas, West Texas, Corpus Christi, the Valley, Laredo. So they're a big player. They build transmission lines. They build transmission lines and they serve distribution customers as well. You know, there's a process and, you know, we're involved because it touches our system. And that's generally— we're the 6th largest transmission provider in the state of Texas. So, and we do it at a cost of capital that's better than the other transmission providers because we've got one of the best credit ratings in the state of Texas. So, you know, customers benefit from a public entity like us being, you know, playing in this market, you know, and it's good for our community. That's revenue that goes back to the city of San Antonio ultimately that helps, you know, deflect revenue that needs from our from our retail customers at the end of the day. Could it run along Texas 90 or Interstate I-10? That's really not the way the Public Utility Commission looks at it. Could it? Yes. But you'll have to, you know, build another 200 miles of it, you know, to follow existing routes and that, you know, and then that those costs add up. So, you know, that's probably, you know, $1.5 million a mile. For $765 million, maybe more at the end of the day. For us, our portion of it, it's a $1.3,$1.4 billion project. But I will say this, to the landowners that are concerned, you know, from here to Del Rio, along the Devils River and all the places that we know folks care about, they want a public entity building this line because we're going to care more about their feedback and about conservation. City of San Antonio owns conservation easements out there for water quality purposes. We're going to pay attention to that. So, so will everybody be happy? Absolutely not.

00:40:02.210 --> 00:40:35.019
But I think it is a good thing for CPS Energy to be involved in this project. I really— 10 years ago or so, we saw quite a few of the merchant utility companies, among others, moving wind power from west to east and You know, depending on who you were in the Hill Country, if you had a large ranch, you could, you could make a small fortune from letting it come through. If you were in a smaller property, you saw your values destroyed by somebody marching a line through. And so you've got winners and losers in that occasion.

00:40:35.579 --> 00:40:47.030
And, and it seems like we're replaying that again now with this line and bringing more power in. It's not just about the Permian Basin. Let me, let me just weigh in on that.

00:40:47.030 --> 00:43:12.590
This is phase 1, okay? The legislature weighed into it because they are trying to, you know, that there is an issue with getting power to the oil and gas activity going on in the Permian Basin. But, you know, there's another line that will go north to Austin and Dallas that will come in the future. There's a line going out east to Houston, and eventually there'll be some, you know, line going south to get the wind power out of, out of, out of, out along the coast, out of South Texas. And what it does is just allows us to more efficiently move power around the state regardless of whether, where the generation is happening. It's a more efficient way to transport, you know, to transport bulk power around the state. If we didn't build 765, and we were adamantly supportive of the decision by the legislature to move in this direction, it would take 4 lines of 345 kV transmission to replace 1 line of 765. So even if there's a big line there, there would be the need for 4 lines, you know, if it weren't for that 1 line. So, you know, so property owners do benefit, whether they like it being there or not, from less transmission needing to be built because you've built the maximum capacity line you can possibly build. So there are some public there is— it does serve the public interest in some regard by allowing us to be more efficient. I wonder if you think we can preserve the Hill Country as it is and still meet the energy demands. We, you know, we're a former rural state. The myth is still rural, it's still ranching, it's cowboy, but we're an urban state. 30 million people and two-thirds of them live in 5 city metro areas, so including ours. I just wonder, can we Can we preserve that rural character and still serve these fast-growing metro areas, or are we seeing some fundamental change in saying, you know, we're going to have to give ground? I think there are corridors that you can preserve. I think it's going to be real difficult to say you're never going to have to build a transmission line in an area that's pristine right now. I mean, you know, as the population centers grow, as, you know, small towns turn into big towns and you got booms and busts, you know, going on. I think you're going to have the need to build infrastructure, um, you know, and, you know, as it is, this, this, uh, pro— process— this, uh, plan is going to, you know, it's $30 billion worth of transmission to build.

00:43:12.590 --> 00:43:19.949
So do I think you can preserve, uh, elements of, you know, kind of our, you know, Hill Country heritage, you know, going forward?

00:43:19.949 --> 00:46:38.420
Yeah, I think I think we can, but we got to do a real good job of, um, you know, picking the right routes that give us the best chance to preserve it, you know, which I think we're working really hard to do in this case. We're running out of time, Rudy, but, um, I know that I want to give you the opportunity to make some news before you go. So do you want to disclose what kind of rate increase that you think you'll need? Well, yeah, look, we, we, every, If you look at our financing plan, we always put about a 5.5% placeholder in there, and then we, we work down from there generally. And so, I mean, we've always had a 5.5%, you know, uh, placeholder in our financial plan every other year, but we've never come, come in at that. I don't know if we'll do better this year or not from that, but that's kind of the starting point in the conversation. But In our financial plan, you know, it includes a rate conversation every other year. You know, as I said earlier, I think it's healthy for us to have a financial health conversation with our community to ensure we have the resources we need to run a reliable system. And generally, you'll see that we've had 5.5% every other year, you know, going into the future. I mean, you know, 2 years from now, we'll have another conversation about where we are, and our job is to not come in and ask for a penny more than we need. And generally, that's allowed us, you know, to be as efficient as we can possibly be and lean on wholesale revenues and do the things that we do that change the math on what the need is. But, you know, for every percentage of rate support we're asking for, additional rate support we're asking for, that's about $20 million to our bottom line of revenue that we need. So, you know, if the gap is $40, $50,$60 million, then it's going to be less, you know, than what— than what maybe what we think we need, you know, right now. But that's why we try really hard to not get so specific until, like, I have to get in and out of a rate case process in about 45 days. Like, for our rating agencies, pay attention to the timing it takes. Like, I can't be in a rate case all year. That's going to look like the community is not supportive of CPS Energy, and our rating agencies react to that. So we'll come in and we have 2 or 3, you know, we'll take it to the board, they'll take a vote, we'll have 2 or 3 sessions with council, and then they'll take a vote. And I try to get through that process 45, 60 days on the outside, you know, maybe. So, you know, but yeah, I mean, the placeholder has been 5.5% every other year. And then, you know, we try to work it down from there. Well, I try, Rudy, to, you know, focus on the podcast as often as I can on what I call the city centers of excellence. And to me, particularly for newer members of our audience who might have moved to San Antonio or who are young, CPS Energy has absolutely been a bedrock center of excellence over the decades for the city. It's so important to almost every aspect of our future, the energy, the finances of the city. I could go on and on, the air quality. The, the, uh, the environment that we're raising our children in. So thanks for coming on to Big City Small Town and do come back later this year. Absolutely. I'll come back anytime you invite me, Bob. Thank you.

00:46:41.780 --> 00:47:20.710
Thank you. All right, y'all. Thanks for listening to this episode of Big City Small Town. If you enjoyed this conversation, please share it with friends and colleagues who might find it interesting. You can also sign up for our newsletters, Bob Rivard's Monday Musings, and my San Antonio something. You can find those linked up at bigcitysmalltown.com. Our show, Big City Small Town, is made possible by Weston Urban, building a city our children want to call home, and Geekdom, where startups are born and smart ideas become businesses. If you're part of a business or organization that believes in strengthening San Antonio's civic engagement and would like to explore a partnership with us at Big City Small Town, we'd love to hear from you.

00:47:20.710 --> 00:47:24.449
You can reach out through our website or connect with us on social media.

00:47:24.610 --> 00:47:26.920
All right, y'all, thanks for being here. We'll see you next time.