Thank you everyone. Good afternoon. Great to see you all here again. Hope everybody got some lunch and is enjoying the conference. I'm so happy to be up here again talking about grids and the power sector and getting more electrons available for data centers and factories and air conditioners and everything else that we need in the future, with two gentlemen who we were just talking backstage about utilities being friends, not enemies. They're not competitors, but actually kind of partners in a national infrastructure network that's very much interconnected and they need to work very closely together. Pedro, maybe just to start with you. I think you've made an argument for a long time that electrification in general is as much an energy security imperative, not just something related to climate or anything like that. What are you taking away from the crisis in Iran about the imperative for electrification? What kind of effect do you see this having as a tailwind for the power sector going forward?
Thanks DM. Thanks for having us here. You're already reading about the impact it might have on how people are viewing electric cars, electric transportation as an example. And so the reality is that as the grid evolves, as the energy sector continues to transform itself, it's a transformation that will make us more resilient. We do see in the state of California, world's fifth largest economy, it does continue to be focused on achieving net zero by 2045. We see electrification and the use of that clean electricity, with clean electricity being the prime tool to get there. But what's interesting about that is that it also has a long-term affordability advantage because from a physics perspective, that electric engine in your car is using a lot less energy to move a mile than the gasoline engine in your prior car. And so we see that our average customer will have a 40% reduction in real terms in their total energy bill, electric plus gas plus gasoline as we get out to 2045. Our average customer today is spending 7% of household income on that total energy bill. We think that becomes 3%. But that said, it's therefore very important that we as electric power companies think ahead to how we make the system more and more resilient even as we see more impacts from extreme weather. Because if our customers are going to be dedicating more of their lives, powering more of their lives with electricity, we need to make sure that we're making that electricity more resilient as the world evolves.
And you've definitely been at the forefront of that dealing with wildfires and we can jump back to that a little bit later. And I want to ask Bob to kind of expand on this price issue because I think to Pedro's point there's a sort of deflationary advantage in electrification, but in the nearer term as you look at the, we've been focused in this conference a lot on inflation related to oil and natural gas prices. How does the crisis ripple through your business in terms of higher supply chain costs? Do you see some demand destruction? What do you kind of expect or how is this going to translate to higher electricity prices in the near term for people? What are you kind of looking at as the effects from that?
Yeah, just tacking on to what Pedro said, resiliency is probably a word that's been one of the highest. If you did a word cloud in the decade of the 2020s, you'd see resilience is really high on it. And this conflict in Iran is heightening that as well. You see people thinking about energy security, you see people thinking about agricultural security globally, and you think that there's a price and a benefit to being more resilient. And we're seeing that play out in the United States as well. We start from a position as a sector of being a very affordable product, high reliability, high affordability, driving towards high sustainability. As we see the conflict through Iran happen, natural gas prices in the United States are actually relatively muted relative to what's happened globally because of the conflict on Iran. We're much more linked on an oil basis than we are on a natural gas basis. So from a power sector perspective, the direct impact of a conflict in Iran is going to be relatively limited in the United States. Certainly in the short term, we are watching very much the global macro and the national macro impacts of higher input costs, oil, agriculture, ultimately trickling through the price of goods sold, whether it's heavy equipment that we need to build out the grid and new power plants heading into the future and powering this wave of AI data centers. And obviously with any macroeconomic and national economic challenges that affects how our businesses perform and how our customers feel about affordability, how they feel about utilization of our products. So, we're hyperfocused on price and affordability. I think we've done a great job as an industry managing it through an inflationary and supply chain time. And I think that as we add more load to the US grid, you're going to see affordability actually be beneficial, not the other way around. Because more units of good produced through the same fixed infrastructure, the grid, means a lower price for everybody. More property taxes paid into individual counties from data centers mean property taxes for everybody actually come down. That should help defray some of the affordability concerns we've seen from the acceleration of AI.
Pedro, do you agree that there's something that people are sort of getting in the popular narrative sort of backwards about the relationship between AI data centers and affordability? This big concern about potential cost increases, to Bob's point maybe the opposite is true. How are you looking at prices at this point?
I think Bob's point is spot on. The more load and use of the grid that we can get for that fixed investment, the less the pressure on affordability. And it's important to think about how there's a lot of focus on data centers right now but there's really three broad drivers of load growth in the country. And for historical background, we haven't seen this kind of load growth nationally since probably after World War II. And so data centers are one of those vectors. But the second is the reshoring of manufacturing. And the third, the one that's most prevalent in my home state, is electrification. We're still seeing a lot of electric vehicle sales, again when I see a further pickup on that if the conflict continues. So those three items are really driving load growth like we haven't seen in a long time. So as we think about then how do you satisfy that as an industry, I know we'll get there but there's probably a few challenges we need to work through. You hear discussion around well will the labor force be there and I think ultimately it will be, we have to work on that. Supply chain can be a near-term constraint but as supply chains adjust, ultimately for me the biggest challenge in getting there is making sure we get the siting and permitting support so we can put steel in the ground, whether that steel is a generation plant, whether it's a transmission tower, that's where we need the most help from government right now at federal, state and local levels to be able to meet the challenge.
Pedro, one other kind of security related question that I wanted to ask you about too is for cyber security in the grids. Grids everywhere in the world are increasingly under security risk, military attack kind of being targeted in different ways. What are you seeing in your system in terms of cyber threats and what's the biggest vulnerability, cyber security vulnerability in the US grid at the moment?
Let me start by acknowledging that this is an issue we've all been aware of for a long time. In fact, Bob and I are partners in this with a number of other CEOs from our industry. We sit on the Electricity Subsector Coordinating Council and that's the main CEO partnership with the federal government on cyber security, physical security and also storm response. So this is where the industry comes together with government to provide mutual assistance. On the cyber side, look, the electric system is about what, 5% of GDP, powers the other 95%. So it is a natural target for malicious actors whether they be sponsored by state government or be the kid in the basement. And so one of the most important things that we've done as an industry is that partnership with the federal government across multiple administrations. This is nonpartisan and it's really been around the coming together of government bringing its intelligence through intelligence gathering and industry contributing our knowledge of the system and how that intelligence gathered, what are the implications in terms of potential impact to our system. Great collaboration through things like the Energy Threat Analysis Center, a DOE entity, and sitting in a classified facility where both Bob and I and a few other companies have our own employees sitting there in classified space side by side with government analysts providing the kind of analysis that you saw for example in the government's disclosure of Volt Typhoon a couple years back. How do we work on this? It's multiple levels here, right? And it's really defense in depth, everything from having intelligence, applying technology to bear. AI I think is opening up more opportunities. It also creates opportunities for the bad guys. But also this is something that applies to all of us not only in industry but in our own personal lives. No substitute for being aware. Phishing is still the easiest and most prevalent vector and so making sure that we are all and our teams are educated on being the first line of defense.
Don't put your passwords on a sticky note on your desk. Is it fair to say that you're seeing more incoming cyber attacks?
We have year on year, we continue to see escalation in that.
Yeah. You know, we used to build fences around our equipment to protect the public from our equipment. Now we build fences around our equipment to protect our equipment from the public. And so the takeaway is security evolves and we're evolving with it. I mean I just take the most recent Mythos AI discovery and our ability to act collaboratively as utilities, our ability to operate collaboratively with the federal government and other stakeholders to make sure that we protect what we know is the first part of GDP. I used to have a director on my company who would say I don't have a bank if you don't have an electric company. And so we recognize our importance in GDP and protecting that every day on behalf of every industry is critical for us as a company and us as an industry.
