00:00:00 Intro
Welcome to the Power Bytes Podcast, brought to you by Caterpillar Electric Power with your host Ryan Karlin. Each month we deliver the latest insights, trends, and cutting-edge tools to keep you ahead in the dynamic energy industry. Whether you're streamlining operations, embracing new technologies, or want to stay informed, Power Bytes is your go-to source. Join us as we explore innovation shaping the future and the resources you need to succeed. Welcome to Power Bytes, where energy meets innovation.

00:00:28 Ryan Karlin
Hi and welcome to another episode of the Power Bytes Podcast. In today's episode, we're going to take a closer look at energy challenges facing large commercial and industrial participants, and how they can lower costs while remaining resilient. Joining me for this important conversation is Steve Gupman. Steve is the Director of Energy Services at Caterpillar. Steve, glad to have you on the show!

00:00:47 Steve Gupman
Thanks for having me!

00:00:48 Ryan Karlin
Steve, before we dive into the topic, give the listeners a background about yourself and your experience at Caterpillar.

00:00:54 Steve Gupman
Thanks, Ryan. I've been working for about 20 years. The whole time I've been here at Cat, I've worked with customers’ energy problems. The last five years or so, I've really been focusing on electricity: how customers get their electricity and what we can do to help them with their rising prices.

00:01:11 Ryan Karlin
Fantastic. We've talked a lot, on previous episodes, about energy challenges that are happening globally, but I want to dive into that a little bit more and specifically talk about what part of the energy equation is actually rising, because from, what I understand, the cost of producing energy itself is actually going down. Can you help us unpack a little bit deeper into what is causing energy prices to rise?

00:01:40 Steve Gupman
That's a great question. The demand is at the core of all this. We are using so much more energy than we have in the past. According to the Energy and Information Administration in the US, between 2010 and 2023, we had relatively flat energy growth. We increased by 4%, I think, in that timeframe. They project from 2023 to 2035 that we're going to increase by 25%. When we look at our energy usage, we look at AI, we look at data centers, we look at more EV, everything coming online. It's causing a demand bottleneck. There's too much need for electricity, right? So you need to add generation capacity to the network in order to meet that demand. And it's hard to! It's hard to build a power plant. It's hard to bring that online. There are timelines to build gas turbines, for instance. And it all adds up. So that right now, the demand is increasing faster than we can add the capacity. There's another aspect in which – a lot of our infrastructure in the US is aging. So the money that we want to be spending to add capacity really needs to be spent to improve the existing infrastructure, and that's creating some bottlenecks. And on top of that, you mentioned the prices are going down. We’re actually adding renewables faster than we are other types of generation because they're available and they are lower cost – but we need to remember that renewables aren't always synced with the demand. When the wind isn't blowing and the sun isn't shining, the renewables aren't there for us and we need something else, some other capacity to firm up the grid. So, they do help, but they don't always help, and we need to make sure that that we have the capacity we need.

00:03:17 Ryan Karlin
You talked about capacity, but one of the things that I noticed when I looked at my electricity bill this past month was a “transmission and distribution” charge as a line item on that bill. I'd love to better understand how does “transmission and distribution” play into this overall pricing equation when we talk about energy?

00:03:38 Steve Gupman
We talked about energy prices all the time, and reality is when you look at your utility bill, energy is not the only thing you're paying for. You mentioned capacity charges, transmission charges – those are two very important things that everybody needs to understand. Capacity charges are basically the power pole or the organization that coordinates your – that there will be electricity when you need it, that when you flip the light on, that there's a power plant somewhere that's ready to serve you. They've reserved that power plant. They predicted your load – or they predicted societies load for that region – and they've reserved the capacity in that power plant for when you need it. And transmission is the same way. There's transmission lines all over the place, moving power across the grid to make sure it's where you need it to be. But there's a cost to that, and someone's got to pay for it. So capacity charges are basically the charge to reserve the power plant in your name, for the power we predict you're going to pay some money for that. And then transmission as well – you're paying for your share of the transmission lines. What's important is the energy price you pay, right? So how much you're paying for how much energy you're using right now is actually different than the capacity charge. You're going to pay that capacity charge no matter what, because it's reserved for you. The transmission, the same way. They predicted how much transmission capacity they need, how many transmission lines they need to serve you, and you will pay for that no matter what.

00:05:07 Ryan Karlin
Let's say I'm an industrial customer in Virginia. I need 20 megawatts of load. My capacity charge may be different than if I was a smaller ag house producer in maybe the same region but in a different state. You know my capacity charge because I'm looking at 20 megawatts versus maybe a 10 megawatts facility, those are going to be different – and understanding that part of the equation is pretty important.

00:05:32 Steve Gupman
Yeah, it is. If you take a step back: first of all, every region is different so not every utility bill is equal to every other utility bill and how it's handled. So when you start to talk about capacity charges like this, the way that that you're charged, the way that it's billed is – it's about how much the power pole is predicting that you're going to use. The way they do that is they look at the previous year at the hours of peak demand. For example, you mentioned Virginia – let's talk about PJM. (That's the name of the power pole in the Mid-Atlantic and into the Midwest.) They use the peak five hours of grid demand for that entire year. So what was your contribution? “How much power were you using during those peak hours?” And that's what then leads to your capacity charge, and the transmission charge is done similarly. It's not how much energy you're using, but it's actually how much are you using at the time of peak grid demand.

00:06:32 Ryan Karlin
Wow. And so five hours, you said, right? (At least for PJM, for example.) That’s pretty astonishing. We think about 8,000 hours a year, but five hours can really influence that capacity charge, which is going to dictate your prices for the following year.

00:06:47 Steve Gupman
That's right. It's something people need to understand. Again, it's not about how much energy you're using. I mean that is part of your bill, but another whole part of your bill is purely based on how much energy you are using for a very specific set of time in PJM 5 hours. Now, just to give you scale, we're talking 20 to 30% of your utility bill is based on measurements like that, what your usage was during key hours of the year.

00:07:11 Ryan Karlin
I've been noticing a lot of articles recently about capacity charges increasing dramatically, for example in PJM. Can you help me understand and our listeners understand the dynamic going on there?

00:07:22 Steve Gupman
Yeah, it's a great question. And we like to talk about PJM because it's the oldest and the largest power pole in the country. For example, what we've seen in the last few years – there's an auction. The way these capacity rates are set is, there's an auction that happens and it sets what the rates are going to be for the following years. And from 2024 to 2025, we saw an 8X increase in the capacity charges (the rate that you're charged for capacity in some regions of PJM). The auction happened recently this summer for next year (2026), and it was another 20% increase. But the reality is – 20% increase sounds bad, but it was actually capped. The local states combined together and actually capped what it could have been. If that cap hadn't been there, it would have been much higher.

00:08:13 Ryan Karlin
Well, so it's a real trickle effect to people in that market and more nationally as well, as most industries – most markets are facing the similar “PJM problem” here. In the face of increasing electricity prices, how are companies able to reduce their costs and manage their power consumption?

00:08:35 Steve Gupman
That's a great question. We know that part of your bill comes from how much energy you're using and how much the price of that energy is at any given time. But there's these other capacity and transmission fees. What's important is managing how much power you're using during these critical times when your capacity and transmissions rates are being set. The easy answer is: you reduce your load when we know those peak hours are happening. One way of doing this is putting in generation – putting in a genset or a battery on your site so that when we approach those peak hours you can fire up that genset, which effectively lowers your load on the grid. So your operations keep going, you keep making what you're making, you keep doing what you're doing, your business keeps going. But because that gensets running, your load on the grid is lower, and therefore your charges next year will be will be lower.

00:09:29 Ryan Karlin
So as a facility manager, you're seeing no disruption in normal operations, but when you were to look back at this event, you'd see your genset kick on and reduce your overall consumption from the grid, right?

00:09:42 Steve Gupman
Yep, that's exactly right. And you hit it on the head. What's important is that your operations kept going, but because you had on-site power generation, you were able to reduce your load on the grid, therefore reducing your charges coming for the following year.

00:09:59 Ryan Karlin
Now, if I were to put myself in the shoes of the facility manager, that sounds like a lot of work to have the “crystal ball” to predict that five-hour period, turn on that genset, and manage all of that – that seems like a lot for me! How are companies able to do that, or how is Caterpillar helping these commercial and industrial customers take advantage of this dynamic that you just mentioned?

00:10:25 Steve Gupman
Ryan, that's a great point. I make it seem so simple: “Just reduce your load at the peak hours and you'll save a lot of money.” And the reality is, is that we don't know when those peak hours are going to be, right? It's the entire grid. A lot of times, the grid demand is driven by weather events, but what many people don't understand is that the grid's big, so the weather event may not be what's happening around you. So it might be hot in Chicago, which is creating a peak demand event, but you're in Philadelphia and it's cool. So, you don't even realize today is a peak demand. What we at Caterpillar do is we have our Cat AMP software platform. It's actually actively predicting. We're monitoring the grid, predicting peak demand, and then we automatically dispatch the assets at a factory or an industrial site. So we can predict when it's going to happen, and then we just automatically make the gensets fire up for you (or the batteries or whatever you have on your site).

00:11:22 Ryan Karlin
That reminds me, I was having a conversation with someone recently at a Cat event and he was saying how he got a notification on his Apple Watch saying, “Hey, your genset is being run and managed by Cat AMP,” while he was in this conference. Sounds like that's kind of how this works in a simplified way. Is that kind of true?

00:11:44 Steve Gupman
Yeah, that's exactly right! We've got a 24/7 command center outside of Philadelphia where we're monitoring all of our customers assets. And funnily enough, one of the biggest questions we end up with (because we do it all for you) is: “Do you want a text, do you want a phone call, do you want an e-mail, or do you just want us to do it for you?” That's the main question we end up with some of these customers.

00:12:06 Ryan Karlin
And you're seeing different customers have different willingness to be super hands-on? And are you seeing other customers who want just that text and maybe a report occasionally here and there?

00:12:17 Steve Gupman
Yeah. I'll be honest. Most of our customers, their business is their business. So, they're making whatever product they're making. They're just trying to put profitability. They want us to do it for them, and they love to see the report at the end of the month and how much money we save them.

00:12:30 Ryan Karlin
What dollar amounts are we talking about here in potential savings, and how significant of an investment is it to install Cat AMP and the supporting equipment?

00:12:45 Steve Gupman
The savings can vary. Again, regionality has an impact. Your utility has an impact. It's hard to put a number. We usually say 20 to 30% of your utility bill, depending on where you are, which can be very significant depending on how much power you're using. We could be talking hundreds of thousands, we could be talking millions, depending on what size your operation is. When it comes to investment, that's also another question that's hard to answer. You may have a flexible load on your site that we can work with you, in which case you don't even need to add any generation. You may have a backup genset already that we can use that's permitted to run and which we can use (and we can just drop in and help you save money now). Or we may need to invest in a small peaking plant for your facility to help you save money. Not everybody has a lot of capital sitting around ready to do this, so we also have some options where we can actually come in, we completely develop the project for you, execute it, put it in place, and then arrange for a third-party ownership of that asset. So, you don't need to put any money down, we can just start saving for you.

00:13:55 Ryan Karlin
I had a conversation recently that I thought was fascinating, and I'd love for you to share it. It was about the municipal project you had up in New England that your team completed recently. Can you tell the listeners a little bit more about that project?

00:14:08 Steve Gupman
Yeah! It was a great opportunity. There's a town in the Northeast that wanted to save on their bills, and they wanted to help their townspeople to lower their energy costs. But they also had sustainability goals that they were trying to meet. They didn't necessarily have a ton of capital sitting around. They didn't want to take a lot of risk on energy markets. So, they sat down with us to figure out what we could do. Caterpillar and our local dealer in the in the area, we were able to come in and install 5 megawatts of batteries (a pretty large battery installation), and we completely designed the project, we executed it. We had it constructed for them. And we now operate and maintain that site to keep it going. And to be honest, at the end of the day, we actually own it for them. So, we were able to come in and help that town lower their costs and meet their sustainability goals and really they didn't need to put a lot of money in – and they didn't need to do a whole lot besides just saving and meeting their goals.

00:15:18 Ryan Karlin
I'm glad you shared that, because to this point we've talked about commercial/industrial users, but there's another piece of this: municipalities and co-ops, as well, that are maybe faced with the same challenges, but have a similar solution (like Cat AMP) at their disposal.

00:15:33 Steve Gupman
Yeah, it doesn't really matter who you are: if you use a lot of power and you're in one of these unregulated areas of the US  that are being charged in this way, we can help you! You might be a factory, you might be a large office building, you may be a foundry (foundries. use a lot of energy – we actually do this within Caterpillar at our own foundry), or a university, or a town. We have a lot of different customers! It doesn't really matter if you use a lot of power, we can help.

00:16:05 Ryan Karlin
Awesome! We're wrapping up on time here, but before we conclude the episode: if I was a listener (maybe one of those large power consumers), what are some of the main things that I should keep in mind as I'm looking to optimize my site?

00:16:21 Steve Gupman
Power users have a lot of headwinds right now. Demand is very high. It's hard to get the capacity in place that we need. Therefore, energy and your overall costs are rising. Power users have a lot of headwinds right now; energy costs are rising more and more. We didn't talk much about it, but there's grid interruptions. As the demand is increasing and the capacity is not quite there, it’s increasing the risk of grid interruption increases. And there's uncertainty on what's going to happen with energy in the future as our demand continues to grow and it's harder to put a capacity on. Having a distributed energy asset on your site can help to manage that. It can help lower your costs. It can help to make sure you have something as a backup in case the grid goes down, and it gives you an option for the future. If this is something you’re interested in us helping you with, we've done it before, we've been doing it for a long time, and we're happy to help.

00:17:16 Ryan Karlin
Well, it's been a great conversation, Steve! I want to thank you for your time joining us today.

00:17:20 Steve Gupman
Thanks for having me!

00:17:21 Ryan Karlin
That's it for another episode of the Power Bytes Podcast. I'm your host, Ryan Karlin. Thank you for listening, and I look forward to talking to you all next time.

00:17:29 Outro
Thanks for tuning in to the Power Bytes Podcast. If you enjoyed the show, head on over to cat.com and check out Electric Power for more exciting content. Let's power tomorrow together.