So all this data set of numbers are weighted towards the end of the decade,

whereas the new solar is right here, right now, crushing power prices.

So you actually want to be a little short power

for the next few years and then flip to being long.

And if you can figure out when that flip is,

you can make a lot of money

in either the forward power curves or the natural gas curves.

But as far as your original question, as I said, data centers,

2 or 3 years to build new power plants, 4 or 5.

But then you don't need as many new power plants as everyone's saying.

So constellation CEO said on a call the other day,

he said he use the Texas market.

He said 87 gigawatt peak market.

You could add ten gigawatts to Texas tomorrow, which would be the equivalent

of sending every single Nvidia chip for an entire year to Texas

and running them 24 over seven.

That's ten gigawatts. He was you could run it right now.

Existing grid, existing plants for all but 40 50 hours a year.

We stress tested it.

There are some coal plants that could ramp up capacity factor.

There's plenty of gas plants I can

so I don't know if it's 40 hours, 100 hours, 140 hours,

but it makes more sense to pay someone else not to run their

chemical company, the refinery company, for 40 50 hours a year, rather than have

the utilities go out and spend $10 billion connecting far away wind farms.

That's the argument.

We're sort of come in the middle of it,

but there is plenty of existing capacity on the grid that could ramp up to meet it.

Hello, and welcome to another episode of the Odd Lots podcast.

I'm Tracey Alloway and I'm Joe Weisenthal. Joe.

Imagine you are a utilities analyst.

Yeah.

And for years you are laboring in the utility analysis mines.

And you know, we like talking about utilities.

We talk about energy.

We find pretty much anything interesting.

That's right.

Equal opportunity. Interest people.

We are.

But yes, you got to say utilities for a while.

Some people would say it was a little more quiet.

No. That's right.

I mean, for most of our careers, I think if you were a utilities

analyst, a really big part of your job.

And maybe I'm wrong, but I just didn't.

The popular discourse was like talking about yield relative to treasuries, right?

They were seen as sort of bond like instruments, etc.

maybe a little bit of growth, but roughly viable,

safe haven ish dividend plays like us.

Totally.

And since I know where we're going with this conversation, one of the themes

of the last few years has been what I would say is the old industries

that were either stable or cyclical, becoming secular in the way they grow.

I think that's right.

So what is happening now is if you were, I don't want to say a lowly

utilities analyst,

but you know maybe a sort of forgotten utilities analyst outside of your sector.

Suddenly you are very in demand right.

Because all you hear about nowadays

is the I build out an energy constraints on that.

And so obviously a lot of people want to look at it from a utilities perspective.

Totally.

I always think like, what a great look that some people have in their careers.

You know, you could be an analyst and learn the modeling skills

and all kinds of stuff, and then you get allocated

and someone gets allocated, I don't know, farm equipment

and another person gets allocated to they wind up in utilities in 2022.

And it's like, man, they're on TV all the time.

My old boss at Business Insider, Henry Blodget, it's like he was there

is an internet analyst and like the late 90s, what amazing timing and luck.

And so it's like journalism in the air.

It's the same. It's the exact same thing.

I started out covering airlines.

Yeah, of all things, but those were interesting.

Anyway, I'm glad to say we do in fact have the perfect guest.

So we're going to be speaking to a utilities analyst, someone

who happens to have a very contrarian take

on the data center buildout and how much energy is actually required.

We've been hearing a lot from people who are very, very bullish

on the data center buildout.

So this will be a useful I love their point I love it.

Okay, so without further ado, Andy DeVries, head of Investor

and great credit and head of utilities and power over at CreditSights.

Thank you so much for coming on. Odd Lots.

Thank you. The pleasure's mine.

So is a great to be a utilities analyst right now.

Even better.

Your your Bloomberg News reporter, Josh Saul wrote an article

about the how much it's changed for bigger

utilities analysts now with the data centers are here.

But the push back we did have the largest bankruptcy of all time.

And Enron oh yeah, the largest LBO of all time.

And TXU, which then went bankrupt and the largest private equity return ever.

And Calpine, 25 billion, which exceeds Apollo's lion ELP

trade and Blackstone's Hilton trade.

So we have had a lot of fun along the way.

Have you been a utilities analyst throughout that entire timeline?

How long have you been doing it?

I started with the first gas bankruptcy and then I went to the second.

And here we are with data centers for 25 years. Wow.

So you really have seen it all.

It is fair to say so. You're absolutely right.

There have been some disasters and home runs and utilities.

You know, they do get central in the news obviously with the fires,

that we saw, for example, in California several years ago and the court trials

about allocation of risk in those, situations.

You mentioned Enron, etc., but it is also fair to say that much of the discourse

in day to day has been like these are sort of bond like instruments.

Absolutely.

Before we get into that, just like, sort of like

talk to us about what a what a normal day is like.

And when you're thinking about utility before, you know, centers.

Yeah.

Pre data centers five years ago whatever pre data centers

you're looking at a lot of rate cases okay.

Studying a lot of local news. You're looking at legislation.

You're reading you know dry regulatory documents.

And then you're tracking natural gas prices and start

setting the price of power.

Yeah. Right.

On the federal level, you obviously have the renewables displacing coal.

And that's, you know, obviously having a big impact now.

So it's a little I actually think it's a lot of fun.

My impression was always the policy aspect of it

seemed kind of the most important thing to keep track of.

Is that right? Absolutely.

And that's down to the state level, but also the federal as well.

Yeah, we've done a few energy. Yeah.

So it's still trying to wrap my head around the sort of patchwork

of, rules that seem to govern our energy, infrastructure.

But anyway, there's something, by the way, a little bit like

I'm trying I'm going to try and not say an offensive word.

Do a Joe, do it.

You should think a little Aspie about the way, like, you talk to people

in this space and you're like, well, how is this get priced?

And they're like, well, are you talking about market or central?

It's like, okay, I don't know.

You know, it's like, are you talking about a rate board

or are you talking about market prices?

It's so hard anyway, especially in a 40 minute podcast, to try to generalize that.

But I love the people.

Don't get me wrong, those are my favorite people anyway.

Andy, what is the mood like at the moment among,

utilities people, analysts, investors?

Wasn't there a conference recently?

Everyone's, gung ho on this.

So the biggest conference of the year is EEI in November.

And, it was packed.

It was standing room only for some of these presentations. Wow.

Your competitors at CNBC were broadcasting from the floor

for the first time. That probably a sign of a top.

So, yeah, people are very happy in it just to quantify it.

Utilities have generally grown around 4 or 5, 6% a year,

and then that's moved to 5 to 7% a year.

And now certain names which we'll talk about later are up to 8% a year.

And that's driven by data center growth.

Talk to us a little bit more about that.

So what is the I mean, I'm like looking

at a chart of the Xiu ETF.

I don't think it's like insane.

But talk to us a little bit about like

maybe quantify the exuberance for us.

So it's like, okay, we we are no longer just in the business

of measuring bond proxies and looking at policies, etc..

There was a secular growth driver.

Talk to us about like the bull case, and then also how we would

see the bull case, sort of like how it's manifesting into tradable instruments.

Sure. And you pulled up the graph of the slew.

Obviously, it's still a very interest rate sensitive sector.

Yeah. That's like dividends.

You can find higher yields and other fixed income instruments. Yeah. Right.

So you know maybe didn't do so well last year.

But the industry argues that as this EPS growth rate goes up to the

high single digits, mid to high single digits,

that it shouldn't be as interest rate sensitive.

So that's the big debate going on with investors right now in this talk.

I mean the Xue has done very well.

So you have gotten both the capital.

It has gone done well.

If you zoom out, it looks pretty good.

It's done well.

That's my impression of a bitcoin investor, by the way.

Zoom out.

Just zoom.

All right. You've got and you've gotten that coupon right.

So like you get so like you might in normal times

just be happy with the coupon. You're getting coupon.

Plus I mean it worked out.

The fed went zero interest rates for so long.

So utilities are the place to be. That's just math.

And then as soon as the fed starts jacking up rates,

ChatGPT comes on the scene and all of a sudden there's data centers.

So now all of a sudden you're taking the leg up on growth

when you don't need to be so interest rate sensitive. Interesting.

So one of the reasons we wanted to talk to you is because you have that contrarian

take on the data center built out, and we wrote it up

in the Odd Lots newsletter, which everyone should subscribe to.

It got a lot of attention.

Your analysis, interestingly,

is just based on some pretty simple math.

So why don't you, just to start out with, why don't you walk us through

the calculations that you're actually making to try to analyze how much capacity

the utilities are taking on to actually power data centers?

Sure.

So, as you said, it's pretty simple math here.

So utility.

So data centers now are consuming around 45GW of power.

And you can switch between capacity

and throughput I'm going to stick with capacity okay.

So 45GW of power.

And then there's

lots and lots of third party estimates for where they're going to be in 2030.

And they are centered around this, you know, 90 95GW.

So you need to add 50 for 2035.

There's a lot fewer estimates.

You come around 160.

Now these estimates, they you know, they're all over the place

they come from cell side banks.

They come from consultants. They come from everyone. Benioff has one.

They're I think one of the best out there.

So thank you.

We use them a lot.

So so that's on the demand side.

I'm where you're going to come out on these.

And then you look at the supply and everyone talks about the demand right.

Oh yeah.

But then you look at the supply and all these tech bros

are too cool to actually look at the supply and do utility analysis.

Right. Who wants to be a utility.

And I'll see. We're making fun of us before.

But if you look at this you're fitting you.

But when we realize are pretty well misplaced

but we're not making fun anyway, this is great.

So you look at the supply and these utilities are tracking

all these data centers, connecting to the grid

because they've got to do a lot of work, spend a lot of money

in transmission, distribution, new substations, transformers.

It's a lot of work but a boost their earnings growth.

So they're happy to talk about this.

And so you look at where they're at and where they're they see things coming.

And they've got around 140GW of near-term supply.

Now kudos to the utilities.

They break out with firm committed signed contracted versus pipeline

behind it because there's a lot of double, triple quadruple counting.

So if you're going to build a data center in the southeast, you're going to tell

Duke, you're going to sell southern, you're

going to sell Dominion, you're going to build one.

So that's the pipeline potential.

But looking just at the firm committed whatever

they want to call it, around 140GW.

Now that's you got to adjust that.

So when you connect two data sets peewee.

Yes. When you connect a data center to

the grid, you've got lights, you've got cooling.

Those third party estimates I gave you are just for raw compute.

Why did you split those out though?

Because I mean, all data centers are going to need to be cooled down, right?

What's the point of splitting it out?

I'm not splitting up.

I'm just adjusting it downward because a third party estimates are just compute.

So you're connecting to the grid.

You're going to ask the lights, the cooling and everything.

Yeah.

So I want to go apples to apples versus the third party.

So what do we stand for.

Power usage effectiveness. Great power usage efficiency.

Keep go.

So they're at 140.

So that power is down to 110 on apples to apples.

So just to go back you only need 50 on the demand side between now and 2030.

And the utilities are working at connecting 110.

So the utilities are working on already connecting

almost as much as you need by 2035.

So again, just to make sure are on the same page.

Third party estimates 45GW for data centers now going to 95.

That's 50 utilities are working on 110.

They don't give timing for that.

Some of it's going to be past 2030.

What I'm trying to say is there is a lot of supply of data centers coming.

And it's very unclear if there's going to be demand for this.

So that's that's the issue there.

And then it might be worth pausing

that and just saying how we're tracking these things. Yeah.

So what we do for the demand side is we use the original

AI agent, you know, that is a Gmail alert.

Oh it's the best.

So we anything that's not on our trade pops,

not on Bloomberg News, we got picked up by a Gmail alert.

And so then we get all that in a spreadsheet.

So that's on the demand side.

And then on the supply side we use Diego.

And that's not a large language model.

That's my junior sitting several blocks west of us right now.

So he tracks all this and utility calls.

Just yesterday NextEra moved another two gigawatts from the potential

into the committed.

And these utilities are chomping at the bit

to sign more and more of these deals.

And I think it's just going to be oversupply.

We're going to overbuild these things.

Just to be clear, the firm commitments, those are signed agreements

to actually build this capacity. Yes. Okay.

And so I was talking with the CFO of Oncor and they made these comments

on their call as well. They're owned by Sempra.

And I said, you know,

no one really believes these data and estimates Texas is a walled off market,

as you guys know, 87 gigawatt peak market that is the one thing I know about

Texas is its own walled off market.

There you go. So 87 gigawatt peak market.

And the demand estimates are they're going to add 30GW by 2030.

And I said to the CFO of Oncor said there's just no way.

He said it might not be 30, but it's going to be closer to 30 than it is zero.

And I said, I just the four power curves don't reflect that at all.

And he said, then they're mispriced.

So just for the entire market, just for the benefit of your users,

you cannot trade forward power in Texas on Interactive Brokers I know that.

Oh, that's a bad audience. It's too bad.

Everyone's like, look it up then. No, but this is great.

And this gives us a bunch of, technical questions to get into some already.

Let's just keep talking about Texas.

Explain to us kind of what the forward power curves are

and how you can back out the implicit,

assumptions that traders or are making based on those forward

power curves about how much demand there's going to be sure.

So, I mean, obviously you're going to go from 87 to you're good at

15 or 30, whatever it is you'd expect that curve to go higher.

But what's the curve measuring tool okay.

You say there's a forward power.

So the forward power curve is around the clock peak or off peak.

There's three separate curves.

And the difference between peak and off

peak is actually you know yeah narrowed because data centers run 24 seven.

So it depends on your north Texas or south Texas.

And those are in the high 50s.

But what would we be seeing in the curves for like 20.

Like are there or is there trading happening at the 2030

10 or 30 might not be so liquid, but 27 and 28 certainly are there.

But there's an other energy market.

So if you look at nat gas, for instance, although gas traders are really weird

about the futures curve in gas, which I don't really understand.

But if you look at that,

you point out that over the longer term it's downward sloping,

which suggests that there isn't going to be as much demand,

or maybe there's going to be more supply out in the future.

I love it.

We're morphing into natural gas

because that is the main driver of power prices, especially in Texas.

And the forward curve for gas is much more liquid than it is

for power, and the forward curve for gas is inverted.

It goes from 370 to 360 by the end of the decade.

So as my energy analyst Charles Johnson points out,

the bigger driver there isn't data center demand.

We're at six BCF a day.

There a lot of people are, but 1012, we can get into that.

But LNG exports were exporting 18 BCF a day.

Now we're going to add another 12.

Like you'd think that curve would be at least upward sloping by $0.25.

$0.30, by the way, you can trade that in your Interactive Brokers account.

So that goes into is there going to be a glut of LNG?

It starts getting outside of my expertise.

But that's but we heard from a lot of clients

last week when we went on the road all over New York City.

This is very interesting.

I actually want to ask another question about the pure power curve.

But since we are on LNG and then we can get back to the power curve,

just setting aside data centers, etc.

intuitively, you would think that what is a growth business in the United States?

LNG exports, and in fact, one of the sort of policy debates

around the whole question of building out LNG terminals

is it's going to make gas more expensive for American consumers

because now we're going to be competing with European buyers.

Whereas when we didn't have LNG export terminals, we were just swimming in it

because it had nowhere to go, nowhere to go.

So it's very interesting to hear that even with everyone acknowledging

a booming domestic demand and b the expected

expansion of international demand, their downward sloping gas curve, yes,

maybe, I don't know, maybe the reflecting world peace in Europe and Russia.

LNG is unacceptable to the rest of the world.

That could be a driver.

Then they would have to rebuild that pipeline.

Yeah, but but back to our original conversation on demand.

The reason I was talking to the Oncor CFO and asking him about this is he said

he's holding $2.5 billion of cash collateral postings

from some of that demand.

And he's like, you're not some, you know, Joe Schmo startup.

I'm going to build a data center

to connect to your grid if you're posting $2.5 billion.

And he says, and this is what he said in their earnings

call as well, you know, that's real demand that is coming.

It's it's material, I'm sure just now

to go back to the power curve, which I get is much less liquid out there.

But there are trades that happen.

These are price like how do you infer volume from price.

Because these are prices.

We don't get the volume.

But it's a it's a yearly curve.

And then right for the year starts

it splits in the 12 month curves and then it goes into weekly.

But what I'm saying is how do you infer

what expected volume in 2028 is going from a price curve?

Sure. It's it's flat.

It goes up a dollar from here to 2030.

Whereas if you're going to add

20% to your good demand than you'd expect it to go up, okay.

Several dollars.

All right

I see side I'd want to see $0.40, $0.50 I see what you're saying okay with that.

And then just to go back to the fork in your upper 50s in Texas, low 60s for peak.

And the data center companies are paying 95.

So Vistra to sit a deal off $95 a megawatt hour okay.

For round the clock.

So Vistra contracted at its Comanche Peak plant in Texas $95 a megawatt hour.

So Big Tech is paying a very pretty penny.

You can argue some of that for the CO2 free aspect of it,

and some of it's just to lock in the supply.

So just to go back to the math and your overall argument, I mean, you're

basically saying that utilities are already committed to building out,

I guess, twice as much capacity as is forecast to be needed by 2030.

Yes, the wild card to me seems to be the demand forecasts.

Right.

And we're already seeing those change pretty wildly.

I know you mentioned Bloomberg NEF, but you know, they

they've raised their forecast, because of the data center buildout.

So they've raised their forecast of how much energy is actually needed.

How much confidence do you have

in those demand numbers, and how could they change over time.

Moderate confidence.

But like, look, we're right now like OpenAI built all the ChatGPT

using two gigawatts,

all the big tech hyperscalers, they haven't given their 2025 volumes yet.

But if you take their 2024 volumes and then double it, and this is output.

So I'm going to transfer it back to capacity.

And you assume a 60% capacity factor.

All the hyperscalers combine around 15GW.

And that's got to be over half the data center demand.

So to talk about 95GW I mean it's a staggering number.

And then you get more advances and you know Nvidia chip efficiency.

Yeah obviously Jevons Paradox kicks in.

You've had numerous guests talk about that.

It's just a lot of power a lot of power.

Can you just remind us one gigawatt is enough to power what I like

these comparison million homes.

But it depends if you're in Florida or the northeast.

But generally speaking, that's where you're at.

Not only do I find electricity market so in market structure

and electricity, very difficult to wrap my head around.

Even after all of these conversations,

I have built no heuristics or intuition for what

these are gigawatt kilowatt, megawatt like you say these things and I know

gigawatts bigger than a kilowatt, but like what is actually me here?

And then the fact that even there we're talking about the difference

between a gigawatt and a gigawatt hour.

And like, I've yet to develop the sort of intuitions that I have haven't seen.

Back to the future.

Yeah. 1.1GW. Oh, there you go.

We got a print out, you know, a little teeny tiny that

like the way we used to do for credit ratings in the financial crisis.

We need that up there.

And actually credit

ratings are going to be interesting from a utilities perspective as well.

Can I just ask, you know, obviously one of the sensitivities in general,

with all things data center and utilities is this view.

And I think it's kind of overstated.

They're like, oh, or other, is the average ratepayer going to end up

paying for a lot of, data centers or we'll raise our electricity bill.

And I understand, like, these are complex questions and the math isn't so clear.

And also, from what I understand, the emergence of a data center

can actually lower the consumer's electricity bill,

because there's just that simple math, which is if there's more buyers

splitting the cost of the buildout, then actually your, price tag can go down.

But in the scenario you're laying out in which there's a bunch of upfront

capital investments and everyone's very excited to build it out,

and that credit wires and you have to buy transformers and gear and all this stuff.

If the demand is does not materialize as expected.

That does sound like conditions in which we could see consumer rates go up.

Absolutely.

So that's what we're spending all our time on.

And it's state by state.

And even within the same state, you've got numerous jurisdictions.

So is it legislatively mandated or is it done by a rate case

or in the case of northern Indiana, have the companies themselves data center

companies themselves gotten ahead of it and said, we're going to put in a solution

where ratepayers are absolutely protected and get money back.

So you look at NiSource with the Midwestern utility, they own

Northern Indiana public Service Nipsco, and they've got a deal

where they've got an inside rate base, they've got a separate Genco,

so they sell.

And that Genco is doing a deal with Amazon, and they're going to

kick back $1 billion over 15 years to ratepayers.

So rather than have a debate oh is who's funding what.

It's like done.

And you get $67 million a year.

And that's the blueprint.

That's the gold standard. Yeah.

I keep in mind six months before that, Genco was launched,

nice or sold 20% of Nipsco two Blackstone.

So you could argue Blackstone said, hey, let's go ahead and do this.

And then the utility right north of Indiana or northeast Indiana is Ohio.

And the CEO of First Energy is an ex Blackstone guy.

So maybe they look at doing a Genco or something like that.

That's pure speculation I have no idea.

PAC gas, Pacific Gas Electric.

They've done a deal

where they've got rates in place that protect President ratepayers.

Amarin has but a lot of utilities don't.

They don't have these protection.

The point is, someone if it turns out that there's an overbuild

and there is not as much demand for it, someone's paying for it.

And it either is going to be the customers or perhaps utility shareholders.

I mean, you just the political risk of having mom and pop bail out.

Yeah.

You know, Mark Zuckerberg, Jeff Bezos, it's just you can't have that happen.

But again, six months ago this was coming up on the tail end of conference calls.

And now these utility CEOs are having in their prepared remarks.

So I'm pretty confident they're going to figure it out.

You mentioned Blackstone just then.

I do want to talk about who is currently making a lot of money

from the data center buildout, but just to stress test

the thesis a little bit more because it is a contrarian take.

And so I think we should ask a bunch of questions about it. But

does it take into

account time lags for projects.

So I think, you know,

capacity build out in the energy sector is notoriously bureaucratic.

That is one thing that Joe and I do actually know about the sector.

Is it possible that a lot of these committed projects actually

take much longer to get working on the ground than currently forecast?

I think the delays will be on building the new generation, not the data centers.

So data center takes 2 or 3 years, even if that slips to 4 or 5 years.

The power plants take 6 or 7 years.

And as you know, you can't get a GE Ivanova gas turbine for years

and years, which is obviously a bullish backdrop here.

Yeah.

Talk to us more about that element of it all because building out

if you overshoot on production then that's a problem in itself.

If you overshoot on production at a time when it's gotten really expensive

because there's massive inflation and the, the production,

construction sector, that's an even greater problem.

Talk to us just about like, per

any given unit of productive capacity on the utility side,

how much more expensive is it gotten and what are you forecasting for that?

Sure.

So it's a build

a combined cycle gas plant ten years ago is 1000 1200 a kW to build.

Then it got to 2000.

Then utility analyst like myself was like, whoa, that's insane.

Now we're up to 3000.

Then it's like, who? Who's actually spending this?

But that $3,000 a year for a new gas

plant compares to the data center itself.

The cost $40,000.

So for big Tech to spend another three to lock in their gas price

or their fuel source, it's like it's nothing.

Oh, yes.

De minimis, which goes back to the output for power is 5560

and big tax paying 95 in the grand scheme of things.

So the cost of data center is nothing.

So that's why the utility and I'll, I'll just jaw dropping on how shocking it is.

Big Tech's willing to pay these amounts.

What about if you don't measure, production of new plants in dollars,

but new plants in time and again, if you're talking about.

Okay, well, if we can't get this turbine and that is several years ago,

we could have got delivered next month, how much longer are these projects taking?

So if you can figure this out, I think you're alluding this.

If you figure this out, you can make a lot of money. Okay.

Because obviously Inflation Reduction

Act had enormous I'm going to vibe code a thing to figure it out.

Keep going and inflation reduction act enormous tax credits for renewables.

Yeah.

And then the one big beautiful bill

obviously clip those if you're not aligned by a certain date.

So all this data set of numbers are weighted towards the end of the decade.

Whereas the new solar is right here right now crushing power prices.

So you actually want to be a little short power

for the next few years and then flip to being long.

And if you can figure out when that flip is,

you can make a lot of money,

neither the forward power curves or the natural gas curves.

But as far as your original question, as I said, data centers

2 or 3 years to build new power plants, 4 or 5.

But then you don't need as many new power plants as everyone's saying.

So constellation CEO said on a call the other day.

He said he use the Texas market.

He said 87 gigawatt peak market.

You could add ten gigawatts to Texas tomorrow, which would be the equivalent

of sending every single Nvidia chip for an entire year to Texas

and running them 24 over seven.

That's ten gigawatts.

He was.

You could run it right

now, existing grid, existing plants for all but 40 50 hours a year.

We stress tested it.

There are some coal plants that could ramp up capacity factor.

There's plenty of

gas plants I can so I don't know if it's 40 hours, 100 hours, 140 hours,

but it makes more sense to pay someone else not to run their

chemical company, the refinery company, for 40 50 hours a year, rather than have

the utilities go out and spend $10 billion connecting faraway wind farms.

That's the argument.

We're sort of come in the middle of it, but there is plenty of existing capacity

on the grid that could ramp up to meet it and then of others gas to point it out.

And Abbott's, you know, the peak demand of the grid is 850GW.

The overall size of the grid is are 1200,

terawatts, and then it gigawatts, and then you're adding 50GW

a year or solar, and then you're going to start adding 20GW of gas.

I mean, we're going to handle it.

I'm not really worried about any interests or anything.

Oh, yeah.

Talk to us about regional transmission because this is something

that we hear a lot.

It's not necessarily the power generation that's an issue here.

It's the transmission which the US you know, seems to struggle with, to put

it mildly.

So there's regional markets myself.

Midwest's the Midcontinent ISO these guys are tired the most amount of coal.

So I think they're going to be in the worst shape.

And then Texas and then it depends.

If anyone builds anything in New England, New

England's got the faraway, more expensive power prices $70.

The rest of the countries, you know, I am well aware.

Yes, I have to because I live in Connecticut.

So if anyone builds a data center in New England, they're going to be the tightest.

But after that, it's really myself.

No one's building data centers in Vermont

where they occasionally have to switch over to oil and wood.

Right?

I mean, they iso New England app, which we all have on our phone, right?

They were getting 40% of their power from, oil.

Yeah, yeah, the cold snapped the other day, but now

it's tough to talk about New England power without talking politics.

And we're not going to go down that.

So, so transmission is very important because you've got to connect

all these far away renewables to the grid.

You said something that I think is actually kind of important.

Or is this, narrative meme, you know, people talk about the I race U.S.

versus China and that one of the things I've seen people say China is going to win

because they could just build out power more easily than we can.

It sounds like,

I know you're not an AI analyst, but it sounds like from your perspective,

we don't know, like what it means or who's going to win U.S versus China.

But then from your perspective, power is not going to be the decider here.

Not in China. It's not.

But it does it.

You said like you know, that we could ship every current with existing capacity.

We could put every Nvidia chip in Texas today and we could run them for 50 hours

for with the exception of a few really hot hours in the summer, I,

I like the imagery of all the Nvidia chips going on a field trip

to Texas, to Texas.

But it sounds like to your view, that really isn't going to be from the U.S.

perspective, that won't be the binding constraint.

It's it's going to be a little tight, but I'm not one of these doomsayers.

Oh, it's the absolute gating factor.

It's all going to stop.

I was in Shenzhen, China, last year, and a robot got on the one floor

and the elevator went up and they got off another one.

And I was like, what is going on here?

There's another reason we wanted to talk to you, aside

from your capacity analysis, which is one of the interesting things

that's been happening in the credit market is obviously private

credit has been a big story for the past few years,

but now private credit is getting in on the data center buildout as well.

There's sort of, I guess,

getting on your turf a little bit in the public bond market.

But what sort of activity have you seen there?

Sure.

So we think that's where the risk is going to is going to happen.

And frankly, Bloomberg News broke the story on Pimco, made

$2 billion on day one, loaning to the metadata center in Louisiana.

So they price $25 billion of that debt at 220 over treasuries.

And it immediately started trading at 140 and handed Pimco 2 billion.

Great for Pimco, but then everyone else nice to be Pimco.

Isn't that nice to be Pimco, especially the weather in Newport Beach,

but everyone else in private credit is like, oh, these guys just make $2 billion.

We need to start lending to data centers.

And we all know how this ends.

Covenants start falling, rates start falling.

And again, if you're big tech, who cares if you overspend like you think AI's

the be all end all.

You're going to overspend when you get down to the second tier.

The key is the vantages of the world.

And then you get down to sort of the ones below that and you get like,

you know, the core weaves and the biases of the world.

And, you know, there's a lot of shorts going out on Equinox.

And obviously you're getting Jim Chanos and it's all about the chips.

I'm not going to get into the chip debate, but it's interesting.

You look at a core.

We've and they got a $50 billion market cap.

That's a real company.

You're going to be around for a long time.

But the bond market saying we want a 10% yield to lend you

2030 paper, you might not be a real company.

And if you look at our supply demand outlooks, we're kind of

in the camp of the bond market.

But timing, which you mentioned earlier, Joe, is so key because this data centers,

you're

going to ramp for a couple of years, and the oversupply is really a 2030 event.

So good luck timing that one.

You said something you talked about

that Pimco met a deal and this question has come up.

And I still don't think it's got a totally satisfactory answer to it.

Matt, is a,

you know, very highly

rated company from here, as you see it, as a credit analyst.

What is it about the private credit?

You know, they'll talk about, oh, it's flexible, etc.,

but you 220 spread over treasuries is not nothing at all.

And is that is their 220 spread really like worth it

for like a little bit more flexibility etc..

Like what are they paying for exactly

where in the private credit market that they couldn't get cheaper?

I would think in the public bond market, I don't know, but I could speculate.

There's a couple.

If the question is why did you put this off balance sheet?

Yeah. All right.

So you've got the state

of the art data center with the best Nvidia chips out there.

And you're a tech company and AI is the be all end all for everything.

Did you kick it off your balance sheet because you didn't want to damage

your balance sheet. But the agencies are imputing it.

But maybe quant funds running their screens, they don't impute that.

So maybe that helps.

Or maybe you didn't want the depreciation running through your income statement.

Maybe that helps.

Or maybe you want to walk from this thing in five years.

I don't know, but one of those is definitely the reasons.

Because why else would you pay

that much bigger spread 150 bips over their borrowing costs.

But so the key thing is here, when you talk about that Pimco,

a deal technically this is not meta debt.

It is not.

It's okay.

This is not right. Okay.

So they create a vehicle.

They're not going to okay.

That's a

I think that's an important element that they're not just arbitrarily paying

a lot more for like a sort of though, that they're off balance.

And if you read the credit docs, they've guaranteed this debt.

Yeah.

Even if the data center shuts down.

But our understanding of the docs is if they sell it,

then the guarantee goes away.

And so that would create a little risk.

But back to my utility roots please.

What happens if data center shuts down for ratepayers.

And they actually have an explicit guarantee from meta to protect ratepayers.

So they have that a lot of other utilities don't.

So a lot of states Louisiana, Mississippi, Tennessee, Texas,

they need to do a better job protecting the ratepayers.

And by the way, that's just one line in the doc

that could fall apart way and other new data centers.

And that's what we spend our time looking at.

You mentioned the credit ratings just then.

So the rating agencies, they they look at the off balance sheet

vehicles, even though it's not officially part of the companies,

they impute the lease payments.

Okay. And include that as debt.

I see for meta specifically.

They won't do that until the lease starts when it comes online.

But everyone's doing it.

And then I was just thinking, I don't mean to labor this analogy too

much, but, you know, you started out by talking about all the exciting moments

in the history of being a utilities analyst, and one of those was Enron,

which I assume means, you know, you have some experience with circular deals.

But what do you think about all the sort of

incestuous financing deals that seem to be happening

between all the various players in the data center, industry?

You mean we'll buy your equity so you can buy our chips?

Yeah, yeah.

Again, I'm on the side of bondholders in that one.

Just look at the market caps, look at the bond yields and the,

I explain what you mean by that for so like, for people who don't even know

Bloomberg Core, we've got people like me who have a Bloomberg but are too lazy.

So these names are going out and.

Yeah.

And either OpenAI or Nvidia is going out and buying equity

in these neo cloud companies.

So then they can go out and either supply the compute to open AI and buy the chips

from Nvidia. So it's all very circular.

And I think the example people used 20 years ago was Nortel was doing this.

All the vendor financing.

So there's a little lot of skepticism on that okay.

So we can't do a utilities episode.

I know we've been focused on data centers,

but we can't do a utilities episode without mentioning nuclear power.

What's it going to take to actually

get, you know, some capacity from nuclear?

Sure.

So obviously the Vogel plant was the last big nuclear plant

in the line of supposed to cost 14 billion and ended up costing 32 billion.

It came on line ten years late.

And no utility wants to take that risk.

Now everyone's talking about these small modular reactors.

And I think that's what you're going to start seeing is more talk of these.

The only way we think of small modular reactors goes final investment decision

Fiddy is if Big Tech agrees to do two things.

They agree to buy some smashers and they invest equity

in those smaller manufacturers to give them the CapEx to build,

which sounds like something they would do, to be honest.

For sure.

And I think that's the only way you get one of these off the ground.

And I think if those stocks rally on that deal, they're all shorts

because they're already reflecting several of those deals happening.

So the big ones are our Nuscale and Oklo.

And Sam Altman of OpenAI, I used to be the chairman of Oklo.

And then he stepped down so they could do a deal.

So something along those lines would happen.

That being said, Donald Trump has talked about doing work

with Westinghouse and taking equity ownership to build another Ap1000.

And obviously President Trump is all about taking equity.

But none of the utilities in my coverage are going to build something

without some sort of backstop.

We we did an episode recently with an infrastructure investor and I

you know, I'm a journalist.

I look at the past, I don't talk about the future.

But I was put on the spot and I said, I think in the next 20 years,

gun to my head, we will never have another Vogel

or we're not going to have another project like that in America.

And it sounds like you agree, I agree.

I do think you see some smears.

Okay.

I mean, frankly, our country's been making nuclear submarines for 67 years.

That's an SMR right there.

So I think that's the way it happens is big tech goes in and does that for sure.

In 20 years, we'll have you back on to see whether or not both of you

this is my only right.

I don't know nothing about the future.

This is my only one call is I just don't think we're going to ever get that right.

That's we're not going to get a bunch of those.

That's why I'm with you on that.

And in 20 years, hopefully, I can dial in from the beach.

All right.

See you in 20 years.

That know probably before because this was a fantastic this is great conversation.

Thank you so much for coming on our thoughts.

Thanks for having me Joe. That was a really fun conversation.

That's super fun.

I love that my the opinion reframing that I'm sort of coalescing around

is that I can be simultaneously under hyped and overvalued, right?

And actually throughout history, that's kind of what we've seen

with transformative technology, right?

Like think about the internet bubble.

The internet changed the world, but it was a bubble.

Think about railroads.

Railroads in the 1800s changed the world, but also a bubble.

So I think that's kind of it's kind of what I think the key issue,

which Andy and you both touched on is the timing, right?

The timing.

And yeah, I mean, I think it's a it's very interesting

because of course, his argument doesn't even,

you know, doesn't even rest on any valuations right now.

It's like there is all of this expectation for build out there.

Is it.

You know, as he put it,

there is a number for the amount of, the volume of data center demand.

There is an amount that's being built up and it's like the second number

looks bigger, and that's going to be a that's going to be a problem.

And the time to your point, like I thought, you know, really interesting

observation you had is a little bit not tangential to his core idea,

but this idea that some of our energy policies are encouraging

a lot of production right now, particularly the expiring solar credits.

Yeah.

At the same time,

a lot of this demand is going to come online in the back end, etc..

I do think that,

you know, it seems like a really it definitely seems like a fun space.

It's very far from

when we were just talking about, like, utilities as, as rate proxy.

Right. Something for old people to get, income.

Well, the other thing I was thinking about on the demand side is

I think there's a tendency among AI bulls via coders such as yourself.

That's right.

To think that demand is just going to go one way.

Right?

So there's going to be more demand for AI because I don't know,

every piece of software is going to be replicated through cloud code or whatever.

And so power demand is going to go up as well.

But what we've seen so far is that these things are getting more

and more efficient.

They're definitely getting more

and more efficient and like faster than anyone expected.

Yeah.

You know, this is a little bit, tangential to the point, but I do think

like one of the recurring phenomena is that we're seeing across this,

industry is that every I mean, and this is,

I guess it's a bull case, which is that, you know,

even the optimists keep getting, turned out to be too pessimistic.

The pace of, say, like, efficiency gains for the cost of processing

a token dropping faster than people expected this morning.

Recording to this January 28th ASML, the big chip,

equipment company way better than expected.

The evals, the benchmarks for the models where it's like

the optimists say like maybe it could code at this level by 2027.

Turns out it hits there by like, you know, early 2026, etc..

So like if you want to just make I'm not making any case here,

but if you just want to like make a bull case,

it's like even the optimists, keep getting surprised to the upside.

On the other hand, it's fascinating

to hear him say look at what the markets are saying.

They're not pricing in any of these expectations.

And I was particularly surprised because I didn't realize this,

that even like, you know, for all of the talk of LNG export

terminals, etc., that gas is expected to be cheaper

a few years, you know, than it is right now.

Very interesting dissonance between that and the popular narrative.

Maybe, gas traders just aren't vibe coders yet.

That's when they would understand exactly how much more of this.

But we're going to just from an energy perspective, though,

there is a push and pull factor here. Right?

So on the one hand everyone could use AI and demand goes up, but on the other hand,

maybe it gets super, super efficient and then demand goes down.

I think that's that's the difficulty or it's just

there is a number that's out there with like sort of like

some reasonable inferences about where it's going to go.

And it's very high.

And it was actually very striking listening to him talk about some of those

super, the Hyperscaler numbers,

because it's like, where does it end up?

Right?

Like as he pointed out, okay, you like, came out two gigawatts, etc.

like a ton of GPT is out there.

Right.

And that's one of the most computationally intensive things.

Like maybe there are reasons to think this is all going to go great.

There's going to be a ton of money made in AI, but you can't really just like

get to the number.

I don't know, I think he yeah, it was a this was a very useful

perspective, just sort of on some of the simple math.

And the math sounds like it's subtraction. Like this sounds like.

Right. Son is learning.

Well, the other thing I thought was

really interesting was the response to your question about

why would you finance these things off balance sheet if you're, you know,

this massive cash rich technology giant?

And the suggestion there was, well, maybe at some point

in the future, like five years down the line,

you need to get rid of this liability or you don't want to deal with it.

This is why we did that episode with the guy

who has, you know, the company doing the legal docs, right? Etc.

this is why, it's pretty crucial to understand some of these things,

because some of the questions sound like the,

Facebook's or Meadow's option to walk away.

Right?

There's some call option implicitly to walk away, etc..

And they, they how they, what they could

what scenarios and what they would allow it to be do is obviously going

to be pretty crucial for any investors in this off balance sheet paper.

I did not know until you asked this whole idea

that, the ratings agency is, well, they don't look at it as debt.

They do back out a lease cost and therefore

it can inform their overall, credit sustainability.

Well, the other thing, you know, we touched on this,

but there's more and more demand from investors for data center debt.

Right. Like the space is getting more for some reason.

The space is getting more competitive.

And so naturally, what you see in any other credit cycle throughout

history is as demand grows and people are competing

for deals, the documentation and the protections tend to different.

Weird, you know, I find the existence of hype cycles

for debt to be a little bit weird because I get like,

oh, I really want to get into AI equity, right?

Because that could 100 x next year, right?

And it's like, oh, I'm really excited about getting into data center debt

because it might pay me 50 bips more I find to be very strange or 100 bips

more.

It's like if I have a fixed look, I'm a simple, simple guy,

but if I have a fixed income allocation, all I care about is minimizing downside.

And I don't really care like what sector it is.

I'm not participating in the upside. You're not going to get greedy.

You're not going to get rich.

You're going to get super rich on like, I just don't lose my like, for

fixed income. I just don't lose my money.

Fair enough.

Shall we leave it there? Let's leave it there.

This has been another episode of the Odd Lots podcast.

I'm Tracy Alloway. You can follow me @tracyalloway

And I’m Joe Weisenthal You can follow me @thestalwart

Follow our producers Carmen Rodriguez @carmenarmen,

Dashiel Bennett @dashbot and Cale Brooks @calebrooks

And if you want more Odd Lots content, you should definitely check out

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