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Texas Grid Failure: Could it happen here? – TMT

March 1, 2021 – Could the Texas grid failure happen in other electricity markets? In this video, Senior Vice President Michael DeCaluwe, CEM explains why or why not.

Video Transcript

After the failure of Texas’ electricity market two weeks ago, the question we’re frequently getting is: Could that happen here?

We’ll answer that question in today’s Two-Minute Tuesday.

When we talk about what happened in Texas happening in “our market”, we’re talking about any of the US’ deregulated electricity markets, which primarily consists of Illinois across to Maryland and all the way up to New England.

Now there’s three main reasons why what happened in Texas likely would not happen in these markets.

Reason #1: Texas is its own standalone electricity market.

The Texas market is regulated by a company called ERCOT, which is the Electric Reliability Counsel of Texas. So whereas the Midwest and Northeast markets are connected to each other, if they ran out of power, they could call on each other for assistance.

Texas’ market is not connected to the rest of the US. So you can see what happened — when it ran out of power, it had nowhere to go. That’s one of the main reasons why what happened in Texas likely could not happen in other markets.

Reason #2: Texas has no capacity market.

Capacity markets are programs in the Midwest and the Northeast where the grid pays power generators for simply the ability to produce power. This ability to produce power creates reliability for the grid so that when the generators are called on to produce power, the grid knows that it can rely on these companies.

Now there’s big penalties if these generators are not able to provide the power that they agreed to. So these generators have financial incentive to upkeep their equipment to provide that reliability.

Texas does not have that market, so there is not that same economic incentive for these generators to provide reliable power.

Reason #3: Texas lacks a winter capacity market.

Now a third reason why what happened in Texas likely would not happen elsewhere is that beyond the capacity markets, some markets have winter capacity markets.

As an extra measure of reliability, the US’ largest electricity grid operates a winter capacity market. Prior to 2014, there were only summer capacity markets because the thought was that that was the peak time for electricity usage.

In 2014, we had the Polar Vortex that many of you might remember. And a lot of generators froze — power lines froze up, a lot of the gas lines froze. So PJM created a winter capacity market, and what that meant is these generators had to put in extra money to ensure winter reliability of their grid.

It’s a extra measure of protection that, as we’ve seen, could have helped Texas these past two weeks. So, again, the presence of a winter capacity market is another reason we probably would not see in other markets what happened in Texas two weeks ago.

 

So what happened in Texas two weeks ago, could this happen in our other deregulated energy markets? Likely not. There’s some structural fundamental differences between these markets, and some of our Midwest and Northeast electric markets have additional reliability through our capacity markets that make what happened in Texas extremely unlikely to happen in some of these other markets.

Hope you enjoyed our video this week, and be sure to like it and look for more continued Two-Minute Tuesday videos. Thanks for watching!

Energy Tips for the Hospitality Industry – TMT

February 16, 2021 – In this FAQ February video, Strategic Energy Advisor Sam Greenberg tackles a question he’s been asked frequently over the past year by our hospitality clients: “What are other companies doing to stay in business?”

Video Transcript

Over the past 12 months, one could argue that the industry most negatively impacted by the COVID-19 pandemic has been the hospitality industry. In this week’s Two-Minute Tuesday, we’ll be tackling the number one question we were asked by our hospitality clients during this past year: “What are other companies doing to stay in business?”

Two Energy Strategies for Hospitality Clients

2020 was painful for all businesses, but the hospitality industry was one of the hardest hit. Revenue plummeted due to both shutdowns and to lack of demand from people traveling.

Many of these businesses had to get creative to save money. Specific to energy, the two opportunities that ultimately provided the biggest return for our hospitality clients were demand response and electricity agreements.

Let’s take a deeper dive into how these two strategies supported our hospitality partners in 2020.

Demand Response

Let’s start with demand response. As a hotel owner, if you haven’t looked in to signing up for a demand response program, I highly recommend doing so now.

Depending on the area of the country and your utility, demand response programs can pay you money for curtailing your usage in a planned one-hour test event. We’ve seen annual payments for our hotel clients between $5,000 and $30,000 for participating in the program.

Energy Agreements

Along with demand response, the past 12 months has put an extra focus on electricity and gas agreements. Several months of 2020 saw natural gas rates fall to their lowest level in 20 years.

Our hospitality clients took advantage of that market opportunity and were locking in these lower rates for longer terms, some up to 48 months. This was helping them reduce their energy costs, creating budget stability regardless of increases in the market, and ultimately ensuring that their rate was going to be lower than most of their competing hotels who were not taking the same approach.

 

Even if you missed out on the low prices of 2020, there are still opportunities in the current market to fix either natural gas or electricity rates. There is a consensus forming around a bullish energy market in 2021, so being proactive and fixing rates now can protect your budget from these possible increasing costs.

If you’d like to hear more about the topics we covered today or ideas around saving money on your energy, please contact me or any of our Nania Energy Advisors today. Thank you for watching!

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Why does your end date matter? – MES #2

Feb. 11, 2021 – In the second video of the Manufacturing Energy Success series, Mike Zaura discusses how knowing the end date of your electricity or gas agreement can impact your bottom line.

Video Transcript

Hello! I am Michael Zaura, and welcome back to Manufacturing Energy Success.

Tell me if this scenario sounds familiar to you. Last night, your phone starts blowing up. You’re getting a bunch of emails about production on second or third shift. You get to the office this morning, and now all of a sudden someone’s out and maybe you’re short-staffed. Or maybe certain production materials didn’t come in as you expected.

The point to all of this is: you have a lot on your plate as a packaging manufacturer. You guys have been busier than ever, and energy might not be high on your priority list.

In this week’s video, we’re going to touch on how something so simple as knowing the end date of your electric or gas agreement can make a big impact on your bottom line.

Why is knowing the end date of your electric or gas agreement so important?

Let’s back up a little. There’s an old rule of thumb in energy that says “Buy your gas in the summer and your electric over the winter.” The thought process was that you use a lot less gas over the summer and less electric over the winter, so prices would be much lower.

That’s not necessarily the case anymore. There’s a number of reasons behind this, but primarily natural gas is used so much in producing electricity now that the market produces opportunities throughout the entire year. You don’t know which month you might find a market opportunity that presents itself.

How does your end date impact your energy purchasing strategy?

Let’s look at two different scenarios when it comes to the end date of your agreements.

Scenario #1

You’ve rifled through all your paperwork and you find out that the end date of your current gas agreement is at the end of March. You have a short time frame in which to look at your options.

The first thing you look at is the number of days you have to terminate with your current supplier. It could be 30 days, it could be 60. You might love your current incumbent but you do want to shop the market and see what’s out there. If you have a 60-day termination clause, now you have to go with that current incumbent and you can’t explore the market.

Couple that with a weather pattern that we’re currently having and prices that have risen dramatically over the last couple of weeks. Now, prices have gone up, and you really have no other options to look at.

Scenario #2

You look through your current power agreement and find out that the end date is December 2021. What are your options?

You can go to market and get rates from suppliers for a December 2021 start date. This gives you a benchmark so you can set up a market watch. A market watch enables you to set a trigger point for a price you’re looking for over the course of the next few months.

Say it’s June and you wanted a five or ten percent savings against that benchmark rate, and the market watch alerts you that the market has hit that point. Now, you have further options.

  • You can sign with the current incumbent and renew your contract with them starting in December 2021.
  • You can go out to market again and see which suppliers might be offering even lower rates than that trigger point that was just hit.
  • Third option, and maybe the best, is a reverse auction platform utilizing technology to get the best of all those worlds.

So, you can see in Scenario 2 that you have many more options to impact your bottom line when it comes to your energy procurement than you do in Scenario 1.

Whether it’s two months, ten months, or even 24 months from now, knowing the end date of your energy agreement can have a significant impact on the options you have. The earlier you look at this will increase your opportunities to make the best decision at the best time for your facility.

Join us next week!

Thank you for watching! I hope you found today’s video valuable. In our next segment, we’ll be exploring a way to create a new revenue stream for your facility in the form of a Demand Response program.

Stay warm out there, and have a great week!

 

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Manufacturing Energy Success #1

“Manufacturing Energy Success” is our new video mini series for manufacturers looking for ways to save money on their energy costs in 2021. Check back every Thursday in February for a new video!

Video Transcript

Hello! My name is Michael Zaura, and I’m a Senior Energy Advisor here with Nania Energy Advisors. Thank you for watching!

This month we’re doing a video series for you, the packaging manufacturer. Each week you’ll be receiving a new topic that will help make you successful in 2021 in regards to your energy planning. Here’s what we’ll be discussing.

Topic #1: Knowing the importance of the end date of your electric or gas agreement and the impact it may have on market timing.

Topic #2: Demand response and creating another revenue stream for your facility.

Topic #3: Energy efficiency. We’ll walk through the steps in the process that can help you reduce your natural gas or electricity usage for your facility.

So, those are the three topics that we’ll cover in this video series. And I look forward to sharing these topics with you each week around this time. Thank you for watching, and I look forward to seeing you next week!

 

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How to Time Your Energy Purchase – TMT

Video Transcript

Hey guys! It’s Becky here with this week’s Two-Minute Tuesday. In keeping with our theme of kicking 2021 off on the right foot, I thought I’d address one of the commonly asked questions I receive from my clients: When should I go to market?

Now there’s no proverbial crystal ball. Everyone knows that. But we used to gauge patterns based off of following weather. So you wouldn’t buy gas in the winter, and you wouldn’t buy power in the summer.

But as the last couple of years have shown us, that doesn’t really exist anymore.

Factors Impacting the Energy Market

We had some of the lowest natural gas pricing in 20 years in March of last year when there was still snow on the ground. The year before that, the fourth of July in 2019 showed us ridiculously low electricity rates.

So how are you supposed to know when to go to market?

Well, let’s slow down and look at the facts.

Year over year, we know that natural gas is down about 25 percent from this time last year. While the rig count has be steadily increasing, it still hasn’t returned to its full capacity.

Meanwhile, exports of liquefied natural gas are at record all-time highs. They’re receiving $14 per MMBtu right now in China, whereas here domestically they’re getting a little over $2. So there’s definitely demand increasing for exports.

However, demand domestically hasn’t returned quite yet. We’ve had a very mild winter, and we’re still experiencing some of the effects of COVID-19 shutdowns. This summer should prove some volatility to return as demand comes back online for both natural gas and power. We hope that production will follow, but at this point it’s still not up to capacity.

That all said, how are you supposed to make a decision on when you should be looking at your options to make an energy purchase?

A Shift in Perspective

I’d encourage you to switch the conversation from savings to risk management. Are you willing to look at some options now and potentially pay a little bit higher than your current contract to have safety and security and lock in for the next three years? Or, are you willing to take on a little more risk and ride the market and see how the change in political parties or social and economic factors play out? How is the vaccine going to have an effect on shutdowns?

It could go either way, it just depends on the risk level that you’re comfortable with as an organization and what you’d like to see as an end result.

So, I’d encourage you to have the conversation now with your strategic energy advisor just so you’re on the same page. You can set up some market watches to start watching pricing if you’re not quite ready to take action yet. But at least you’ll be in the know when the opportunity arises to make your energy purchase.

Thanks so much for listening, and we’ll talk to you next week!

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What is a Price Trigger? – TMT

Video Transcript

Hi! Welcome to this week’s Two-Minute Tuesday where we’re going to be talking about strike prices and fixed price triggers. We’ll be answering some questions about what those are and when someone might use them.

Strike Price vs. Price Trigger

A strike price is more of a technical investment term. When you’re looking at purchasing natural gas and electricity, we’re most likely talking about a price trigger.

A price trigger is when a client authorizes a set market price that the market might go down to, at which point a transaction might be automatically executed or approved to be executed.

When should you use a price trigger?

Here are a few situations where that might be used.

1) Slower Decision Making/Authorization Process

The first is when you have a slower decision making or authorization process. Good examples of this are school boards or condominium associations where they need to have a group vote in order to approve a transaction.

Obviously this isn’t very conducive with market volatility and moving quickly on a price. So what they might do is approve a price trigger and a specific target to be executed in the near future. In this situation, it would be automatically executed based on that target price, so they don’t have to go back and get additional approvals.

2) Multiple transactions

Another situation where someone might use this is a large user who is making multiple transactions. Think of a data center or a large manufacturer for whom energy is a significant cost in the price of their product.

In this case, they’re making many transactions over time, and they want to streamline that process so they can execute more quickly based on market volatility. In this scenario, they may or may not execute automatically.

Often, there’s a buyer or someone in place who can make those decisions, and what they really want is to be notified when the price hits that level so they can give a quick yes or no and then the transaction would occur. But the transaction wouldn’t be slowed down by paperwork or needing to get things signed right at that moment; it’s all been done in advance with the price trigger.

3) Market Monitoring

The third scenario is for market monitoring purposes. We use this often when we’ve got a client with a contract that’s up at the end of the year, and maybe we’re looking to see if the market drops below the current price for a client and we want to take advantage of that.

So in that situation, there wouldn’t be an automatic execution, but that price trigger would set off a notification to let us know where the market’s at so we can look at it and bring it to a client for evaluation and then to potentially make a decision on that.

So those are three different scenarios with three slightly different outcomes on a price trigger. But the core point is setting and approving a target price at which some transaction or notification is going to be exercised in the future.

If you think price triggers might be a good fit for you or if you just have general questions, reach out to your energy advisor for further details.

As always, thanks for watching, and please comment, like, or share below!

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MOPR Is NOT Someone Who Sulks – TMT

Video Transcript

Hello, I’m Michael DeCaluwe, Senior Vice President at Nania Energy. Have you heard the term “MOPR” recently in energy conversations?

In this week’s Two-Minute Tuesday, we’re going to be talking about what exactly MOPR is and what it means for you.

What is MOPR?

As the title mentions, MOPR is NOT a pessimist who sulks. MOPR stands for “Minimum Offer Price Rule.” 

It’s a new rule created by FERC, the Federal Energy Regulatory Commission, which regulates our regional electricity grids. MOPR only applies to PJM, the electrical grid that includes northern Illinois, Ohio, Pennsylvania, New Jersey, and Maryland.

This rule covers how capacity costs are set in this market. As we’ve mentioned in previous videos, capacity is a reliability cost that is set to make sure that the grid has enough power to cover periods of peak energy use. Think summer days when it’s hot and everyone’s AC is on.

Over the past few years, some states have enacted renewable energy mandates that have provided subsidies for certain types of power generators such as wind, solar, and even nuclear.

Some generators have complained to FERC that the existence of these state subsidies have given an unfair advantage to some in competitive capacity auctions.

In response, FERC ruled that the current model for capacity auctions in PJM is unfair and decided to change it. This new model is MOPR.

What does MOPR do?

Under MOPR, PJM will set resource-specific price floors for capacity bids, meaning that each type of generation resources (nuclear, solar, coal, etc.) will have a minimum price that they must place in the capacity auction.

The first new auction under MOPR will likely take place next spring for the 2022/23 planning year.

What does this mean for you?

For electricity consumers in these areas, this will likely mean higher capacity prices due to the price floors set by MOPR. Capacity currently makes up about 25 percent of electricity costs in PJM but could be much higher going forward.

What can you do about it?

The best way to avoid these higher capacity costs is to limit your peak demands in the summer, starting in 2021. Enrolling in a peak day notification program or doing energy efficiency projects to lower your electricity usage and demand are two ways you can reduce your peak demand values and offset some of this coming price increase.

So although MOPR might make you sulk, there are things that you can do now to help you prepare for its effects.

Hope that you found this week’s information helpful, and please be sure to like or comment on this video.

Thanks for watching!

2020 Transmission Rates Increases and Changes

By Michael DeCaluwe

Frequently, we see transmission rate changes that impact the costs on your electricity bill. Understanding these changes and what you can do to counteract them can help you control your annual electricity costs.

What are transmission charges on your electric bill?

Transmission charges are the costs associated with operating the electrical “grid.” The grid is composed of large high-voltage wires that you see running across the country that have a “zipping” sound to them. These wires are managed by an RTO (Regional Transmission Organization).

Your local electric utility pulls power from these wires and delivers it to your home or business at a voltage level that’s safe for consumption.

Depending on the market, transmission costs are usually part of a supplier’s cost or rate and are separate from the delivery costs charged by your local utility.

How are transmission rates determined?

Transmission costs are usually based on an RTO’s rate schedule. That schedule is approved and regulated by the Federal Energy Regulatory Commission (FERC).

Transmission costs typically have two moving components: the RTO’s rate schedule that may vary each year, and your account’ annual demand values that will also fluctuate annually.

When a supplier “locks” your transmission costs for a specific term, they take the risk that your demand values will not go up (resulting in higher costs) during the term of your agreement. They also take the current cost of transmission into account when fixing your rate.

2020 Transmission Rate Increases

FERC just approved an update to transmission costs for many of the delivery areas in PJM, the largest RTO (grid operator) in the United States. As a result, most areas are seeing an increase in their transmission costs.

Here’s a look at those updates:

Depending on the supplier, some customers may see an adjustment to their transmission costs on their upcoming electric bills.

What can you do to lower your transmission costs?

Lowering your electricity usage at peak times can impact both your capacity and transmission costs going forward. One way to do this is to receive Peak Day Alerts, which tell you the date and time that a peak day may occur. These alerts help you plan to reduce your usage during those peak times.

If you’re interested in receiving Peak Day Alerts or have any other questions about capacity and transmission costs, feel free to reach out to us.

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TMT: Choosing the Right Energy Product

Video Transcript

Let’s discuss risk. If we were having this webinar three months ago, we would be talking a lot about the cost savings versus your prior contract and how we hit some of the lowest prices in the last 20 years in February, which was just unheard of.

It would have been a very different conversation from today where we want to focus on cost aversion — avoiding any risk in the future given all the factors that we’re aware of today. Where we anticipate using those factors, where we anticipate energy prices to go, and what that means for you and your energy costs.

The biggest way to do this is through product selection. When a supplier uses “product” terminology, they’re basically meaning of all the moving components of your electricity or natural gas costs, how are you fixing those and what is the variability going to be from those month-to-month on your invoice?

Low Risk Tolerance Customers

So when we look at this meter, you see in that bluish-white area is for low risk-tolerance customers. You need a lot of budget certainty, you can’t have a lot of variation in the rate month-to-month, and you need to plan in advance for what’s coming down the pike. This would be more of a fixed product, or a fixed all-in. You’re taking all of the different components of your energy cost and locking them as much as possible.

When done correctly, you should in theory have the same per-kWh or per-therm cost on your invoice every month.

High Risk Tolerance Customers

If you go to the other side of the meter, you have the index or variable or floating type of products. These ride the roller coaster of the energy market. So you’re going to have a lot of variability.

There’s been some advantages to this certainly in the past year or two where prices have continued to come down continuously, so if you’ve been riding an index product you may have seen some of those record-low prices and been able to take advantage of that.

But on the flip side, now we’re facing volatility. And volatility, again, means a roller coaster. So if you have a little more bandwidth to have a higher risk tolerance, then this may be the kind of product for you.

Product type is going to look different for every organization. We’ve already seen where COVID-19 has affected every business (even within the same industry) very differently, and going forward a recession could affect every organization differently. So I would stress that you should really look at your internal risk tolerance — not only what it was in the past but also what it’s going to be going forward with all of the unknowns.

Current Energy Product Trends

A trend that we’re seeing right now is even some of our long-term clients that have always been on some type of float or index product are actually looking to fix as much as they possibly can. There’s a lot of uncertainty still up in the air. We don’t know a lot of things that are going to shake out from COVID and the recession and these other factors we’ve described.

So to be able to have control over a certain portion of your budget via energy, we’re seeing where people are starting to switch more to the fixed and low-risk types of products.

 

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TMT: Energy Challenges for Manufacturers

Video Transcript

Hi everyone, and welcome back to another Nania Energy Advisors’ Two-Minute Tuesday. I’m AJ Brockman, Nania’s Content Marketing Manager. Today we will be talking with Senior Energy Advisor and Mid-Atlantic Manager Mike Eckenroth about the specific challenges that manufacturers face when it comes to energy. So let’s get started!

Energy Challenges for Manufacturers

AJ: So Mike, when it comes to energy, what would you say are the top two to three challenges manufacturers typically face?

Mike E: Good question! I would say number one is probably how to reduce and control energy costs.

Manufacturing is typically an energy-intensive process. You’re taking a number of raw materials, putting them through your process, and converting them into what you want to make. And throughout that process, there’s a lot of energy consumed. So the concern is about how to reduce and control those costs to keep operational costs low.

Secondly, manufacturers want efficiency and confidence in their energy procurement, which isn’t always easy to have. There’s a lot of different choices available — brokers, advisors, consultants, suppliers and products — to choose from. Figuring out a process to determine which method to use for procurement is definitely a challenge.

Tips for Reducing Costs

AJ: And when you talk to manufacturers or decision makers in manufacturing, what sorts of tips or solutions to those challenges are they typically looking for?

ME: So to answer the second point, we did a broker versus advisor video a few months ago, so I recommend they check that out. But, really, it’s about finding an advisor or consultant that you trust and that sits on your side of the table.

You want them negotiating with suppliers on your behalf to achieve your goals. So you should feel that all of those things are being met by them, and I’d recommend interviewing a few different ones to get a feel of who has your best interests in mind and who you have the most confidence in.

Secondly, they’re looking to identify opportunities that they might not have seen otherwise. The number one way to do this is with an energy audit.

You have various operations that you’re doing day in and day out, and you might not realize there are opportunities in front of you for that. This could be things like LEDs or HVAC controls, variable frequency drives, water controls. An energy audit will identify those opportunities, and then we can prioritize those according to your ROI goals. So this is really about making you more efficient, doing more of the same output with less energy input, reducing those costs from that side.

Along that same vein is demand response. Demand response is a voluntary curtailment program during emergencies. So for a few hours of participation a year, a manufacturer could earn tens of thousands of dollars in payment for those.

This is particularly important for manufacturers because they usually have some control over when their energy is being consumed. They can schedule activities at different times and things like that, and so it’s typically a program that works really well for them.

And lastly is tax exemptions. This has been huge for manufacturers that we work with. Nania Energy is not a tax firm, we are not licensed tax professionals that can provide advice on taxes.

However, we’re aware of some exemptions that exist, and we can double check your bills for those. So if you are paying taxes and you shouldn’t be, that’s something we’ll be able to take a look at and either recommend you to one of our partnered tax firms or have you investigate it and recover that money (up to 48 months in some states) as well as remove that cost going forward. So that’s really low-hanging fruit that’s available for manufacturers.

Sustainable Manufacturing

AJ: Great tips, Mike. Lastly, I want to talk about green energy. Sustainability is starting to become more of a factor for both producers and consumers. What advice would you give to manufacturers who are interested in going green?

ME: So what we talked about with energy audits: even though it may or may not seem like that’s the easiest way to go green, it probably is one of the easiest. There’s a lot of wasted energy in a lot of different processes that manufacturers use, and there are ways to recover that. There are ROIs that are increasingly lower and lower to match those 2 and 3 year goals that some organizations have for that. So that would be number one: looking for those efficiency opportunities.

Number two is sourcing your energy with green power. Typically, energy supply agreements are going to be maybe 10 percent renewable, depending on your state or municipality. And there are opportunities for you to source 100 percent of your energy from renewable sources.

You do pay a little bit of a premium for it, but you’re talking about one to two percent, so it’s very manageable if green energy is a corporate initiative or an initiative for your organization. That’s definitely a way to achieve that.

And thirdly is on-site generation. This is typically a little less popular, mostly because you have to have the floor space or the space to dedicate to it. There are requirements, such as how long you’re going to be in the building, lease obligations, and ROI constraints that you have to sort through.

On-site generation is going to have longer ROI, but if you have the square footage or roof space to allocate to solar and you have a longer term that you’re willing to accept the ROI for, that’s absolutely something you should be looking into and could provide some of the results you’re looking for.

 

AJ: Great! Well thanks so much, Mike, for all of that great information. And thank you to everyone for watching our video! If you’re in manufacturing or you’re a decision maker for a manufacturing facility, tune in to our webinar on June 25th. We will be presenting some energy tips that are specific to you.

Thanks again for watching! If you found this video helpful, please like, comment, or share below.

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