Name: Regaining Control of Enterprise Energy Budgets
Uploaded: 2026-10-01T19:30:06.990Z
Duration: 1 h 30 min
Description: Regaining Control of Enterprise Energy Budgets

Transcript for "Regaining Control of Enterprise Energy Budgets": Hello, everybody. Thank you so much for tuning in. We're just gonna give everybody thirty seconds or so just to trickle into our virtual session here before we get started. And while we're waiting for our team or everyone to, hop in, feel free to drop in chat on the top right hand side where you're tuning in from. It's always nice to hear all the different geographies of where everyone is, coming in to attend. I'll go first. I'm tuning in from Hoboken, New Jersey. Shout out if anyone is, local. Incredible. Already a few responses, and we're pretty we're pretty all over the country. Love to see it. Well, thank you so much for, tuning in, everybody. Let's just, quickly get started. I just wanna do a quick introduction to our session. My name is, Tommy David. I'm a demand generation manager here at Arcadia. Really quickly, to understand why we're bringing you all here today. We all understand that rate volatility and grid constraints are making energy budgets much harder to defend. And simply adding a flat percentage to last year's number is no longer an effective way to forecast your next year's spend. So today, we'll take a look at what's driving the market, why the same environment produces very different bills and costs, site to site, and how finance and energy teams, can separate what's predictable from what's truly variable. This session is actually building upon Arcadia's latest commercial electricity rate report. It offers a deeper look at the data, so we encourage you all to, download the report, which is accessible if you get the documents tab on the top right. And, hopefully, you, you gain a lot of value from those insights. Let's jump into a few quick housekeeping notes, before we get started with our main agenda. So welcome, to our webinar platform here. Our session is being recorded and, we will make the recording visible and available to all attendees and registrants within twenty four hours. We'll also make sure that the slide deck that we'll be presenting here today is also available, so you can feel free to review that on your own time. Additionally, we welcome all questions and, feedback and commentary throughout the session via the chat and the Q and A functions on the top right. So feel free to navigate through the different, icons here. You have chat, so feel free to send messages, polls, documents. We have the rate report available as well as some resources, but also we will have a dedicated q and a section at the end. So feel free to track your questions and so we can address them. I'd love to quickly, introduce our, presenting team here. We are joined by Jamie Dolman, our business solutions director at Arcadia. She has been at the company for over nineteen years, so bringing a breadth of expertise. Troy Vincent, our principal energy markets advisor, who actually joined Arcadia just a few months back, and Zach Einters, our director of product marketing, who has been at Arcadia for two and a half years. Without further ado, I'd love to get us kicked off with our first session, passing things off to Troy for our wholesale market recap. Thanks so much, Tommy. Hopefully, you guys can hear me. So first, I'm just gonna go ahead and kinda hop right into it because, what I wanna do on this first slide is just start by taking a high level look at really what's been driving electricity prices higher. You know, over the past year, we have experienced electricity prices rising well in excess of the rate of inflation in the vast majority of US states. And, you know, while the causes are clearly broken down here into their subcomponents on the right hand side, You know, for the sake of today's discussion, I've really kinda put these into four primary buckets that I'm, going to address. You know, first being natural gas price volatility, or we'll just call it fuel price volatility. Second being rising transmission and distribution costs. Third being surging capital expenditures for new generation, and kind of going hand in hand with that is the surging capacity market prices that we're currently experiencing. Alright. So now let's go ahead and just, kinda dig into each one starting with higher fuel prices and fuel price volatility. So on this slide, I really just kinda simply wanna highlight how natural gas prices were in a very long term downtrend, and volatility was, significantly suppressed through the past decade of the twenty teens. And that was amid the shell fracking and kind of horizontal drilling revolution. But as you can see, right, that has certainly changed since the rise of both the LNG export market and particularly, following the Russian invasion of Ukraine that has really spurred on international demand for our gas. Now during the past decade, this kind of steadily declining price of natural gas led to go, coal fired electricity generation being increasingly priced out of the market. And this combination of more efficient thermal generation by way of gas and rising renewable generation was both a major win for ratepayers and the environment through this period. But, you know, that was really only largely possible because even as our population grew rapidly, our electricity demand held essentially flat for the kind of fifteen year period from 2005 to 2020 due to primarily significant improvements in energy efficiency and less energy intense economic activity. But, you know, as you can see on the right hand side of that chart, right, that is no longer the case, and demand has already surged the past few years and shows no signs of slowing down anytime soon. On that note, so US electricity demand has been making new record highs consecutively since 2022. And this, you know, trend is is continuing through this year and will through the next and more or less in... For the foreseeable future. We're, you know, we're expected to see demand growth exceed what we've seen in 2026 and 2027. And if you look at that, the top right hand chart, you know, really two things should stand out to you. You have the commercial boom really reflecting the AI data center build out that I'm gonna focus in on, much of our discussion today. But then you also have the industrial component, which is also rising, steadily over the past few years. And that is largely a reflection of what was the largest build out of industrial capacity in The US, since going back to the industrial revolution during that twenty twenty two through twenty twenty five period that was inspired by the inflation reduction act, subsidies. But, wanna leave this this slide in particular in your mind because we are going to revisit this, at the end of of my discussion here. Alright. So when we think about gas demand, the two largest sources of demand growth for natural gas are first and foremost, LNG exports. That's been the case for the past few years and it will continue to be the case for the next few. LNG exports are quickly approaching a fifth or 20 of our total production. And only second to that, you know, boom from the export market is the AI inspired data center boom, which is set to single handedly add around 14 BCF per day of additional demand over the coming decade. Now this surge in demand, for gas, of course, must also be accompanied by surge in supply, but the reality is is that the natural gas market is a market that is balanced by storage. And storage capacity simply is not growing, you know, at a commensurate rate or to keep up with the pace of supply demand growth. And as such, even what would be kind of considered historically full inventory levels of, say, 3.9 TCF moving into winter, that simply cannot guarantee that you make it through winter without rapidly depleting inventories because, you know, the same moments that lead to the largest spikes in winter demand are often coinciding with temperatures that cause production to plummet amid what are called freeze off events. And, you know, this is exactly what we experienced with winter storm firn earlier this year that caused NYMEX gas prices to jump to over $7 an MMBtu. And, you know, speaking of that spike and really thinking back since 2022, you know, if if you think that the kind of post Russian invasion of Ukraine volatility in NYMEX gas... Natural gas futures, you know, has been bad. You know, just wait till you really take a look at this chart and consider kind of the regional markets for physically delivered natural gas. Ultimately, these markets are are priced to reflect the physical constraints to deliver gas when it's most needed in these specific localities. And as you can see, right, volatility has grown consistently year in and year out in recent years. And you can also start to see that this is bleeding over into summer. It's no longer just kind of a winter risk, but this is also becoming a kind of peak summer risk as well. Likewise, you know, when viewing real time electricity price volatility, as you see here, looking back over the past decade, it... It's very clear that we are living in a new market post 2022, and the problem is really only getting worse in recent years. And it's it's not only gas pipeline constraints that I just showed and discussed leading to price spikes for... In a... You know, in electricity markets, but it is electricity transmission and congestion itself, leading to these types of price spikes. Now on this chart, you see, electricity forwards or kind of the the the futures market, if you will, for electricity pricing. And simply put, living through these kind of winter events like winter storm fern, that cause extreme scarcity and prices to rise 20 or 30 fold in the real time market has ultimately left a lasting impact on the electricity forwards, which must always kinda be working to price in, these sorts of risks, you know, these acute shortage risks, if you will. And that has been extremely impactful on pricing, in the Northeast US in particular in the wake of, the recent winter storms. Also important to point out, increasingly across the, you know, Northeastern US, they're also having to pay a premium given that these markets are uniquely exposed to oil and imported LNG to meet peak electricity and heating demand, both in the middle of summer and in particular in the middle of winter. And so this is keeping a premium in those markets in particular, you know, in the wake of the war in Iran. Conversely, looking kind of at the bottom of the chart here, markets like California and Texas or ERCOT have seen prices fall steadily over the past kind of year and a half or couple years as they've incentivized large renewable build outs, particularly solar and battery storage ahead of other I c... ISOs or RTOs like PJM and MISO in particular. Alright. So now let's go ahead and hop into a discussion about transmission and distribution. Here you can kinda see the subcomponent component breakdown for what's been driving distribution and transmission costs higher with transmission investment really increasingly reflecting the need for expansion amid that large load growth coming from the AI data centers while also continuing to invest in all of the things that, you know, historically, we would normally have to do, like upgrading or replacing outdated technology, and, of course, also hardening it from weather and environmental risks. Speaking of environmental risk, you know, extreme storms are on the rise amid climate change, and so are wildfires, leading to extremely significant investments in processes like clearing tree lines or burying power lines instead of keeping them exposed, you know, above head where they could potentially cause a wildfire. And this is a a massive, inflationary force to pricing, particularly in certain regions as I'll address here. So, you know, this kind of rush to build out all this new capacity and harden or update the old has certainly caused all the input prices in the sector to surge far above the average rate of inflation. You know, as you can see here, things like wire, transformers, switch gears. And, you know, while far higher prices for all of these inputs certainly, you know, are are widespread to to do... When, you know, doing the upgrades and expansions, that's a common theme across the country. But, also, what you can see here is that, you know, the relative size and scale of this impact varies drastically depending on the geography or what ISO or RTO you're in. Importantly, you know, these risks are, not shared evenly across the country, in particular in California, as you can see here being the standout, as the majority of their delivered cost rise in recent years has actually been a reflection of wildfire damages and mitigation efforts. Alright. And now I wanna hop into discussing, the surge in capacity market prices and generation expenditures. So on the right hand side here, you can see what is aggregate capital expenditures for data centers in The US compared to other historically significant infrastructure projects. And, with this chart, I'm I'm just simply trying to emphasize the relative scale and speed of the development of this new large load growth that we're staring down. So, you know, kind of looking at this reality in the face, you know, it's it's in markets that have capacity pricing, those prices have increased by multiples. Surging capacity market prices and generation expenditures should or are intended to go hand in hand. High capacity prices are intended to incentivize more generation, right, to come online, to come to market. But the deal is is that there is, of course, a significant lag time between incentivizing that new generation and actually seeing, you know, still be put in the ground and the the the full investment cycle to play out, and it's actually be able to be brought to market and be producing energy and be tied into the grid. That's a very significant lag time there. You know, particularly when the demand growth, you know, surprises in terms of both the speed and scale like we're currently experiencing. Now here you can see how this is impacting pricing in both PJM and MISO. You know, as I showed a moment ago, when you think about the inputs like transformers, gas turbines, many of the other crucial components are simply either sold out or, broadly in scarcity for the foreseeable future, And that's pushing all those prices far higher when we think about the the, you know, the inputs for new generation. And even with the new PJM clearing price jumping, you know, from $28 to this eye watering $333, this still has not been high enough ultimately to entice the the, you know, the, amount of generation growth that is ultimately needed, which is why PJM is... Has now recently been scrambling again to create an additional, layer of incentives with, their recently announced one time backstop capacity option. Now on this side, you can see the sort of hockey stick growth, this... You might call it in the PJM load forecast. You know, the the grid operator there is now forecasting a near 40% increase in load over the coming decade. But, you know, as a result of this both being an election year and the scale of the growing public backlash against data center growth amid these surging energy prices and the other concerns, we have certainly seen governors around the nation and importantly, and I think most importantly, in key energy producing states like Pennsylvania begin to tap the brakes on AI data center development or, at the very least, attempt to make the process more stringent. And, you know, this slide is is really to emphasize two things. Right? The the political party or persuasion does not matter in this regard. Governors in New York and Pennsylvania have taken action, but perhaps, I think most importantly, it's also happening in Texas where load growth could be... Very easily be double or triple what was expected prior to the AI data center boom really taking off, as Texas is expected to be leading the kind of national race in load growth and, data center capacity higher. So, you know, I think, sure, on the one hand, this pause and review process can rightly be seen as a largely kind of political move ahead of election season, but it is certainly worth noting because it shows that representatives are increasingly feeling this pressure, kind of building from the backlash even in markets that are typically the most kinda hands off, free market, growth oriented, you know, however you'd like to describe it. And, you know, this this takes us back to that slide that I told everyone to kind of, keep in mind at the top of the deck. This kind of political feedback loop that I was just describing is already showing up in very material ways, As a result of the greater scrutiny on data center growth, the Department of Energy, for example, just slashed their 2027 demand growth forecast by 44,000,000,000 kilowatt hours moving into September compared to their August forecast. So, you know, the top image or chart here being what they issued just, you know, little over 30 days ago, and that is showing, you know, this this sort of significant impact of this of this kind of public feedback. So I think this sort of volatility and the demand growth outlook, it's very important for people to keep in mind that this is only making it harder to plan and to develop, you know, all of the things that I was just discussing, transmission, and generation, I think most importantly. Right? When you think about laying out that much capital, you know, there is significant risk of both of... Over and underinvesting, based on this, you know, kind of feedback mechanism. And and this is why, ultimately, right, we monitor all these developments so closely and at the end of the day, why performing strategic procurement and hedging is is so important. And with that, I wanna kinda open the floor to a quick poll to get your guys' feedback. So if you would, please let us know. What is the the primary challenge that your organization has been facing when it comes to budgeting for energy costs? And with that, I'm gonna go ahead and hand it over to Zach who's gonna focus on regional tariff dynamics and the energy budget forecasting considerations. Great. Thanks a lot, Troy. Before we do that, I think we have some results of this poll on the next slide perhaps. Not seen it yet. Maybe we'll come back to that. Or, actually, you know what? I I can see in the... On the backstage. Okay. So it looks like the winner, is wholesale energy price volatility. That's not a surprise. You know, between wholesale energy prices, price in transmission, capacity charges, probably that that energy price volatility is the most, most variable and the hardest one to plan for. So, that, that makes sense that that would be sort of the primary challenge that, that a lot of enterprises are dealing with. Okay. So I am gonna talk through, you know, a lot of what Troy talked about was the wholesale market dynamics, some of the macroeconomic factors that are at play. But none of that shows up on your bill directly. Right? So what I'm gonna do is gonna talk through how do we take all that information that Troy shared and translate it into what individual buildings actually pay for their electricity costs. And, you know, the way it works is there's no single factor that sets your electricity rate. There's a number of things that combine, and I'm gonna focus on four of the big ones right here. The first is the wholesale price movements and and wholesale markets, and this is everything that, Troy covered. Right? Things like commodity pricing, capacity markets, ancillary markets, etcetera. This is a big driver of the rate, but it's not everything. Second, you have regulated rates. So these are the part of your utility bill that are set by the state public utilities commissions, and they reflect what it costs the utility to serve you and the return on equity that the utility is allowed to earn, as well as it also reflects different state policies. So things like, you know, does the state have a renewable portfolio standard or aggressive energy efficiency programs or low income programs, things like that. So in states that have retail choice, these regulated rates are primarily, isolated to the distribution portion of your bill, whereas in nonretail choice states, you know, almost all components are regulated to some extent, and so it has a a bigger impact on on your, your total bill. Third, we have the structure of the tariff itself. So this is where the wholesale prices and the regulation gets translated into the actual charges. So how much of your bill is fixed versus volumetric as an example? How much is demand charges versus energy charges? And so you could have two sites served by the same utility, subject to the same wholesale market, same regulatory dynamics. But if they're on different tariffs, then that ultimately changes what they pay for electricity and how much risk they carry. And then finally, we have the facility's usage patterns. So your load profile. How much energy do you use? How peaky is your load? How steady is your usage? You can have buildings that are on the same tariff, maybe even use the same overall amount of energy. But if the pattern of their energy usage is different, then their, you know, all in rate, their average rate is gonna be different. So you put all of this together, and what you get is electricity rates that end up being very unique for every single building. And since the rate is site specific, then the way you budget and plan for it needs to be site specific as well. So one of the ways that we've accounted for all the different factors that go into a commercial electricity rate is that we've modeled energy costs directly. And we did this in, most recently in our q three twenty twenty six, electricity rate report, which we just published last month. And what we did is we took 20 different commercial building types. So we looked at everything from a retail store to a restaurant to an office building, you know, many others, and we matched each building to the relevant electricity tariff in 150 of the largest utilities across The US. And then we modeled the cost for each site. And, you know, the result is that we have, you know, precise costs for a representative sample of 6,500 commercial buildings from across The US. And what we found, no surprise to anybody that is... You know, manages a large portfolio, is that there's a massive spread in what commercial facilities pay for electricity. You have rates that run from under 6¢ a kilowatt hour to over 40¢ per kilowatt hour, you know, a seven x difference between sort of the lowest and the highest cost. And a lot of buildings do tend to cluster in the low to mid teens, but there's also a long tail beyond that where sites... You you know, there's a large number of sites that have much, much higher cost than that, higher than than sort of the average. So the takeaway from this is that, you know, if you're responsible for forecasting your energy costs, a portfolio wide average isn't gonna give you a strong basis for budgeting. You really need to look at each site individually and build it up from there. Now the the average rate, which is what we were looking at in the previous slide, that also, you know, can hide some some nuance. Right? It's not just the average rate that varies from site to site, but also the structure of the tariff can vary just as much, meaning how do charges break down into their different components. So for example here, what we're showing is four, buildings that are very similar. So these are all restaurants, full service restaurants, and, they have similar low profile, similar usage patterns, and similar overall costs. Right? Just under $40,000 a year for all four of these facilities, but they're served by different utilities and they're on different tariffs. And so what you see is that the site on the left served by CPS Energy, almost a 100... Or not almost. A 100% of its costs are based off of consumption, so that, you know, volumetric charges. In contrast, the other end of the spectrum, you have the site on the right served by the public service company in New Mexico, and there, about 60% of its costs are based off of demand charges, whereas only 30% or so are based off of consumption charges. So you've got similar buildings, similar overall costs, but the underlying bill is very different. And this matters for a couple of reasons. The first is that this changes how you think about forecasting and and budgeting for these sites because the the consumption charges are gonna respond to different market dynamics and move at a different rate than demand charges and fixed charges. So you can't forecast all of them the same way or use a single escalator across all of these different charge components. The second thing is that, you know, beyond budget forecasting, the structure of the bill informs your cost management strategy. So the restaurant that has a 100% consumption costs would benefit from reducing their consumption with energy efficiency or maybe some supply side measures to get a lower overall rate. Whereas the restaurant that has a much higher share of their cost based off of demand charges would benefit from different strategies such as, managing their peaks, load shifting, potentially installing storage. Now the tariff structure does more than just set the mix of charges within a given facility. It also determines how volatile a site's costs are. And so I'm gonna walk through a couple of examples here starting with, you know, an extreme weather event, which is a winter storm fern, which Troy mentioned as well in his, in his, section of the presentation. So this storm blew a hole in a lot of budgets in, the early part of this year, but how it impacted a given a given facility depended a lot on the tariff that each site was on. So here, we're looking at the exact same building, and we've modeled it on two different tariffs. So both of these, buildings are served by PECO, which is the, utility in Philadelphia, and they have the exact same usage, but the difference is the rate structure. And the light blue bars are the hourly pricing tariff, which passes that wholesale energy price and that wholesale energy volatility more directly through to the customer. And so you can see due to this storm in January and February, the, overall utility bills came in roughly two to two and a half times what they were the other months. In contrast, the darker blue bars are on the standard general tariff, and so this is a more regulated rate. It's less exposed to the market. And so although the cost for this under this tariff are higher in January and February, it's not nearly as extreme, and the the increase is spread out more evenly over all of these months. And so what this is showing is that, you know, when wholesale prices are calm, an hourly price and tariff may come out cheaper, but when they spike, it can be a lot more expensive. And so not to say that one tariff is better than the other. The right choice depends on your risk tolerance. Right? How much budget swing can you absorb absorb, in exchange for, you know, more or less exposure to the wholesale rate? But the point is that understanding your tariff and the components of it and how you're exposed to the wholesale markets is gonna have a big impact on being able to manage your your monthly budget, given, given some of these, these dynamics. Another example I wanted to show of how the tariff structure determines the volatility of your your monthly cost has nothing to do with any event driven cost, but this is all about the inherent seasonality that a lot of tariffs are built on. So utilities tend to design their rates to match their own cost profile, meaning, you know, a lot of them see higher demand and, therefore, higher costs in the summer, and so they shift a lot of their costs, to those summer months. And in this example, we've got a small commercial facility that we modeled in, Ameren, Illinois territory. And for the first few months of the year, their costs move about 10%. This is sort of expected due primarily to energy usage change, relatively normal and within a small band. But then June arrives, and they see this massive 80% increase just in one month. And although their usage rose a little bit, the vast majority of what's driving that cost increase is the underlying rate, and that's due to the utility moving to its summer rate schedule as well as the large increase in the Midwest ISO capacity prices that, that Troy mentioned a little bit earlier. So, you know, if your budget doesn't account for this seasonality, then June may look like a big surprise, and you may be wondering, you know, is there a billing error? Do you have a runaway HVAC system? You know, what's going on here? When in reality, this is entirely expected and can be planned for in advance. Okay. So I've shown how the ultimate rate that a building will pay can vary site by site. It can vary based on the structure of the tariff. It can vary over time and has a fair amount of volatility. So putting all that together, it makes, you know, budgeting seem like a very daunting challenge. Historically, a lot of organizations didn't need to be very sophisticated about it because energy costs were flat, relatively predictable, and so you could get away with a two or 3% escalator across your portfolio. Unfortunately, that's no longer, the case. So what we've seen is that electricity rates are climbing much faster than overall inflation, and this chart is showing how over the past twelve months or the twelve month period from, the first half of twenty twenty five to the first half of twenty twenty six, we saw a median cost increase of 4.6% compared to the general rate of inflation rising at only 3.3%. And that's, you know, that's just in the past year. We also did a similar analysis that we published in January where we looked at a five year trend from 2020 to 2025, and we saw very similar results there where, the average rate of increase was almost 6% per year over that five year period. Now, of course, this median rate of increase hides quite a bit. Right? There are a lot of sites... Or some sites that saw their, their rates actually fall and decrease. There's a lot that cluster around the median, and then there's this long tail where you have some sites that see increases of 20 or, you know, even 30% or more in a single year. So once again, you know, reinforcing the point that we're now in this market where costs are rising, there's volatility, a flat escalator doesn't work anymore, and you really need to be strategic in how you think about budgeting and managing your energy costs. Okay. So the good news, though, behind all this is that electricity costs are mostly predictable. And I know that sounds probably surprising given the last few, several slides that I went through, But if you break a bill down into its components, you can build a framework for identifying what's predictable and what's variable and then budgeting and managing your costs with that in mind. So here's one way to think about it. You have a portion of your bill that's regulated, meaning set... The rates that are set by the Public Utilities Commission. These are publicly published. They are also available in rate case filings before they even take effect. So these are known rates that can be modeled with great precision. The second component of your bill is made up of forward set rates. So these are things that are dictated by, forward markets, futures markets, like capacity auctions or some of the commodities futures markets. And these are often known, you know, a year or more in advance. So this summer, twenty twenty six, there were massive price increases, in capacity, but that was all known a year ahead of time because of auctions that had cleared last year or or, even in years prior. So so these forward set rates can also be built into your forecast with a pretty good amount of, confidence. So then what that leaves you with is your market indexed charges. These are the truly variable parts of your bill, and that could include things like real time pricing tariffs or market index supply rates or fuel adjustment clauses. And so for this portion of the bill, it is harder to predict, and this is where the, sort of a scenario planning exercise belongs, right, where you're modeling a range of outcomes because you can't get quite as precise. But the overall takeaway is that when looked through, through this lens, yes, electricity rates are complicated, but they aren't unpredictable. And so just to ground this in a real bill, here's a facility, served by ComEd in Chicago. And if you break out its components into the... That same framework that we saw in the previous slide, about 40%... Or 46% of its bill is based on regulated charges. Another 12% is forward set, and 4% is taxes, which are also, you know, predictable and known. So that leaves less than 40% of their bill that's, within this market indexed, bucket. Right? And this is a facility that's on an hourly pricing tariff, a structure that's inherently more variable and something you might avoid if you had a lower risk appetite. Yet even so, less than 40% of the bill is truly variable. So you can, predict with a fair amount of confidence the other 60% of the bill and then do scenario planning to manage the the 40% that floats more with the market. So I'll wrap up before I hand it off to Jamie, but, you know, the overall takeaway here is that in a market with rising costs and volatility and complex tariffs, you can still forecast your costs accurately under the right framework, and it starts by retiring the flat escalator. So you can no longer assume that a 3% increase across the portfolio is gonna work. Instead, you need to build your forecast site by site from each facility's unique tariff and load profile. You need to decompose it into the different components so you can explain what moves the budget and why, and that will also help you uncover the most efficient ways to manage, against those costs. And that leads to, you know, the second, side of this slide, which is the value of building a budget forecast this way is that it shows you where to take action. So using that same component level view, if you've got a site where variable costs dominate, you deploy a strategy such as a financial hedge, a fixed price contract, maybe even load flexibility to help manage that. Whereas for sites where demand charges dominate, you'd focus on demand management, load shifting, storage, different strategies like that. Sometimes you can't change the physical side as much, so... But you can change the tariff that you're on. And so that would be another alternative to look at is identifying any lower cost or lower risk options so you can put each facility on its best fit tariff. So with that, I will pass it off. Actually, I think we have one more poll. Is that right, Tommy? Nope. Take that back. Okay. I'll pass it off to Jamie, who's gonna kinda show us how we u... Utilize this framework in working with our customers. Thanks, Zach. Alright. So how can we help? In the financial services realm, we have four different areas that we can help our customers. The first is truly providing that visibility into the spend. So starting with that foundational data, replacing fragmented bills, as you know, they come in all different formats across multiple different vendors and truly just providing one source of truth. So starting there. And then taking that and adding it to all these things that that Troy and Zach just talked about, from the budget forecasting side. And what this means is really having the confidence in this is the amount of money that I need to set aside for my utilities for the remainder of the year. Some of the things that we're gonna incorporate into that would be the historical use trends, from the paid invoices, the seasonality, those different tariff dynamics, forecasted rates. So, again, a lot of the work that, Troy and Zach were just talking about go into truly building out this comprehensive forward looking budget. Supply information, of course, that's critical if you have those different markets that you can shop in, and really just having that deep information for providing the budgets. I'm gonna dive into the budgets a little bit deeper here. So, then also the the monthly accrual. So being able to provide an actual accrual that's ready to book. So starting with the data from that last bill, of course, is bumping that up against your fiscal period and then also adding in other things like weather, or are there additional flags that we need to look for? Some of those could be shoulder months or those supply switches that we put into place. It could also be short or long days to accrue and also removing out one time charges. So thinking about, like, deposits or something like that that could skew your numbers. So kind of compiling all of that to truly produce a monthly accrual that lands within two to 3% of your actuals. And then on that same vein, so the accrual... Or or I'm sorry, the variance. So really wrapping all of that up with a bow to give finance the ability to say, okay. What happened with my numbers? Why did they change? Was it because of rates? Was it because of usage, or was it because of weather? And then also being able to look at each of those different things by period, year to date, or even diving into the individual locations. So diving into the actual budget process, how do we do that? So on our side, again, we're taking those tools that Troy and Zach just talked through. As you can tell, we have the team and the expertise to truly put all of this information into a fully baked budget. As you heard, you know, we found that customers don't really have the tools or the foundational data to be able to do a lot more than say, okay. I'm gonna take last year's information and add a percentage to it. So 30,000,000 last year. I'm gonna add 2% this year. That's just not really getting it done any longer. And so the steps that we take to produce the budget, of course, the first thing is that baseline review. So going through the most recent twelve months worth of historical data, running that against historical data and looking for any sort of anomalies, pulling those out, making sure that we really have the solid baseline to start from. The second step there is the financial analyst. So our team of analysts are gonna go through and review that and add in any sort of additional adjustments that we know need to take place. So things like abnormal weather, one time projects, adding in the rate forecast that we know are coming. Again, taking that information, pulling out the variable portions, the fixed portions that we can, tweak. Procurement contracts, those are critical. So, again, our procurement and our rate team are really working hand in hand with the budget team to make sure that that knowledge is shared. You know, the the great work that that team's doing, providing it to the budget team to make sure that it's applied to the actual final budget. So we have these first two steps that our team does, and then we'll also come to you and say, okay, customer. What else? What else do you have that we need to adjust? Are there CapEx projects that are happening, site expansions, lease closures, operational changes, or anything else that we need to add to make this, make this a, again, fully baked budget. So we're combining all three of these components to make that comprehensive budget. I would say our team is really these energy experts from the financial perspective. And then taking all of that and bundling it together. So the things that, you know, Troy and Zach just talked through incorporating the right processes and capabilities where the finance team and the energy team can work on the same validated foundational data, sorting out the predictable, the variable, and managing each of those the right way. So what does that mean? It means no more reconciling two different versions of the same number. So that's the foundation. And then aligning the outcomes. So this is really what an organization set up for success looks like. So having two teams operating together or maybe more teams, but in parallel where together they're saving money by, you know, again, that that finance side. So looking through the billing errors and the overpayments, having our team bring the expertise to the table where we can manage those anomalies and potentially catch something that you might likely miss on your own. Things like the water leaks or those weather related spikes in usage. And then really providing joint use cases. You know, the finance team has the budget accurate, it's a defendable range instead of a single guest number. And then also with those numbers provided from finance, the energy team can identify opportunities for efficiency or provide electrification, efficiency projects that they can go in and rank those by ROI across the portfolio. So really just leveraging all that data, again, from the finance and the energy team perspective, managing each of their responsibilities the right way. I would say truly the best compliment that we hear from our customers is release. So release that Arcadia can take the heavy lift off of their plate so that you all can stop chasing numbers and really focus on staying on budget. Okay. That's all from me. Tommy, I'm going to pass it back over to you. Fantastic. Thank you so much, Jamie. Thank you to our presenters. Let's jump into some quick Q and A. We have a few questions that were submitted throughout, the presentation today, but I encourage everyone in the audience to submit their questions. If we don't have time to get to them, we'll make sure to follow-up with you to make sure you have... You get the response that you need. So let's kick it off with the first one. I think this one would be best here for you, Troy. Capacity prices have jumped quite sharply. Do you expect them to stay elevated for several years, or is there a point where new generation brings them down? Yeah. I'm I'm afraid so. Elevated for the next several years, I think, should be everyone's base case, expectation at this point. And it really... You're really gonna have to start thinking about, pairing back this large load growth, seeing a significant deceleration in these load... Large load growth, ex... Expectations, and combined with, I think, the interconnection pipeline really starting to finally convert and start to... Starting to clear out a little bit, it's gonna take a combination of those things really for us to to see that capacity pricing come down, and that will take, at the very least, a few more years, certainly. I mean, PJM is, you know, kind of... As I said in my part of the discussion around that, they're they're scrambling, and trying to kind of whip up new policy proposals every few months, but there there simply is not a, you know, a swift, you know, go... You know, kind of magic pill, if you will, from a policy perspective that is going to to fix the the situation in PJM anytime soon in in particular. Fantastic. Thank you for the reply, Troy. And another one for you. What are you watching most closely that could move the electricity demand outlook before your end? So looking at the rest of the year today. Yeah. I think I think if we think about, like, kinda just moving, in and through, like, the rest of the fourth quarter, maybe even just thinking about it from a from a seasonal perspective through, like, the balance of the coming winter, I think the biggest, two things are going to be first and foremost, what happens with these large load growth expectations as I just mentioned a moment ago and discussed throughout my slides. If we actually see governors and and perhaps post, you know, midterms and post, gubernatorial elections, we see a real policy change start happening at the state level. That could certainly pare back those large load growth expectations and then, you know, kind of, I wanna say, bring down capacity pricing, but at least kind of put a lid on it a bit. So I I I think if we think about the balance of this winter, first and foremost, keeping our our eye on what happens with this large load growth development from AI data centers in particular. But second and close in behind that is the El Nino. So we are staring down the, the the the warmest, El Nino season as far as that area of The Pacific ever in history, pushing the new record levels every single kind of week in and week out for months now. So I I suspect that that is gonna have a, you know, it's gonna upend a lot of the trends that we've seen over the past couple of winters. It should weigh on demand quite heavily at the most northern latitudes of the country, and particularly, you know, quite different for the Northeast of of The US and what has been experienced over the past couple of winters. So I think combination of those forces, you know, primarily the bullish influence of the large load growth and then the countervailing kind of bearish influence of the El Nino inspired winner developing. Fantastic. Thank you so much, Troy. We had another question come in. Speaking of... And I believe this would be a good fit for you, Troy, but Zach, feel free to chime in as well if you have anything to add. Speaking of load growth forecast, what about developers shopping in various grids for allocation? Do we risk double counting the forecast for demand that isn't actually there? There there certainly is a a risk of that double counting. And in fact, you know, that's that's kinda part of this additional scrutiny that has been, you know, kind of bubbling up in recent weeks or months, from governors around the the country. Grid operators, governors, kind of everyone in the... In some sort of policy role, that has been filling the heat of this kind of, broad, popular backlash against the sector and against kind of this broadly kind of movement that's happened particularly over the past six months in the industry. It it risks that to some degree, but at this point, everyone is aware of that risk, I guess, is what I should say. And so everyone is accommodating for that in their forecast. Right? You you look at the large load growth, kind of at the most extremes, and most people are pairing those back a bit for what will actually be delivered. You know, again, that is held back just simply by how much steel we can put in the ground, how quickly we can build new generation resources and the like. So, there is a risk of it, but it's... I I I don't think it's massive at this point because everyone's kind of taking that into, you know, in... Into account. Fantastic. Thank you for the insight there, Troy. Zach, I believe this would be a good fit for you. If our sites are on different tariffs and in different regions, where should we start when moving away from a flat percentage escalator? Yeah. That's a great question. So, you know, ideally, you would do it across your portfolio, meaning that, you know, there's there's nowhere in The US that is seeing a flat increase every single year. Right? But if you if you have a large portfolio and you wanted to start with, you know, just a handful of sites, to to understand how how how you would build that up, I would definitely focus on sites that are in the regions with the highest, or the fastest increases in costs. Maybe that that sounds, somewhat self explanatory, but, you look... I would look at PJM as well as the Northeast, so ISO New England. That's where, you know, we've seen really, fast rising costs over the past few years and for different reasons. In PJM, it's a mix of capacity and, transmission rates that are rising, whereas in ISO New England, it's, because of some of the, congestion issues that that Troy talked about on the the gas side. And so it's more of an impact on the the, the energy rates. So kind of doing that breakdown, understanding how your sites are exposed to those different costs, can really uncover a lot and inform how to think about, you know, in these regions with really fast rising costs, what is... What's realistic for, you know, for forecast and budget. The other region I would recommend, is California. It's got the highest highest, rates in The US. And, in that case, it's it's another... It's a different dynamic. It's not driven by wholesale prices as much. It's much more the, distribution... Transmission distribution cost, due to the the wildfire mitigation. So once again, these are sort of, you know, different markets, different dynamics that are driving costs, and you you kinda have to get to the bottom of it to really, understand why and how these costs are moving. Fantastic. Thank you, so much, Zach. And then I think this would also be a good fit for you. You mentioned, towards the end of your presentation, that you should be... That, forecast should be site site specific. This person manages a portfolio of hundreds of sites. How can they efficiently analyze each site? Yeah. Great question. You know, a lot of what we talked about, does require, you know, looking at each site individually and doing a, you know, kind of sophisticated breakdown of, the different components of your bill. And that can seem overwhelming. The good news is that this is, you know, this is where Arcadia can support. We've got a team of experts that does this for hundreds, thousands, actually, of sites already. And we also have technology tools that are are helping us do this. So, Arcadia for a long time has had a tool, product called Signal, which is our utility tariff database and calculator, and that allows us to run these analyses at scale. So, you know, thousands... Tens of thousands of sites at a time, where you can, get very granular in understanding what the different cost drivers are. So that's... Yeah. Back back to you, Simon. Fantastic. Thank you so much, Zach. We might have time to address one more question. Again, feel free to submit your questions. And if we run out of time shortly, we will make sure to get a response to you. Jamie, once a budget profile is in place, how often is it updated? What triggers a revision if markets or rates, shift midyear? And, Troy, feel free to offer a response or Zach as well if you have anything else to add. Yeah. Of course. So, honestly, we could go in and do a reforecast at any point. From our side, we'll suggest that if there are things that, like, the procurement team picks up, a large procurement change that happens, or even on your side, if there is a big organizational shift and you would need to go in and update those numbers, we we do those reforecasts all the time. I would say too we have, some customers that ask to do that every quarter, even if there's not that big change change, but just so that they can have updated numbers, to go for the remainder of the year. Lovely. Well, with that, I believe we only have about a minute and change left, so this might be a great place to wrap. We... Feel free, to exit the session, but as you leave, we do have one more poll that that is currently available. This, poll, we are very interested in what additional topics you'd be open to learning more about as we continue to develop additional webinars in the future. So we very much appreciate your feedback. Thank you so much, for joining our session today. We hope we found... Yep. You found it valuable. And feel free to check out our commercial electricity rate report that is available in the documents tab. It offers a ton of incredible insights and data that really inspired a lot of the content that you saw today. So with all that being said, have a great rest of your day. Thank you, everybody.