Industrial Insights with John Gaglio

John Gaglio 00:00

All right, welcome everybody to the Industrial Insights podcast. I have John Gaglio with me today at Newport Energy Consulting. And it is an interesting and unique realm that you spend your time in helping companies install electricity in their new ground-up projects and then helping upgrade projects that need more power. And this is an area that I've been wading into, which is how our paths crossed. And it's something I feel like electricity already boggles

John Gaglio 00:31

the mind of the majority of people in real estate. Just once you start getting to amps and bolts and transformers. So I really appreciate you being here and then upgrading is even more of a unicorn of things that a lot of people, you're not a grand developer, you're probably not too well versed in. So thanks for spending time with us today, John. Not a problem. Thanks for having me, Justin. So what do you do? Maybe that's a great place to just keep like a give people a flavor for

John Gaglio 01:00

the role that you play in the industry. Not a problem. No. So what my company does is we design and work with public utilities to essentially get power to things and things can be anywhere from a building to, you know, a, residential or let's say some sort of, you know, strip mall or something of that nature. My primary area of focus is commercial industrial tilt ups, large buildings. Yeah. Anything generally exceeding exceeding 2000 amps of service all the way up to

John Gaglio 01:30

to 12 kV medium voltage services. So anything that needs a lot of power, big buildings is what we specialize in and we basically handle the submittal to the ultimate energization for developers and that coordination process and everything public utility, primarily power and communication.

John Gaglio 01:52

And why do these buildings need so much power these days? feel like I came to you with a manufacturing group that is one of the few that are in California that are like in the automotive, aerospace, or usually industry is really all see a lot of manufacturing and still in Southern California. But properties in general like are getting more and more power. So why do you think that is? It's a combination of several factors. It's, know, increasing demand for EV charging, you whether it be the forklifts or the trucks. You know, companies wanting to provide a better working environment for their workers, such as fully air conditioned warehouses is another one. And just increasing automation, you know, as you see, know, material handling equipment and robotics come in, you know, these things take significantly more power than something you're storing paper towels in. So that's really driving the demand across, you know, on the macro holistically with the public utilities. EV is a big one. EV is a lot of load. It's a lot of capacity that's needed. outside the building that's one of the primary drivers and inside the building it's a number of things but buildings you know what you put in them what we call a connected load and what they actually use demand load they actually don't use as much as people think they do for the most part but even though they get that all day long yep and this is a principle and I always like to kind of start my my talks off with this one of the most important principles I would recommend all broke

John Gaglio 03:21

and everybody that's understanding electrical distribution systems would be the relationship between connected load and demand load. And we'll go into that, I'm sure later, but. And peak load too, I'm sure, or maybe that's part of that. Exactly right. Peak load would be your, what we would say is your peak demand load or how much I think of it as how much power you're sucking out of the system at any one moment is your demand load. And understanding those relationships can really help. think brokerage and the community as a whole understand what a tenant says they need versus actually what

John Gaglio 03:51

they'll draw from the Edison well, so to speak. And electric trucks. God forbid we get those someday and how much that will draw on how that will change the game a bit too. Yeah, EV load is, as we say, it's the pink elephant in the room. Relative to what buildings use, it's a lot of power, absolutely.

John Gaglio 04:14

I get a lot of the demand part, right, as we look at like a warehouse automation and kind of just everything, IOT and just like the digitization of a lot of the inside of box. But I think supply is probably the thing that most people know the least amount that I bet you know a whole lot about, which is our grid and the ability to service all of these buildings. What is just the general like state of the nation when it comes to SoCal and the grid and what

John Gaglio 04:44

what is available. So for the most part, the electrical power grid, I'm gonna talk on the, let's call it the Southern California market, right? Fifth largest economy in the world. let's all focus on Southern California. For the most part. There is power, as I always say, there's just not power everywhere. So if you imagine, know, if you have, that's why, for instance, EV truck charging, you see a lot of these truck depots being, you know, a lot of them easily going vertical or getting built in areas like the Port of Long Beach, right? The distribution infrastructure is much more built up. The port's, you know, 100 years old and you have layers of distribution infrastructure that have been improved over time that allow these types of loads to be served. All right. Where, and we start to go out in a lot of the Inland Empire areas where I work, at let's say Paris, Riverside County, you're talking old grape fields, know, where, you know, people were, you know, growing strawberries. It was never meant to stick a 4,000 amp, 480 volt service on every corner. So while all over the place, you know, while the public utility may have power at, let's call it the substation level, you know, if you're building is over here, you know, now you got to, it's, it's connecting point A and point B. So holistically Edison has power on the, on the, on the, on the macro scale, you know, there's plenty of power in the transmission lines.

John Gaglio 05:56

and at voltages of 500 kV and above. The problem is, is as I say, the spider web, right? If you consider like the generation source, the center of the spider web, well, if your building's at the end, now you got to connect the dots. And I think that's one of the biggest challenges is now, you know, the market and the economy and you know, society as a whole is asking for 4,000 amps on every street corner, so to speak, which presents some challenges on getting that. You got a lot of work to do, John. I'm in no shortage of work, sir. I'm in no shortage of work. So luckily I like what I do.

John Gaglio 06:26

But yeah, I would say plenty of power just not plenty of power everywhere if that makes sense Yeah, and part of it you talk about these rules that were unknown to me of like rule 15 or 16 and roll 20 and I Dug into that a little bit. Can you help explain that what that is? I imagine this is all connects into the background that you just gave us Absolutely. Absolutely. So I wish Edison called it a number 15 or a number 20 or a number

John Gaglio 06:54

16 because you know rule implies that there's some sort of rule and there's you know requirements within the tariffs so to speak but For example a rule 15 is I'll keep it simple consideration number 15 consideration number 15 right and I'll go into a rule 20 as a program but a rule 15 for example is a Fancy way of saying extending Edison's infrastructure so if you think of Edison is a big combination of extension cords if the extension cord ends here and you need to then extend that extension cord you are doing a rule 15 for

John Gaglio 07:24

For instance, I'll give you perfect example. If you're building a building 100 miles in the Mojave Desert and the power is in Lancaster and you need to get the power to Barstow, you're doing a rule 15 line extension. A rule 16 would be all on-site. So that would be all your transformer, your primary cabling, your secondary cabling. That would be your rule 16. And then a rule 20 is just a fancy term for taking a bunch of stuff that's overhead and putting it underground. Those are the three which I would think in Orange County in LA County that you would be doing so much of and I'm so surprised when they see new projects go up and then those have not gone underground and wondering like how.

John Gaglio 08:02

is the recipe not including that part of it. storm drains on top of sewer on top of the cities have realized that like just forcing these undergroundings everywhere in very old built up areas, you know, it almost becomes unconstructible. where if you're like an archaeologist, seeing what you'll find down there, exactly, you know, where if you're in Paris and it's old farmland and you have a 12 K lean 12 K V line running along your old grape field, of course, the city goes, well, we're doing a master plan road. We're doing a master plan facility here. We're going to condition you to put that underground.

John Gaglio 09:02

Yeah, I could see that. That's just the green field. Yep, the green field. It's a glorious thing. Yep, absolutely. And that's why I always like, especially in a Rule 20, it's always interesting because I'll get calls from the developers. And the call is, I need to know if Edison's going to make me put this underground. And I kind of chuckle and I said, well, Edison doesn't care if it goes underground. The city cares if it goes underground. They're like, well, I have to do a rule 20. I'm like, take the rule out of it. It's called a number 20. And go to the city, per your conditions of approval, and ask them, do they want this or do they not want it underground? So Edison's important distinction there. Edison's attitude, specifically, is we're an overhead utility. We just assume stay overhead. They're only going to go underground if we, the project, or we, the developer, go to Edison and say, we would like to put this stuff underground. Great distinction there. Right, those are not a one in the sand. They have their own stakeholders, their own needs, and their own things that are important to them to get a project approved. absolutely. What brought us together was a building that had 2,000 amps. We perceive we need 4,000, and we're going to need an upgrade and need the landlord to participate in this upgrade.

John Gaglio 10:14

I think that's probably a super relevant and helpful example for listeners to understand what's involved in that. What are the considerations people need to think when they're taking this into account? So I figured that's a great example that we're learning and doing that you walk the path on and maybe you can help with good just to people understand because I know what my understanding was before I met you and it was, gosh, it's gonna be 10,000 to $100,000. Everybody thinks it's impossible and never actually gets approved. No one really does it because it's perceived to be like impossible, but you know, it'll be painful

John Gaglio 10:53

expensive if you really think you need it and let's try and focus on places where we don't have to do it. Right. I'm like 0 for 75 of people who say they need an upgrade and who actually walk the path and get it and then choose the building that requires the upgrade. So I'm sure I'm not the only one and there's probably a hundred people that are like me in Southern California so it's super helpful to go through like okay when it's actually

John Gaglio 11:22

necessary, feasible, and is the right property for the right group. Yeah. I always like to define upgrades in two categories. The older the building, the harder the upgrade. It's common. If you imagine you have a really old car and you have an old Corvette and you want to put the modern Corvette motor in it, it's a much bigger undertaking than if you have a 2015 Corvette and you want to put the 2016 motor in, right? If you want to add horsepower. So it's the exact same thing with buildings.

John Gaglio 11:52

way to look at it is both above, I define it in two parts, above ground and below ground infrastructure. So first you need to look at okay above ground, does my electrical switch gear meet current design standards, does it, is it in a location that Edison's gonna find acceptable? I had a project recently just came up a couple days ago we were working on it, we started on an upgrade and Edison goes to verify the site and I had a feeling this was coming and I told the client they're likely gonna do this and Edison showed up and said well We're not going to upgrade that unless you relocate it outside. And what happened is essentially they didn't have it was designed or it was was in an old standard and then they wanted to upgrade the gear to a new standard and Edison said look we're not going to allow it in this building with no exterior access door and kind of boxed in they said you need to relocate this outside which now that relocation of that gear outside while you're at it yeah wouldn't mind right now it has underground implications meaning the conduit that goes into feed that gear now has to be moved outside so now you're doing excavation and all of that so the older the building the more challenging it

John Gaglio 12:53

becomes where let's say I do a lot of specific. No, there's not a specific.

John Gaglio 13:07

code change, really has to do, it really comes down to how much capacity are you trying to add? Are you going from, are you trying to go from a 400 amp service to a 4,000 amp service? Are you going from a 400 amp service to a 600 amp service, right? That's a big one. And then the condition of your electrical gear is a big one. If you have this old electrical gear that's rusty and just, know, Edison feels isn't going to pass muster, then there's a high likelihood you're going to upgrade it. But any new larger tilt ups, like I have developers all the time, like, you know, I build a 400,000 square footer and we put in a single 4,000 amp service and you we land a tenant we need a second 4,000 amp service. Generally that's like easier to do because you can expand the electrical room, you can you know cannibalize some parking, you can expand the island, you can set a second 10 by 12 slab box and you can bring in that second service. You know, you have an old building in downtown LA for example that the switchgear is like in a back alley under the you know, now you're it's just becomes much more you know, you almost reach a point where you need to demolish the building. and build a new building. any new tilt built, you know, 2000 plus, that's a newer tilt to building, pretty easy to add capacity to that. But you know, another thing, and then there's a third component to which I look at as a utility guy is upstream capacity. And if you imagine, I always tell developers is, excuse me, you need to think of electricity as water behind a dam. So if you have a dam and Edison is the dam, there's so much power behind that dam, so much water behind that dam. So everybody that essentially needs water from the dam, it reduces the amount of water or capacity. A great example of, you know, how understanding how electricity works is it's not a perfect comparison, but it's probably the best comparison is just compare it to water. Just like there's only so much capacity, there's only so much water. So, you know, if you're going from a 2000 amp service to a 4000 amp service, you know, the tenant isn't going to use 2000 amps more on the demand side. But if you're going from, let's say, a 2000 amp service to a 12,000 amp service, you you need to really start to say, OK. And I always tell everybody just take a breath and let's understand if the utility has capacity in the lines before we start talking about, you know, a specific configuration on site of structures and electrical gear to serve that load. upstream capacity is like if I'm a broker and I have a tenant reach out all the brokers that are going to watch this and the tenant goes we need 12,000 amps the light bulb that would go off in my head is we need to check upstream capacity with the public utility. we need to do that before we even start talking about on-site improvements. Don't waste your time. That's not possible. And in SCE territory, it's really actually pretty easy to look up. We have some resources. Edison has a process, an engineering study process, takes about 45 days. And they don't want to do too many of them spec, but for the most part, there is a mechanism for Edison to see if you can serve the load, especially if, let's say, the tenant they're upgrading to. It's a big project, too. Yeah. Or the tenant they're upgrading to.

John Gaglio 16:09

for a new building is an existing SC territory because they can say okay well you know XYZ manufacturing is using this building they use this much power they're moving to this building they'll probably use that much power or 20 % more. That was a great thing I didn't think about that.

John Gaglio 16:24

discovering to get on this particular project is like going back to like what is it that they have currently because there's a 98 % chance they're already a customer. Yeah, it's funny and I always pick at the developer or the brokers and the developers I pick at you guys and stuff and I always tell the developers you know what they say well I said the first thing you can do when it comes to power is stop listening and stop listening to the brokers and I don't mean that in a disrespectful manner I mean the most important question a broker should be asking their client in my opinion. tenant comes to you and says, can you find me a building? need 12,000 amps. The immediate question I would write down is that connected or demand, right? Do you have an existing facility? And if that tenant goes, it's connected, right? And they don't really seem like they truly understand what those things mean. You're like, okay, we gotta take a step back. Let's engage an electrical engineer, utility coordinator. Let's look at your existing facility and understand not how much power you're gonna hook up to your electrical gear, but how much power are you sucking out of the dam, all right? How much water are you taking from the dam? Because that's how the utility is going to look at it. The utility, as I always say, if you have 12,000 amps of electrical gear and you want to hook up 12,000 coffee makers, the utility doesn't care. What the utility cares about is, hey, Mr. Customer, how many coffee makers are you going to turn on at any one moment? And that's what demand is. And that's a very important principle to understand. And as I always say, helps you speak good utility.

John Gaglio 17:50

Yeah, I always thought it was like an Excel sheet that shows the itemized list of all your machines and whatever like a draw that they would pull that is probably still helpful. But I think it's no more helpful than just going back to what is your current demand now where you are. And like that's the proof in the pudding. You don't need to put this whole spreadsheet together. Well, and another another good example of how electricity works, I always like to use it is is let's say, you know, I always have the brokers and they'll come to us and we need 12 I say the old white hair guys, no disrespect to old white hair guys, but they pound it, need 12,000 amps. And I say, okay, well of what? It doesn't matter of what, it's just 12,000 amps. Electricity operates based. You get a lot of good broker experiences. Yeah, really good. And they're all good people, but it's interesting. And I always just, it's funny. I don't need the brokers. And one thing I really like to do is help the broker. I don't need you guys to be experts. I don't need you to convolve voltage to amperage. If you can understand like three basic principles, you're deadly.

John Gaglio 18:50

you're like 90 % more deadly than most brokers. But I'll you an example, for instance, if you have an electric motor in a building, let's say a 50 horsepower electric motor. that draws 200 amps, let's say, right? Or a battery charger that draws 30 amps, right? When that battery charger fires up, the maximum power it may use will be 30 amps. When you take an electric motor and you fire it up, it doesn't use 200 amps. For an initial couple tenths of a second, that electric motor may draw five or six times its nameplate rating. So which means that's why when Edison says 12,000 amps of what they're not trying to be a pain in the butt. They want to understand is XYZ manufacturing going to fire up 10, 200 horsepower, 50 horsepower motors that aren't going to draw a thousand amps, right? Or 2000 amps for a 10th of a second. Those things are going to draw maybe 20,000 amps or 15,000 amps. it's like, imagine this, imagine XYZ manufacturing turns on and the lights next door dim, right? For like a second, right? So that's why it's really important when they just say, we need 12,

John Gaglio 19:59

12,000 amps, it's real important. Next question I would say is one, is it connected or demand? And what's the tenant and type of use? Is it 12,000 amps of what? Right? Is it forklift charging? Is it battery? it, you know, is it a cultivation facility? What is it? And that will really help you be much more deadly when you start approaching the utility. Cause one of the most frustrating things on the utility part, and I always say why they like to talk to me about, about this stuff. is not that I'm a really nice guy or whatever. It's that I speak good utility. I don't speak good lease. If you're like the pro forma on leaseable space, I'm like, what the heck is he talking about, Justin? I don't know. How much is the building? And you're like, well, it's more to that, John. have your costs and your house meter loads anyway. speaking good utility and understanding a few basic principles, especially in the interaction with the tenant, can be very powerful and huge for you guys.

John Gaglio 20:52

So you had above ground, below ground, upstream. The transformer, we didn't talk about that at all. Sizing, that was one that came up that we were talking about for this particular assignment. How's that? how do you think about that? Or how do you factor it into the water analogy? All right. Is the size of the pipes? It's sort of. So if you think of, the way I would think of the transformer is the transformer is your gatekeeper for power. So what your transformer does is transform.

John Gaglio 21:22

one primary voltage to another voltage. A water equivalent is it's a pressure regulator.

John Gaglio 21:29

So it doesn't create power. What it does is it changes powers form into a more usable source, right? So based on the rating of your gear, if you have 480 volt electrical gear and you have a 12,000 amp feed coming in, the transformer transforms that power from 12,000 volts to 480 volts. And it's rating based on basically how beefy it is, is how much output power that it can then supply to that electrical gear. So your transformer is... very much a regulator and it's very much like one of the main components. However, getting back to the principle of connected and demand, just because you have a 4,000 amp service doesn't mean you need to quote a 4,000 amp transformer. It's in this case, a 2,500 KVA would be the largest Edison would set because again, we understand Mr. customer on the utility, you have 4,000 amps of coffee makers hooked up, but how many coffee makers do you run? And they go, you know, we run about 10 at any one time.

John Gaglio 22:27

I'm so worried about being throttled from a full potential override.

John Gaglio 22:57

power. If you have a 2500 kVA transformer there and Edison sets it and then you land a tenant that only runs, and I'm going to speak in amps to keep it simple. You have a 2500 amp transformer, but you only run 400 amps through that. Well, think about this. That's another 2100 amps that's reserved in that transformer based on its potential for output that doesn't go to another customer. So given that power is not infinite water behind the dam, the utility wants to appropriately size the transformer based on how much power you're gonna use. So there's enough. so there's enough power for everybody, you know, and that's the reason they did it. If the utility sized the transformer to every service that we put in a building, meaning a 4,000 amp service, they set quote a 4,000 amp transformer, the grid would be an utter collapse because they would have to imagine at any one moment, all of these people could fire up 4,000 amp transformer

John Gaglio 23:57

which would exceed the rating of the circuit anyway. So I always tell people when they, again, pick on the old white hair guys here, the old white hair guys, Edison, we need a 4,000 amp transform, that's our 4,000 amp service. I go, if you go buy a Ferrari, does that automatically mean you're gonna go 160 miles an hour everywhere? And they go, no, but I could. And I go, right, but you might not also. So given that power is not infinite, like speed limits aren't infinite. How dare you rip off my Ferrari?

John Gaglio 24:27

So that's a great one of the transformer. Think of the transformer in simplest form as your gatekeeper for power. It's not overly important for the tenants to get fixated on. And I had this conversation come up the other day. If I'm a broker and you have 4,000 amps of rated electrical gear, it would be truthful, honest, and righteous, I would say, for a broker and a building owner to say to a tenant, have a 4,000 amp service here. OK. And then when the tenant goes, I mean, does the utility, we'd like to verify your loads with the public utility. to see how it impacts their system upstream. Because it's not just about the transformer. Let's say you have a 4,000 amp set of electrical gear and you have a 4,000 amp transformer. How do you know that three poles up, the branch fuse break, there are the breakers on the pole aren't, know, Edison didn't have the right breakers and they only have 800 amp breakers up there and they should have, you know, a thousand amp breakers. Well, where does it be getting in? So that's the point of brokers and developers and all that. They shouldn't be commenting on utility owned, operated and provided equipment until the load for the tenant is vetted by the public utility. I mean, if the transformer was significantly undersized, I probably would not keep that from a tenant. I think that'd be very dishonest and disingenuous. But if you have a 4,000 amp service and you have a relatively decent sized transformer, it's just like, hey guys, get us your loads. Let's have the utility take a look at it. Yeah. It's amazing looking at, in this particular assignment of all the buildings that are in the IE.

John Gaglio 25:58

certain size range and you're looking for a certain amount of amperage and then you find the 30 buildings that say they don't have it but it could be upgraded and you call all 30 and you say hey what's it going to take and where are you in the process and then you get like a

John Gaglio 26:15

gradation of answers of like how far they have gone, how knowledgeable they are, what the likelihood is, how long they think it'll take, what it'll cost. And it's been an interesting experience to try and like bring clarity to the client of like, this one is most attractive because it's furthest down the line than the ownership is most prepared to deal with it. Yep. And if you have an important thing is what I find is if you have a 4,000 amp service and you have a tenant shop, shopping for a 4,000 amp service. Most of the time, unless the transformer was significantly undersized by the public utility early on, it's gonna shock all the broker community here, but they don't need a transformer upgrade. Because unless they're the type of tenant, cold storage, heavy manufacturing, injection molding, know, tons of EV load, for the most part, if you're a common warehouse distribution user, Yeah, you may have 4000 amps of stuff connected, unless it's a significantly undersized transformer, most of the time you're just fine. So I'm kind of concerned more that, you know, brokers or not brokers, but let's say tenants are being like steered away from a particular building when that building could adequately very adequately serve their load. Just because, you know, somebody thinks that a 4000 amp, you know, service needs to have a 4000 amp transformer. It's all dependent on the tenant, the type of use and how they interact. and operate their building.

John Gaglio 27:43

Yeah, what a job to figure that out for each building. And then you think for each landlord leasing team, if they market their properties, could they like help make it easier for people to understand when they're shopping, like here's what we have and what it's likely to be adequate to serve or something along those lines. definitely don't get any of that out there in the marketplace that like probably would help connect a lot more tenants to buildings. Absolutely. And I think the one of the number one and any brokers or leasing agents listening to this is I would start with the rating of the service. I have a tenant shopping for 4,000 amp service. I'd reach out to a particular developer and say, what service do you have? they go, we have 4,000 amps of electrical gear. You're 90 % there at that point. Now you need to put the onus back on the tenant and make sure that the tenant either has a like facility and that you can compare that load or the tenants willing to put together kind of the type of equipment, its voltage and what to be served. Again, getting back to that motor principle.

John Gaglio 28:43

Tenant needs 4,000 amps. It's 4,000 amps of what? It doesn't mean they need to do electrically engineered single line and load drawings, but it does mean they need to come with some data, right? They need to come with a little bit of data so we can vet it with the public utility and say, okay, you can more than adequately serve the load. One of the most powerful tools, honestly, is a like facility. The utility loves that stuff. If I have Tenant XYZ manufacturing, they're currently operating in this building, they want to take this building, the utility may require you still to do a study or they may take some time.

John Gaglio 29:13

but it's much more easy for them to verify than let's call it, you know, we're moving from Texas to California and we have no idea how the load operates and utility bills can help with that. But the more data we had a great saying with when dealing with you public utilities, a bunch of crap in, pardon my term, you get a bunch of crap out, right? So give them good data in and you'll get good data out, you know, but we want to just say, you know, again, the old white hair guy approach, we just need 4,000 amps. Just tell them we need 4,000 amps. Like, okay, there's much more to it than that. You know, I'd be like me.

John Gaglio 29:43

you call in Justin saying, I need a building and you go, well, what market? It doesn't matter, Justin. I just need a building. And you're like, but John, what square footage? Justin, what are you not understanding? I told you, I need a building. And you're like, John, I'm like, they're just buildings, Justin. And you're like, John, do you want a hundred thousand square feet? You want 300? How much parking do you want? Truck docks? What do you want? I'm like, why are you making this so complicated? Justin, I told you, I need a building. That's exactly what we do to the public utility, you know, and then wonder why they can't serve the load. know, without a doubt.

John Gaglio 30:11

It also was very interesting to explore in an upgrade situation, costs, how much are things and who pays for them and over what period of time. And I think that's something that most people, it's very opaque and how you had described it had helped me understand it a little better between what you expect the tenant or landlord to pay for and what participation Edison might

John Gaglio 30:41

make in this knowing that they can now serve a new client and perhaps a new load? Can you go through that a little bit? Absolutely. So any time you're doing, let's call it power specifically, doing, let's call it an upgrade or a ground up. there's two components of cost. One is your utility fees. And how we break it down is you're going to pay the public utility to pull cabling and set equipment, right? That would be your utility fees. That's one half of it. And the other half of the puzzle, I think some of the developer guys may call it their hard costs, right? It would be the costs of you installing the ducks and structures, right? So those are always your two things you factor. And I've had developers get bit where they'll factor in their hard costs, their construction costs, and you know, they pay an

John Gaglio 31:24

electrical contractor, two or $300,000 to put in this infrastructure. And then one day I send them a bill from Edison for a half a million dollars and they're like, Whoa, I didn't book this in. They're like, what is this fee? They're like, I paid 300,000. I'm like, yeah, you paid. to development. Right. Welcome to development. Right. You put all this underground in, this is the fee for the utility. They're not charging you for air. They're charging you to pull wire in that duct and set transformers or pad mounted switches on that equipment. And those are the two components of that. anytime you're doing an upgrade, what's nice is if you're upgrading an

John Gaglio 31:54

existing service. And let's say you're going from a 500 kVA transformer to a 750 kVA transformer. So the only costs you incur because the infrastructure is in is utility fees. Most of the time, most of the time, a transformer upgrade comes at a zero cost. Meaning if you're just upgrading the transformer and you're not doing any excavation or any upgrades, then the future load being generated by the building will go to offset the cost to serve, which essentially means that Edison says, hey, you're going to use a whole ton of power. So we're going to give you a whole ton of allowances, which means I get an invoice and I send over the developer. and say here, here's your zero invoice for a transformer upgrade. I upgraded one service from a 500 kVA transformer to a 2,500 kVA transformer in Fontana. So the biggest size Edison sets, probably $100,000 transformer. And I got a bill for $891 from the utility. Because the allowance covered so much of the cost, it just didn't cover that last $891. How long do you think it takes to get paid back on that for them when you think of tenant drawing power for a five-year

John Gaglio 33:02

or 10 year lease, or 15 year lease. It's not like Edison's like, show me the contract to know that I have x amount periods of power draw to get my payback. On the Edison side, I mean, I wouldn't know. know, they may, who knows? mean, you're, they're a new dig. The investor, investor Your investor mind, right? So the utility will, I mean, you're not going anywhere, so they'll get paid back eventually, I guess is how they see it. But a really important component, and I've had developers,

John Gaglio 33:31

to do this where they'll try to speculatively upgrade the transformer. And you can get yourself in a lot of trouble by doing that. If money is no object, sure. But let's say you have a 500 KVA transformer and you're like, we need to upgrade to a 2,500 so we can land. We're gonna be prepared for most tenants, right? Well, you don't even know how the tenants gonna use the building. So why are you upgrading? But let's say you upgrade to a 2,500 and Edison grants you $150,000 in allowance. You upgrade to that 2,500, congratulations, you get a tenant in there and that tenant only uses 600.

John Gaglio 34:01

amps? Well guess what happens a year later? Edison says we gave you 2500, I'm gonna talk in amps, amps worth of allowance. You use 600 amps worth of power. Here's your nice big deficiency bill. And then the developers close the books. you're taking capacity off the grid and that has a cost. Right, well even further we granted you rate payer of funds, rate payer funded allowances in hopes of a return on a particular amount of power usage. is different. Yeah.

John Gaglio 34:31

Our math is different and the developer, the problem is, let's say it's on a ground up, the books are closed. You guys have leased the building. Everybody closed the LLC and I get 150. I'm in Mexico, John. Yeah, you're in Mexico, right? I get $150,000 deficiency bill and they're like, what is this John? And I'm like, yeah, you wanted a 2,500 KVA transformer. You landed a tenant that used 500 KVA or 500 amps. They want their money back because they gave you all this rate payer money upfront. So it's, there's,

John Gaglio 35:01

There's some nuance there in how you size the transformer both on a ground up and as well as for either an existing tenant or an upgrade. The most accurate and honest way to do it is to size the transformer based on the load. But we recognize on the utility side, we also want to give the developer the most marketable product. I don't want to. You're specing it out on the 95.

John Gaglio 35:22

of these projects. So what the approach we try to take is and and I'll give a perfect analogy one of my favorite Edison planning managers I had this conversation and here's how I used it I described it to him said look if I'm building a 10,000 square foot Starbucks And I call you up and I say, want a 2500 k amp transformer because I could land some oddball tenant here. That doesn't kind of make sense, right? What's the likelihood that my little dinky building, just because I'm putting in a big service, is going to need a big transformer? Not likely. Now let's say it's the flip side and I'm building a million square foot building. Well, I also don't want a transformer that can barely run the office coffee maker and maybe I can turn on the office lights, right? So I describe it as a boat. You're building this big new beautiful boat. go really fast. want to go 150 miles an hour and you go to the boat manufacturer and they go, you know, what's with this trolling motor? I just built a speedboat and they go, well, we don't know if you're going to go 200. So we gave you a trolling motor and you're like, but it's a speedboat, right? I would describe that as, square footage, right? It's a million square footer, right? What's the likelihood I'm going to use more than 10 amps. So what you do by that, that analogy I say is you try to meet the utility in the middle and you say, look, I recognize I might not use Nita 2,500 amp transformer, even though it's a million square

John Gaglio 36:36

square footer, but I'm also probably going to use much more than a 150 kVA or 150 amp transformer. Can you meet me in the middle? Something that'll serve the highest potential likelihood of tenants. And I've had a lot of success with the utilities and they have a mechanism in their standards to do this, to size the transformer as accurately as you can based on the square footage when it's still a spec building. Yeah.

John Gaglio 37:00

make the best decision you can at the time you have to make it. absolutely. Absolutely. And play nice in the sandbox. That's what I say. If you approach the utility in a hostile manner and you don't speak good utility, you know, they're literally going to hang up the phone and a bunch of clowns don't even know what they're talking about. Literally. I mean, I talked to these guys privately. So if you can come with a little bit of knowledge and a little bit of how they think you're to have much better success in understanding their rationale of maybe not giving you the largest transformer. I love talking about this because it's the question I get most from brokers and developers is I need them to give me the most amount of power. And it's like, there's some creative negotiation that happens. Yeah.

John Gaglio 37:44

In this example of this upgrade, like this project that we have the potential to execute on, we got switch gear, we got the transformer, we have this main line service, and what could go wrong? Now we've looked at the connected load, we've looked at the prior location, we know it's new construction and it doesn't have any legacy issues, it has existing equipment.

John Gaglio 38:12

time could go wrong in terms of like how long for different parts of it or any like backlog if you need a new switch gear, what are common like speed bumps that you would expect to experience? The single biggest one and we're gonna talk about all of this and whoever watches this podcast is gonna hear this John Gaglio guy ringing in his ear for the next 10 years is upstream capacity on the utility side, right? With increasing demands for power. Don't forget that part. Yeah, don't forget that hole. There's only so much water behind.

John Gaglio 38:42

the dam thing, but increasingly demands on the the increasing demand for power on the public utility upstream of the building. Because again, you have one circuit feeding one area and you know, again, everybody wanting to put an EV truck charging site on that circuit that needs 12 billion amps. And, you know, your your grid constraints are going to be the thing and there is going to be no macro holistic solution. You know, you're not going to have 200 years of electrical distribution infrastructure come in and 4000 line crews just upgraded all at once. It's never going to happen. It's going to be solved on the micro site by site, project by project. So the biggest single thing that can go wrong when you're talking about a lot of power is one, you can start your process, but maybe you're not, you know, don't have a final design or you're not approved or you know, you'd spec and then somebody beats you to the punch and they take that capacity because the one of the most important principles. The neighbor leases the building. The leases the building. a second need and they have a big draw and they get their approval.

John Gaglio 39:42

and says from what we have available, we've allocated it and. Sorry. Yeah. And it's first come first serve. I would always, the developers always freak out when I say this is first come. And I would say, as it should be. Right? Sure. Because they want to give the load and they want to give the power to the appropriate user that needs it. Right? An analogy I always like to use, if you have two buildings right next to each other and you own both and let's say it's one owner that owns both buildings, you land a tenant here, but you don't land a tenant here. And you, you have a 500 amp transformer and a thousand amp and you go, great, we've reserved all this capacity. And Edison goes, that's it. And you go, okay, great Edison. Well, XYZ manufacturing, they decided to take building B, not building A. Can you swap the transformers? Edison goes, sure. It's the same anyway. We'll swap them, right? Now let's say you have two competing developers. Edison sets a speculative thousand KVA transformer over here and they get a speculative 200 because whatever this guy got it. We really like this guy, right? Now let's say this developer lands a tenant in the building that actually needs that thousand KVA, right?

John Gaglio 40:48

Well, Edison can't call up this developer and say, hey, you know you that thousand KVA we gave you a spec because we're real nice guys. We're going to go take that off your transformer pad and give it over to this developer because they actually landed a tenant that needs it. Can you imagine? mean, can you imagine if I get a call and they're like, hey, John Edison's out here downsizing our transformers? I mean, the developers are going to be out there with 12 gauge shotguns and Rottweilers, you know, guarding their transformer. Right. And so the only way Edison has to prevent that kind of hostile approach

John Gaglio 41:18

is to attempt to size the transformer as appropriately as they can based on either the size of the building or the anticipated tenant for that building. Yeah, that makes perfect sense.

John Gaglio 41:34

Last, think it would be timing. Maybe you can help people understand like a lead times and why they are what they are. So lead times for a common transformer upgrade in SCE territory and most of the districts I work in or anywhere else, let's say RCMU, you know, I work on a lot of other municipal utilities. You can get a transformer upgrade done in 14 to 16 weeks in a good planning office. So from when you submit and this is from when you submit, this is not, I love thing. when you get them what they need. You don't get to call Edison, send them a sticky note and a piece of paper, and then the 16 weeks starts, right? You need to get them single line loads, the appropriate, you know, and same with the city, a complete submittal package, and then 16 weeks, you could have your trust. Exactly. My dry utility 101 presentation starts off with a slide and it's the most term I hear from the developers. Just get Edison going. You've probably heard, let's just get.

John Gaglio 42:33

get Edison going. love this sentence and I tell them guys let me stop you right there. There's no get Edison going. There's get them what they need and they'll work on your project and I've had great results. I love Edison. I think they do a great job. All my Edison people I work with I think if you get them what they need they do a phenomenal job. The failure is generally on our side of not getting what they need and then expect them to still perform for us. So 16 weeks for a transformer upgrade and then various other configurations of apparatus is you know take much longer if you need you know.

John Gaglio 43:03

I'm gonna just go buy one from the main main effect and ship it from Mexico or we got a warehouse somewhere where they're onto these things? Well, what's good about Edison when you do a project in SCE territory, know, these things are going bad, they're blowing up, you know, the homeless are, you know, know, messing them up, all kinds of stuff. So Edison keeps a certain amount of transformers in stock and on hand. And so anywhere from a 150, I'll talk in amps, 150 amp transformer to a 1000 amp transformer, they end up having a bunch, right? So they can borrow one from another yard or so.

John Gaglio 43:36

you start to have potential lead time issues is when you have transformers that are 2500 kVA where it's a special order. Maybe Edison only has a hundred buildings in their territory that have these transformers. So they may not have, they may keep a few spares, but they're not as readily available. For the most part, SCE territory are in SCE territory. Transformers are pretty readily available because, know, again, you know, outages are a big deal. If you go down and your transformer blows up, they want to be able to show up and set something a little bit smaller, a little bit bigger. So it's really kind of a non-issue in the SCE territory in my opinion.

John Gaglio 44:13

Switchgear running right now, you know, we had a switch gear crisis. We came out of COVID and you you had lead times of 60 weeks and 70 weeks and that seems to subside in a lot of the electrical engineering, you know, people I deal with. And right now from everything, you know, the, the rumor around the campfire for the most part is 35 to 40 weeks on switchgear. And, and we've been getting switched here sooner in some cases. And it's all dependent on the capacity of the switchgear, know, 4,000 amp boards. There's much more demand for them than 400 amp boards. Right. So you kind of have that 30 week, or 40 week, or if you're doing an 800 amp board, you might get that in 16 or 20 weeks. But yeah, not as bad as it was a year, year and a half ago. We really feel on our side that the switch gear crisis is alleviating a lot. Yeah, there's a lot of crises all and everything all at the same time. Yes, sir. Yes, sir.

John Gaglio 45:03

Well, super we've dusted a whole hour and that's probably just like the super basics for you. Yeah, we didn't even feel like people need the super basics. know that I did and there's still so much more that we could go over. That's a great primer. And I appreciate you doing like educational talks and that like you're used to knowing what areas are that people trip up on and like being able to communicate it to them so that they can understand and feel like there's a lot of that out there. So I appreciate you doing that. No, no problem. I love talking about this stuff. I always joke with the GCs I work with. They'll be like the storm drain truss braces and I'm like. What the heck is this guy talking about? I'm like, don't ask me how to build a roof. But if you want to talk about electrical distribution systems, call me. We'll talk about it till you're blue in the face. But a couple things I'll end on is understand connected and demand load, how many coffee makers you have in there has nothing to do with how many coffee makers you'll run. And then play nice in the sandbox with the public utility. It's a human being on the other end of that phone. They're good people. They want to get the work done. It's not a robot. And I can tell you this. There's a lot of favors I get done with Edison. that are still meet their standards, that are still honest and righteous because let's say on two projects ago, I didn't take it as an opportunity to escalate. I just said, hey, I know you're behind. I know you need this, that, and the other. So guess what? Two projects later from that same utility planner, I need a favor. They're like, hey, John, I'll take care of you on this one. And I think that relationship, same with developers and I several developers now. They're like, how are you able to pull that off? It's because you remember three projects ago when you built one on vacation and you wanted to call his boss because he was out the week and the project couldn't lose a week and I told you we're not doing that. Well guess what happens now? Now he's going to do you a favor, you know? And I think, you know, understanding when you need to take things to another level and escalate with the public utility and also understanding that playing nice in the sandbox with these folks can really help you have a successful project because there's, I don't want to say there's a lot of ways that things can be designed. And if the utility planner is approaching it from the mindset of only taking care of the public utility, it's going to cost you a lot more. If he's approaching it from the mindset of, you know, being conscientious of the customer's pocketbook and meeting the utility standards, it's going to cost you a lot less. And either way, he would be perfectly justified, perfectly honest and perfectly righteous. So you want to keep that human being on the other end of that phone happy with you and treat them professionally and politely and understand when we need to escalate and when we truly don't, you know.

John Gaglio 47:36

You know, every episode I should just change this to industrial relationships. I like that's what it's all about. So it's so great for you to bring that. I love to say this with developers or utilities ever says I'm not a I'm not a utility guy. I'm a long term relationship guy, you know, and with my developers, I kind of like hurting their feelings sometimes because to me that's consulting. If I don't tell you what I think, which might ruffle your feathers, then I'm an employee. Right. Because you're paying me as a consultant to tell you what I think. not which is just gonna make you feel good so I get another paycheck, right? So I think you're, in my opinion, I'm actually doing my customers a disservice. You know, and I wanna be professional and courteous and non-combative about it, but I also wanna say like, we got two plans here. My opinion, this is the stupid plan, and this is the much better plan. So you decide which way you wanna go, but I'm telling you this is stupid. And you decide how you wanna go from there. And I think a lot of the- With your best interest in mind. Yeah, To get you where you wanna go. Yeah, and the hierarchy too. I always tell my developers like,

John Gaglio 48:36

The people that get called back first are the public utility, then you, then the GC. Because if the public utility's not happy with John, I can't do my job for you anyway.