The past year in the US renewable energy industry has been the story of a strong tailwind offset to some degree by various headwinds. Conditions are improving. However, Donald Trump will be a cloud hanging over the market all year. Rising electricity demand due to AI and electric vehicles may usher in a period of more rapid growth than at any time in the last 20 years. Developers are wearing more risk as they delay signing power contracts until the last moment so as not to lock in electricity prices that they cannot deliver due to rising costs.

Industry consolidation is expected as the need to post millions of dollars in security to hold interconnection queue positions and order main power transformers and other high-voltage equipment 18 to 24 months ahead of need are making it harder for smaller companies to stay in the development game. Rising property insurance premiums due to catastrophic weather events are causing some companies to look at forming captive insurance subsidiaries.

Four heads of US renewable energy companies talked at the Infocast Projects & Money conference in New Orleans in late January about these and other trends. The four are Hunter Armistead, CEO of Pattern Energy, Michael Alvarez, COO of Longroad Energy, Chris Moakley, CEO of Excelsior Energy Capital, and Jason Allen, CEO of Leeward Renewable Energy. The moderator is Keith Martin with Norton Rose Fulbright in Washington.

Moderating Headwinds

MR. MARTIN: The Inflation Reduction Act was a strong tailwind this past year for project developers, but there were also significant headwinds in the form of an escalating cost of capital, enduring labor shortages, supply chain difficulties and rising global tensions. Hunter Armistead, as we enter 2024, has the strength of either the tailwind or the headwinds changed.

MR. ARMISTEAD:  We may have been at highest headwind speed in October. I think we were at peak problem, which happened to be when we were trying to finance an $11 billion deal. It does feel like the headwind speed has moderated some as we start 2024. Interest rates have some possibility of easing a bit. The supply chain issues also seem to be improving. We still have massive issues on high-voltage electrical equipment, but at least as it relates to solar panels and wind turbines, things seem to be improving.

MR. ALVAREZ:  I agree with that. We are still seeing some confusion in the markets around the Inflation Reduction Act guidance. I echo what Hunter said on the electrical side. We have now had to start buying main power transformers and high-voltage switch gear 18 to 24 months in advance to assure deliveries in line with our construction schedules. This puts a strain on capital. High interest rates have not helped.

MR. ARMISTEAD:  You didn't list tax equity. The availability and cost of tax equity are awful. I don't think they have gotten any less awful.

MR. MOAKLEY:  The ability to sell tax credits directly has been part of the tailwind. The market still needs to shake out a bit, but the emerging tax credit sales market has added needed liquidity.  

Another helpful development is developers are able now to get a construction loan without having a tax equity commitment in place. That is also part of the tailwind.

I agree with what has been said about the headwinds. Availability of transformers and switchgear and the timing of procuring that equipment are still issues. However, the cost and availability of solar modules and maybe batteries have improved.

MR. ALLEN:  The Inflation Reduction Act brings a certain amount of welcome stability for the first time in years. Many details remain to be worked out, but the one part of the tailwind that may be easy to overlook is the tremendous amount of cooperation among my peers and the electricity offtakers on finding ways to get deals done. More than in the past, people are figuring out ways to manage the headwinds and still move forward.

Trump

MR. MARTIN:  How would a Trump victory in November affect the market?

MR. ALLEN:  We have seen control of one or both houses of Congress and the White House change hands in the last decade, and renewables have proven resilient. There is huge demand for new renewable energy. This is an election year, and it brings new headwinds that we all have to manage. We embark on our projects carefully, but I remain bullish on growth whichever way the election goes.

There has been a lot of chatter in the market about the risk that the IRA might be rolled back if there is a big shift in power in Washington. I think the statute was well crafted. Once we get into 2025, the incentives are technology neutral. This makes it harder to repeal. Could there be a stronger headwind due to the election?  Sure. Is it a major new headwind?  No.

MR. MARTIN:  Some people are describing it more like a potential hurricane than a headwind. Chris Moakley.

MR. MOAKLEY:  Former President Trump made that infamous proclamation that he will be a day-one dictator, so that irrational threat exists. Keep an eye on Congress. The two houses are almost evenly divided politically. I believe there is informed and intelligent bipartisan support in Congress for renewables, but keep on eye on the potential for a Trump executive branch to seek ways to rescind or slow down administrative guidance.

MR. MARTIN:  Ironically, the Supreme Court heard arguments yesterday about how much deference should be given to executive agencies. It seems like the conservative Trump justices want to restrain executive power. Michael Alvarez?

MR. ALVAREZ:  I think if you just focus on Trump, you might come up with a different answer than if you focus on the government as a whole.

If you map out the announced new installations of manufacturing capacity in the US, I don't think there is a single one that is in a blue state. When push comes to shove, the number of jobs that are being created by that kind of investment is so overwhelming that it is hard to imagine the entire Republican caucus voting for repeal.

The other point is that litigation is a two-edged sword. What we have seen over the last four years is throwing stuff at the Supreme Court to see what sticks, and some of it does. No matter who wins or loses, there will be a ton more of that. It adds sand to the gears for people trying to develop projects.  

MR. ARMISTEAD:  I remember when Trump was elected the first time. I remember my son coming to me the next morning and asking whether we are going to be okay. He knew about Trump's animus toward renewables. We all survived just fine. There were actually a lot more opportunities. Our transportation system is electrifying. Load is growing. We still are the very best alternative economically to meet the increased demand.

It is not as if utilities, state and local governments and even industrials are going to shed their commitments to green. It is too late to turn back the clock. The big stuff will keep us on the path we are on today.

There could be some major hiccups if there were significant changes in policy, but I agree with Michael that the thing that is so durable about the IRA is the fact that we have 80 new manufacturing facilities.

Inflection Points

MR. MARTIN:  Inflection points are things that change the direction of the market. What other potential inflection points besides a Trump victory are you watching for in 2024?

MR. MOAKLEY:  Keep an eye on China. Are we going to have elevated trade tensions with China?  What will happen with Taiwan?  If nothing else,  that alone could have a serious impact on the availability of batteries and the development of projects that include batteries.

MR. ALLEN:  There could be a positive or a negative inflection point if there is action or inaction around transmission and permitting. They are both major choke points for the industry currently. If the government would address these issues, project development could accelerate materially. If we continue on the current path with no actions taken, there is no way we hit the long-term clean energy goals that are currently in play.

MR. ALVAREZ:  We are starting to see some grid operators take action to clear bloated interconnection queues.

The capital required to play the game is massive. We expect this will lead to noticeable consolidation somewhere along the line in 2024. Putting up $100 million tickets for projects to play is extremely expensive, particularly in the current interest rate environment.

MR. ARMISTEAD:  Maybe mine is a hopeful pivot. Since 2003, with the exception of a few brief periods, the cost of monetizing our tax benefits has been relatively stable. That has allowed us to calculate the prices at which we can afford to sell electricity. It is hard to price your offtake when you are not sure what your cost is. Capital costs increased materially in the last two years. Transferability has the potential to restore stability. I am hoping that we get back to a more reliable and consistent view of what our weighted average cost of capital really is in short order.

MR. MARTIN:  Northern Virginia welcomed 250 data centers in the four-year period 2018 through 2022. Peak demand for electricity increased by 50% in the state over the same period. The local utility, Dominion, now supplies about 20% of its electricity to data centers. The market has yet to feel the full effects of AI and electric vehicles. Jason Allen, how hard is it to find an offtake contract in the current market?

MR. ALLEN:  If you are willing to work with the types of offtakers you mentioned, demand is huge. But those parties want specific things. They want projects that are close to their load nodes, and they want certain output profiles. If you have a project with an interconnection permit, there are plenty of potential customers for the electricity, but you have to be willing to meet more of their needs than just providing them energy.

MR. MARTIN:  Is it hard otherwise to find an offtaker?

MR. ALLEN:  No.

MR. MARTIN: Is it easy?

MR. ALLEN:  If you have a project that is ready to build, it is easy. The larger problem for the industry is having a project that is ready to market.

MR. MARTIN:  Hunter Armistead, you spent almost 15 years as head of development chasing power contracts.  Is it easier today?

MR. ARMISTEAD:  The issue that we are grappling with is how to get the pricing to the level that provides sustainable returns that can attract capital.

The market is pivoting from where there was too much supply for not enough demand to where there is much more demand but not enough supply. But the prices have not moved up to provide the returns that are necessary for us to attract the capital needed to build. You can get a PPA. That's not hard. Can you get it at the right returns?  That's more difficult.

MR. MARTIN:  Michael Alvarez, you were on a panel last summer about how offtakers are reacting to requests to increase prices in power contracts that were signed some time ago. I heard from one developer in December that his company is making its fourth visit to an offtaker to ask for a price increase. Are you finding offtakers are still receptive to these requests after the third or fourth visit?

MR. ALVAREZ:  I guess it is better to be lucky than smart. We have not had to go back recently to ask, so I wouldn't know the answer to that. I suspect there will be resistance to it on a fourth ask. That's kind of wearing out your welcome in my view, but to Hunter's point, if you can't build the project, you can't build it.

The issue is the timeline to build projects has lengthened considerably. I need to buy a main power transformer today to get a project in 2025 or 2026.

If I am putting out capital in huge chunks to buy switchgear and main power transformers and post collateral to hold a spot in transmission queues and it takes at least three years to work through all of the development issues, you have to build a cushion in RFP responses so that you do not have to ask for re-trades, but the cushion makes you uncompetitive.

Some offtakers are aware of this dynamic, and they look for quality and deliverability and will pay up for our experience. They will pay to ensure certainty and delivery in a specified time.

MR. MOAKLEY:  I think during the height of COVID, PPA negotiations were a little bit like fishing. You got a customer on the hook and then you yanked up. That seems now to be changing. I think offtakers are more focused today on whether projects will be built, and that leads to more reasonable price discussions when that occurs.

MR. ARMISTEAD:  Our SunZia project that closed on the financing at year end was a massive $11 billion project. We held off signing power contracts until right at the end because the reality was we were uncomfortable committing before we truly knew our cost.

That is putting more strain on the industry because it requires more risk up front. Is it more risky to sign a PPA and realize you just permanently put the project underwater or to carry all the exposure and hope that the market is actually going to hit your hook, so to speak. It is putting strain on people's balance sheets to do that.

MR. ALLEN:  It comes down to transparency. Parties are willing to work with you, and what these folks said is dead on. If you have a project that you can execute and it has the attributes that the offtaker is looking for -- such as domestic content and the correct project location -- you will be able to secure a deal that works for both parties. However, they are not going to reward stupid. If we signed a bad deal and it is our fault, they are not going to give us more money. If you have been open and transparent, the offtaker will work with you to solve any new issues in a way that works for both parties.

Golden Age?

MR. MARTIN:  Hunter Armistead, electric vehicles, data centers and AI are contributing to increased electricity demand. I was thinking we are about to enter a golden age for the independent power industry -- a period of more rapid development of new projects than at any time in the 45-year history of the independent power industry -- but you have a more nuanced view.

MR. ARMISTEAD:  I don't know that I would call it a golden age, but it is a marked improvement on the last 25 years of little growth in electricity demand.

Renewable energy developers have succeeded to date by developing and flipping projects. The question is whether we are going to create renewable independent power companies that make sustainable returns that draw the money needed to build.

My view is because there is now more demand for renewable electricity than there is supply, we have the ingredients for success, but we do not have the grid for it. We are not going to be able to capitalize on the opportunity because there is not a big enough highway system to accommodate all the traffic. We are not even close to what is needed. That is the part that is most daunting to us.

MR. MARTIN:  I read your SunZia project was under development from 2006 until it reached construction financing at the end of 2023. That speaks to some of the other challenges, like the difficulty getting permits to build.

Jason Allen, FERC says there are 2,000 projects sitting in interconnection queues and the average wait time is five years. Gabriel Alonso, formerly CEO of EDP Renewables North America, said on this panel last year that it takes two to four years to develop and build a solar or wind project, but at least 10 years to build the transmission infrastructure needed to accommodate it. Does this suggest there will be a boom in storage because standalone utility-scale storage helps to mitigate grid congestion.

MR. ALLEN:  That is certainly one factor driving interest in storage, but it goes to the much broader energy transition that is ahead of us. Storage represents a completely different way of running our power system. It adds reliability to the grid. It alleviates the need for some additional power plants. It is faster to add large batteries than to build a new power plant.

MR. MARTIN:  Michael Alvarez, is storage now part of every wind and solar project?  If not, why not?

MR. ALVAREZ:  It is part of our portfolio. Probably 80% of our solar projects have storage. We have some standalone storage, but most of our efforts currently are focused on solar plus storage. We have not been developing as many wind projects in the last couple years. We do not have any wind-plus-storage projects.

MR. MARTIN:  When would you not add storage?  Chris Moakley, go ahead.

MR. MOAKLEY:  The trend is for storage to be part of new projects, but the customer has to be willing to pay a price for electricity that compensates for the cost of the battery. In most cases, the customer has to be willing to pay more for a shaped product.

Construction Schedules

MR. MARTIN:  Hunter Armistead, let's switch to current challenges. How hard is it today to find a construction contractor to build a solar or wind project?

MR. ARMISTEAD:  The construction contractors are becoming much more selective. One of the construction contractors -- I believe it was Blattner -- told us the list of people trying to secure its services is several times its capacity to actually to take on work. We have not had to struggle with that because the contractors want to do business with the larger developers with track records and significant pipelines of future projects. While it has not been a concern us, it is an issue for the industry generally. There are not enough workers who are able to build what the industry is trying to get done.

MR. MARTIN:  Everyone across the industry feels like a doctor with an overcrowded waiting room.

Jason Allen, since the pandemic, construction times have stretched out for the reason Hunter said. Have construction schedules been adjusted to reflect longer lead times or are projects still coming in behind schedule due to unforeseen delays?

MR. ALLEN:  Delays crush the returns on these projects, so we can't just stretch out construction schedules. We have been fortunate to be able to buy transformers and other high-voltage equipment two years ahead of need, which has helped to reduce the execution uncertainty. Certainty about project delivery is key to securing an offtaker.

MR. MARTIN:  So you are putting a lot of capital out the door early, which feeds into Michael Alvarez's point that this is going to lead to consolidation in the industry. Nevertheless, are projects still coming in behind schedule even after taking into account potential delays due to labor shortages? 

MR. ALLEN:  We definitely hear that across the industry. I will let others speak to their experiences. We have been able to stay on schedule after changing our strategy to order potentially scarce items like high-voltage equipment well ahead of need.

MR. ARMISTEAD:  The schedules have changed. We have not missed a scheduled end date, but we had a few deals in the past involving multiple hundreds of megawatts where the projects were built in eight to nine months. That just doesn't happen anymore. The projects are bigger and more complex. Some developers have suffered unexpected delays due to issues like Customs detentions of solar panels over potential forced labor concerns. We have not had that experience.

MR. MARTIN:  There is now a glut of shipping capacity and solar panel manufacturing capacity, much of it in China. Politico reported that Chinese solar panels are available for 10¢ a watt. European panels are more than 30¢ a watt. US-made solar panels are more like 40¢ a watt. Michael Alvarez, do these ranges sound accurate?

MR. ALVAREZ:  We can't get 10¢ panels in the US. I think the numbers are much higher than that, largely as a result of structural impediments like US import tariffs. I have heard similar numbers offshore, though.

MR. MARTIN:  Can you get US-made solar panels for 40¢ a watt?

MR. ALVAREZ:  I can beat 40¢. I think everybody can.

MR. ARMISTEAD:  Prices peaked at close to 50¢, and they have been falling into the ranges that you mentioned. Many developers' business models in the past depended on equipment and construction costs to keep falling. That is not where we are today.

MR. MARTIN:  How common are Customs detentions of solar panels and batteries due to forced labor concerns?

MR. MOAKLEY:  We have had none.

MR. ALVAREZ:  Same answer. But customers are all over this issue. The ESG questionnaires that we get now from potential customers all have questions about it. I have lost count of how many codes of conduct we have had to sign that deal with forced labor. It is a pervasive concern among customers.

MR. ALLEN:  We use all domestic modules, so no Customs detentions.

MR. MARTIN:  Hunter Armistead, you said project costs are no longer falling. What is the installed cost per megawatt today for solar versus wind versus storage?

MR. ARMISTEAD:  I am not sure that is the right question to ask.

MR. MARTIN:  You warned that this was coming.

MR. ARMISTEAD:  I love to change the question if I am not thrilled with the answer I might have to give, so I am going to change the question a bit. That used to be the most important question. The most important question today is how much the interconnect will cost and when will it be completed. Wind used to cost $1 million an installed megawatt to build. Today we are probably closer to $2 million.

The cost has increased. It is not going to go back down. Look at the poor health of the wind turbine manufacturers and the holes they dug for themselves through aggressive pricing.

MR. MARTIN:  What about solar?  Michael Alvarez, Hunter says the installed cost per megawatt of wind capacity has doubled.

MR. ALVAREZ:  I would not say solar has doubled, but it has definitely gone up for a variety of reasons.

One reason is the need to invest large sums of capital to secure interconnection positions and long-lead-time equipment. That capital is not free. It sits on some line in an Excel model, ticking away every day that we have to recover it plus a return.

The other issue is the prevailing wage and apprentice requirements are like lifting the entire sea. They are almost a license for contractors to skim. I am not saying they are. I am just saying it is expensive to attract labor in these mostly remote places where we are building. The need to pay prevailing wages is a structural shift that I don't see going away anytime soon.

Domestic Content

MR. MARTIN:  Let's shift to domestic content. The Inflation Reduction Act gave tax credits to US manufacturers as a reward for making solar, wind and storage components, and it gave a domestic content bonus credit to developers who use enough US-made equipment. How are these tax credits playing into negotiations with your equipment suppliers and your electricity customers?

MR. MOAKLEY:  There has been a lot of discussion about tax credits with equipment suppliers.

MR. MARTIN:  Are you asking them to share part of the value?

MR. MOAKLEY:  Yes. Sharing the manufacturer's credit is easier to calculate and therefore is more likely to factor into negotiations. Tax credits can affect the electricity price, but they are just one of many variables influencing power prices.

MR. ALLEN:  This blends into the question you just asked about the installed cost per megawatt of different types of power plants. The answer is complicated.

 We are not just building the lowest cost project. We are working to build the best return project and we partner with our suppliers on domestic content. You weigh the higher cost to build with domestic content against the adders you get potentially through the IRA. We see a path to claim the bonus credit on all three technologies -- solar, wind and storage -- and for all our 2024 projects, but based on the current guidance, it is a very complex process to actually secure the domestic content credit.

MR. MARTIN:  That was going to be my next question whether you have projects that you are confident qualify for domestic content bonus credits. Jason, you think all of your 2024 projects will qualify, but you're not 100% sure.

MR. ALLEN:  We will see with the benefit of hindsight next year. Seventy-five percent of our 2023 projects claimed domestic content, and we intend to claim the bonus credit on all our wind and solar projects in 2024. A lot of work will have to be done to get our financiers comfortable.

MR. MARTIN:  You are using US-made solar panels. That is a start. If you were not doing that, would you be as confident?

MR. ALLEN:  Absolutely not.

MR. MARTIN:  Is anyone else confident that projects will qualify? Michael Alvarez.

MR. ALVAREZ:  Where we are seeing some difficulty is on the ITC solar-plus-storage part. Trying to get domestic content for storage today for a 2024 project is nearly impossible. If you look at 2025, you have a shot.

I think the solar side can get done, and we are doing that. If companies of this size and prominence in the industry are all qualifying their projects for bonus credits and you are not, you will have a hard time competing in the offtaker market.

MR. MOAKLEY:  I suspect everyone on this panel has entered into master supply agreements since the IRA passed in order to secure US-made equipment. A key factor to watch will be whether financiers accept that projects qualify. The documentation to prove domestic content can be a little complicated.

Property Insurance

MR. MARTIN:  Hunter Armistead, the average US company renewing casualty or property insurance last year paid a 37% higher premium than the year before. We have heard from insurance brokers that it is harder to buy as much coverage as desired on projects in places where there is convective storm risk or wildfire risk. Have you run into difficulty getting insurance on any of your projects?

MR. ARMISTEAD:  Our world is getting more volatile as far as weather. If you pay up, you can get it.

MR. MARTIN:  Michael Alvarez, have you had to tell any of your financiers when it comes time for renewal that you are unable to find property insurance at economic rates and, if so, with what reaction?

MR. ALVAREZ:  On severe convective storm, it is a frequent conversation and the only avenue out is a waiver. For the longer term, our company is launching a single-parent captive insurance company to take care of this risk.

MR. ARMISTEAD:  Did Michael ask you to ask this question?

MR. ALVAREZ:  Keith and I did not have any conversations about this ahead of time, but the fundamental fact is when the hail storms came through starting in 2019 and took out all that glass in Texas, the markets constrained themselves. We used to have $60 million sub-limits for a convective storm. Now you are lucky to get $25 million and you are paying a hell of a lot of money for it. Increments above that are massively expensive.

Five years ago, people generally ignored the insurance line in the financial models for projects. It is now a huge operating cost extending for 20 to 25 years, so people are paying a lot more attention to it. Our view is we need to find a way to manage the risk ourselves through a captive.

MR. ALLEN:  We are going down the same captive path, but we are trying to take an aggressive technology stance. We all have the same high-risk insurance maps, whether it is wind or hail, and we try to stay out of the really high-risk areas. We are having real-time conversations with the insurance providers on what we can do to lower their risks and our cost.

MR. MARTIN:  Are there any audience questions?  Buz Barclay?

MR. BARCLAY:  In the days of yore, we financed hydroelectric projects that were more expensive on a per-kilowatt basis than nuclear projects. We came up with some nice ways to do that, but they needed 40-year power purchase agreements. Do you believe it will be possible in the foreseeable future to build a wind project that could serve a 40-year PPA?

MR. ARMISTEAD:  I think we are doing it today. The answer is absolutely, but you will probably have to repower it three times. The life of a wind farm is probably perpetual because you are always going to have one there with periodic repowerings.

MR. MARTIN:  We have another question here.

MS. MUTHIAH:  Shanti Muthiah with ICF. Yesterday there was some pessimism on the panels around the outlook for hydrogen. Do you see a role for hydrogen in your company strategies?  

MR. ARMISTEAD:  We have a super-cool project in Canada that does not depend on tax credits, and we are pretty optimistic about it.

Some of the froth has fallen off the coffee. That's probably a good thing because it was pretty nuts for a while. Now we are all getting into the reality of what makes sense, and it is clear from the guidance the Treasury just issued on hydrogen tax credits that it is not going to happen as fast as some hoped, but it will remain tied closely to renewables.

MR. MOAKLEY:  In our most recent fund, we allocated a portion of the capital for potential investments in energy transition deals, such as green hydrogen and carbon sequestration. The fund has a four-year investment term. Our investors really want to see hydrogen commercialized at a higher level. We remain open to hydrogen opportunities that look like dependable infrastructure investments, but we have not seen any deals yet on which we are prepared to move forward.

 MR. MARTIN:  Your investors are Japanese, correct?  Japan has a strong interest in green hydrogen.

MR. MOAKLEY:  Approximately half of our limited partners are Japanese. The fact that Japan is importing green hydrogen and demand is growing keeps us looking for US projects.

MR. MARTIN:  Jason Allen, are you chasing green hydrogen?

MR. ALLEN:  We are not. We are sticking to the core three areas of onshore wind, solar and storage.

MR. MARTIN:  Michael Alvarez, are you chasing green hydrogen?

MR. ALVAREZ:  We are in the curious mode.

MR. ARMISTEAD:  We have a crew going after it. Even though the tax credits may be more difficult to secure than hoped, the US is still the cheapest source for it.  

MR. MARTIN:  Here are two more questions with short answers because we are out of time. Hunter Armistead, what lessons did you learn from the financing of the SunZia project that just closed?  It is a 3,100+ megawatt wind farm and 550-mile transmission line.

MR. ARMISTEAD:  Don't do it. Just kidding. It was so transformatively large that I think we paid out more in fees to lawyers and bankers than the total capital cost of many projects.

MR. MARTIN:  You raised $11 billion in financing.

MR. ARMISTEAD:  It is still a little daunting to think about, but if we are going to achieve what we need to do to address climate change, we will need a lot more such projects. Maybe this project will provide a road map to others for how to do it.

It was so unbelievably complex to get through. It took a village to do it. I can see bankers in this room who stood behind us and made it happen. It was an historic moment for our company.

In Office?

MR. MARTIN:   Last question. I am going to ask each of you starting with Hunter and finishing with Jason, are your employees in the office and does it matter?  This is a post-pandemic question.

MR. ARMISTEAD:  We are trying to bring them back into the office using a mixture of stick and carrot and working a little bit more on the stick because the carrot wasn't working well enough.

It does matter. It is a really, really hard issue, and the one thing that's for sure about returning to the office is everyone is an expert, and they are willing to tell you about it.

MR. ALVAREZ:  Forty percent of our employee base is tagged to an office. We have three offices. We do not mandate return. We encourage it. We try to make the office an environment for collaboration, and people tend to come when they want to. It works just fine.

MR. MOAKLEY:  We are back in the office. It matters for efficiency and overall productivity. It matters for our younger team members  -- analysts and associates -- who benefit from in-person interaction. As it relates to efficiency, being in the office can turn a scheduled 30-minute Zoom call into a 15-minute conversation.

MR. ALLEN:  It does matter. The team is much more effective when people are in the office. We have continued to be flexible. About 25% of our workforce is in the office full time. The rest are in the office three days a week. We have started to build it into our culture that younger employees who are being mentored need to be in the office. People managing groups need to be in the office. We are more flexible when it comes to individual contributors.