Speaker 1:
From the library of the New York Stock Exchange, at the corner of Wall and Broad Streets in New York City, you're inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision and global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now, at the NYSE and at ICE's exchanges and clearing houses around the world. And now welcome inside the ICE House. Here's your host, Josh king of Intercontinental Exchange.
Josh King:
As we come on the air today, hurricane Delta, the 25th named storm of the 2020 hurricane season re strengthened into a major category three storm with 115 mile per hour winds, as it bears down on the Louisiana coast. And behind Delta, there's a tropic wave, a few hundred miles south of the Cape Verde Islands, which the National Hurricane Center has given odds of becoming the next tropical depression or tropical storm. And if that happens, we will call it Epsilon. Such is life, along the Gulf coast and Eastern seaboard of the United States. As if we don't have enough to worry about. Nine years ago, public service electric and gas company, PSE&G was looking at similar forecasts for hurricane Irene, establishing as many as 15 mobile response centers in eight New Jersey neighborhoods, to assist customers whose lives might be impacted by severe flooding resulting from the storm.
Josh King:
As it turned out, Irene brought $1 billion of damage to 200,000 homes and buildings. At the time, the costliest disaster in the state's history. As she was approaching the state, forecasters expected Irene to be the first hurricane to hit New Jersey since 1903, but when they ran the numbers, it was in reality, just a tropical storm when it made landfall at Little Egg Inlet. Just a tropical storm, you say. Tell that to everyone who saw their basements flooded and their power go out. Up in Windham in the Catskills where I have a place, that little tropical storm, Irene swelled Batavia Kill, and sent a wall of flash flood water down main street, obliterating just about everything in its path. It would take years to recover. Those are the kinds of disasters that a leader of an electric utility that serves communities, knows may come and always plans for, so that it can react and restore service as quickly as possible.
Josh King:
And on the other 364 days of the year, it's still a constant effort to keep the lights on, keep rates as low as possible, and explore ways to serve customers more efficiently in the future. A future where the energy transition is going to affect the way we all get our power and light. Here at our house, we've replaced our old thermostats with nest devices that know when we've left our home and turned down the heat and turn off the lights. And those bulbs in those lamps, no longer Thomas Edison's incandescent jobs, but rather, illuminated by tiny LED diodes that throw off more luminescence, with less electricity to prove it. Quote, "Compared with wind and solar", our guest wrote recently, "Energy efficiency is both faster and cheaper to access because it doesn't have to be built. It also doesn't require the extensive use of land that wind and solar do, and is of a much shorter payback periods, than renewable resources."
Josh King:
Since 2007, our guest Ralph Izzo has been the steady hand at the helm of Public Service Enterprise Group Incorporated. That's NYSE ticker symbol, PEG. Through turbulent times price fluctuations and the growing need to bring sustainable energy operation to the forefront. He joins the podcast to share how PSEG has learned to thrive, where others have failed over a century and how the company is poised to do so again, in the face of the global climate change evolution. Our conversation with Ralph Izzo on the role of utilities, in times of crisis and the future of energy. That's right after this.
Dan Primack:
Hi, I'm Axios business editor, Dan Primack, host of Axios Recap, a new weekday podcast, featuring interview use that get straight to the point. My guests are business leaders, politicians, and reporters, driving the day's biggest stories. We're joined now by Jalen Rose.
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Thanks a lot.
Dan Primack:
Bill Ackman.
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Dan Primack:
Senator, Amy Klobuchar.
Amy Klobuchar:
Thank you, Dan.
Dan Primack:
Steven Soderbergh.
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Thanks for having me.
Dan Primack:
Andrew Yang.
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Thank you. It's a pleasure.
Dan Primack:
You can find Axios Recap on Apple or Spotify, or wherever you like to listen to podcasts.
Josh King:
Our guest, Ralph Izzo is the chairman, president and CEO of Public Service Enterprise Group Incorporated. That's NYSE ticker symbol, PEG. He was first appointed to the company's board of directors in 2006. And since joining PSE&G in 1992, Ralph has held executive positions overseeing several business lines, including utility operations, appliance service, corporate planning, and electric ventures. And prior to joining the company, he was a research scientist, working on fusion energy at the Princeton Plasma Physics Laboratory. Welcome inside the ICE House, Ralph.
Ralph Izzo:
Thank you, Josh. It's great to be here with you today.
Josh King:
So the impact of COVID 19 on the energy sector has been a central topic of our show over the last six months, but this is the first time we've had a guest that directly interacts with the industry's, end customers. As winter approaches, given COVID, what are you hearing from your customers, who are still dealing with the virus and its economic impact?
Ralph Izzo:
Well, the economic impacts are showing up in a very large way, in terms of customer payment patterns, Josh. As you know, the hallmark of utility service is universal access. Every customer has an electric meter on their home and receives our electricity and our natural gas, in the case of PSE&G. And that natural gas by the way, is instrumental in heating their homes this winter. So we just agreed, in fact, to voluntarily extend our, no shutoff for nonpayment, through the winter months, because of the economic challenges our customers are facing. It's resulting in, at this point in time we're predicting, a tripling of our late payments, payments that are beyond 30 days. So the economic impacts are real, and the experience the customers are having is one that we're trying to mitigate by making arrangements with them to dig out from under this over time.
Josh King:
Has there been an upstream impact from the increased usage and change to energy distribution as more people are staying home and have more things that are all lit up?
Ralph Izzo:
Yeah. So there's been a shift. It has not been an increase. So obviously, there's been an increase from residential use, to your point, as people are staying home and turning their homes into offices. But there's been a commensurate decline in commercial use. As large office buildings are unoccupied and as small businesses have closed. The net effect has been about a six to 8% decline, in terms of overall electricity consumption. The impact financially, from a bottom line point of view is a little bit less, because quite candidly, the residential customer, which has seen an increase, is a higher margin customer because of the difficulty serving them. So, the net effect has been less than a six to 8% decline, in terms of the bottom line impact.
Josh King:
So speaking of people's homes and communities, Ralph, you were born and raised in New York City and got your education from roster schools in the tri-state area, bachelor of science, master of science and doctorate from Columbia. You later got your MBA from Rutgers. Was these locations of all these schools a coincidence, or have you always been drawn to the greater New York City, Metro area not wanted to straight too far from our Northeast?
Ralph Izzo:
No, I just love the area. I lived one year in Washington, DC, which was great. And I do enjoy traveling, don't get me wrong. I think that the climate in San Diego is gorgeous. I think the history of Boston is wonderful, and the culture of Europe and Asia is something that we should all learn and derive benefits from. But having been born in this region, the rich diversity of it, the incredible access to anything, anywhere, at any time has always drawn me back.
Josh King:
When you were a kid, how conscious were you of the grid and how much did that inspire, where eventually you ended up?
Ralph Izzo:
So I was completely unaware of the grid per se, but what I was very conscious of, was energy. I was a young teenager, eager, counting the minutes and seconds that I would get my driver's license. And of course, as soon as I received my driver's license, we experienced something at that time called, the Arab oil embargo. And I spent most of my time not driving, but waiting in line to buy gasoline. And I thought this is really insane because, while none of us are eager to use energy, all of us are eager to do the thing that energy enables, whether it's to read a book at night under the light of a bulb or whether it's to drive your vehicle, or it's to sit in the comfort of air conditioning or to watch the NBA finals, whatever the case might be, and things didn't get better.
Ralph Izzo:
So we went from the embargo of '73 to the embargo of '76, followed by President Carter, announcing that we were going to intervene with Russia's invasion of Afghanistan, because we were concerned that they would march from there, onto the Middle East. So at a fairly early age, I began to realize that energy is the lifeblood of the economy and it's the lifeblood of our way of life. And wars will be fought over it. I thought that, that would be an exciting area to become involved, primarily at that time, motivated by energy security.
Josh King:
On energy security, Ralph, you began your career as a research scientist at the Princeton Plasma Physics Laboratory, which grew out of The Manhattan Project. How did you develop from this, looking at the gas lines in '73 and '76 to think, ah, nuclear physics is where it's at?
Ralph Izzo:
Well, so when I went to undergrad, the energy enthusiasm led to a concentration in thermal sciences as a mechanical engineer and power plant design, et cetera. That led me to realize that, oh my goodness, fossil fuels are not here forever. So my first foray, was to write a paper on solar powered air conditioning. I thought, okay, so solar power is the way to go. But at the time, there was some work going on in fusion space that looked very promising. And of course, the fuel of fusion is heavy hydrogen, which you get out of seawater. So while it wasn't infinite, the way that sunshine in it, was from all practical purposes viewed as infinite. So from an energy security point of view, and from what at that time, was predicted to be a commercial availability point of view, I decided to pursue a graduate degree in fusion, thinking that that was the leading path for energy security. Boy, was I wrong. And we're still at it. And I still have hopes for fusion, but obviously, solar and wind have proven themselves to be much more commercially viable at this point in time.
Josh King:
Bring us back to the optimism at the time, because I'm a couple years younger than you, but not that many. I remember those gas lines as a kid. I also remember reading in my issue of Time Magazine that came, nuclear fusion is the future. You guys all must have thought you were on the cusp of something great.
Ralph Izzo:
Yes, we did. So, Harold was the director of the lab at the time. And there were some incredible luminaries at that point, and Paul Rutherford and Marshall Rosenbluth, and Bruno Coppi. And when I was a graduate student at Columbia, a paper was written by a professor from MIT named, Bruno Coppi, that looked like, in theory, had identified one of the primary problems of fusion that could be resolved. Namely, that fusion was a very low energy, density process. And even though it was a higher energy density than solar or wind or fossil fuels, if we could break through this low energy density region to a higher pressure region, we could get past some instability that made it difficult to confine fusion. So I was an applied mathematician, in terms of being able to simulate experiments, and as luck would have it, Columbia happened to have a device that people thought could achieve these high pressures.
Ralph Izzo:
We call them high data, for some reason in plasma physics, instead of using the word pressure, we use the word data, not to be confused with hurricane Beta or hurricane Delta, as we talked about earlier. And in fact, that proved to be accurate. So when I went to the Princeton Plasma Lab, after getting my degree, experiments were designed to try and push these higher and higher pressures. There have been all sorts of accomplishments that have been achieved in terms of the understanding of physics better and getting closer to the promised land of net energy produced, but with each advance, in terms of achieving, operating performance in new physics regimes, we have found other challenges that have come up. But I think the value is so, so high and the prospects are so tempting, that one could literally have a dispatchable, controllable, clean, carbon free source of energy, that justifiably, the US DOE continues to fund it. And I now serve on something called the Fusion Energy Science Advisory Committee, in constant pursuit of what's been delayed, but nonetheless, still worth chasing after.
Josh King:
Well, constantly pursued, still delayed, still worth chasing after, Ralph, but at some point it's time to leave the laboratory and move into the business world. What influenced the decision to move from science and applied physics, and become a business person?
Ralph Izzo:
Well, there was an interim step there, Josh. It was actually serendipitous. The Princeton Plasma Lab was constantly in discussions over, should funding go to inertial confined infusion or magnetic fusion, and which magnetic fusion labs. And I found myself working really hard to get the science right, but then coming to realize that, wow, the decisions on whether or not we proceed are social/political decisions being made in Washington. So I spent a year in DC, as I referred to earlier, on a fellowship program and was just fascinated by our political process in a very positive way and was so impressed by the hard work, the dedication, the efforts put into making decisions by United States senators, US congressmen, their staff. I was fortunate to work for somebody who was the Senator from New Jersey at the time-
Josh King:
Bill Bradley.
Ralph Izzo:
Just an incredibly thoughtful, caring person. And I fell in love with public policy. So when I came back to the lab, while I realized that, what I was doing was important work, that there were people who were quite good at it, and candidly, much better at it than I was. And that maybe I would like to develop a career in public policy. So I left the lab, then worked for another wonderfully caring, thoughtful leader named Governor Tom Kane. And after Kane's two terms in office expired, I went to work at PSEG with the one and only thought, that having been in academia and then having been in a national lab, I needed to spend some time in industry, so that I can go back to the public sector and be a better rounded, more thoughtful public servant. Well, I made that decision in 1992 and I never left. So, I just decided that one could pursue these improvements in our energy picture, equally effectively, through the private sector, as one could in public service.
Josh King:
You're bringing up Tom Kane and Bill Bradley, gives me rise for an interesting digression. They both have a different letter in brackets after their name, Kane, R, Bradley, D. And yet, they're both probably in the center and Kane might be a Democrat by today's standards, but you're working for both of them in a way in which you must have thought, look, the pursuit of energy answers has to be a bipartisan or centrist pursuit. How does the open, honest, thoughtful period of working for people like Kane and Bradley compare to, what you see when you have to go down to Washington and serve on some of these boards today?
Ralph Izzo:
It breaks my heart, to be candid. I can't speak for Governor Kane or Senator Bradley, but you nailed it, Josh. They were both moderates, they understood the importance of balance and compromise. There were things they felt strongly about, but not at the exclusion of thinking that there wasn't a path forward. I remember Kane always just, simply having the starting assumption that people are of good intention and of good will. And if you focus on the problem, you're trying to solve, that you can come to an agreement on the pathway to get there. But if you become locked in on, it's my way of the highway, then you have gridlock. I remember in those days, when I worked for bill Bradley, there was a United States Senator who shall go nameless, although I do remember him, who had this horrible habit of filibustering, he would do it once a year and it would infuriate the US Senate.
Ralph Izzo:
And then somehow between 1986 and today, it became just simply, a given that you need 60 votes to get anything done in the US Senate. Well, that changed somehow. So it is sad for me to see on the one hand, climate change deniers. And on the other hand, folks pretending that the Green New Deal is possible to implement in the next nine years.
Josh King:
You're right.
Ralph Izzo:
And I guess it's important to have both, so they balance each other out, but I'd rather spend my time in the middle. Realizing how important climate change is, but also realizing that there are many Americans who are struggling to pay their rent and put a third meal on the table. And for them, tomorrow is a little bit more urgent than what could, and will happen in 15 and 20 years if we don't act. So I miss it, I do miss it. And hopefully we can get back to that in the not too distant future.
Josh King:
But in some ways, I guess you're putting it to work every day with the communities that you serve. Given the experiences that you had with Kane and Bradley, given the early work in your career, in the laboratory, I'm curious how you've incorporated your personal commitment to public service and volunteerism in the way that PSE&G interacts with its employees, but also the communities that it serves.
Ralph Izzo:
One of my proudest moments at PSEG was early on, we were given an award by an industry group, Edison Electric Institute, as being the company that does the best job of marrying the interests of its shareholders, with those of society. But we realized that look, nobody wants to buy energy. I didn't wake up this morning saying, I can't wait to use a kilowatt hour. We're an infrastructure company that tries to make everyone's life better. And we have to do that in a way, that policy leaders thought leaders are comfortable with. So that's constantly balancing cost, environmental impact, economic development potential, reliability. And to simply say, the only thing that matters is blank, fill in the blank however you want, just isn't reality. So we're constantly asking ourselves, how do we do this and optimize the full set of outcomes that people view as important? Because we're only here as a means to an end, as an energy infrastructure company. We're not the end in and of itself.
Josh King:
After the break, Ralph Izzo, chairman, president and CEO of Public Service Enterprise Group, Inc. And I will turn to the company's COVID response and how 2020 will transform PSEG, that's right after this.
Speaker 10:
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Josh King:
Welcome back. Before the break, Ralph Izzo, chairman, president and CEO of Public Service Enterprise Group, and I were discussing his early career. Ralph, PSEG employees have been considered, essential workers throughout the pandemic, putting them on the front lines. It's a familiar responsibility, as they've served the public during past environmental disasters and other crises. Some of which I mentioned earlier, hurricane Irene. How is COVID 19 different from those previous crises you've faced over your career?
Ralph Izzo:
Well, there are some major differences, and then there are a couple of similarities. Obviously, our crises by and large, are storm related, but normally a storm has a finite duration. And once it's passed, there's a damage assessment and a recovery that's possible. And our industry, to its credit, has always been able to rely on each other for help. So when we have a hurricane Irene, or a super storm Sandy, fortunately, maybe the middle of the country hasn't felt that. Or if the middle of the country has a direct show, we haven't felt that. So we can go to each other's aid. COVID 19, if you know the end date, Josh, please let me know. For example, in New Jersey, we were doing phenomenally well, recovering from new cases and hospitalizations. And the last couple days we've seen some tremendous spikes in new cases, that predicted second wave appears to be a real possibility, if not already upon us.
Ralph Izzo:
So, that's a challenge, not knowing the duration of this and how long we will have to contend with it. And then the second challenge is, what I mentioned a moment ago, it's affecting everyone. It's not different for folks in the Midwest or folks in the South and this for us. So our ability to rely on others in the industry to help us, is curtail because they're faced with the same challenges we are. What isn't different, and what is just always amazing to me about PSE&G employees, and the utility employees in general, is that, even though they are faced with the exact same challenges as our customers, they step up and get the job done.
Ralph Izzo:
After our employees basements were flooded from super storm Sandy, nonetheless, they left home and restored power. Even though they are every bit at risk, as much as any other person who's out there doing work today, they are out there doing work, and yet they do it safely and intelligently. We've had infections, we've had 190 employees succumb to coronavirus, and sadly we've had one fatality from it. But even at that level, that's well below the infection rate in the region. So our employees do it smartly, they do it safely, and they do it to the best of their ability, which I'm always proud of them for.
Josh King:
To answer your rhetorical question from earlier, I have zero idea of when the pandemic is going to end, Ralph, but you recently said, and I'm going to quote you here, "Once the pandemic is over, there should be no return to business as usual." How do you think this period will transform PSEG going forward?
Ralph Izzo:
So there's a variety of ways that, that will happen. Number one, we realize now, that we can be much more flexible about where people choose to work from. We've not missed a beat in terms of, so many of our functions. You can't perform a nuclear refueling outage from home, but it appears that our communications team can work from home. Many of our IT employees can work from home. Our accounting group has delivered the usual flawless, accurate SCC reports from home. Now, there are benefits to getting together and having that human interaction, but flexibility that we can now afford, many of our job functions will be something that will change. Also, we have found that, sometimes travel is worth it, sometimes it isn't. I often go visit with investors. We're about 13 to 14% owned by foreign investors.
Ralph Izzo:
And I would spend a week, a year in Europe. And during the course of that time, I might cover six to eight different cities and have 12 or 15 meetings over that week. I can do that now, literally in a day and a half. So do I have to make that trip every year? Or can I make that trip every other year, and just be more efficient with use of my time? We have a vibrant appliance service repair business. We have a thousand technicians who, when you call PSEG and you say, "My hot water's not working", we try to get to you within 24 hours. But what we found is that, we can put a few of those talented technicians on the phone and walk customers through some simple exercises, and solve about a third of their complaints or their problems, just by giving them instructions. And that makes the customer real happy. And it saves us the expense of rolling a truck and going to the home. And there are many other examples like that, Josh.
Josh King:
So lots of change executed in 2020, and 2021 is going to be a continuation of that. But really, Ralph, transformation is not something novel in the 117 year history of PSE&G, which dates back to the former Public Service Corporation, in 1903. When the company was, I guess four parts, transportation, and only one part an energy utility. How is the company different today from when you first joined? Let's go back to that year in 1992.
Ralph Izzo:
Well, so at that time we were, what I would call, fully regulated. So the power plants we operated, the high voltage wires from the power plants to the neighborhood, that connected to then, a substation, that fenced-in area that many people see, where there's a bunch of important electrical equipment. And then the wires from that substation to the home, were all regulated. And then in 1990, the Energy Policy Act, at the federal level, began the process of deregulating power plants. And that became fully implemented in New Jersey around the turn of the century. So now, power generation is a competitive business. And one that PSEG is exiting, we plan to retain our nuclear units, but we're exiting all other aspects of fossil fuels. Also, the other big change has been, the growing concern over climate change and what that means for consumption patterns on the part of customers and how energy is supplied.
Ralph Izzo:
Another change has been, because of concerns of a climate change, the intensity of storms. And last but not least, the important role that electricity plays in our life. I've noticed a phenomena and I've often asked people to tell me if they're aware of another one, I've yet to have somebody tell me, and I'll offer it here on a podcast. Can you think of something that you use less today, than you ever used in the past, but it's so much more important to you today, than it was in the past? And that's what's happening with electricity. The primary energy consuming devices in the home are refrigeration, air conditioning, lighting, and all of these devices have become so much more efficient, because of the ingenuity of our manufacturers. So as we replace that refrigerator, as we replace that air conditioner, every 10, 15, 20 years, our energy use goes down.
Ralph Izzo:
But over the period of that decade, we've added three more iPads, two more smart devices, another desktop computer or a bigger TV screen, and we can't live without that. So, even though energy consumption is not growing as fast as it used to, it used to track with GDP growth. It's now basically flat, energy consumption in New Jersey is still below where it was in 2008, before the financial crisis. If a customer's without power for even a brief period of time, they're not annoyed by the blinking microwave, they can't function.
Josh King:
Right.
Ralph Izzo:
And a critical issue that will come out of COVID 19, is if other companies adopt the perspective that I just offered, which is to allow people to be much more flexible in where they work from. And I believe they will. The reliability baked into the grid, in downtown New Brunswick or downtown Newark, is very different than, the reliability baked into the grid, leading to the home of Josh king or Ralph Izzo. It's much stronger in those commercial centers, and for obvious reasons. So, when we just had hurricane Isaias, and individual customers were without power, business came to a stop. That's not something that was designed into the grid early on. We didn't think that the home would become the central place of business. So that's a policy issue that we'll have to have a conversation with our regulators about, going forward. What is the level of reliability that goes down to now, the small business owner called, the residential customer?
Josh King:
We were talking, you've mentioned earlier, some of your engagement with overseas firms and overseas investors. There are ongoing negotiations with a Danish offshore wind developer, on acquiring a 25% interest in the proposed, 1100 megawatt ocean offshore, wind farm, off the coast of Atlantic City. What are you looking to get out of that potential investment? And what role do you see wind playing in your future planning?
Ralph Izzo:
So I believe that offshore wind will become an important part of our ways of battling against climate change. I do worry about the pace at which we develop it, in terms of the cost associated with developing it. So I am unapologetic in my belief that climate change is real, and we need to do as much as we can to avoid some of the consequences that are now part of a nearly unit Al scientific consensus. But today, the price of electricity in wholesale power markets is $25 per megawatt hour. The contracted price for offshore wind, that the Board of Public Utilities agreed to is $98 per megawatt hour, that's, in round numbers, a $75 difference. That means that, when that offshore wind farm goes into service, there will be a $300 million subsidy pay to that one, offshore wind farm.
Ralph Izzo:
That's a lot of money, Josh. Now, if you say that we have to do that for climate change, and let me be generous, let me just say that there's all sorts of other benefits that take place from that. So the $75 per megawatt hour difference is really only, $50 per megawatt hour. Let me just argue that there's $25 of benefits, elsewhere. You're avoiding half a ton of carbon, by using the wind versus the current grid system. So you're paying $50 to avoid half a ton of carbon. That means you're paying $100 to avoid a ton of carbon. The National Academy of Sciences has said, we should spend no more than $50 per ton of carbon. So you're paying twice what the National Academy of Science is saying, we should pay. Now, I realize that's first of a kind, large project. Then the hope is that, as we do more, that price comes down.
Ralph Izzo:
Well, hope isn't a strategy.
Josh King:
Right.
Ralph Izzo:
So when we go out forbid for more, let's see if the price comes down. And if it doesn't, let's think about how else we can battle climate change. Maybe we should be importing wind from states like Pennsylvania, or West Virginia or Virginia, where there might be more of a mountainous ridge, on land, that produces this energy more cheaply. Maybe we should be doing a lot more energy efficiency. Maybe we should be working harder to preserve our nuclear plants. I'm not suggesting we shouldn't invest in battling climate change, but I am worried that we're not getting the most out of our environmental dollar. So according to various us government agencies, I think NOAA is the one I'm about to quote, there's 80,000 megawatts of offshore wind capacity available to us on the east coast. Let's develop it intelligently. Let's make sure the technology helps lower the price, and we don't rush to do it, and put this tremendous burden on consumers and really not get the maximum value for our dollars invested.
Josh King:
You mentioned one of those options might be, investing more to protect or preserve our nuclear plants. PSEG operates a few of them, that generate a significant amount of electricity for the State of New Jersey. Ralph, we recently recorded a podcast with Dan Yergin, who IHS markets, vice chairman, also the Pulitzer Prize winner of so many books about the energy space. And he was asked a question that I want to pose to you. Is the nuclear industry on the verge, perhaps of a Renaissance or a fade out? And what role will it play in decarbonization, do you think?
Ralph Izzo:
Well, sadly, it's clearly in a fade out mode. We've had, I think it's half a dozen plants retire in the past few years and 12 at risk of retiring, and only one being built. It should be on the verge of a Renaissance, in light of what climate change means to the planet and this country. But we've had a complete failure, at the federal level, in recognizing what needs to be done to battle climate change. The only reason why we have seen carbon reduced from the electric power sector, has been because of the low cost ability to extract natural gas as a fuel, and use that to produce electricity instead of coal. And natural gas emits half of the amount of carbon that coal does. It wasn't driven by a desire to battle climate change. It was strictly the economics of tapping into one fuel versus another.
Ralph Izzo:
Well, if you don't design a system that puts a price on carbon, that incentivizes the market to say, use fuels that use less carbon, in this case, nuclear, then the market's going to go to the lowest cost fuel, within the constraints you impose. And if there's no carbon constraint, natural gas will beat nuclear, it's as simple as that. And nuclear plants will continue to close. So what appears to be a subsidy, needed keep nuclear alive. And in New Jersey, we do subsidize nuclear to keep it alive, is really only being done to offset the implicit, much bigger subsidy, that fossil fuels receive by virtue of the fact that we don't penalize them for their carbon impact. This leads to bad economic decisions. The absence of a price on carbon, leads New Jersey and other states. I'm going to pick on New Jersey because it's my home state and I can pick on my home state, but believe me, I could do this for every other state.
Ralph Izzo:
In New Jersey, we say that we're willing to subsidize rooftop solar, to the tune of over $200 per megawatt hour. As we just mentioned a moment ago, we're willing to subsidize offshore wind, to the tune of $75 per megawatt hour. We're willing to subsidize nuclear, to the tune of $10 per megawatt hour. And fortunately, because of a great decision that we just had in New Jersey, we're able to invest in energy efficiency with a negative subsidy, they were actually able to save money. If you simply had a nationwide price on carbon, and it could be the national academy number, it could be a lower number. Then what you'd have is, the market and all of its creative horsepower, it would make rational decisions, but instead you have people picking winners and losers, and sometimes picking winners and losers that are about, a lot more expensive than they would have to, if we had one single transparent price.
Josh King:
Carbon pricing's such a major topic here at Intercontinental Exchange and for all the energy companies that are listed on the NYSE, Ralph, do you think, I don't know, perhaps with a change in administration, there's a possibility that Washington may finally be willing to consider a carbon pricing mechanism? Or will that remain the realm of the states like New Jersey and the Northeast, Pacific Northwest, and eventually maybe the middle states?
Ralph Izzo:
I sure hope that there's national action. I think it's so shortsighted to not have national action for a whole variety of reasons. Certainly the health of the planet is foremost among them, but I believe that there will come a time, when there will be a recognition that we have to do more. And those nations that get in front will develop the technologies, will develop the industrial infrastructure, to be the supplier of those technologies and those solutions to the rest of the world. And they will have a huge competitive advantage for the growth of those industries. And I think that the United States should and has prided itself on being, the medicine cabinets of the world. The information technology provided to the world, the service industry, creative genius to the world. And I want us to be the climate change combatant that supplies the world, so that developing nations don't have to go the same path that we did and we can help them leapfrog you into clean technologies and we can be their supplier.
Ralph Izzo:
I do think that the best way to do that, is by setting up market forces to achieve that. I do worry that there's a lot of talk in Washington now, about, instead of using a price on carbon to instead just set a clean energy standard. And if that's the only thing we can do, then I would fully support it, don't get me wrong. But I fear that setting a clean energy standard just means that we'll make decisions on the basis of which technology has the strongest lobbying group, as opposed to which technology makes the most economic sense. And then that would again, be a suboptimal economic outcome. And despite my passion for battling climate change, I realized that many Americans face other challenges. So I want to make sure that we design something that provides for them, the optimal economic outcome, so they can achieve their other goals and aspirations that are quite important.
Josh King:
Ralph, as we wrap up, next year, PSEG the 18th longest listed company on the New York Stock Exchange, is going to celebrate its 110th anniversary of listing. What's the number one reason the company has persevered through good times and bad, through super storm Sandy, when thousands of other utilities have been unable to thrive?
Ralph Izzo:
I really think it's a combination of two factors. I know this is going to sound like a platitude, but it's not intended that we all, it's the caliber of our employees and the recognition by my predecessors, and hopefully by me, that we are here to serve the public. And so much so, that it's in the name, Public Service Electric and Gas, Public Service Enterprise Group. And we will work hard to inform public policy in an intelligent way. At the end of the day, we realize we don't make public policy. We serve the public and we will then, whatever public policy directions, people choose, just do our best to execute that in a way that is most beneficial for all of our stakeholders, our shareholders, our employees, and our customers. And we're one of 18, as you mentioned, Josh, but I think the number is three, in terms of companies that have paid dividends, each year for 111 years or 112 years, I forget the exact number. So we take our fiduciary obligations serious, as well as our public service obligations.
Josh King:
Looking down the road, Ralph, what's your prediction for the mixture of energy generation that the company might have, not in 2020, not in 2021, but maybe 2035. When scientists predict that, without major change, the earth is going to reach a point of no return, in its bid to stave off climate change?
Ralph Izzo:
So on our way to 2035, our number one emphasis is not going to be on generation. I can't tell you how proud I am of a decision that was recently made by the New Jersey Board of Public Utilities, to allow us to increase almost by a factor of 10, our annual expenditures on energy efficiency. Josh, we're going to invest a billion dollars over the next three years, in energy efficiency. And in doing so, there are three outcomes that I just have to brag about. Number one, we are going to create a net savings of a billion dollars in people's energy bills. So there'll be a gross savings of $2.5 Billion, but because we've invested a billion dollars and there'll be other costs, cost of money or over time, et cetera. There'll be a net reduction in how much New Jersey spends on energy of $1 billion.
Ralph Izzo:
At the same time, we're going to create over 4,000 new jobs. People conducting household energy audits, people installing programmable thermostats, people installing new lighting systems. And at the same time, we're going to reduce carbon emissions by 8 million tons. Every one of those things, is wonderful. Reducing carbon, creating jobs, lowering energy bills. And oh, by the way, the way this program was designed, it allows our company to increase our earnings. The beauty of energy efficiency, the key word is efficiency, is it allows you to do what you've always done, only smarter. And then, once we reduce the amount of energy people need to use, then we'll let others decide on what's the most intelligent way to supply, what will need to be supplied, because you can't implement energy efficiency and eliminate the need for supply completely. But our participation supply will be the preservation of our nuclear fleet and the consideration of offshore wind.
Josh King:
So much to keep an eye on, Ralph. Thank you so much for are sharing, both your personal history, what's happened with the company, and where you see the future going. It's been a pleasure to have you inside the ICE House.
Ralph Izzo:
Thank you for having me, Josh.
Josh King:
And that's our conversation for this week. Our guest was Ralph Izzo, chairman, president and CEO of Public Service Enterprise Group, NYSE ticker symbol, PEG. If you like what you heard, please rate us on iTunes, so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected], or tweet at us, @ICEHousePodcast. Our show is produced by Sam Citarella and Pete Asch, with production assistance from Steve Bermanchick and Ian Wolf. I'm Josh king, your host signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 1:
Information contained in this podcast was obtained in part, from publicly available sources and not independently verified. Neither ICE nor is affiliates, make any representations or warranties, express or implied, as to the accuracy or completeness of the information and do not sponsor, approve or endorse any of the content herein. All of which, is presented solely for informational and educational purposes. Nothing here end, constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.
