Energy Capital Podcast

Austin Energy’s power generation hit the 65 percent carbon-free level in 2024, and the municipal utility is targeting 100 percent carbon-free load by 2035, one of the most aggressive clean energy targets of any utility in Texas.Austin Energy is one of the largest municipally owned utilities in the country and one of the few vertically integrated utilities operating inside ERCOT’s deregulated market. As the utility plans for load growth and rising ERCOT market exposure, it is also preparing the community to weigh the trade-offs that entails.In this episode, Joshua Rhodes speaks with Stuart Reilly, general manager of Austin Energy, and Lisa Martin, the utility’s chief operating officer. Reilly and Martin walk through how the muni model shapes new load evaluation, renewable contract structure, and community engagement. They describe a resource plan that combines local generation with utility-scale batteries, distributed energy deals, transmission upgrades, and demand response.Joshua, Stuart, and Lisa discuss topics including:* What it means to operate as a vertically integrated muni inside ERCOT’s competitive market.* The 500 megawatts of plausible new load Austin Energy is planning for, and why most of it is not data centers.* How load zone price separation has changed the hedging value of distant renewable power purchase agreements.* Why the resource plan calls for new local generation alongside more clean energy procurement.* A new 100 MW battery deal with Jupiter Power and a 40 MW distributed deal with Base Power.* How the utility returned over $100 million to customers from Winter Storm Uri.* How Austin Energy communicates reliability, affordability, and clean energy trade-offs with its community.Timestamps* 00:00 - Intro, Stuart Reilly and Lisa Martin* 01:11 - Austin Energy as a Non-Opt-In Utility* 05:47 - Planning for Load Growth, Why Gas Peakers* 09:25 - Sizing Real Load vs the ERCOT Forecast* 10:49 - New Loads, New Costs, Who Pays* 12:13 - Load Zone Separation, Explained* 14:02 - Decker Retirements and Local Generation* 16:51 - PPAs, Hedges, and the $850 Problem* 18:26 - How a Gas Peaker Fits a Carbon-Free Goal* 23:53 - Why Local Power Enables More Renewables* 26:43 - Communicating Complexity to Customers* 31:19 - Jupiter Power, Base Power, and Local Storage* 36:08 - Distributed Batteries and Distribution Costs* 40:25 - Closing Thanks and OutroResourcesPeople & Organizations* Joshua Rhodes (LinkedIn)* Webber Energy Group (Website - LinkedIn)* IdeaSmiths (Website - LinkedIn)* Stuart Reilly (LinkedIn)* Lisa Martin (LinkedIn)* Austin Energy (Website - Executive Leadership Team)* Other Oganizations Mentioned* ERCOT (Website)* Jupiter Power (Website)* Base Power (Website)Company & Industry News* Austin Energy signs Battery Storage Deal, Advancing Climate and Reliability Goals* Austin expands renewable energy push with major solar generation investments - Community Impact* Texas grid operator’s demand forecast likely an overestimate - Texas Tribune* Austin Energy 2035 plan sees challenges and successes one year after adoption - KXANBooks, Articles & Reports Discussed* Austin Energy Resource, Generation and Climate Protection Plan to 2035* ERCOT Preliminary Long-Term Load Forecast 2026–2032* Aggregate Distributed Energy Resource (ADER) Pilot ProjectRelated Podcasts by Energy Capital* All Energy Capital Podcasts* Texas Growth Is Running Into Power Grid Limits with Katie Coleman* Who Pays for the New Grid with Pablo Vegas* Creating a Distributed Battery Network with Zach DellRelated Posts by Texas Energy & Power* Process is Killing Texas Data Center Projects* Transmission Takes a Decade, Load Doesn’t — with Raina HornadayTranscriptJoshua Rhodes (00:04.27)Hey everyone, welcome to another edition of the Energy Capital Podcast. I’ve got not one but two guests for you today, both from the C-suite of Austin Energy, one of the largest municipal utilities in the country. It actually ranks as the eighth largest publicly owned electric utility in the U.S. and it serves about a million folks in the greater city of Austin. So today we’re going to be talking to Stuart Riley, who’s a current general manager of Austin Energy. Stuart has spent about 20 years in service of the city of Austin, starting as assistant city attorney. Joshua Rhodes (00:33.4)before moving up to various roles at Austin Energy. Lisa Martin is currently the Chief Operating Officer at Austin Energy, but she’s also spent times before at SoCal Edison, going through energy supplies and contracts and other types of things. And also from her LinkedIn, found out that she had something to do with subsea surveillance at Shell, which I actually want to just throw out all of the questions I have for you guys and focus just in on that. So sorry, Stuart, if we don’t talk about anything that we were going to talk about, but having found this out today. Joshua Rhodes (01:02.19)I’m really excited to have both of you all here to talk about Austin Energy. So Stuart and Lisa, welcome to Energy Capital Podcast. Stuart Reilly (01:09.666)Thanks Josh. Lisa Martin (01:10.52)Thank you, glad to be here. Joshua Rhodes (01:11.944)So in this podcast, we talk a lot about energy. We talk a lot about Texas energy. And a lot of times when we’re talking about ERCOT, we’re talking about the competitive regions of the system. And most electricity meters in the state of Texas are in kind of the power to choose region. But there are some parts of the states that are different, one being Austin Energy, the other being the City Public Service of San Antonio. And a lot of the co-ops are actually these things called non-optin entities. Stuart, can you explain kind of what Joshua Rhodes (01:40.472)those are and kind of how Austin Energy fits in the energy mix in Ircata and in Texas. Stuart Reilly (01:45.582)Yeah, absolutely. And Austin Energy has been around since 1895. Like you mentioned, we serve about a million residents, 580,000 customer accounts, homes and businesses. Not just in the city of Austin, but kind of in the Travis County region, we serve 11 other cities in our area and unincorporated areas of Travis County. Currently the third largest municipally owned utility, but Stuart Reilly (02:09.128)Operating in the Urquhart market as a non-optin entity. So because our history kind of goes back to this 1895 period when investor owned utilities didn’t want to come to Austin, our city decided to start this journey on its own, build a dam, build a powerhouse that served as the first street lighting system, the moonlight towers that we still have here in Austin. Even as the market evolved and even after the competitive market in Texas and Urquhart came to be. Stuart Reilly (02:38.158)We still operate as vertically integrated utilities. So we still have generation, transmission, distribution, and retail customers. And we do all of the customer service functions for the city of Austin. And so while we’re a vertically integrated utility in Texas, we still have to compete in the ERCOT market. our generation, we still sell all of our generation into the ERCOT market and we buy all the load to serve our customers. Stuart Reilly (03:04.746)out of the ERCOT market at the Austin Energy Load Zone. So even though our generation used to directly serve our customers, now it’s operating and bid into the market just like anybody else is operating in that ERCOT market. So really when you look at us as a vertically integrated utility in Texas operating everything from end to end, I think we have the ability to do more of what’s in our community’s best interest. Because if you’re Stuart Reilly (03:32.59)just operating in the ERCOP market as a generator, your interest is in generating more and that’s where your income is going to come from. For us, it’s really looking at the whole picture of what is the best outcome for the customer leading with our values. We’ve been trying to sell less of the thing that we sell. So if we’re a generator, we’d be generating more. If we were a rep, we’d be trying to sell more. So that’s really enabled us to be ahead of the game when it comes to Stuart Reilly (03:59.658)energy efficiency programs, rebate programs, solar programs, getting our customers to do things on the customer side that get to better environmental outcomes. Because we’ve been talking for years of decades, even in Austin, about how a kilowatt reduced is cheaper than a kilowatt produced. So if you’re looking at getting to cost effective environmentally friendly outcomes, we think we have that kind of advantage by looking at the whole picture by serving customers and operating. Stuart Reilly (04:27.968)as a generator in the market. Lisa Martin (04:29.998)And I’ll just add in that I think being municipally owned has really helped us get where we are in terms of being a leader in the energy transition because our public and our city council are so engaged. And so, you know, for right now we’re implementing our resource generation and climate protection plan to 2035. And a lot of it involves going out into the community and talking to them and saying, Hey, what is being a good utility partner look like to you? What do you expect out of your utility? And so we get lots of feedback from the community and our city council, and that all ties into what we’re working on. Joshua Rhodes (05:00.494)That makes sense and I want to dig into quite a bit of that, but Stuart, you actually brought up a really good point about some of the first uses of electricity in Austin being our famous moon towers. I just want to verify these are the same moon towers where the dazed and confused party at the moon tower be there comes from, right? Stuart Reilly (05:17.282)Yeah, and we have a little history center here in Austin Energy that shows some of that. And I think Matthew McConaughey is playing there around the clock telling people that there’s a party at the Moon Tower. I think that that really sparked a new level of understanding and appreciation for our iconic Moonlight Towers, which we still operate after all these years and they’re designated as Texas Historic Places. Stuart Reilly (05:40.994)We’ve been out in front of the energy transition, but we also hold on to our past in some ways. And that’s just kind of a fun example. Joshua Rhodes (05:47.682)That’s great. So we’ve talked a little bit about energy transition. There’s an expansion going on because load is really looking to grow. can you explain, like you touched a little bit on how Austin Energy sees things a little bit different than like a traditional generator. How would a place like Austin Energy be planning for like continued load growth? I’m thinking from like data centers and other types of these new loads. Joshua Rhodes (06:11.608)that are coming to the state. know Austin’s kind of the tech hub of the region. And so we’ve had data centers before, we have data centers, but what are you seeing out there that’s different? Stuart Reilly (06:20.91)Yeah, Stuart Reilly (06:21.2)I mean, right now as we’re implementing our resource generation plan and we’re implementing our electric system reliability resiliency plan, we’re making upgrades to pretty much everything. It feels like there’s never been a time at Austin Energy where so many things have been all happening at one time and all the challenges are kind of stacking on top of one another. And as you say, the load growth and what the projections that we’re seeing. Stuart Reilly (06:45.652)just jump off of the page when you look at that and there’s a significant amount of uncertainty around that and that poses a challenge of its own. But whether it’s looking at customer side resources, transmission import capacity, adding generation, we think we need all of it. Our resource plan is an all in plan. Right now we’re looking to add gas peakers. Frankly, we wish we didn’t have to, but there’s really no other solution that could meet that need from a reliability and a market protection standpoint. Stuart Reilly (07:13.708)But we know probably better than a lot of places that load growth is real. This growth is happening. The Austin economy, know, the Texas miracle, all of this has been happening in the background. think for years, it seems like the energy transition has been in progress. We’ve been moving along. We’ve been making great progress and it’s been happening in the background. People really haven’t had to think about it a whole lot. Stuart Reilly (07:37.932)But if Winter Storm Yuri didn’t change some of that, where a lot of people who never heard of ERCOT before now worry about it. So if that didn’t do it now, it’s AI data centers and the worries around that and where our power is going to come from. And so we know that it’s something we need to get ahead of. We’re probably behind the curve on this a lot. We expect that it’s going to continue. have team, our key accounts team, as they field calls from new customers all the time. Stuart Reilly (08:04.942)some larger than others. And it used to be that they were interested in larger and larger and these large load customers might’ve asked about 200 or 300 or even more. Now it’s how much power can I get and how fast can I get it? Many of them are looking outside of the Austin area because we have a pretty compact service territory. Even if they’re Stuart Reilly (08:27.064)going to be outside of the service territory. The Austin Business Journal recently showed a map of all the planned data centers, for example, outside of circling Austin. Even if they aren’t within our service territory, they still pose a challenge for us in terms of how we’re operating in the market, what is going to happen in terms of scarcity and pricing and us needing to have the resources to protect our customers from that market volatility that that can bring. Stuart Reilly (08:53.442)But as our team fields those calls from these potential large customers, we put these into categories of how likely those are going to come to fruition. Not just a study or not somebody who’s just kind of kicking the tires, but things that are really likely to occur here in Austin. And in that category, you know, roughly we’ve got about 500 megawatts worth over the next few years. And that’s on a 3000 megawatt peaking system. it’s. Stuart Reilly (09:20.138)Not what some other utilities are up against, but it’s not insignificant either. Joshua Rhodes (09:25.358)Would you be able to say like 500 megawatts? mean, would you be able to say you talked about sifting out kind of the things that probably aren’t real. Can you say what the other side of that would be? Like how much is that 500 megawatts of 50,000 megawatts or what is it? I mean, we’re all trying to grapple with like how much of this stuff is real, right? Stuart Reilly (09:42.562)Yeah, absolutely. And with the report that ERCOT grid quadrupling by 2032, I mean, we all know that’s not going to happen. It physically can’t happen, but even if it’s only a third of that, that’s still the ERCOT grid doubling. So it’s that uncertainty does pose a challenge of its own. And one of the things that I’ll say about that is, you know, we have a really diverse customer mix in Austin. We’ve got obviously a lot of government. Stuart Reilly (10:10.938)and universities, we’ve got the high tech. Some of that large load is large infrastructure projects that are coming to fruition or a project connect, you know, is going to be a large customer for us. So a lot of what we’re seeing in terms of load growth that we’re preparing for is beneficial electrification that’s going to also have a very good environmental outcome that comes with it. Stuart Reilly (10:35.436)I think people, when we talk about load growth at Austin Energy, people jump to the conclusion that it must be data centers and it’s really not. That’s not what we’re seeing here. It’s more of a healthy mix of the types of projects you would like to see. Joshua Rhodes (10:49.302)And Lisa, when looking at some of these new large loads, is it changing how a place like Austin Energy has to make infrastructure investments? mean, we’re a compact utility. are any of these new large loads changing how the planning studies are going for y’all? Lisa Martin (11:03.982)We Lisa Martin (11:04.082)certainly have a lot more of the planning studies because lots of people are asking the question to say, can you serve me? And we can’t just answer that question without doing some sort of analysis. But the fact is that we have an obligation to serve our customers, but we’re very honest with them to say, it’s not a matter of whether we can serve you, it’s can we serve you now and what kind of upgrades are necessary for that. And so a lot of times it’s let’s do the analysis and then they decide if they want to move forward knowing what the ultimate timeline is and what the cost is. Lisa Martin (11:33.922)I think this is an important part about the infrastructure planning is that additional infrastructure is going to ultimately cost more. And so we have policies in place to protect all of our existing customers from the added cost of that new infrastructure by making the new loads responsible for the cost it takes to serve them. And as Stuart said, in terms of our planning, it’s not just about what load is coming here to Austin. It’s also about making sure that we’re taking into account what loads are growing outside of Austin. We know. Lisa Martin (12:01.614)for a fact that it’s going to change the way power flows across Texas. And so it’s one of the reasons that makes local resources so important to our particular service area. Joshua Rhodes (12:13.166)I want to get to the resource manage or the plan and other types of things. You’ve both mentioned how loads that are not even inside of Austin Energy but around Austin Energy can impact the system. Can you break down why is Austin Energy impacted as a load zone? Well, how is it impacted by these large loads around it? And where are the ramifications for the load zone? And what does that mean for customers? Lisa Martin (12:38.22)Yeah, you when Stuart started, talked about how diverse our portfolio is from an energy perspective. And that’s not only in technology and fuel type, but it’s also in geographic diversity across the state of Texas. And that’s one of the benefits of being part of the ERCOT market. But what happens is if we end up saying that all these resources act as a hedge, if you will, in the market to offset what our costs are to serve our customer’s load. And if we have a bunch of resources that are Lisa Martin (13:06.634)across the state of Texas and there’s not the power flows, the transmission capacity to bring that power here to serve our customers. And I don’t exactly mean how the physics are exactly flowing or the electrons are exactly flowing, but we run into a problem where we aren’t able to serve our load here locally. So if we can’t bring it in from the outside and or generate it here locally, then we run into a supply demand problem that really becomes very hyper localized. And so Lisa Martin (13:34.24)When we talk about large load growth across the state of Texas, we know that’s going to change the way power is flowing. There’s also a lot of transmission upgrades that are happening across the state, but the fact is the grid is highly, highly dynamic, and all of that’s going to play a part in determining how our customers are served in the future. So we have to care just as much about what load growth is happening outside of our area to make sure that we can reliably and affordably serve our customers within our service area while also still advancing our clean energy goals. Stuart Reilly (14:02.222)And Josh, one thing that I will just add to that, we had the Decker Creek power station in East Austin, and there were two gas powered steam units at that power plant. And we retired the first one, 300 megawatts, I think, in 2020. And the second one in 2022, that was 425 megawatts. So 725 megawatts of local generation retired. Stuart Reilly (14:26.91)And so once that happened, we started to see our load zone price separate from the rest of the market, because then it becomes a question of how much the transmission lines, how much import capacity we have to bring the power in once we can’t make up any kind of difference with local power generation. And so we have a lot of projects underway to increase our transmission import capacity, about a hundred million dollars worth of projects per year. Stuart Reilly (14:56.846)for the next five years on our CIP plan to increase our transmission import capacity. But some of that is not going to be inside our control because we could move the bottleneck somewhere else. The pinch point moves somewhere further upstream, and then we still have that constraint of the amount of power that we can bring in. And so that’s why we’ve been talking a lot with our community about local resources. Joshua Rhodes (15:19.01)Maybe I can get y’all to correct me if I’m wrong, but just to kind of like level set for like, a lot of folks don’t realize that like generation and load pay different prices in ERCOT, right? A generator gets paid at the node at which it’s injecting power in the system. And there’s like 10,000 nodes across the whole system. There’s thousands of generator nodes. Theoretically, each of those could be a different price, but load pays like a load weighted average of the load zone, right? So there’s certain number of like nodes that kind of are grouped. There’s a couple of big ones. Joshua Rhodes (15:48.578)couple big load zones, north and south and west, but then there’s like Austin Energy has its own load zone. And so like the price paid for electricity by Austin Energy is like a load weighted average of the nodes within the Austin Energy load zone, right? And so if those nodes happen to be higher than other places, then prices would be higher in the Austin Energy area, right? And so I know we have a lot, I know Austin Energy, I’m saying we because I should probably... Joshua Rhodes (16:15.926)remind everyone that I’m a commissioner on the Electric Utility Commission for Austin Energy. Stuart Reilly (16:20.758)And thank you for your service on that. We appreciate you. Joshua Rhodes (16:24.172)Yeah, I appreciate it. But like a lot of the power plants that like Austin Energy has contracts with wind, solar, all these stuff, like, you know, the wind’s not super great here in Austin and we have a lot of other projects elsewhere. Can you talk about the difference in kind of like what you’re getting paid for that electricity versus what we’re paying here? tried to lay it out a little bit, but you do this every day. I just pretend to do this. Stuart Reilly (16:51.246)So yeah, we end up talking to our customers and our stakeholders a lot about this issue where we’re receiving a different price at the generator from what we’re paying to serve our load. So for example, if we have a wind farm or actually let me say a solar farm out in West Texas, if we’re paying under a PPA for that solar farm $50 a megawatt hour and we’re receiving $50 in the ERCOT market at that node, then we’re even. That’s been a good hedge except Stuart Reilly (17:20.622)that we then need to buy at our load zone to be able to serve our customers. And the whole reason we own generation is to act as a physical hedge against ERCOT market volatility. So if our load zone separates from the rest of the market, let’s say in the solar ramp down period of time in the summer, 9 PM and prices are at $850, that distant renewable that’s earning $50 versus what we’re paying at our load zone, it’s not acting as a hedge anymore. Stuart Reilly (17:49.974)We can’t use those types of resources to offset our customer load anymore. And the challenge there is if, unless we have something that can collapse our local load zone price, it’s very hard for us to add more and more and more renewables because then you just end up adding more and more of a cost, but you can’t use those renewables as an effective hedge. So if we can collapse our local load zone price with local resources, that actually enables us to add more renewables throughout. Stuart Reilly (18:19.212)the state throughout ERCOT that could effectively hedge what our market exposure is and protect our customer bills. Joshua Rhodes (18:26.606)Boston Energy has set some really strong clean energy and climate targets and along with the city and other pieces. But as we’ve mentioned, one of the things about the latest generation plan is that it calls for a gas peaker and it’s related to this issue of this load pocket price separation and other types of things. So can you just lay out how you see it working in the system given the clean energy goals in the climates? We’ve touched on it, but how does it fit here? Lisa Martin (18:53.4)How do natural gas peaker units fit into the system? Is that what you asked? Joshua Rhodes (18:57.014)Right, yeah. So in particularly like the one that’s being proposed in the resource management plan, how does it fit in terms of like Austin Energy’s goals? Lisa Martin (19:05.934)Yeah, so Austin Energy does have very advanced clean energy goals. We are industry leading on that front. And one of our goals is to be 100 % carbon-free generation as a percentage of load by 2035. And that’s a lot of words that sometimes gets confusing. And so how I like to explain to people is that our objective, our goal, is to be able to serve 100 % of Austin Energy customer usage with carbon-free generation in 2035 and beyond. Lisa Martin (19:35.446)And so that doesn’t necessarily preclude other resources from being part of the portfolio. We definitely look forward to the day when we don’t need any emitting resources in the portfolio, but we recognize that technology has to be an enabling factor to get us to a place where that’s the case. And so right now, natural gas peaker units remain a very key part of the energy mix, especially as the energy landscape continues to evolve. Stuart just talked about the load zone price separation. Lisa Martin (20:04.152)That’s literally the ERCOT market telling us that we have a reliability issue. It’s an economic market that is suited to create a reliable grid for Texas. They use price signals to say, you don’t have enough supply to meet your customers’ needs. And that becomes a physics problem for us. If we can’t get the power to serve our customers, then we run the risk of having local controlled outages. And that’s the situation where we have to turn off people’s power here. Lisa Martin (20:32.152)because there’s no other way for us to serve them. And the rest of customers across ERCOT would be fine. It’s because we have a local reliability issue. And the story really goes back way further than this. But even if I just go back to the beginning of this decade, Stuart also mentioned that since 2020, we shut down two of our largest local resources. That’s 725 megawatts of local generation that’s no longer available. We absolutely needed to do that because of age and wear and tear. And in support of our clean energy goals, Lisa Martin (21:01.24)taking those units offline removed our highest emitting local sources from the area. But the trade-off is that now we’re basically operating at a deficit. And so that’s at a time when now we’re seeing year-over-year new demand peaks, both in winter and summer. And then there’s also other changes in the air-cut market. We talked about the load growth, the large loads, and things like that. Also, extreme weather happening. So the natural gas peaker units Lisa Martin (21:27.094)are one of the various tools that we think we need in our portfolio. We sometimes call this all the tools in the toolbox to mitigate various risks. so natural gas peaker units, when it comes down to it, they provide the grid reliability when the demand threatens to exceed the supply. That’s really what’s signaled by load zone price separation. They provide for your long duration energy needs, especially for extended time periods and extreme weather. And then most importantly, they provide black start capability. And that means that if Lisa Martin (21:57.004)The worst case scenario happens and the entire Burkitt grid goes dark. You have to have certain units that can start up from nothing. And we have some, but they’re aging. And I wouldn’t want to rely on them for too long if the worst case happens. So we need natural gas peak in use as that resource. Stuart Reilly (22:13.966)Stuart Reilly (22:14.286)Austin Energy, think if we can solve the reliability piece, we can get back to what we do best, which is clean energy. That’s sort of in our DNA. And so what we’re looking to do is solve the reliability equation and get cleaner and cleaner and cleaner and keep executing. We’ve been setting records in recent years with local solar demand response records, know, adding batteries. We’re bringing more batteries for, we’re already about to exceed our brand new battery storage goal and we’re going to even add more. Stuart Reilly (22:44.014)And so that’s kind of been the history of Austin Energy is setting targets and then exceeding them. But in terms of how gas fits into our goals, I think they can actually enable us to more effectively meet our goals. And part of the reason why I say that is I think it’s been 2016, 2017 is about the last time when we did a large renewable energy PPA for Austin Energy. And I used to work on those contracts. Stuart Reilly (23:13.77)In that market for new clean energy resources, it was easy. There were a ton of bids, the prices were very good. They acted as an effective hedge for us. And now what we’re seeing is the pricing isn’t as favorable. There aren’t as many projects coming to fruition looking for off-takers and they don’t act as a good hedge for us because our load zone is separating from the rest of the market. So that signal of that supply and demand equation. Stuart Reilly (23:42.274)where if you can do something that solves for that reliability piece, then we can get back to executing on more clean energy projects, which is just what we’d love to be able to get back to. Joshua Rhodes (23:53.004)One of the key things I think you said in terms of, you if we’ve got this load pocket price separation between Austin Energy and the rest of Burkott, having more renewable energy contracts, more PPAs isn’t really helping out. Did I hear you say that having the plant lets you get more renewable energy? Can we pull on that thread just a little bit more? Because I think, I don’t know, that’s a bit counterintuitive perhaps. Stuart Reilly (24:14.55)Right. And it’s counterintuitive that it wouldn’t actually do anything negative towards our carbon free as a percent of load goal, because the goal isn’t whether or not you have peakers available or not as that reliability backstop that you might need. The goal is, do you have enough renewable energy, carbon free energy to cover your load, to serve your customers? And so pulling on that thread a little bit. Stuart Reilly (24:39.394)Having a resource that can turn on at the time when our load zone has separated from the rest of the market can immediately collapse that market price and those critical times. And then those contracts for those renewables that we have cited elsewhere can actually function the way that they’re supposed to in terms of being a good market hedge and providing a market resource for our customers that doesn’t merely add more costs on top of. Stuart Reilly (25:07.968)other costs. It’s almost like think about how we can pay a premium once. In my example in West Texas, if we’re paying that PPA price, but maybe the market’s not giving us that full PPA price back, we’re paying a premium for that renewable energy. But then we’re also paying a premium again in our load zone. And at some point you just butt up against your affordability goals and we’re trying to balance everything. Stuart Reilly (25:31.732)Our goal at Austin Energy is to safely deliver clean, affordable, reliable energy and excellent customer service. I mention that because in our mission statement, we have clean, affordable, reliable, and we’ve spent a lot of time talking to our community about there’s no perfect resources. There’s resources that all have their pluses and minuses. There’s no silver bullet. So figuring out the trade-offs between affordability, environmental sustainability, and reliability, what trade-offs can we live with? It’s finding the right mix. Stuart Reilly (26:00.8)And gets us back to our really diverse portfolio. And once we get that mix right, we can execute best. I mean, we spend a lot of time talking about the challenges of the clean energy transition. And I hate that because it can sound to some people like it’s negative, but really we’re not going to win this race in the clean energy transition. If we’re not honest about the challenges that we have ahead of us in executing on it. And so we have to kind of hold. Stuart Reilly (26:26.7)Simultaneously, the understanding of where we are on reliability while we also believe in the direction that we’re going. And that direction is the right long-term direction. It’s compelling for so many reasons. And we’re still on that path, regardless of what kind of local resources you need to help out with that. Joshua Rhodes (26:43.31)Yeah, it’s one of the questions I’m often asked when I’m talking to media or other things about Texas in general is like, Austin Energy, notwithstanding, like people ask, why do have so many renewables? And it’s like, well, because of the cost, they’re cheap. I mean, they produce a lot of low cost energy. It’s also clean. They produce a lot of low cost energy, which in our market structure is valued. One of the things you talked to a little bit about was like communicating these issues with customers, with stakeholders and other types. How are you trying to communicate that? Like we’ve talked about some like very complex things from Joshua Rhodes (27:13.142)load-weighted average prices to the ability of local generation to offset premiums across the state. How do you communicate this to the public? I guess I’m asking you to communicate this to the public right now. Stuart Reilly (27:25.76)Yeah, yeah. I’ll start and then Lisa can jump in because she does a lot of this. It feels like being the chief operating officer at Austin Energy is probably a chief communications officer most of the time because we end up having so many of these conversations. But I think we have to start with a common set of facts because if there’s not a shared baseline understanding about why we have energy resources to protect our customers, we don’t make money off of energy resources. We merely use them to reduce our customers’ bills. Stuart Reilly (27:55.916)We need to start there at those kinds of things because if we don’t start with that common understanding of some of the basics, it’s just going to be a very frustrating conversation for everyone. But we end up having to show our work a lot. mean, like I said before, energy isn’t as much in the background as it used to be. It’s not as invisible supporting Austin as it used to be. People have to think about it more. Stuart Reilly (28:20.21)Even though we still probably all wake up, unfortunately, the first thing I do is I grab my phone that’s been on the charger, know, make some coffee, all these things that nobody’s thinking about unless your power is out and it’s all you can think about. And so now people know a little bit more about some of the challenges. It can be a little bit frustrating and trying to help them understand what some of those challenges are with the added nuance and complexities of the ERCOT market because Stuart Reilly (28:48.11)When you’re a public power utility like Austin, you have to show your work and you have to bring the community along in that conversation. Lisa Martin (28:55.982)Yeah, I think that for the community and our customers, especially when it comes to complex topics, we definitely have to take them on the journey with us. have to, as Stuart said, show our work and help explain to them what we see in our daily work lives. for example, Winter Storm Uri back in 2021, we had resources that ultimately, because they were running during that time, the net, Stuart’s been talking a lot about costs, it ended up being net revenues. Lisa Martin (29:24.366)of over $100 million that we ended up passing back to our customers. And since then, we’ve retired a lot of our older gas generation that ultimately contributed a significant portion to that savings. And so people don’t really understand that. They think, oh, well, it was a statewide grid emergency. There’s not anything locally that really has an impact to that. Lisa Martin (29:46.328)We have to take the time to help people understand the complexities of those kinds of situations to help them understand where we’re coming from as we’re making expert staff recommendations. It’s the days of saying, you go take care of that situation. I just want to make sure that the lights come on when I flip the switch. For a large portion of the population or some portion of the population, that’s not the case. And so we have to really help them understand the trade-offs of every decision that we make. And then we take their feedback and we bake it into the work after we’ve educated them on the challenges. Lisa Martin (30:16.6)But I also have learned that there’s another portion of the population that doesn’t really understand everything we’re doing. despite how many times we talk to them and we try to help them understand through, it’s really important to still talk to those folks, but just to listen to their values. Because you don’t really have to be a technical expert to have an opinion on what you want out of your electric service provider, out of your electric utility. And so we’ve spent a lot of time building up to the Resource Generation and Climate Protection Plan adoption and even here recently. Lisa Martin (30:45.528)to talking to the community. And we recognize they want reliability, affordability, environmental sustainability. They want all three of those, but there are definitely trade-offs between those values. And so when we ask them to kind of help us prioritize, help us understand, because each resource has advantages and limitations, we’ve heard time and time again from our community that they want us to prioritize reliability, and they want us to make sure we’re taking care of the most vulnerable on all fronts. So. Lisa Martin (31:13.026)There’s a lot to it. A lot of our job is communication, but it’s also really understanding the complexities of everything that we’ve been talking about here today. Joshua Rhodes (31:19.79)Another thing about like local resources, there’s been a couple announcements around local energy, local energy storage resources. We’re going to talk about some of the big batteries and some of the small batteries that are coming to the area that might help with some of this. Stuart Reilly (31:32.376)Yeah, first of all, we had a contract that we executed with Jupiter Power for 100 megawatt, four hour battery. We also have approval and we’re still in negotiations for 40 megawatts of battery storage with Base Power Company. And so we’re excited about that kind of on the home stretch of getting that contract done. So we had only a little bit of storage here locally in Austin, some really important work that had been done years ago, learned some really important lessons. Stuart Reilly (32:01.446)And obviously batteries are improving and we’re investing quite heavily in batteries. We also have another contract that we’re bringing forward for authorization to negotiate on another 100 megawatt two hour battery system. So that’s coming soon. So a lot of people are excited about the base power company, 40 megawatts of battery storage that we’re in the process of working on. Hopeful that we’ll be able to announce more on that soon, but essentially Stuart Reilly (32:29.762)For us, it’s simple. We have 40 megawatts of battery storage that we can deploy just like it’s a large utility scale battery system. And we can charge it and discharge it when power prices and demand decrease and increase. And we’ll manage that resource in a way that helps us with our wholesale energy prices, peak load reduction. They can quickly put energy across our system. Stuart Reilly (32:54.446)The difference of using the distributed model has another benefit for our community, obviously, and these residentially sited backup batteries that Base Power offers will be a resiliency solution for those customers as well. So there’s a lot of different attributes that different batteries have. We’re also doing a distributed battery demand response program with $500 rebate and then $300 a year based on the performance of that battery when called upon. Stuart Reilly (33:24.182)And so if I remember correctly, I think we have 17 megawatts of batteries here installed in the Austin Energy Service Territory. And we really want to capture those batteries and make them part of our system. So offering customers an incentive to join our program so that we can use those batteries. It’s like a Ferrari parked in their garage that they’re never driving. And so we want to basically be able to leverage those battery systems and also provide a benefit to our customers. Stuart Reilly (33:50.744)So a lot of different stuff going on in terms of battery storage, both at utility scale and distributed residential scale. Joshua Rhodes (33:58.092)Yeah, can you speak a little bit? So one of the things around like getting to a point of interconnection or being able to site like infrastructure is becoming harder. We’ve talked a little bit about Austin Energy being a pretty compact area. I love the idea of distributed batteries in terms of just being able to deploy things quickly if we can communicate with them in a timely manner. Do think that’s going to be like the way forward for places like Austin Energy because of just how may presumably easier it will be to like deploy them everywhere? Those are my words, not your words, but I’ll let you say. Stuart Reilly (34:26.7)Yeah, it’s easier from a siting perspective, but from a customer outreach perspective, it’s a lot of different customer relationships and a lot of sites to execute on. You let’s say over 2000 sites to get to that 40 megawatts, something like that. And so there are challenges and that’s why it was attractive for us to try to link up with somebody like Base Power who has that model already to do the customer outreach. They can. Stuart Reilly (34:55.883)develop their own customer base and then those customers are buying into a base power concept. Their bill with Austin Energy doesn’t change. And so there’s that kind of arrangement. So I think it is harder to find the space for, let’s say, a hundred megawatt battery. It’s harder to do the interconnection. There’s a lot more to that, but the flip side, there’s just a lot of legwork on that side as well. Something else I’ll point out is Stuart Reilly (35:21.762)depending on the battery sizes, we could see some impacts to our distribution equipment, you know, in terms of transformer sizes and things like that. If I were an investor owned utility making a rate of return on my capital investments, I might like that a battery was sized such that I need to change out a transformer. But as a cost recovery utility here in Austin Energy, we’re just trying to protect our customers. So we’re trying to do it in a way that minimizes the need to make a lot of Stuart Reilly (35:50.806)infrastructure change outs that could increase costs, thinking about how we do it smart, how we locate it well. But I agree with you that it’s very attractive because even if we have areas where we might need additional voltage support or something like that, batteries can really help out in those types of areas. Joshua Rhodes (36:08.258)Yeah, there’s long been like this conversation around like deferment of distribution infrastructure for properly siding energy storage and things like that. it’s the incentives haven’t always been aligned with every utility. Would you say that they’re more aligned with Austin Energy than with other types of utilities like in Texas and around the country? Stuart Reilly (36:27.064)Can you ask the question again? Joshua Rhodes (36:28.866)Yeah, Joshua Rhodes (36:29.226)so one of the concepts that’s often talked about is distributed storage being able to defer distribution level upgrades. But a lot of times, utilities that are just making a regulated rate of return on capex may not want to defer distribution infrastructure investments because then they make a lower rate of return. But it sounds like the incentives may be different in Austin Energy than in other types of utilities. Is that the case? Stuart Reilly (36:55.456)Yeah, I think so because like I said, we’re cost of service utility. So we’re going to set rates at cost. We’re not looking to invest more to make a rate of return. We’re looking at doing what the smart moves are to be the most cost effective for our customers. And so there do happen to be times that come around where distribution transformer sizes end up being Stuart Reilly (37:18.89)undersized as development keeps coming and density is added and a lot that used to have one house has multiple houses or something like that. And we have to keep up with that. But I do think there are other attributes for the distribution system that batteries can help with just in terms of the amount of stress on the grid. It’s not just how much deferred maintenance are we avoiding through those. I think we can find some benefits to the distribution system as well. Stuart Reilly (37:47.822)you know, pairing them with solar, pairing them with electric vehicles, you know, once you plug everything together and we’re smarter about things and we have the programs that deploy those resources at the appropriate time, our hope is that there isn’t a great amount of impact to the distribution infrastructure. Joshua Rhodes (38:06.126)Yeah, I remember way back one of the things around like the Con Street project and is located in Austin and Austin Energy’s service territory. When we were looking at in the Miller development in terms of, you know, a lot of these homes had solar, there were some very early scale batteries out there. A lot of them had like electric vehicles. And I remember one of the big papers and or findings that kind of came out of there was like when you’re adding all of this stuff to the distribution network, like the transformers were running hotter. You’d have Joshua Rhodes (38:33.976)highly electrified homes consuming electricity all day, maybe they’re charging batteries, but then at night they’re charging electric vehicles. And so like the transport never had a chance to like cool down. I think one of the things was like, you batteries could potentially help like with this, with shifting some of this stuff around. At that point, they were quite expensive, but it seems like we’re finally getting to that point where they’re going to be more easily justified in terms of putting on the system. Stuart Reilly (38:57.804)And I remember some of those days kind of at the early days of some of our electric vehicle programs. And we had a program where we were having people register where they had EVs so that we could keep up with where they were all going so that we knew what we needed to do with transformers and other equipment. Well, EVs in Austin have taken off and we really haven’t seen those types of impacts here. There aren’t a of transformers bubbling out there. Stuart Reilly (39:23.202)So I think 13 % of all new vehicle registrations in Austin are EVs and we’re not seeing those impacts. And honestly, it isn’t a list that we could have kept up with anymore anyway. But yeah, I remember when that was the concern, that concern hasn’t quite materialized. And I think part of that is if we have the behaviors right, it’s charging at the right time and those kinds of things helps a lot. Joshua Rhodes (39:46.892)Yeah, I seem to remember this concept of Prius maps. People were looking like, okay, who has Toyota Priuses and where are they? Because those are going to be the people that are probably going to adopt electric vehicles first. I don’t know if Austin ever had any of those. I vaguely remember hearing them of them at somewhere. Stuart Reilly (40:02.19)With batteries now, there’s kind of that you see your neighbor gets one and you ask them about it. It’s like solar and EVs and batteries are in the same category where maybe your neighbor does it and you ask them and then you start to see clusters of them. And so that is something that we just have to be mindful of. It can have impacts, but we haven’t really seen a great amount of impact on that so far, luckily. Joshua Rhodes (40:25.358)Sounds good. Well, Lisa and Stuart, thank you for coming on the Energy Capital Podcast. I really appreciate it. Stuart Reilly (40:30.232)Thank you. Happy to be here. Lisa Martin (40:31.8)Thank you so much for having us. Joshua Rhodes (40:34.264)Thanks for listening to the Energy Capital Podcast. If today’s conversation helped you make better sense of how the energy system actually works, share the episode with a colleague and hit follow on your podcast app. You can find us on Apple Podcasts, Spotify, and all the usual platforms. For deeper analysis and context each week, subscribe to the Texas Energy and Power at texasenergyempower.com. That’s where you’ll find every episode, every article, and our latest updates. We’re also on LinkedIn, X, and YouTube. Joshua Rhodes (41:03.64)where we share clips, insights, and ongoing commentary on energy policy, markets, and the grid. Before we go, a quick note. The views expressed on this podcast are my own and do not represent the official positions of the University of Texas, Ideasmiss, Austin Energy, or Columbia University. A big thanks to Nate PD, our producer. I’m Joshua Rhodes. Thanks for listening, and we’ll see you next time. This is a public episode. 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As the data center buildout in Texas accelerates, the public conversation has fixated on generation, interconnection queues, and gigawatts. But the firms actually structuring these deals see a different problem entirely: process.In this episode, Joshua Rhodes speaks with Maura Yates, chief executive of Mothership Energy. Mothership is one of the most active retail electricity providers in ERCOT’s large-load market, managing more than three gigawatts of large load and writing more than 39 distinct data center contract templates to handle the variation across deals.Yates says the technology to power data centers exists. The bottleneck for data center completion is the time it takes to sign contracts for electricity service and the time it takes to connect them to the grid. As Texas debates SB6 implementation, co-location rules, and demand-side management, that distinction is shaping which projects get built and when.Joshua and Maura discuss topics including:* Why Mothership has written more than 39 distinct data center contract templates.* The difference between behind-the-meter, front-of-meter, and co-location deals.* What the Crusoe Goodnight data center PUC ruling means for future co-location projects.* Why most data centers are data center companies, not power companies.* HowYates expects ERCOT to integrate large load without pushing costs onto residential customers.Timestamps* 00:00 - Introduction & Maura Yates* 01:26 - Building Mothership from Both Sides of the Market* 03:27 - The Problem Mothership Was Created to Solve* 05:51 - White Label REP Model and Getting DERs into ERCOT* 08:37 - Option One vs. Option Two Retail Licenses* 10:42 - Selling the Residential Book and Pivoting to Large Loads* 13:27 - Entering the Data Center and Bitcoin Mining Space* 16:24 - How Mothership Structures Data Center Deals* 19:13 - What the Market Needs: Process Over Technology* 21:24 - Co-location, Net Metering, and BYOG in ERCOT* 26:13 - Do Data Centers Actually Want to Be Power Companies* 28:12 - Eclipse: Mothership’s Market Access Platform* 32:01 - Forward Curves and Empowering Price Takers* 38:07 - The Grid’s Future: Distributed Supply and Data Center Growth* 41:03 - ClosingResourcesPeople & Organizations* Maura Yates (LinkedIn)* Mothership Energy (Website - LinkedIn)* Joshua Rhodes (LinkedIn)* Webber Energy Group (Website - LinkedIn)* IdeaSmiths (Website - LinkedIn)Company & Industry News* Mothership Energy and Atlantic Energy Complete Texas Customer TransferRelated Podcasts by Energy Capital* “The Name of the Game is Flexibility,” a Conversation with ERCOT’s Pablo VegasTranscriptJoshua Rhodes (00:04.366)Hi, everyone, and welcome to the Energy Capital podcast. I’m really excited to have Mara Yates here to talk about mothership energy in ERCOT. Mara Yates has over 20 years of experience in the power industry, starting in distributed energy resources at Arizona Public Service before moving to governmental affairs at Sun Edison and then becoming VP of sustainability at NP2 Energy, which was bought by Shell in 2017. In 2021, Mara co-founded and is the CEO of Mothership Energy Innovations with her business partner, Caitlin Brammer.Mothership is the 18th largest retail electricity provider in the nation and is contracted and manages over three gigawatts of large loads in ERCOT. In addition to being a rep, Mothership provides risk management, technology and consulting services to electric cooperatives in Texas and specializes in data center and wholesale procurement. Yates, welcome to the Energy Capital Podcast.Maura Yates (00:54.712)Thanks for having me. Super excited to be here chatting with you all.Joshua Rhodes (00:58.05)Yeah, and we’re again, super excited to have you. Before we dig into mothership and your current role, like looking back kind of where you’ve come from, your LinkedIn started in a regulated electricity space at Arizona Public Service before kind of going into more corporate with Sun Edison and MP2 and Slush Shell. And now you’re CEO of like a company in the really competitive space. How were those different, those roles that you have in the different spaces where theyMaura Yates (01:26.35)That’s a really good question and it’s one I enjoy answering because ultimately it’s that background that has allowed us to create incubator mothership innovations to be the shock that it is. So when you look at the places that have spent time, I’ve spent time at the utilities, I spent time at the development side, both a DER and large scale solar development shop, all the way then to a deregulated pseudo rep slash utility in ERCOT. And really just bounce back and forth from utility side.to developer or industry side, back to a version of the utility, back to the industry side. And now I’m back on quote unquote the utility side or the delivery side and supply side. And where we’ve landed with Mothership is really taking the learnings of participating and being a part of a company on both sides of the transactions, right? So you typically have the utility on one side and the developer on the other side.And so by jockeying back and forth between these spaces, between our regulated utility all the way into the deregulated market, it’s given us a really well-rounded understanding of how these different parties participate in the market, but also really what they find important and what they find valuable and like, what is it that the utility is trying to get out of transactions? What is it the developer is trying to get out of transaction? And when you better understand both sides of a transaction, you’re able to come up with a better solution for the transaction.which is why, again, we’ve developed mothership in its latest stage to really be this deal shop and this service provider for both developers and other load serving entities and utility providers. And I should clarify, I’m using utility and like not the traditional ERCOT sense of TND, but really the one providing and servicing power to the end user.Joshua Rhodes (03:10.094)Yeah, no, that makes sense. like, can you kind of tease out a little bit like of that? I seeing both sides of kind of how things operate is super valuable. So as you were seeing both sides, can you kind of tease out what was the problem that mothership was originally created to solve? Talked about both sides, but what was that problem there?Maura Yates (03:27.596)Yep. So the more time that we spent on both sides of these deals. So for example, I go back all the way to Arizona Public Service when we structured some of the first utility incentive programs and we were very aggressive, like in a very solar friendly way in terms of the incentives we were offering. So we worked really closely with the industry and the solar and battery developers. And our goal there was to better understand what is it that gets you to transact, right?Like if our goal as the utility was to get solar adopted by homeowners, what is it that the solar homeowners need to adopt? And what is it we as the utility then need to provide to enable this transaction? And we did a good job. Typically the utility or the load serving entities role is to provide some form of incentives and compensation. And we did that and we had success. We deployed a lot of projects, but incentives aren’t the most sustainable mechanism for growing an industry. So you have to continue to find value and way toextract value as you move away from incentives as the technologies become more competitive. When you start moving down the advancement and the maturity continuum, you start to realize that the challenge in getting these technologies deployed from both sides is really the customer experience. Something has to change in the customer experience. Everybody talks about it, both utility talked about the customer experience and the developer talked about the customer experience.But they talked about it differently and it’s the same customer. So our point was this customer is facing a very bifurcated customer experience. They would get a bill from their solar developer. They’d get a bill from their retailer. They said that solar developers sold them on one thing, but then when they got this bill, they can’t make sense of it. They’re speaking two different languages. And then all of sudden you have a bad customer experience and the customer’s not happy with their solar. Their expectations weren’t met because they were set the incorrect way.And so when Winter Storm URI happened in 2021, this thesis really became a more apparent need. We observed that if more distributed energy resources had been in the market, they would have had a massive impact on what happened during URI. And when you take that step back and say, why weren’t more DERs in the market? For us, the answer was the value proposition is too complicated. It’s still too much of a bifurcated experience.Maura Yates (05:51.566)for the customer. So our original thesis at Mothership was and is to be a white label retail electricity provider. However, in the beginning, we were focusing on these DERs. Since then, we’ve now migrated to the other end of the spectrum and do very large load. Yeah, kind of getting further from the beginning. But the idea with the original launch of Mothership and our first clients that we launched with were, hey, we need to get more customer-cited, residential-cited assets in the market.Joshua Rhodes (06:07.202)We’ll get that.Maura Yates (06:21.582)because that’s where we’re going to see reliability. In a market, we’re going to continue to grow to have challenges because that residential load shape is the one that creates that fall. And so as such, how do you do that? How do you get customers more comfortable with adopting? And our thought was we got to turn it into one. The solar company, it all has to be the same customer, the same economics that are all being balanced between one transacting party rather than a solar company and a retailer that both have their own.value props in their own metrics. And so if you put it together, it starts to become a more seamless customer experience. Now, the challenge is when you’re asking these solar companies and these distributed energy providers who I’d spent my career working with to become a retailer and a market participant, that’s a really different risk profile than what they’re used to. You go from talking kilowatt hours to megawatt hours. You go from talking about, I need to deposit on your PPA.to I’m getting a margin call from the market, I got to post collateral. It’s a very, very different transaction world. And so when you think about it, if you’re trying to blend these two worlds together, you’ve got a DER company and you’ve got a traditional retailer, who’s going to embrace the other, right? Is it the retailer that becomes the solar company or is it the solar company that becomes the retailer? And it is our thesis that really these solar companies are best suited to become the retailer.because it’s these solar companies and DER providers that have that long-term touch, that long-term anchor agreement. And more importantly, that’s what’s leading the conversation with the customers. So we need to figure out how to get them enabled. They’re not quite really prepared to be a rep. so, mothership, the origin of mothership is we would white label this to help them get into the market. We’d show them how to be a rep. We’d teach them.We’d help them understand where risk is, how to mitigate it, how to use their assets for it, and really understand what a P &L looks like, all with the anticipation that once we show you, get it set up for you, we want to send you on your way, you’ve grown up, and go do it on your own. So the original was really designed around a customer experience to figure out how to get more DERs in the market.Joshua Rhodes (08:37.048)This actually brought me to something when I was researching a little bit on moral mothership, the concept of an option two rep, which I’ll be honest, I had to look up. I didn’t really know. Like when I think of reps in the Texas space, I guess I’m thinking of option one, that your general like retail electric providers that most people probably are signed up with or using. So can you explain what an option two rep is and kind of how it operates in the space and how it’s different?Maura Yates (09:00.984)So Josh, the question around option two is really interesting because at Mothership, we actually operate a bunch of different retail electricity providers, a combination of option ones and option twos. historically, majority of retailers in the market had been option one. Option one is what allows you to serve Rezzy, small com, and everything that’s essentially sub one megawatt or even greater than one megawatt. But it’s really the universal type of license.And at Mothership, we operate several of those. And I should clarify, under each license, you’re also able to do these things called sub-LSEs and even further segregate and divide. And it’s a key thing that we do at Mothership for risk isolation, but also data. It gets way more clear and pristine data that’s not co-mingled when you do this type of segregation. So that’s the option one piece, but then we also operate some option twos, as you’ve noted. And with an option two,Historically, it’s been used for really large, more sophisticated industrial loads that have come into the state and didn’t necessarily need to go through a retailer. They had enough load, or a traditional retailer in option one. They had enough load themselves. They perhaps had enough sophistication. You can become your own, with an attestation, a retailer designed for just one megawatt and above loads. So a load will attest that they will be serving and employing power themselves under this setup. And as a result,it’s less regulatory requirements because you’re just really focusing on that load that has attested that this is their option rep. So from a regulatory standpoint, a lot lighter, but again, really geared towards these larger facilities. So we anticipate seeing a growth of option two retailers in the future.Joshua Rhodes (10:42.894)That makes good sense and I think it’s actually a pretty good transition point into kind of where Mothership is. So it looks like in 2025, like Mothership actually sold a large book of retail customers to Atlantic Energy. And can you explain that pivot and kind of like where you were looking to go like with that?Maura Yates (11:00.268)Yeah. Great question. I hope this doesn’t offend everybody in the resi space, but those in the resi space know exactly what I’m talking about. Resi is just a different beast to serve. The risk profile is different. In ERCOT, historically, when you serve resi load, you are short the market. You’re always short the market. And the reason you’re always short the market is because it’s what resi load that was driving this volatility. The load shape, the elasticity, resi is super volatile. And it’s really hard.to reliably serve that and also do it in a cost effective manner for both the retailer and the load. I mean, I can create a retail rate for a Rezzy customer that has me de-risked, but that’s not a rate a Rezzy customer is gonna pay. And so it’s really the question of for the rate the market will bear, how much can you de-risk it? And it’s hard to de-risk it given where the market pricing is. So we chose to exit the Rezzy market for the general challenges of Rezzy as a result of usreceiving a very large influx of requests from very large loads. So as you can imagine, the book that we sold to Atlantic was a rather large book of RCEs and it seems like 100,000 meters. We can serve that same capacity with maybe one or two large meters customers. So for us, it just became an efficiency standpoint. However, I will also say super grateful and appreciative of our time of doing Rezi becauseThey’re a huge piece of the market. And unless you understand how Rezzy behaves in the market, what that load does to real-time SPPs, what it does to the load forecast, until you understand how Rezzy behaves, you don’t fully understand the market. So we understood it. It’s innate. We felt it. We’ve hedged it. We’ve worn that risk. And it gives us a good idea of how the ERCOT market behaves as a result.Joshua Rhodes (12:50.21)Yeah, that’s one of the things I’ve always said and like in a lot of my research and stuff at the University of Texas and other places, like the residential consumer was a swing consumer and it was the one that increased the most whenever the temperatures either got really cold or really hot. I hear you, got to understand kind of residential in Texas just because of our air conditioning load, electrification of heat, all these other types of things. So you sold a large book of retail customers and you mentioned it just a second ago where you can serve the same amount of load with just one or two large meters.versus hundreds of thousands, potentially, of smaller meters. So can you talk about where that pivot went to in terms of what are you all up to now?Maura Yates (13:27.532)Yep, great question. So a lot of the same thesis that caused us to start the business of changing the customer experience, bringing more nimbleness and innovation into the resi space was what allowed us to gain a reputation outside of the resi space at the same time. a lot of really complex conversations started coming to us. Folks knew us from our past lives when we spent time at MP2.And they were looking for a lot of really complex deals and feedback on how to do something boutique. And they knew that we did that in our past life. So they asked, hey, can you guys start doing it again? And it was a really important time in the market. So post 2021, that’s when you started seeing a lot of the Bitcoin mining and the data or the crypto market moving to town. And at first, I think my initial response when someone said, do you guys want to serve Bitcoin? was like,We’ll it on the second round, you know? We don’t want to do it right away, but we’ll catch it on the second round. We were still a small shop and money, like that’s a big position to put on. And so we passed on the first couple and we started to educate ourselves just through more dialogue. And through education, we learned about how to de-risk these and the appropriate ways to de-risk these. And we became really disciplined and okay, these are our risk parameters for doing a deal. And if a deal will do it under these parameters, we’ll take it. But we’re not willing to go beyond our risk parameters becauseThis is a big project and one thing going wrong could be chaos. And so we got really disciplined and being disciplined and also really good at the boutique structures allowed us to get into some deals that were so nuanced that we were the only ones who could possibly structure and put it together. And so as a result, our risk conditions could be met in this complex structure. And we started papering transactions that required, you know, seven, eight different documents to be transacted at the same time.in order to make the power flow. And so after we did a couple of those, people knew that we had this reputation for being the shop that will kill a lot of brain cells, spend a lot of time, and think really creatively about how to get a solution. Because this all goes back to, OK, the goal is to get our customer a really good customer experience, but not expose ourselves to risk. And so we migrated into this large load space by way of these Bitcoin mining data centers, which arguably felt the riskiest. And on top of that,Maura Yates (15:49.71)the market conditions at the time. This is back in 2023 when we had summer 23 pricing and summer 22 gas. And so the risk was just a multiple. And so the tools that we used to come at these creatively to manage risk and meet the needs of the market, which were they didn’t have much cash, right? Like they were cash constrained. So how do we manage risk on a low cash portfolio and not make any compromises that we need from a risk portfolio? And that’s what led us to reallystart forging into the space and really get a reputation in the data center space.Joshua Rhodes (16:24.77)Right now, if you look at the aircott space, I mean, you get two people like us in the same room or on a panel or a podcast for that matter. We can’t talk about energy without talking about data centers, right? And that’s just like how everything is. Like, can you speak to what the structure of a deal means for a data center? Like, I don’t know if someone came to you now. I mean, they’re probably late in the game now, but like the data center comes to you now. Like, what does a deal look like to them?Maura Yates (16:50.008)Good question. Where my head starts going is pick your flavor, right? So as much as we want these data center deals to be standardized, because you’re like, everybody’s just building a data center, right? They’re all just like, it should be really simple. They’re all just, you know, trying to compute. It becomes really nuanced and it becomes really different because who sits behind that developer, not only as tenant for the data center and whose machines will be in there, who sits behind them as a lender comes into play.So you have a of parties with really nuanced needs. So certain lenders like to see something a certain way in a contract. Sometimes the relationship between the developer and the tenant and the actual occupant of it are really different. And so traditionally what will happen is they’ll come to us, they’ll give us an understanding of who their tenant is. And more importantly, they tell us how they’d like to provide power to that tenant. That’s where we start. What do you guys want to do? We don’t start by telling them this is what we’re going to do.we want back to the customer experience. Tell us what you guys want to do. Let us figure out how to do what you want to do because that’s going to make you happiest and that’s important to us. So tell us what you want to do. We’ll figure out how to do it within the means that we have and deliver on that. That’s what we’ve really been focusing on. When I think about the number of contract templates we have, so this will blow your mind. The last time I calculated, we had over 39 templates of data center contracts. Because one, there’s an evolution and as you keep learning, you learn little things.it would do better. But more importantly, some are co-located behind the meter, some are in front of the meter, some share part of the behind the meter. Some are behind a POI and have two data halls. Some have two tents behind a single POI. Some want to curtail, some don’t want to curtail. You know, so everybody’s got these different requests and all these different requests impact different parts of risk. And so the elements that we have to put in to control those are very different across our contract. So when we think about one of the areas thatreally distinguish mothership and our retail side of the business, we absolutely call out our data center contracting services as one of the things that distinguish us. We’re fast, we have really good templates, and we have really good templates that work for customers, because we’ve worked with most of y’all. We know what you like to see. We know if your lender wants certain step-in rights, etc. So a really solid set of templates to work from, though none of them are totally the same.Joshua Rhodes (19:13.986)When you look at the market structure as it is and your 39 templates and all the things you need to do, how could the system be doing it better? What would make your job easier or make you only need, I don’t know, say 17 templates instead of 39?Maura Yates (19:26.924)That’s a fun question to answer because if you ask that they’d say, Mara doesn’t want to simplify this. She loves the chaos. There’s a part of us that loves the chaos, right? There’s ways to figure out how to do things better and constantly doing things better. Now there are things that can be done that don’t need to add to the chaos. When I think about like where innovation needs to happen in the market, we frequently look to technology for innovation.I think I get asked this question a lot and I think my answer is always the same. I don’t think it’s technology. We have wonderful technology. We have a lot of people working on promoting really good news. You guys had the hardware software side covered. What we need to evolve and innovate on is process. What’s killing these projects is the time to contract and the time to power. If you ask any of these large load developers, what’s killing them is that they’re just waiting to interconnect. There’s no technology that you can put out there that necessarily changes it.What needs to change is how we process things, how we move through things. It’s very inefficient. Now, I say that, but at the same time, I don’t necessarily have a great solution because we’re in this place where our market’s undergoing a massive shift and they don’t want to knock Urquhart because Urquhart’s working really hard amongst a bunch of moving pieces and it’s really hard to keep organized. So I certainly don’t envy them and I think they’re doing the best that they can with a really large project. But that’s it.key piece of this is it’s creating, it’s innovating in the space of process, because process is time, and that’s what’s keeping us from deploying these data centers more rapidly.Joshua Rhodes (20:59.394)Yeah, as we’re recording this podcast, just released a podcast talking to Pablo Vegas, CEO of Arqat, where he talked about different types of tools and he was making a case. We really need tools, even if they’re not perfect. We’ve got to get some stuff out there and just learn from them. Even if it’s not the greatest tool, you can hit a nail with a wrench. It’s not going to work great. And you can figure out how to make that wrench better and turn it into a hammer to actually hit the nail. He didn’t say that. I just said that. But anyways.Maura Yates (21:23.534)Yeah.Joshua Rhodes (21:24.462)Yeah, iterate and such. So one of the things like last week I was at a grid lab event in California and one of the things that I learned about ERCOT that I didn’t really understand and you’ve mentioned this kind of before in terms of what you mentioned, similar to something like this. with large loads that want to bring generation as well, whether that’s batteries or various types of behind the meter generation, it’s my understanding that the current way things are structured is you can’t net on your point of interconnection.And so like if you’re like a 500 megawatt data center, but you have a 300 megawatt battery or 300 generation, you can’t net and say, want just 200 necessarily from the grid, or you can’t operate that away. Is that the case? Am I getting that wrong? Did I misunderstand that? Or like, how does that work with large loads kind of bringing their own generation? Cause a lot of, a lot of folks are talking about that these days.Maura Yates (22:15.478)Yep. So a question if you got something wrong, amidst the constantly changing updates, comments, depends on the point in time. Yeah, it’s very hard to keep straight. And by the time that this podcast airs, everything we’re about to say will already be updated because they’re having a workshop tomorrow. So whatever we say now might have changed. The bring your own generation, the net metering, the co-location.Joshua Rhodes (22:24.462)That makes me feel better, thank you.Maura Yates (22:41.908)This is a really, in my eyes, this is the next big topic that’s being discussed as part of the SB6 proceedings. The conversation that’s sucking the air out of the room right now is the BAT0 process, which is the PRR 145 to change the interconnection process. That’s kind of getting into a spot where we see that the end of the road or a light at the end of the tunnel. Okay. The next thing that the commission and PUC and ERCOT are starting to take up are projects58, I’m gonna maybe get this wrong, 482. The demand side management. In the last couple of meetings and workshops, they’ve already started signaling, hey, we need to have this conversation. It’s where the curtailable load, the CLR conversations coming in. It’s where we expect conversations around voluntary early curtailment loads to come in. It’s the demand management piece of Senate Bill 6.That’s just getting kicked off. So we would fully anticipate more conversation around net metering of these resources going forward. Now, that said, there’s a couple pretty important kind of rulings, or I should say one important milestone really just was promulgated and that’s specifically around the Good Night Project with CRUSO out in West Texas. And that’s a co-located facility with thermal and renewables. And.It’s interesting because it’s perhaps setting a precedent for the conversations in that 5842. And as a result, what came out of that CRUSO filing were some pretty interesting comments. One, it stated that that load, that data center, needs to be able to fully shed and come off. And all of the native generation, the wind and the thermal, need to be available to push to the grid in their full capacity. Now that’s...a little bit contested because the spirit of SB6 was really, think the understanding is maybe it was more designed towards dispatchable generation, not necessarily renewables. So I think there’s still conversation going on about that and that will likely be picked up in that demand management conversation as well. But that was one of the first things that came out of that net metering docket. And the second most important piece is that they told the loads, you’ve got to be available to curtail in an emergency.Maura Yates (25:00.232)and you can’t participate in any demand response or answer service programs. So it seems like it is setting the precedent for the things that will be decided around what the large load requirements are, agnostic of whether or not you’re co-located. But I think at the end of the day, we are going to continue to see a huge drive and push for co-location and behind the meter, simply because the perceived bottlenecks there are less.Joshua Rhodes (25:26.488)Got it. think the thing I was trying to say earlier is one of the things I brought up when I was at that meeting was there was a couple of hyperscalers in the room and we were talking about like, well, it’s like, can’t it just be a CLR, a controllable load resource? That’s where it was coming in. It’s like, well, they won’t let us net at the point of interjection, which you’re talking about. But of course that may change, I don’t know, tomorrow. Like as you pointed out.Maura Yates (25:49.068)And it gets tricky too, because some of the ways that loads apply in these co-located applications are they apply to be like a load only resource so that they aren’t netted, some want to be netted, some can’t be netted, some are looking for exclusion. So it’s a tricky space, but a pathway to netting, there will still be pathways to netting in several of these interconnections, but there’s also pathways for non-netted resources.Joshua Rhodes (26:13.912)The deals you’re looking at in the various contracts, like, do these data centers actually want to be power companies? I get the feeling that they don’t necessarily want to. They’re kind of being forced to just given like maybe how slow the rest of the system is running.Maura Yates (26:29.23)So I think the answer would differ based on the hyperscaler you’re talking to. There are some hyperscalers that currently have incredibly built out power desks and power teams. However, I will flag not super heavy in the wholesale market transaction. They’ll sign a lot of bilateral VPPAs per se, but not necessarily papering a lot of the short-term hedges or cash positions and not as active as a true power marketer would be.they’re set up and I think those intend to take a more aggressive role as kind of like a power marketing participant. However, there are others and sometimes it kind of blows our mind because it’s your number one expense outside of your hardware is electricity. So you guys should have this really dialed and do you guys understand everything that’s going on here? And I think several data center companies are data center people, not power people. And so they kind of take what is given andtake what they hear everybody else has and that’s acceptable, rather than really pressing for ways to refine terms.Joshua Rhodes (27:34.338)Yes, one of the conversations I’ve had is, you know, these data center companies, do seem wanting to move so fast and maybe have buckets of money that they’re willing to throw at this. But I do think eventually, where you bring some real value in this, they’re going to get to the point where they’re going to have to be smart about electricity. I mean, right now, speed to power, right, just got to build data centers. But at some point, there’s going to be a competition for how cheap can I make a token for the next word inwhen my students are cheating on their homework or whatever it is, know, or like, you know, writing code, they’re going to have to bring those unit costs down. So they’re eventually going to have to get smart on electricity and how they structure these deals, right?Maura Yates (28:12.942)They are. And what happens is sometimes it’s something bad that prompts them to get smart. I remember back in summer of 23, there was a really large publicly traded data center company that just got raked across the coals by their shareholders for their price of power. And when the market, they had done a poor hedging strategy. I don’t think they were well informed on what they should have done or what they advocated for in their contract. And as a result, they were notposition to take advantage of the economics in the market. And so in a market where, let’s say, real time was clearing 70 blocks, they put on $120 hedge and that showed up to the street. And so they need to get more sophisticated and the challenge is sometimes they try to get more sophisticated, but not with the right tools. And so what we really focus on, I’ll keep saying it, but back to our original mission, which is customer experience.We focused originally on Resy, now we focus on our large loads customer experience. And getting them data and teaching them how to use the data is one of our biggest drivers. So as a result of serving these large loads who are sophisticated, we have some that are very sophisticated and some that are very hands off. We treat them all the same. We treat them all at the same level of sophistication. And so for these large loads that are super sophisticated that need to provide very precise sub billing allocation, cost allocation down todifferent tenants, getting them data is huge. We launched a new platform internally at Mothership called Eclipse. We’ve now taken externally because it was our market access platform. We wanted to make sure that our data centers saw the market the same way we see it. Because if we see something that they need to take action on, we want them to see it too. For the example you noted, a lot of data centers right now want to run on index. And I get it, you see me roll my eyes on that because it’sWorks until it doesn’t work, right? Index is good until it blows up. There’s always a right price to hedge and there’s always a right way to liquidate hedges. Some get that. Right now, most of them are writing index. But as we’ve experienced before, the market changes. When the market changes, all those guys want to hedge. We give them the visibility to understand when that market is changing every day. Every hour we give them this visibility by logging in. And they’re able to see, okay, now is the time I should take action to hedge becauseMaura Yates (30:35.596)I’m seeing this forward curve just crawl up, which is giving me an indication that real time and my cash position is probably going to have the same increase. And so it gives them the idea of like, now’s a good time to hedge. And more importantly, maybe I’ll just hedge these hours. Maybe I’ll hedge the nighttime. Maybe I’ll hedge the daytime off peak. it gives them the ability to make educated decisions to improve their company economics. beyond that though, this again, all goes back to the customer experience.If you give them a bunch of data, but they don’t know what to do with it, then that doesn’t matter. And digesting this data is super important. So we’ve taken Eclipse one step further to digest this data and actually make the recommendations and say, hey, hedge now, hedge this price, or hey, wait, this is what this would synthetically look like in your portfolio. And more importantly, let me pull all of your historics, give you all this detailed level clearing information on your historics to say, maybe we should, maybe we shouldn’t.big thing there is data to give them the sophistication that they lack because they’re not power people, they’re data center people. But they need to be power people, so we need to give them that access. And if you think about that same conversation, that same conversation we had with the DER player saying, you need to be in this space, but you’re really not equipped to be in this space, so let us enable you and let us teach you how to be in this space. And that’s what we do now for our data centers and large loads.Joshua Rhodes (32:01.516)Yeah, I’m glad you went there. That’s exactly where I was going to go next is you’ve talked about, you know, delivering data and delivering tools. You built a tool and I believe you told me that like, so you built Eclipse originally for in-house use, right? It was just going to be mothership was going to be using it. But then you were using it so much or sending screenshots to people or something like that. like, we want this. So I just went to the website just a little bit before. It looks like anyone can sign up for free right now if they want to check it out. So there’s like a trial period going on. And so we’ll put a link to it in the show notes.But yeah, so you talked a little bit about kind of what it does, but can you give me any specific use case? How would someone come to the conclusion that I need to hedge? Like what would they be seen on your tool right now if they looked that would give them an indication of that.Maura Yates (32:47.096)Yep, so to level set our tool, like if you picture in your head, there’s a sidebar and on this sidebar, there’s a bunch of different modules and these modules are different ways that mothership operates. So as you mentioned, Josh, we built this not for anybody else. We built it for ourselves. We built it because this is how we needed to see the market, how we needed to ingest data, how we needed to interpret it. And we kept screen sharing it with all of our data center clients saying like, hey, look how your load settled or hey, like look at this.and showing them what we saw. Showing them, this is the read we got from the TDSP. This doesn’t align with your telemetry. Let’s go see if there was a meter read error. So we start showing them and all of a sudden they’re like, you spend most of our time now showing, we should just get you a login because it’s going to be way more efficient. Let’s teach you to fish rather than keep feeding you. So we decided to turn it into an external facing platform where we started by just putting our data center customers in there. It’s where they could retrieve invoices.retrieve their interval level report. So we give all of our customers interval level billing data with a massive spreadsheet behind it. Knock on wood, I’m going to get challenged by some other rep when I say this, but we’re pretty sure it’s the most in-depth interval report because it’s really complex math to pull together. But that all sits in this platform and they’re able to take that interval level report and push it up against our other unit, which is our forward curves unit and our settlements unit. And one,They can shadow settle themselves and say, did they get built everything correctly? Hey, where did I incur this charge? Hey, does this look like what my telemetry looked like? They can do a bunch of validation themselves, which typically that data for validation is totally gate-kept by an REP. That’s REP data. That’s not data that the load typically gets because that’s part of a transaction statement that we get from a TND. But we push it all out there because, okay, you can see your load data. You should know what you consumed. So we put it all out there.They go look at their historic position. They can shadow settle it. Or more importantly, the question you immediately asked. We’re talking about your open position and we’re trying to figure out should you hedge? And a lot of these large new data centers are coming with this demand for a physical tie to power. So that’s why they’re going to behind the meter. But for those that can’t go behind the meter, they’re wanting asset specific physical hedges to say, I’m buying, I know you exist. You’re selling that to me for 15 years. If I can’t locate next to you.Maura Yates (35:14.754)I at least want to make sure that I have somebody whose blades are going to turn. And so as part of that transaction, we will tell them to like, we’ll go in and say, okay, if this is the hedge that we want to do, let’s go price it on the forward curves. So we’ll go into our Eclipse platform. One of the free units that you mentioned right now is our forward curves unit. These are the forward curves we use every day. This is our exact pricing platform for forward curves. It has ancillary services. It has every ancillary. It has basis hub for all the load zones.It’s got more pricing curves than you would get through any other kind of publicly available curve tool because it’s our curves. It’s literally what we price all of our deals on. So we say, hey, come in here and let’s go price up what this hedge should be. I check my curves every day in market. I know our curves are good. So this is what the curves are showing as the hedge price. Then let’s go shop this and let’s go see if we get this as the hedge price because if somebody comes back two, three, four, $5 higher than this, they’re out of market. Don’t hit that. But it gives you the ability to gauge.when you should hit, whether you’re getting close to your price target, and if the numbers that you’re getting are good. Because if you think about it historically, this is a really big piece of why we made this public. You guys have, by saying you guys, the data centers and the generator, like the renewable generators, you guys have been price takers. You’ve been price takers because you haven’t had the visibility into the wholesale market to know how to price your asset on these wholesale desks. So I remember back in the day when I was at Sun Edison and we were going into one ofIt doesn’t exist anymore, but one of the very large utilities and going into the generation arm and saying, hey, we want to sell you our PPA down in Southwest Texas. And we didn’t say we’re going to sell it to you for this price. We said, what would you pay us? And like how weak to have to go in and say, well, what would you pay us? Right? Like I want to go in and at least know my value and say, I know that I’m worth at least this much. And so that’s rampant across the industry is.Solar developers, even it’s improved today, but I’d still argue solar dev shops do not have price on real time pricing. Pricing moves a seven by 24 and even an on peak product for a five year term that can move two to $3 overnight. And if you’re a solar developer, you’re not capturing that two to $3 price movement unless you know what’s happened. So our forward curves tool gives developers the ability to have power and some control in these.Maura Yates (37:40.334)pricing scenarios and not just be price takers. So it’s a really good way for them to optimize that procurement as well.Joshua Rhodes (37:46.756)Sounds like it unless you come to the table with a much stronger bargaining position than you had before,Maura Yates (37:51.438)Yeah, and all the tables you’re probably going to are tables that we talk and trade with. So it’s very easy for us to call BS if they show a number that’s out of the market. We’re like, that’s not right. We know you just hit something at this price point. So definitely empower.Joshua Rhodes (38:07.0)Totally. I know combined we’re probably at the 40 minute time for the three chunks or whatever, but I do want to ask a final question. You’ve seen this market move and right now it’s in a, we’ll say turmoil, but it’s like, it’s bubbly right now. There’s a whole bunch of things going on. You’ve built a tool that allows you to make a little bit more sense of kind of maybe what’s going on. But as you look into the future, like what technology excites you right now? Like, what do you think when we get beyond this kind of place where we’re at now?What are you dreaming about for version two of this?Maura Yates (38:37.452)Man, it’s so funny. I was telling somebody, it’s hard to turn on my creative brain outside of the creative immediate world that we’re in. When I think about the grid in the future, I absolutely still am of the hard belief that we repeat history and we are moving away from centralized grid to a decentralized grid. And I think when we originally thought and expected this to be happening in higher volume, this was five years ago, what we described as distributed energy were these like tiny 10 megawatt or less like DER projects.I think we’re talking about it now like distributed at the transmission level too, where it’s bring your own generation. We’re back to a different era of power plants and supply, right? We are a place where we’re have to have way more localized supply. There are parts where it’s probably gonna get more expensive for that need to bring it into more local areas. I think we’re gonna be in a world where I do think ERCOT’s gonna figure out the large load issue and they’re gonna do it in a way that doesn’t add liability concerns. That’s their number one concern.They’re going to figure that out. They’re not going to put all the other rate payers at risk. So I think we’ll figure that out. I think a lot of vols going to exit the market. So we’re going to get a lot of batteries that are deployed, batteries that are going to come. And when they have to curtail, it’s going to allow them to shift over to this four gigawatt hour battery and not impact the curtailment. Because ERCOT’s going to say you have to curtail. And so data centers are going to be left with no other option than go install your battery. Go install your on-site gen.So we’ll see a lot more battery. I think it’ll be more strategic. I think the services might still be called ancillary services of some sort, but I think they’ll look a little bit different. I think some of those will be mandatory. And I think maybe we’ll start getting some more back to like smaller data centers, like localized data centers. But here’s the reality. We are a society that uses data and compute everything. So whether the AI bubble busts or not, data, we just keep.driving more data. So a data center, I don’t care if it’s AI, it’s going to have some occupancy as long as we continue to consume data. So I see the data center world growing as well, perhaps more efficiently, but still growing too. So I don’t know if I avoided your question or if I gave enough of a look at like the imagination. It’s a little more of the same, probably moving more in that distributed, more distributed pathway, especially as we bring the BYOG becomes more of a prominent requirement. So.Joshua Rhodes (41:03.084)No, absolutely. mean, I’ve heard people say all kinds of like things like peak oil, maybe even peak gas, but I’ve never heard anyone say peak electricity. Like you said, I think we’re going to continue to use more data. It’s going to be electrified. It’s a great place to stop. Yeah. Mari Yates, thanks for coming on the Energy Capital Podcast.Maura Yates (41:17.752)Thanks for having me. Appreciate it. Thank you.Joshua Rhodes (41:20.269)Absolutely.Thanks for listening to the Energy Capital Podcast. If today’s conversation helped you make better sense of how the energy system actually works, share the episode with a colleague and hit follow on your podcast app. You can find us on Apple Podcasts, Spotify, and all the usual platforms. For deeper analysis and context each week, subscribe to the Texas Energy and Power at texasenergyempower.com. That’s where you’ll find every episode, every article, and our latest updates. We’re also on LinkedIn, X, and YouTube.where we share clips, insights, and ongoing commentary on energy policy, markets, and the grid. Before we go, a quick note. The views expressed on this podcast are my own and do not represent the official positions of the University of Texas, Ideasmiss, Austin Energy, or Columbia University. A big thanks to Nate Peevee, our producer. I’m Joshua Rhodes. Thanks for listening, and we’ll see you next time. This is a public episode. 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Texas generators and grid operators used to spend a decade or two planning for new power plants.But as Gin Kinney, chief administrative officer at NRG Energy, told Energy Capital Podcast hosts Matt Boms and Josh Rhodes at CERAweek in Houston this year, the company’s planning horizon has collapsed to 12-18 months.The company’s activity reflects the dynamic growth of the ERCOT grid. Kinney said NRG has sourced 5.4 gigawatts of natural gas turbines, secured a labor arrangement with the construction company Kiewit, and begun construction on three gas plants funded in part through the Texas Energy Fund.ERCOT’s demand forecasts, which should inform the plans of developers such as NRG, have been hard to pin down at best. Yet while no one can say for sure how much of the new load is actually coming to Texas, it’s clear that demand is going to rise substantially and very quickly. That’s why, as Gin explained, NRG is focused on the assets, not the timeline of the load they’ll serve.This rapid growth means grid connection — speed to power — has never been more important. In this episode, Josh describes a 350-megawatt data center going up near El Paso, outside of ERCOT, that’s being powered by roughly 800 small generators — because larger generation units weren’t available on the data center’s construction timeline.Such behind-the-meter, bring-your-own-power projects are what happens when speed-to-power is a grid’s binding constraint.They also show the vital importance of load flexibility. Every megawatt of flexible load is a megawatt of generation that does not have to be built, financed, or fought over. In this episode, Gin discusses NRG’s work on virtual power plants and new hyperscaler contracts as steps toward a more flexible grid.The question is how to scale such efforts. This episode points to ways that grid participants are working to answer it.Timestamps* 00:00 - Introduction & Gin Kinney* 04:42 - NRG’s One-Gigawatt Virtual Power Plant* 06:07 - Affordability, T&D Costs, and the Smart Home Strategy* 09:09 - How NRG Uses AI in Operations and the Home* 12:49 - Texas Market Outlook and Speed of Development* 20:07 - Texas Energy Fund and NRG’s Construction Progress* 21:06 - Hyperscalers, Bring Your Own Power, and Community Investment* 27:41 - Post-Conversation: VPP Mechanics and the Gentailer Difference* 34:13 - Load Growth Numbers and What Is Actually Real* 38:57 - Data Centers, Bridge Power, and Speed to Grid* 42:39 - SB6, Legislative Hearings, and Who Should Set the RulesResourcesGuest, Host, and Organizations* Gin Kinney (NRG Profile)* NRG Energy (Website)* Reliant (Website)* Joshua Rhodes (LinkedIn)* Webber Energy Group (Website - LinkedIn)* IdeaSmiths (Website - LinkedIn)* Matt Boms (LinkedIn)* Texas Advanced Energy Business Alliance (Website)Organizations & Individuals Mentioned* Pablo Vegas (LinkedIn)* ERCOT (Website)* ERCOT ADER Pilot Program (Website)* ERCOT Long-Term Load Forecast (Website)* Public Utility Commission of Texas (Website)* Texas Energy Fund (Website)* SB6 Implementation Rulemaking, Project No. 58317 (Website)* Columbia University Center on Global Energy Policy (Website)* CERAWeek by S&P Global (Website)Company & Industry News* NRG Energy Completes Acquisition of 13 GW of Power Generation and C&I VPP Portfolio from LS Power* Sunrun and NRG Energy Announce Partnership to Harness the Power of Distributed Energy in Texas* ERCOT’s Large Load Queue Jumped Almost 300% Last Year* NRG Completes Acquisition of Vivint Smart HomeRelated Podcasts by Energy Capital* NRG’s Gigawatt VPP in Texas with Travis Kavulla* Who Pays for the New Grid with Pablo Vegas* Who Pays for Texas Grid Growth — Roundtable DiscussionRelated Posts by Texas Energy & Power* More Power that’s Faster and Fairer — Roundtable Discussion* Connecting the Regulatory Dots Shaping Texas EnergyTranscriptMatt Boms (00:05.166)So we are here live at CERAweek in Houston, Texas, and we have a very special guest with us today. Gin Kinney is Executive Vice President and Chief Administrative Officer at NRG Energy, where she leads marketing, communications, and customer experience. She brings more than 20 years of experience, including over a decade in the energy sector, and has played a key role in building NRG’s brand and shaping a more customer-focuseddigitally driven organization. She’s also active in industry and community leadership with a focus on sustainability and advancing women and energy. Gin, thanks so much for joining us today.Gin Kinney (00:42.306)Hey, thank you. It’s great to be here.Joshua Rhodes (00:44.258)Yeah, so one of the things from your background is you really came from renewable energy development before joining NRG. How is that path shaped like your role or what you see your role is at NRG?Gin Kinney (00:55.682)Coming from a startup environment to a comparative behemoth, right? You definitely learn a lot on the fly in the entrepreneurial world. You definitely learn how to be scrappy, have a lot of grit, say yes a lot to challenges. You also learn how to manage things at a different scale, be really close to the customer. And I think also coming from that entrepreneurial world where you’re working on project finance or you’re working on project development, well, this is how we’ve always done it before.And so I try to bring that mindset to NRG where we’re much larger, but the excuse of we’re not going to change or we’re going to, instead of innovate or sort of take chances, we’re going to protect the status quo. I think the other piece of that too is this competitive nature. When you’re a startup or you’re entrepreneurial, you’re competing every day for dollars. You’re competing for space, you’re competing for customers. And when you have this highly competitive spirit, you’re always playing to win.And that’s what we try to bring to NRG too, is that play to win, not protect the status quo.Joshua Rhodes (01:59.244)You think that fits better in Texas with other places given like the competitive nature of like the generation market in the retail space you operate in?Gin Kinney (02:07.416)Texas certainly provides us the opportunity to move fast. Policy and regulators clear the pathway to get things done, get things built. And in Texas, in the competitive markets we serve, every day we have to earn the trust. We have to fight for those customers and we have to show up for them. We’re not just about rate basing a solution. We have to figure out how to put that on our balance sheet and also satisfy the demands and the expectations of our shareholders.Matt Boms (02:36.206)They’re also very savvy customers in Texas. find that compared to either parts of the country, Texans really know more about their energy bills than the average American. Can you speak to that? And where do you think that comes from? Is that like a winter storm, Yuri consequence, or is that just the fact that we have this really competitive retail market?Gin Kinney (02:53.236)It is, and you have to choose. When I first moved to Texas a few years ago, I had to choose my energy provider. So I had to get smart on what I was looking for, the type of services, the type of value I wanted. And certainly after winter storm, Yuri, there’s a heightened sense of ERCOT. My 80 something year old mother who lives in Georgia knows what ERCOT is. I mean, I don’t think we ever would have thought about that five years ago or 10 years ago. Right. And so.that heightened sense and heightened awareness just by having to elect your energy provider. And again, in Texas, I think things are just different. Like we demand more, we expect more. Back to that competitive nature, sitting here with a UT grad, know, football is big, bright lights, you know, I think that competitive nature comes through in kind of everything and how we operate in Texas.Joshua Rhodes (03:47.15)Yeah, absolutely. In that space, mean, energy just doubled its generation fleet with a 12 billion LS power acquisition. You know, at the same time, you’re managing a CEO transition and navigating a global energy crisis. Given all of these things happening in a hyper competitive space, like how do you prioritize, you know, what gets your attention?Gin Kinney (04:04.664)Well, first and foremost, we do everything in service of our customers. And if we keep that in mind, all of these other issues that we see around, we always think about it from, how is a CEO transition going to shape how we serve our customers? How are the changing dynamics in economic environments going to change how we provide services to our customers? If you look at it through that lens, it’s easier to focus and drive towards those business outcomes.then let all of the myriad of issues kind of dilute the value that we can drive across all of our stakeholders.Matt Boms (04:42.39)And I also wonder, keeping on this topic of the savvy Texas customer, we talk about things like virtual power plants and flexible demand and people’s eyes gloss over because they don’t quite know what we’re talking about. But NRG actually is building a one gigawatt virtual power plant here in Texas. Can you talk more about that and give us the details?Gin Kinney (05:03.448)Well, that’s enabled through the trust we built with our customers and even customers in general. So it’s kind of taken a step back. I customers today are still accustomed to automation. They’re accustomed to letting machines decide. This is just a natural segue because we’ve done the hard work to build the relationships with the customers. We’ve talked about the value we can deliver to them. And then when we talk about savings, particularly in a time where affordability is top of mind, customers are willing to trust us with their energy usage.They’re willing to enroll in VPP. We set a pretty high bar, I think, in Texas for the amount of VPP we wanted to achieve. And we more than what, 5x that last year? Gonna have to check that stat. But because that just shows that customers want what we have to offer and they value it and they trust us. And who wouldn’t want to ease congestion on the grid? Who wouldn’t want to be a good steward of their community environment?And then bottom line, who doesn’t want to save on their energy bill as other costs of the household are increasing?Joshua Rhodes (06:07.842)Yeah, it’s an interesting point you kind of bring up in terms of paying for the grid, because I mean, energy sits, like other gin tailors, like sits in an interesting space, right? You’ve got the generation and you’ve got the retail, but not really the pieces that connect the two in between. Like those are fully regulated monopolies, transmission service providers, distribution providers. And in the topic of affordability, a lot of focus is being put on electricity prices.affordability of electricity, but the large part of that that’s increasing is that fixed cost system, is that transmission, the distribution costs. And so like, how are y’all handling that with your customers who may not fully understand that you may have two out of three of the pieces, but you’re not handling like the part that’s actually increasing the cost the most.Gin Kinney (06:50.03)at the end of the day, customers don’t care. They don’t care. So I think it’s our responsibility to partner, like partner with Centerpoint, partner with the grid, the T &D companies so that we can find comprehensive solutions to ease that pain for consumers. And if we can demonstrate savings, or we can demonstrate value in other ways, you you mentioned like getting closer to the customer and that dynamic, you we bought a smart home company a few years ago.We did that because we knew that the closer we can get to the customer, the more we can automate and help them understand usage and look at things like, the home occupied at this hour of the day when maybe power prices are the highest and can we turn it down half a degree? Those are the things I think we took an extra step to think through. How can we create a very seamless, easy digital experience for the customer?so that we can provide value, even though we know we don’t control that one, we’re only one line item on the bill, right? We’re just that supply line item, both in Texas and outside of Texas. So what are the other things we can do with our whole home to help them ease that cost at the end of the day?Matt Boms (08:06.016)And is there pushback from customers? Cause one thing we hear a lot is Texans don’t want anyone messing with their thermostats. What have been kind of the findings from NRG as far as customer behavior and where is that price point where customers are willing to provide some flexibility?Gin Kinney (08:20.63)If we can make it so you don’t feel it, that’s the important part. If we’re all out at dinner and we can dial down the thermostat just a little bit or dial it up depending on the season. And by the time we get home, we’ve pre-cooled your home or preheated your home. You didn’t feel a thing, but we’ve managed to save you money and we’ve managed to ease the grid and that peak time, that it’s a win-win. But we have to have the intelligent tools to do that.And I think that’s where our focus on equipping homes with smart thermostat, motion sensors, things of that nature, things that you can put on hole pumps and AC units and understand and predict. That’s the other key piece of this is utilizing AI and analytics to predict times when you’re going to be away from your home when that coincides with super high energy prices.Joshua Rhodes (09:09.26)Yeah, that brings up an interesting, there’s something we talked to Pablo Vegas at ERKON about this past year or so, whenever you get energy people in the room talking about AI, it’s all about how do we build more power? How are we going to connect these data centers? Like how are we going to grow that? But I do want to talk about like, to the extent you can, like how is NRG utilizing AI or learning from AI? And you’ve already kind of gotten there, but is any of the way you’re using it and you can talk about it in either operations or in these kind of smart home applications.Gin Kinney (09:37.794)Okay, well that’s a very layered and complicated question. mean, part of it is just using one of our areas of secret sauce is our market operations team. We really understand, we look at everything from weather to day ahead pricing to how things are going to be looking in the markets a year from now. So we use AI to do a lot of that predictive analytics for us and help shape like how we canactually control our cost of goods, like how we control our cogs and how we can put some of that, extend some of that benefit to our customers. And then, you again, from the technology that we’re continuously improving of all of the technology that we have in customers’ homes, how do we make that smarter? How do we make it faster? How do we get data points that really going to drive a difference when it comes to cost and that monthly bill?Matt Boms (10:26.742)Yeah. And I think if you draw a straight line from the Vivint acquisition to where we are today, there was criticism back then, right? And now I think that energy is making the case that flexibility is really where the value will be moving forward with all the low growth that’s coming. Because that happened at a time where we really didn’t have the low growth in place that we have now with data centers and AI. So can you speak to people poo poo, VPPs and flexibility, but we’re talking about a one gigawatt virtual power plant. So how much of a role moving forward do you think?flexibility we’ll have in meeting the demand.Gin Kinney (10:58.062)It’s going to have to continue to play a huge role, right? And we think about bringing on load, which is all the load that’s coming into Texas, all the load that’s coming into the U.S., whether it’s hyperscalers, on-shoring, other types of development. Having a solution at every point of the value chain is going to be increasingly important. That’s why we’re building power, we’re building three power plants in Texas right now.We’re looking to partner with hyperscalers and our point of view is like, we’re going to bring our own power to those deals, right? So we’re going to solve for the load piece of it. And then the end use customer, what are those new technologies we can bring to them that are going to be easy, seamless, help control their usage or whatever is valuable to them. But I do think it’s going to be this all of the above approach. And because we have a point of entry at scale and every single part of the value chain,our customers are going to be the winners.Joshua Rhodes (11:53.646)So around the virtual power plant that allows for flexible or turning downloads at homes and businesses and things like that, it seems like that could be paired with if a data center that wants to run more or less at a flat load, if you just need a little bit of flexibility, maybe the flexibility doesn’t have to come from the data center, it can come from somewhere else. So I was just wondering if that’s part of the conversations that y’all are having.Gin Kinney (12:16.334)I think certainly, mean, our approach is very bespoke to the end-use customer and where our end-use customers will be willing to provide some additional flexibility in terms of either load reduction or putting some of that power back onto the grid. I think we’ll be up to those individual contracts, end-use power purchase agreements we sign with our customers. I had a back to making things very personalized to the customer need, even if it’s aresidential customer, mom and pop shop, or a hyperscaler.Matt Boms (12:49.87)So if we step back and think about this moment in time, we’re five years out from winter storm Uri, certainly politically energy had its moment in Texas. And now we’re in this load growth moment. Where do you see the market heading here in Texas moving forward? Do you think that our state is open for business? Are we going to be able to meet the moment? I think a lot of folks are asking questions over at ERCA and the public utility commission, trying to figure out.if we’re going to have enough generation to meet the load because the transmission takes time, right? It’s not going to get built overnight. It’s going to get built over the next five to 10 years. So what’s NRG’s perspective on this and where do see the market’s heading?Gin Kinney (13:26.658)Well, we used to think about power generation or power plant development in spans of 10, 15, 20 years. And now we’re having to think about it in terms of 12 to 18 months. Our residential customers are thinking about it in 30 day increments, right? And so in Texas, the markets have worked, right? We did have a lot of issues during winter storm Uri, but they weren’t market design issues per se, right? So these markets are designed.to benefit, I think, all areas of the energy value chain. And so when we think about how we can scale up or scale down or meet the needs, because Texas is open for business, because permitting, interconnection, all of these things that really matter and can be some of those long lead times, we’re gonna be able to meet the needs of our customers and we’ll do that either through bringing on new generation.Utilizing battery technology and other forms of storage, we still have what are the largest renewable state in the country, right? So we have all of these elements. And then when we bring solutions like one gig of VPP, that’s one gig of electricity that’s not needing to be put onto the poles and wires across the state.Joshua Rhodes (14:45.646)So one of the things about looking at the horizons that different customers look at or different market participants look at, I one of the things right now with the current events in the Middle East is, you know, gasoline prices are high and, you know, there’s a lot of talk about, well, if you want to be insulated from, you know, gasoline prices, maybe just switch to an electric vehicle. I know it’s probably a little too soon to see very much movement in that space, but like, how do you see the electrification of transportation with your customers moving forward?Gin Kinney (15:13.4)Well, you know, it’s going to impact us twofold. One, more electrification is going to require more generation. It’s going to require more electrons created, but we are also going to be able to use those batteries in those electric vehicles to ease during times, maybe flow energy back, store energy. So I think it’s going to be a compliment to how we think about serving customers. In addition to smart home, EVs are part of a smart home.And so part of our strategy is to partner more with the EV companies, partner more with those third parties to figure out how we can continue to leverage those as a load resource.Matt Boms (15:54.102)Yeah. And the generation mix like Josh just alluded to has changed so much in the last five years. Like it’s pretty mind blowing that you mentioned the role of renewables in Texas. think it’s about 90 % of new generation since winter storm, Yuri has been wind, solar and batteries. How do you see the grid here in Texas? I mean, when we hear from reporters, they look at Texas as like the blueprint for how you build out a really diversified grid. Would you agree with that? Do you think that it needs any tweaks or changes moving forward, making sure that we’re reliable and affordable grid?Gin Kinney (16:23.66)Yeah, reliable and affordable and reliable is a key piece of that as well because we’re going to have to have thermal load because thermal load is going to be there when the wind or the solar is not performing as it can be on the highest peak days. so having this great energy mix, think one is what keeps prices pretty low in Texas compared to other parts of the country and certainly helps us with the diversity of how we think aboutproviding solutions to customers that meet their needs, adhere to their values.Joshua Rhodes (16:56.6)So one of the things that’s been talked about with some other folks from NRG is that like, you know, if oil stays high, then the chip supply for things like Vivint could be affected. It’s part of your portfolios. How are y’all game planning that?Gin Kinney (17:07.95)Well, using AI and thinking through our supply chain, and then also if our costs are going up to put these components in people’s homes, what are other ways where we can increase value? What are other ways where we can lower our costs? And so just being really thoughtful about how we balance across the entire value chain and portfolio of NRG. And one of the things that we want to figure out if we’re going to have to increase costs for a product or a service,How do we mitigate that with one of our other products or services? And I think the notion of saving money on your energy bill through enrolling in a VPP program is one of the ways that we can help mitigate some of those cost increase that we may need to adjust for a variety of reasons, whether it’s inflation, whether it’s not getting the chips through or other increased costs in the value chain.Matt Boms (18:01.678)That’s something that we talk about all the time on this podcast is how important flexibility is and how undervalued it is sometimes in the market. Because of the transmission and really mostly distribution infrastructure that gets deferred because you have all this new flexibility, can you speak to where the real value is and how we maybe unlock some of the value stack that maybe isn’t quite available, at least in ERCOT, maybe in other markets where the utilities are more vertically integrated?But here the fact that we have our utilities on one side, generators on the other, gen tailors like NRG. Can you speak to maybe where some of the obstacles might lie and how we can unlock some of those parts of the Valley Stack?Gin Kinney (18:43.19)One way is just to increase the partnerships that we have across the energy stack. Let’s partner more with the battery providers. Let’s partner more with the solar providers. We announced a partnership with Sunrun a few months ago. So how do we get renewables into individual homes, right? So I think the value of partnerships is really one way to unlock some of the additional value for customers.Joshua Rhodes (19:08.014)So one the things I did a lot of my research on was around for like Smart Grid 1.0. I there was a back in the early 2000s or whatever. And I remember there were a bunch of pilots and a bunch of things that went well and a bunch of things that didn’t go so well. I was curious if you’re able to speak to and it’s fine if not, y’all are trying a lot of things. Is there anything you’ve tried in the last couple of years that hasn’t worked out as you would have expected it to?Gin Kinney (19:30.744)think scaling, you you start with a pilot, like this is a great idea. And then perhaps whatever pilot you’ve tried didn’t scale. And I think that’s one of our biggest lessons learned is how do we start things in a pilot phase, test them out, see what works, take a lot of learnings from that, and then either pivot or trash the idea, which I think that’s also, you know, in a bigger company that maintaining that ability to be agile and flexible.That’s one of the ways. Test the product service, see if it works. If it doesn’t work, if customers don’t love it, then we’re not gonna do it.Matt Boms (20:07.372)Yeah. Texas energy fund were a few years removed from that would have been 2023 session that the Texas energy fund passed officially governor Abbott signed it into law. And the idea initially was try to get more dispatchable power out there on the grid. So from NRG’s perspective, how are we doing on the TEF, any progress being made or anything that folks should be aware of?Gin Kinney (20:29.742)All right, well, we’re actively in construction on three projects and one at TH Wharton is pretty far along and we’re bringing power to the grid in a very short order of time. And we did that by just making a bet. We placed our bets that we are going to be able to construct generation in the state of Texas in the near term. And so we had turbines available, we had labor available, we had all the necessary permits.everything that we needed to start construction immediately. And so for us, we’re on track, on budget, and we’ll be ready to put power on the grid.Joshua Rhodes (21:06.638)One of the things that the hyperscalers, those that are building some of these large data centers, are kind of garnering some criticism for are around some of their environmental goals that seem to maybe be taking kind of a backseat to a growth. Can you speak to NRG’s kind of like sustainability goals and how those have needed to change, if anything, to kind of meet the challenge that we have today?Gin Kinney (21:28.674)First and foremost is our commitment to providing affordable energy to our customers, whether they’re households or hyperscalers. And then also hyperscalers need to pay their part, right? So if we’re gonna build generation, we’re not gonna pass that cost on to small businesses, existing businesses, consumers. So the hyperscalers are gonna have to come ready to pay their part in constructing that new generation. When you think about the natural resources,We’re going to take that into account every time we construct anything. Even in our TEF projects, we’re going to think about water, we’re going to think about lands, we’re going to think about the community, we’re going to think about emissions. And it’s no different when we’re thinking about partnering with the hyperscalers. And what I’ll commit to today is every deal we do, there’s going to be a community investment associated with it. I don’t know what it’s going to look like. Again, it’ll be the smoke for where the plant is sited.what the conditions are and what the community needs are. But community investment will be a really important part of every data center deal we do.Matt Boms (22:35.158)Yeah, that’s great to hear and is so hard to build in general, Like transmission is hard to build, data centers are hard to build, community involvement is so important, I think more than ever. And what we’re hearing here at CERAweek has been a lot of BYO generation. That seems to be the buzz.Gin Kinney (22:50.867)BYOP. Bring your own power.Matt Boms (22:53.942)Is that kind of where NRG sees the market headed as far as data centers bringing their own power?Gin Kinney (22:58.318)Absolutely. And that is our key strategy is bring your own power. Again, we want to make sure hyperscalers own their part in this and then those costs and the unintended consequences are passed down to our consumers.Joshua Rhodes (23:12.578)Do we still need better messaging around that? Because there is a lot of angst around the cost of the infrastructure passing on to electricity. And I know like there’s a lot of the hyperscalers have come out with these pledges and things and we’re talking about bring your own power and the infrastructure and the community benefits. Is that getting through?Gin Kinney (23:28.846)I don’t know. I’d like to say that we’re going to be able to change the narrative around it. But until we put one in the ground, until we prove ourselves, then I think we need to be held accountable. And if the media or consumers or consumer protection agencies want to challenge us, they should. And it’ll be up to us to deliver on our commitments and promises.Matt Boms (23:52.748)Yeah, because at the end of the day, folks see their bills going up and they may not know where all the chargers are coming from, even as savvy as our Texas customers are. And I think that messaging is so important because moving forward, it’s, this is the new boogie man in town, you know, for a while it was renewables. seems like now data centers and who knows who the next boogie man will be. But I think you’re right. The underlying message here is how do we help folks pay for their energy bills? How do we make things more affordable, right? At the same time, more reliable.It’s a hard message to sell, but it’s going to be really important, I think, over the next few years.Gin Kinney (24:23.916)Yep, you’re absolutely right. And again, we’ve got to show up. You know, when we think about how we show up for our customers, how we build trust with our customers, they need to see it in their bills. We need to come through on the commitments we’re making to them.Joshua Rhodes (24:36.896)And I can’t help but asking since you talked about, we got to put one of these things in the ground and kind of see how it goes. And if you don’t want to answer this question, that’s fine. But if you look at like ERCOT’s top level numbers for how much data centers and large loads, it’s like triple, quadruple. I think there’s bigger numbers coming out. I’m shooting for 500 gigawatts because just why not? But companies like NRG have to build the PowerPoint, like have to build the power to be able to support that. And so, mean, are you able to shed any light on like what’s reasonable? How fast can we actually grow?Gin Kinney (25:06.53)That’s a great question. On the timeline, I don’t know. I think we need these in the ground, you know, 2030s, right? If not before. We have the benefit of being uniquely positioned that we have 5.4 gigawatts of turbines. Like, so we’re not going to wait on a turbine. We have an arrangement with Kiowet for labor. We’re not going to wait on labor. So we have those commitments. We have a great regulatory team. We have a great environmental team.I feel confident that we’re going to be able to move as quickly as we can, but we have all the right pieces in the right places.Matt Boms (25:39.574)Yeah. And at the end of the day in Texas, the rate payer is not on the hook. Ultimately, it’s the investor that’s on the hook for generation, which is really different in other parts of the country, right? That’s what we have in Texas that’s very unique. And I think the three of us are all champions for this great market that we have.Gin Kinney (25:54.062)That’s right. That’s back to that competition. Competition creates that innovation. creates, gosh, I’m going to say this, the need for speed. Anyone old enough to remember that movie? And I think that competitive nature of the way that we do things here in Texas are going to help us get solutions on the ground faster.Joshua Rhodes (26:13.87)Yeah, it was part of a roundtable with Columbia University the other day. And it was the third roundtable that they had kind of had. It was in Texas and they had had the other ones were in New York and Washington, DC. And one of the immediate takeaways was like, how much more positive the Texas people were about electricity growth and data centers and incorporating this. wasn’t a bad thing this was coming. We might not know exactly how it’s going to work out, how it will work out, but we’ll figure it out.Gin Kinney (26:40.782)Yeah, I think in partnership with all of our stakeholders, we’ve created an environment that invites this type of development that understands the needs for power, that understands the needs of our customers and wants to really be that center of growth in the country, that center of innovation. And that’s where I see a lot of the positivity coming through. And in Texas, it just seems like there’s a little less uncertainty about how we’re going to get it done.I think that should provide a lot of confidence not just our customers, but also to our shareholders.Matt Boms (27:11.97)Yeah, and the track record is there as far as how we built a robust grid over the past few decades, I think. You know, no state better than Texas as far as... That’s right. ...who’s built out a grid that could actually handle all this load growth.Gin Kinney (27:22.392)And there have been a lot of lessons learned too. We’ve hardened infrastructure. We’ve learned to winterize, which really wasn’t a Texas thing several years ago. And then we’ve evolved our thinking too. And we also move, I think, at a faster pace.Joshua Rhodes (27:37.154)Thanks for coming on the Energy Capital Podcast.Matt Boms (27:38.638)Thanks so much, Jim. Thanks for spending time with us today.Gin Kinney (27:40.526)I appreciate it.Joshua Rhodes (27:41.742)Absolutely. Hey everyone. That was our discussion with Jen Kenney from NRG filmed at CERAweek. And this is kind of a discussion after that. It’s been a couple of weeks since CERAweek. And so Matt and I are here to kind of talk a little bit about that conversation as well as some other things that have happened that were talked about at CERAweek and things that have happened since then. Hey Matt, how’s it going?Matt Boms (28:02.754)Hey Josh, I’m doing well. How are you doing?Joshua Rhodes (28:04.536)Doing good, doing good. I actually just got back from London, so I’m a little jet lagged right now. So if I say anything that doesn’t make sense, I’m just going to blame it on that.Matt Boms (28:12.548)Okay, so for you, it’s what like two o’clock in the morning right nowJoshua Rhodes (28:15.926)Yeah, I don’t know what time zone I’m in. Whatever. So one of the things we talked about with Jen was about their VPP, about their virtual power plant. Remind me like how NRG is structuring that.Matt Boms (28:27.042)Yeah, sure. So for folks who may not know what a VPP is, it’s a virtual power plant. Some folks are calling it a distributed power plant, a DPP. So the acronym kind of depends on who you talk to. But NRG announced this years ago and essentially what it is, is an aggregation of smart thermostats for all of its retail customers in Reliant that sign up for this program. They’re essentially opting into this new virtual power plant program. So they’ll be seeingdiscounts on their bills for participating and NRG has projected about a gigawatt as far as the growth potential of the virtual power plan. think the target year was about 2035, if I’m not mistaken.Joshua Rhodes (29:09.678)Okay, so we got a bit of runway before we get there. Do you know how this like differs from like other smart thermostat programs? Like I remember I’m in Austin Energy and I know Austin Energy has had multiple iterations of smart thermostat programs. Like even before you had the smart Nest and Honeywell thermostats, like Austin Energy had, it was like a thermostat controlled by radio frequency. And so they would just like send out like a high frequency AM, I don’t know if it was AM or FM or even either one of those.But they would send out some kind of signal somehow and all these thermostats would just drop off. And so it’s like one way communication. They didn’t know exactly what, I mean, they could see reductions. Anyways, do know how this one differs in terms of like how it’s interacting with the aircraft market?Matt Boms (29:53.026)Yeah. Well, the idea obviously is to aggregate and bid into the market, right? Like so similar to what we’re seeing in the ADER program. And I thought that when we interviewed Pablo a few weeks ago, that was a really interesting part of the conversation, right? Because there’s a lot of potential out there. He referred to it as almost like an Airbnb or an Uber platform for virtual power, which I thought was interesting, right? Yeah. I think the biggest difference Josh is that this is a Gentailer that’s running the VPP.Right. Which is really unique if you compare it to like an Austin energy, which is vertically integrated or some other States that are running these programs, right? Like the example that comes to mind right now, because so newsworthy is this new special contract in Michigan that Google is currently negotiating with DTE with the utility up there and mostly renewable build out with some demand response included in the proposal. So.It’s really interesting to see moving forward with all this load growth, what role demand response and virtual power plants are going to play. Right? Of like, you can put some numbers to it. Like in this case, we’re talking about a gigawatt potentially of demand response. that once you get into the gigawatt numbers, think ERCOT takes that seriously and starts thinking about how big of a role it could play in, in grid reliability.Joshua Rhodes (31:05.41)One of the things about turning something like these types of aggregations, to get those, like something has to be on before you can turn it off, right? The thing that’s different between like an aggregation of smarter distributed appliances and things is an appliance has to be consuming energy, say an air conditioner consuming five kilowatts, turn it off for a little bit of time to get that five kilowatts versus like a battery that’s sitting there that you’re able to turn something on. In my head, I’ve always put them in kind of different buckets. You know, we’ve seen like the ADER program, the ones that have actuallymove forward or that have been more successful early on have been more kind of the battery side of things because maybe utilities or maybe the aggregators see them as more better sense of the capacity that they’ll have.Matt Boms (31:46.156)I think you’re right. think that to really break this down, like VPPs are the orchestrators of distributed energy versus a traditional demand response program, which is just about changing consumption behavior, right? Like just getting into the way that we consume energy and trying to reduce that peak load. I do think that VPPs are exciting moving forward because they’re so local, like the ADER program in Texas being a great example.If they’re able to target specific substations and actively work to lower peak load at that substation, then it will make a significant difference, right? And like in those specific, we call them nodes, but in those nodal areas where we know that the substations are being overloaded. So I think there is a lot of potential there as far as not necessarily a traditional demand response model, but virtual power plant that has the effect of, you know, flicking a switch and turning on a virtual power plant.Joshua Rhodes (32:40.012)Yeah, okay, that makes sense. One of the other things we talked a little bit about with Jim, but we also like heard a lot talked about at other panels in CERAweek is, you know, all the stuff still going on in Iran, right? There were people who were talking about like how long it was going to last, you know, as we’re recording this a couple of weeks later, it’s, you know, still going on. To me, it’s unclear how much is moving through or if anything is kind of moving through, although oil prices are still high. They’re talking about, you know, rationing jet fuel and things like that in Europe.it’s still a pretty big issue and the price of gasoline is high. When you were there and listening to other panels and other things like that, do you think people had a feel for what was happening or do think that they figured it was gonna lasting this long?Matt Boms (33:19.63)I don’t think anybody did, right? At least you and I and most normal people who may not be in the weeds on this stuff, but I thought it was interesting at CERAweek to hear, obviously the shareholders are paying attention, right? So when companies go to CERAweek and they speak about load growth and data centers and the Warren Iran and gas prices and all the above, it tends to lean towards like overstatements and it’s hard to distill really like what’s true and what will.take shape in the markets versus how much of this is hyperbole. So like, would actually flip that question back onto you, Josh, because I feel like you’re more qualified to answer it than I am. Like you’re coming at this from a much more academic and scientific point of view. And we’ve had a lot of conversations on this podcast about the load growth numbers and how inflated or not inflated they are. But what’s your latest feeling on this? You think that we’re in for a bit of a cooling period as far as the numbers are concerned?Joshua Rhodes (34:13.038)I think I learned pretty early on not to really opine on federal policy when it comes to some of these things. Sometimes it’s hard to see what is going on. mean, if we zoom back down into Texas, like looking at the numbers around electricity and load growth and other types of things like that, I wouldn’t say they make any more sense, but it may mean at least we might have a better handle on that. mean, I some of the latest numbers coming out of ERCOT in terms of large loads are now even larger. I think some of the latest numbers I saw was like 410 gigawatts.of large loads come into the system. so that, again, we’re in 85 and a half gigawatt load. And so you’re talking about, you know, a 5X of the grid in the next few years. I mean, it’s not going to happen. There’s no way that the system can grow that fast. Even 20 % of that is still a significant chunk. Even like 20 % if I’m doing the math right in my head of the expected large load is like doubling the grid, right? It’s pretty insane. You know, it’s easy to look at the numbers and think like there’s no way, you know, that that kind of thing could happen.I was driving through the Hutto, like kind of Taylor area a few weeks ago and you know, there are some of these things being built. I mean, there’s some massive data centers and things like that being built out that way. I thought I was actually coming up on the Samsung plant, but then I realized I wasn’t even in Taylor yet. And I was in Hutto, you know, driving past a huge data center and a whole bunch of NatGastGen, you know, that’s coming along with it.Matt Boms (35:34.284)Yeah. And like, not to mention the impact of Austin being surrounded by data centers and what that will bring in the future. But to your point, Josh, this is also happening across the country. Like the Michigan example that I mentioned, that’s a 2.7 gigawatt contract in a state that has like 20 gigawatts of summer peak load. So sometimes the numbers aren’t as eye popping in other states, but proportionately it’s the same effect, right? It’s like, how do you grow your grid exponentially that quickly?The thing about the numbers that you just mentioned from the ERCOT, like the most recent numbers, is that we had that bill HB 5066 a couple years ago on the Permian Basin. So, you know, people forget that that changed the way that we do regional transmission planning forecasts. Correct me if I’m wrong, but I think that’s where the numbers are coming from as far as utilities providing those numbers and then ERCOT being forced to adjust them based on their own projections.Joshua Rhodes (36:27.118)Yeah, no, it did. mean, it basically, ERCAD had to consider all unsigned load, like in planning processes. But then we had SB6, it also said, you you’ve got to say whether or not you’re shopping this around, and things like that. But yet the numbers keep getting bigger and bigger and bigger and bigger. And so I don’t know about you, it was like 410, like I was shooting for 500, like I was really hoping it’s going to be 500. I am still kind of confused, right? I mean, you know, how much of it to believe or what else becauseI thought that was going to have a little bit more clarity into the system, but the numbers just keep jumping up higher and higher and higher. I ERCOT has their adjusted load forecast, which is lower, but I mean, it’s still a pretty significant increase.Matt Boms (37:08.482)Right. Yeah, absolutely. And you feel for some of the decision makers, like when we came away from the interview with Pablo, they’re putting a really tough spot, right? Because if you’re ultimately the grid operator and you have to plan for all of this loading, you know, some of it isn’t going to materialize, then you’re putting a really hard spot. And I think the same could be said about the public utility commission, right? Because they’re trying to map, like they want economic development, they want economic growth, but at the same time, you can’t build out for load that may not materialize. So.The numbers somewhere in the middle, at this point, think it’s anyone’s guess how much we actually end up with.Joshua Rhodes (37:40.078)I actually ran these numbers the other day just using RCOT’s long-term load forecast and other types of things. And I compared it to what we used to do, particularly for our own grid modeling purposes. If you took historical data and then projected forward based on that, just looking at peak demand, if you take the past few years of growth and you look at, say, 2030, you’re at about 100 gigawatts in terms of RCOT in the grid. So between the next four five years, we gain another 15 gigawatts.which is in line with kind of how traditionally we would have thought the system to grow. you look at, so ERCOT’s adjusted load forecast is about 140, know, about 40 gigs more of that. And then if you take the additional TSP, like, you know, all the unsigned load, it’s like 210 or something like that, which is a pretty big difference. It’s like historically what we would have seen to be about 100 and then the high line number being double of that.One interesting thing is this time period between like now and 2031 ish or so, where you just see this massive change in load growth and then it kind of flattens back out again. It grows, but then it grows at a more reasonable path. it means the next few years are going to be pretty darn interesting and the answer is probably somewhere in the middle.Matt Boms (38:57.132)Yeah. Well, what do you think about this topic that we kept hearing at CERAweek, which is don’t worry, we’ll bring our own generation, right? Cause we heard a lot of that in Houston. Yeah. And I know some of it is true. Like absolutely some of these data centers are doing that, but what I hear most from experts is the cheapest electron typically comes from the grid, right? That’s not going to come from bringing your own generation. like, where do you see that landing as far as these data centers coming with their own generation?Joshua Rhodes (39:24.91)I don’t believe that these data center companies, these hyperscalers want to be in the power business. And I’ve listened to a few other podcasts with some other folks from some of the big ones like Meta and Microsoft and other places. They’ve even said that, right? That they don’t really want to be in the power gen business. One, because the margins are much lower than they’re used to expecting, right? It’s not like they’re getting into this like they’re trying to make money. I the margins are single digit margins versus the double digit margins or triple digit margins, depending on who you are.that you’re used to. So this is not an attractive business for them to be in. It’s out of necessity that they’re trying to. And even some of the conversations that I’ve heard, it’s like they’re not even trying to do this in the long run. It’s just like, if you’re measuring every megawatt of data center that’s not operational in the billions of dollars lost every year, that’s a pretty big incentive to try to get your data center going as fast as possible. So you’re hearing a lot of things like bridge power and other types of stuff. Like we want to be on the grid, but we want to start generating tokens.tokens being like the answer that the AI models give you, like every word or letter or piece of code being a token. We want to be generating these tokens based on the models that we’ve trained. We need to, because that’s how we make money, right? But it’s hard, right? Because, well, you’re competing for the same assets.Supply chains can grow and we can have other companies that build these power plants can increase and grow, but they can only grow so fast. And like I was just looking at the ERCOT data, it’s like the next five years are key, right? In terms of how many data centers and how they want to connect these supply chains, they can’t grow that fast. And so you’re seeing some really wild things out there when it comes to like how these data centers are going to be powered. There’s a big data center, roughly a 350 megawatt data center going up outside of El Paso.that’s going to be powered by something like 800 small units that are like 450 ish kilowatts each. But that’s like the only way that they’re able to get power to that region. And then there’s something going on at the Public Utility Commission about how those assets will eventually transfer over to El Paso Electric, like Ray Base or something like that. I don’t fully understand how it’s all set up. But in general, stringing together a whole bunch of really small things.Joshua Rhodes (41:38.146)to power a big thing. It’s like a symptom of like the thing that they actually want, which would be to connect to the grid is not available. The secondary thing that they want, which would be, you know, a multi hundred megawatt power plant is not available. And like there’s no other option, right? You’re going to go with 800 really small things with a whole bunch of moving parts. To me, that sounds like a logistics nightmare when it comes to maintaining these things and keeping things operational.Matt Boms (41:59.416)Yeah, absolutely. I mean, there will be a wave of co-located solar and batteries. I think we’re already seeing it for a lot of these data centers. But I think you’re right. For the most part, this is like plan B for them, right? You know, if they had another option, they would just connect to the grid as soon as possible, but it’s all about speed to power, right? They’re all just trying to get connected as quickly as possible. And we’ve had a couple of legislative hearings since we were at CERAweek in Houston. So I wanted to get your thoughts on that. My takeaway really was like,I think SP6 is just the beginning of legislation around data centers and transmission cost allocation and all this stuff. It sounds like there’s going to be more coming from the capital next year, but what was your primary takeaway from those hearings?Joshua Rhodes (42:39.16)I mean, yeah, this is a problem we’ve like never really had before, right? It’s hard to plan for what you don’t know or have processes in place for what you don’t know. Just an example, I was talking to one TSP a couple of months ago. I know everything in this space feels like a couple of years ago. I was talking to one TSP a couple of months ago and they said that in the previous years, they might’ve had like one large load study going on per year, but at that point they had like a hundred going on at the same time.Matt Boms (42:51.202)That feels like a couple of years.Joshua Rhodes (43:08.174)The system was not designed to handle that. And this is why ERCOT’s doing this batch zero process that Pablo talked about. It’s because we have a generator interconnection queue and there’s like a very well understood process upon which a generator moves from a dream to making electricity. When we talk about this large load interconnection queue like we actually had a process, there wasn’t really a process in place. This plane took off and then we’re trying to build it.as it’s going in the air. It had taken off and it was already over the Atlantic Ocean by the time we figured out like we needed to build it, right? I think there’s going to be a lot of policies and protocols and like things that we’re going to have to figure out. And we’re not going to get it perfect. I mean, I think we’ll do it better in Texas than they do in other regions. Other regions are just, think Maine recently just put in just a straight up moratorium on things and saying, no, we’re not going to build anything here. I think Texas is going to try.to build as much as we can because that’s what we do. But yeah, we’re going to have to figure this out and we’re going to figure out who pays for it, right? It’s one thing for that load to grow at like a steady clip that supply chains are used to handling. But if it grows many, many, many, many times faster, classic supply and demand means prices go up. We’re going to have to figure out how do we make sure that those that are putting the new stress on the system are the ones that are bearing the cost of that.Matt Boms (44:26.446)Absolutely. Yeah. And I think some of that, the PUC is working out right now through these rule makings around SB6. It’s not perfect, but like you said, we’re kind of out front and center on this issue in a way that other states are not. Like other states are just starting to ask those questions and we were already implementing legislation. So I do see that we’re at least a year and a half ahead of most other states. The question is just like, how does the PUC implement those rules? And then what’s missing heading into the next legislative session? We’re like in this big kind of uncertain territory right now.Joshua Rhodes (44:55.266)Yeah, mean, even companies will tell you like they prefer policy certainty, even if the policy is bad, because then you can just work around that policy uncertainty is like something that is the worst.Matt Boms (45:04.942)I hear that all the time. Our companies are like, just tell us where the goal posts are and stop moving them. That’s all that they want. They’re just looking for a certainty, for sure.Joshua Rhodes (45:11.874)Yeah, that’s what Pablo said when we talked to him the other day, right? He was just like, we’re going to implement. He was talking about something else, but he’s like, we just got to get going and then we’ll make it better as we do, which I think is smart.Matt Boms (45:21.804)And also Josh, there’s always a reason to go past more bills because Winter Storm, Yuri was the perfect reason, right? But then there’s always something happening. So now we’ve got the data center boom, we’ve got more legislation coming out of Austin, which just begs the question of like, when is enough legislation and maybe just time to let the market do its thing.Joshua Rhodes (45:39.022)No, I totally. mean, bless their hearts, but the Texas legislators, they’re not electricity experts. It’s a citizen legislature, right? I think it’s best done when they set high level goals and trajectories and let the Public Utility Commission has electricity experts sitting on the dais or as in the staff and all the other folks, let them do the job of taking that broad policy direction and converting that into workable statutes.and things like that and then let ERCOT convert those into protocols that actually govern how the market is structured. I think the ledge got a little too prescriptive after winter storm URI because they wanted to feel like that they were doing something. I mean, I feel that but it’s like you get too prescriptive, it becomes harder to work in the system, right? The more prescriptive you are starting like higher up the chain, like the less flexibility that the Public Utility Commission has to maneuver and then the less that ERCOT does and like...because we probably need the maximum amount of flexibility and maneuverability, I would hope we don’t legislate as strict or as granular as we did after Yuri.Matt Boms (46:46.784)Yeah, I think you’re totally right. think like, you know, we don’t want the legislature creating new ancillary services, for example, that should be Urquhart’s job. And to your point, Josh, I think that this is the best version of the PUC and Urquhart that I’ve seen since I started in this role. They’re extremely competent and very smart and just have a ton on their plates right now. Right? So like the best thing that the legislature could do would be just let them do their jobs and give them some time to work out all these different rule makings, you know, cause right now they’re just trying to catch up.get up to speed with all the statutory deadlines. They don’t have time to take on additional work that maybe ideally they’d like to be working on other things, but they just got to get through all these different deadlines that are on their plates right now.Joshua Rhodes (47:25.87)Yeah, totally. All right. Thanks everyone. That wraps up the post conversation with Matt. Big thanks to NRG and Jen for being available and chatting during CERAweek. It was great and looking forward to seeing y’all next time.Joshua Rhodes (47:41.304)Today’s conversation helped you make better sense of how the energy system actually works. Share the episode with a colleague and hit follow on your podcast app. You can find us on Apple Podcasts, Spotify, and all the usual platforms. For deeper analysis and context each week, subscribe to the Texas Energy and Power at texasenergyempower.com. That’s where you’ll find every episode, every article, and our latest updates. We’re also on LinkedIn, X, and YouTube.where we share clips, insights, and ongoing commentary on energy policy, markets, and the grid. Before we go, a quick note. The views expressed on this podcast are my own and do not represent the official positions of the University of Texas, Ideasmiss, Austin Energy, or Columbia University. A big thanks to Nate Peevee, our producer. I’m Joshua Rhodes. Thanks for listening, and we’ll see you next time. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.texasenergyandpower.com/subscribe

For the inaugural episode of the Energy Capital Podcast, I spoke to Will McAdams, the former Commissioner of the Public Utility Commission of Texas (PUC) who left the Commission just a few weeks ago.We spoke about his appointment to the PUC in the immediate aftermath of Winter Storm Uri and the challenges he faced during that tumultuous period. He told me what he was proudest of from his time on the Commission, including his efforts to wintererize power plants and “hold the line” to ensure a stringent standard was adopted, a stance that likely paid big dividends over the last few days during Winter Storm Heather. We had a great conversation about distributed energy resources (DERs) and how they are likely a major part of the future of the grid. Commissioner McAdams led the effort to create a Virtual Power Plant pilot, allowing small customers to get paid for injecting storage to the grid and, eventually, for reducing their use.He talked about the difficulties in the first few months on the job, after all three commissioners had resigned following Uri. He also reflected on his own possible responsibility for Uri, something I’ve rarely heard in the last three years.We went in-depth into the evolution of energy markets and how they might need to change to provide higher reliability at lower cost. That discussion included his views on the energy-only market, the large volume of ancillary services in recent years, and the controversial Performance Credit Mechanism (PCM). We also talked, of course, about energy efficiency, renewable energy, battery storage, demand response, and much, much more. (We discussed IRA incentives, if you’re interested in learning about which incentives you can access to upgrade your home, see this calculator. If you don’t qualify for tax credits, see this article for information on when additional incentives may become available, hopefully later this year.)Time stamps and a transcript are below. Thank you for being a subscriber. Please consider becoming a paid subscriber. I’ll have a subscriber-only chat during the upcoming PUC meeting this Thursday and you’ll have full access to the archives as well as subscriber-only events. And some podcast episodes will be for paid subscribers only.If you like the episode, and I think you will, please don’t forget to recommend, like, and share the Texas Energy and Power Newsletter.I look forward to your feedback on the episode.Time stamps:2:30: McAdams’ background and path to being a Commissioner6:00: The first days and months at the Commission after Winter Storm Uri10:38: Diagnosing why Uri happened14:50: What McAdams is most proud of from his time at the Commission: strong winterization standards for power plants18:00: What he wishes he had more time to work on: cost allocation for distribution infrastructure costs23:10: The need for distribution resource planning and the potential for a Distribution System Operator (DSO) model; discussion of the PUC’s award-winning virtual power plant (VPP) pilot30:25 Deeper dive into the VPP pilot and the Aggregated Distributed Energy Resource (ADER) Task Force, and the potential for Texans to earn revenue for their DERs36:00: Potential of demand reductions to contribute to VPPs40:25: Are conservation calls inevitable?45:15: The challenge of winter reliability and how energy efficiency can help51:15: The potential of energy efficiency funds from the Inflation Reduction Act, and the need for better education and incentives for HVAC equipment58:15 McAdams’ views on the evolution of energy markets1:02:01: Are capacity markets the answer, and McAdams’ view on the Performance Credit Mechanism (PCM)1:05:30: Do we need all the ancillary services we have? Will we need them if the PCM is implemented?1:08:00 Comparison of PCM with McAdams’ idea for Dispatchable Energy Credits (DECs)1:14:30: The criticality of load forecasting and how bad load forecasts were for Winter Storm Elliott1:17:15: Is Texas a good destination for clean energy investors?1:21:54: What are the 2-3 energy policies McAdams thinks will have the biggest impact on increasing reliability1:25:20: What will the grid of the future look like for consumers?TranscriptDoug LewinWill McAdams, welcome to Energy Capital.Will McAdamsHey, thanks, Doug. Glad to be here.Doug LewinSo excited to talk to you, obviously a whole lot to talk about, but let's just start with your background. What was your path to being a Public Utility Commissioner?Will McAdamsYeah, no, so I landed in Austin around 2009. I was fresh out of the U.S. Army, and I went to work as a sort of jack-of-all-trades legislative aid staffer, policy analyst to a state senator, and that senator happened to be Troy Frazier. And Troy Frazier was a pallet manufacturer from West Texas who was a long-serving legislator. And as a part of being a manufacturer, his number one cost of doing business was electricity. And so he always had a passion for energy, electricity, industrial policy, and was actually one of the co-authors of SB7. And so his policy focus was always in that area. Over two years of working for Frasier, he began to shift me into that policy area as his aid analyst designated to focus on energy, especially the Public Utility Commission. He eventually regained the chairmanship of the Committee of Jurisdiction over the Public Utility Commission and ERCOT, oversight of ERCOT. I was his legislative director and kind of his point staff person on grid related issues.And I held that spot for both Frazier and several other members of the legislature for the next, oh, eight years. And so I worked for Frazier. I worked for Charles Schwartner, who authored Senate Bill 3 during the 2021 session. I also was the director for Senate Business and Commerce, the Senate Committee on Business and Commerce under Kelly Hancock, who authored Senate Bill 2 in 2021.So I had a strange nexus in terms of the issues. I also worked for Speaker Dennis Bonham for a period where I was his advisor on regulated industries, for business in regulated industries. And then energy had burned me out in 2019 and I decided to step away and became president of a statewide trade association, Associated Builders and Contractors of Texas, and happily focused on employment and construction related policy for a year and a half. And then Winter Storm Uri happened in 2021, and I got a call. And that was after the recording of Arthur DeAndrea broke. Um, and the, the final resignation was announced at the PUC and, um, and the rest is history. I onboarded shortly thereafter.Doug LewinSo you were appointed on April 1st. There's a lot of jokes that could be told there. But I'm sure at many points you felt like that, what am I doing here? What have I taken on? What have I walked into, right? I mean, it was an extraordinary set of circumstances where I'm not sure it has, I'm pretty sure it doesn't have any precedent that all three commissioners were gone. There were no commissioners for a period of some weeks. You're appointed on April 1st. Can you talk a little bit about what those days and weeks and even the first couple of months were like? You know, clearly the dust had not settled from Winter Storm Uri. People were still processing it. There's all sorts of what's gonna happen next. What, it must have been some form of chaos. What was that like?Will McAdamsYeah, it was not an orderly transition of authority and responsibility, I'll say that. But we made the best of it. As you recall, the legislature was in session. I was over at the Capitol lot doing my job as president of ABC, and I remember sitting down in a legislative office watching the marathon hearings just on the telecast, watching the Q&A between the senators, the House members and the Commissioners at the time… it was painful to watch. And I was, it was tough to watch. And people would ask me what's wrong. And I'm like, look, I feel partially responsible for this. I mean, I had a hand in crafting policy over the last eight years, decade. And this collapse of the system was… it was personal to me and it was personal in trying to stabilize the system, recover, rebuild. So that's what I wanted to do. And when I got that call, I was like, yes, absolutely. Let's do this. Let's help. And so my history in the State Senate was very important in terms of that first nomination. Any of the Commissioners who were going to be on board at that time had to undergo Senate confirmation. And if the public was questioning the competence of the Commission, the State Senate certainly was. And you could even multiply the intensity of that skepticism on the part of the Senate. And so, you know, I had spent 10 years in the State Senate by the time I had left. And I knew all the senior senators. I knew all the senior staff.The Lieutenant Governor and I had met before. I'm sure he kind of put the face with the name when we had our first meeting, which was an hour and a half meeting, before my name was even put forward on an appointment list. And that was a tense meeting. I will tell you, I've never been in a more high magnitude interview than with that meeting. Because he wanted to know somebody was gonna come in here and do their duty.And so I passed muster. He said, I believe you'll do your best and I'm going to support you. Uh, everybody was relieved to hear that the governor's office was relieved to hear that and, uh, and then they put my name out, uh, within 24 hours. And, um, and then I began to lead the way. Uh, again, I wasn't going to be the chair. Um, Peter Lake followed two weeks later.But I was going to onboard first assess the situation and then get confirmed ultimately which the Senate did in short order and start to rebuild at PUC. I remember walking over to the PUC two days before the vote and actually… no I didn't walk over it was it was the day after the vote when I was confirmed and I said look, I'm going to onboard and I met with Arthur and the place was dark. All the cubicles were empty because they were still on COVID staffing. Only the senior staff was present. It looked like an empty ship. Just cold, dark, and quiet. And met with Arthur and you could imagine a man under tremendous strain and he was. But he also looked like a weight was being lifted.It was a tough time for them. But we just assessed the situation, got with Peter, and then we started putting things back together again.Doug LewinSo you said it was personal and you felt some responsibility. It's interesting, and I want your perspective on this too, how much of Uri do you think was, and I understand that sentiment because that's your character as a human being and your army background and probably the way you were raised and all that, and that's admirable and I appreciate that sentiment. That's the way I think we want public servants to think that, you know, um, I have some responsibility here and all that having been said, I still don't view Uri as a quote unquote market failure. It may be, I want, I want to know your view on this though. Forget mine for a minute. What, you know, you had other failures as well, right? Of gas supply of, um, you know, forecasting of load going as high as it was. So energy efficiency comes into this.And then, and then the market maybe is a piece of that. What is your sort of diagnosis of Uri and where the sort of, what were the major problems and how does the market structure fit into that puzzle?Will McAdams Yeah, no, it was a confluence of events. It was not a market failure. I can say that emphatically, clearly now. What happened in 2020, and I started alluding to this from my statements from the dais shortly after we had the new commission composed. I said, look, this was a confluence of events. It certainly appears that way. The last two years and eight months have only affirmed that in my mind.And you got to remember what was happening at the time. The economy was coming back to life after Uri. And so what had been happening over that year and a half, um, between COVID forcing the dormancy of the economy, uh, load had stayed steady state. There was no load growth over that year period.By 2021, everything was reopening again. All the industrial processes were reopening again. And what had happened between 2020 and 2021, and what had been building before that, was a crash course industrialization, electrification movement. And especially in Texas, because we are the, we are one of the manufacturing engines of the country.What we didn't realize is how much gas-driven industrial processes over that two-year period were being converted to electrified systems. So they were, instead of burning gas-fed boilers or internal gas-fed systems, they were switching that over to a plug-and-play system where they could account for the carbon emissions that they were producing, where they could account for the energy costs associated with that, where it wasn't necessarily directly tied to the volatile natural gas system. And what we saw was a dramatic increase in load growth at the same time as this winter storm was bearing down on Texas. And that was a snapshot in time, but it hit us at a point where the PUC and ERCOT were not tracking the criticality of the electrons being diverted to those loads. And as a result, key systems failed. And that became a cascade of failures that rippled its way through the entire system. That's when curtailments occurred. That's when, and this followed wind generation freezing in place because of the magnitude and the moisture associated with that winter event. So it became this pancaking cascade of failures that took the system down and took it down for several days. So that's what I would say.Doug LewinSo let's, um, let's pivot a little bit. Um, and, and although it's, it's related to the last question. So you, you were there for, for nearly three years, obviously when, when we're talking, you've, you've left the commission. What, what are you most proud of when you look back at your tenure there? And what do you wish you had more time to focus on what, you know? Yeah. I'll just put it that way.Will McAdams Yeah, well, I was most proud of we held our ground on weatherization. So we, and I would like to advertise this for the public, we have a winter event that appears to be headed our way this coming weekend. And preparations are underway. I'm fully confident that everybody's taking necessary steps to make sure that they're winterized and weatherized. I urge the public to do the same. However, at the time we were in this paradigm shift discussion about who bears the costs of these efforts. And at the time we dug our heels and said, no, statute has given us direction. These costs will be borne by the resources that support the system.This is a part of their cost of doing business, just like any business has a natural regulatory cost of doing business. And we will establish a standard that will be very stringent that they will be a held account to. I had a part in establishing that stringent standard. I had a part in holding the line on ensuring that windchill was accounted for. And I think we're gonna find out how important that is this coming weekend because it's going to be windy and it's going to be cold. And the temperatures will be extremely low as a result. And they will feel extremely low. And so metal is going to perform in a certain way under those conditions. And we need to make sure that holds up. So we impose the weatherization standards that are absolutely the most conservative, quote unquote conservative, but stringent in the country. NERC is looking at those standards as an example.I believe it'll play an important role in informing what their ultimate standards are for the nation. So Texas will have led the way. And then the second thing I'm most proud of is we stood up the aggregated distributed energy resource pilot program in a five month period, launched it to where it was live within nine months.And at the year anniversary, we had the first electrons being dispatched into the system as a result, allowing everyday consumers to become a resource, a virtual power plant system to support system reliability. And I think one day we will be able to account for them in resiliency plans for the system. So I think we started building a road to the future, and I was a part of that, and I'm extremely proud.Doug LewinAnd what do you think is sort of left undone? What do you wish there had been more time to focus on?Will McAdamsI was so focused on just the day-to-day triaging of ERCOT at the time of this transition and Southwest Power Pool working on that. I wish we could have addressed cost allocation in terms of distribution infrastructure costs. And I believe that is one of the most profound things that the Commission can take up over the next three to five years, or frankly the legislature. I believe this issue is ripe for the legislature to begin arguing that will determine who pays for distribution costs. Because I believe what's coming is the distribution system is going to be upgraded in a dramatic way over the next 40 years. And the resources that we can begin aggregating and bringing in and dispatching into the system, not from the transmission system, but from the distribution system, will help support our grid from now, for 100 years from now. And if under the current policy, if those costs are completely borne by the consumers at distribution, that's your mom and pop businesses, that's your small to mid-level commercial consumers, that's your low-income residential consumers, they're paying the cost of that. And it could be a crushing cost. So I think ultimately the commission needs to, and this is what I had launched but didn't have the time to finish, needs to have the discussion and ultimately decide that those costs need to be borne by the system as a whole because ultimately that will help spread the cost across a greater pool of consumers to include our large industrial consumers.Because ultimately all of them will benefit equally from the reliability and the increase in resources participating in the energy market, which will ultimately bring down wholesale energy costs and help support system reliability and resiliency while decreasing price volatility in the system, which eventually cost consumers.Doug Lewin So I understand generally what you're saying, but I'm not sure I follow specifically on the distribution infrastructure costs. You're saying it should be spread across. Is it not currently done that way? No, okay, tell me more.Will McAdamsNo, it's so if you're a consumer, say in Houston, the costs for the distribution system are borne by those consumers in the CenterPoint Energy service territory. And so that's just basically Houston people paying for Houston wooden poles that are outside of their homes. But in an environment of huge electric load growth, the distribution system can do a lot more and become a lot more sophisticated to where it can handle two-way traffic of power, not just along radial systems, instead of just receiving power from the transmission grid to their home. And in so doing, you can start hooking up cars, you can start electrifying all this stuff that we're installing in our homes or putting on our businesses. It allows that neighborhood to be a lot more sophisticated and a lot more resilient than it currently is. But it requires a lot of upgrading. And we don't know the magnitude of the upgrade to the distribution system or the magnitude of the costs associated with that. But once that happens…Doug LewinWe don't know the magnitude, but we know it's gonna be big, right, because like you were talking, yeah, this crash. Will McAdamsWe know it’s terrifying.Doug LewinYeah, yeah, yeah. The crash course you were talking about in industrialization and electrification prior to Uri is like a fraction of what we're about to see over the next 10, 20 years.Will McAdams It's the tip of the iceberg. And I'm telling you, the iceberg's big. And so if you can socialize that beyond the distribution system to the transmission system, then that means all of the industrials who currently do not pay distribution system costs would bear a portion of the burden, because again, they're consuming large amounts of electricity. And they would be able to socialize those costs over a greater pool of payers and support the system which they're benefiting from.Doug Lewin The industrial consumers pay transmission based on their four coincident peak, but they don't pay for distribution at all?Will McAdamsBecause they're not interconnected at the distribution level. They bypass that by building their own substations and interconnecting right there at transmission.Doug LewinBecause they're okay. Wow.So does this, so that's obviously a huge issue, the who pays. I also wonder if sort of a first step to that is it's something like distribution resource planning, which we don't really do in any kind of a transparent way right now, obviously the utilities do their own distribution resource planning, but having some kind of a market signal to solar and storage and energy efficiency, forget the technology, there'll be all kinds of different technologies like “Hey, there is a need over here.” We think we need to invest tens of millions of dollars in distribution infrastructure. Is there a solution that can be met for millions of dollars instead of tens of millions?” But there's no market like that, right? Now there's no market signal, is that correct?Will McAdamsThat's right. The VPP was the first market signal that was introduced really at that small of a scale at distribution. And there’s starting to be market signals on that part, Doug, because, and this is for the more sophisticated listeners, because congestion costs at the transmission system, on the transmission system, are growing leaps and bounds. So people are starting to feel on a nodal basis. Okay, so, the nodal system are a series of price points that are based around your closest substation in your neighborhood. And the reason they do that is because that helps the system signal where scarcity is occurring. And at the transmission system, think of it just like traffic congestion. There's too many people or too many electrons trying to get on the system at one place, congestion builds up.It backs up power beyond that point and starts backing down power resources, whereas scarcity is experienced on the other side because it's free highway and people are calling for more cars to be on the road, but they can't get through because of the bottleneck. So it creates a price formation problem on the system. Well that sends a signal that there needs to be more resources closer to the loads. And that's what these smaller resources can provide. They can start to spread out the cars coming onto the system. And as such, we don't have as many bottlenecks and the costs start to decline.Doug LewinYep. Will McAdamsDoes this make sense? Doug LewinIt does make sense. Does this inevitably lead to some kind of a distribution system operator model or DSO? This is talked about a lot at conferences and in white papers. And for those – we always want to make this podcast both accessible to a general audience and interesting to an in the weeds audience – but a distribution system operator would basically be somebody who's coordinating all of those small sources. If you start to think of all the batteries and the vehicles that are starting to come. A quarter a million electric vehicles on the roads of Texas already today, probably pretty quickly heading towards a half a million and then a million after that. And each of them have pretty good size batteries inside them. If nobody's coordinating all of that and they all plug in at six o'clock when people get home from work on a summer day as the sun is starting to set, we're gonna have major problems. The inverse is true, if they're all being coordinated and orchestrated in such a way that their power, at least we're not charging them and potentially even reversing flow to the home so that it's consuming less from the grid, we could alleviate a lot of the problems we have, but doesn't some entity need to coordinate all of that and who could that be?Will McAdamsWell, so we had talked about that. I had talked about that with ERCOT system planners. And they said, well, look, we believe ultimately something like that is needed. We don't want to do it. And I'm like, understandable. But we need to start talking about that. But in terms of the distribution system build out, Doug, this is a 40-year play. This is the future. And that's why the conversation has started now.It's going to be an evolving conversation because there's going to be some entities, namely the IOUTDUs, so like CenterPoint Energies and Oncors of the world; the electric cooperatives, so South Texas Electric Cooperative or Pedernales Electric Cooperative; the municipal systems, CPS, Austin Energy, who will need to consider ceding some of their current authority in terms of coordinating their distribution system to that operator, to that new system operator, distribution system operator, just like they have done or federal policy has required them to do toward ERCOT in terms of management of the bulk power system. So that's going to be an evolving conversation on how that could unfold.Doug LewinCould the utilities themselves, the Austin Energy, the CenterPoints, the Co-Ops, play that DSO role, or do you think it needs to be something independent? Or have you not thought about it enough to say it?Will McAdamsNow, I've thought about it…Doug LewinI figured. Will McAdamsBecause, look, one of the big things that I believe is underway, and this is frankly counter to broad-based federal policy, I think, right now, is I think we're on a long march around, for the last 100 years, the grid has been on a long march toward more broad-based integration as a system.Okay, as for ERCOT that's been as an islanded system within the national grids. For the other grids like SVP, PJM, CERC, it's been integration with each other, you know, to make them more, be able to lean on each other. I believe right now with the type of load growth that we're seeing.That everybody's gonna start to default back to a more islanded approach, just to sort of stabilize the system and manage their systems, and then begin another phase toward more integration. It starts and stops. But as a result, those regional entities, the CenterPoints of the world, or the Oncors of the world, will begin coordinating, possibly, with their neighboring cooperatives to better manage regionally the distribution system and what that could dispatch onto the bulk power system ultimately to move around the state. And I think that's not a bridge too far. I believe ultimately the market will signal that this is needed, but it's not ripe yet.Doug LewinThat's fascinating. So this is actually a good, I wanna make sure we take just a little step back and focus on the specifics of the VPP pilot and what the Aggregated Distributed Energy Resource Task Force, that is a mouthful, but there is this Task Force. They continue to meet in Texas and will continue going forward. It was just announced, I believe just last month, on December of 2023, that the Aggregated Distributed Energy Resources would be allowed to participate in this new ancillary service, the ERCOT contingency reserve service. So it's kind of growing in the ways that it can actually serve the state, serve the grid, um, serve Texans. And that pilot is very related to everything you're just talking about at a high level. But let's, let's bring it into the specifics. Can you just describe the pilot? What it's about? Whatbarriers it's trying to overcome, sort of what it is, what it's achieved so far, and where it's headed? I think we've already covered why it matters. I was gonna ask you why it matters. I think we've already covered that. You could say more about that, but what does it do? Where is it at now and where is it heading?Will McAdamsOkay, well high level, the reason I pushed so hard for this is because again my mission was to stabilize the system and And I had to do that in an environment where I was trying to stabilize the system with a moving target meaning the demand kept on going up at the same time I was trying to find resources to satisfy the demand supply, find the supply and there was no supply getting built everybody was petrified of the volatility and the unknowns about the market and the market design. And a lot of that was PUC introduced. And we tried to sort that out over time. The bottom line is, I knew that the public's confidence had been shaken in the grid. And the reaction that I would have or anybody would have is like, I'm going to start to take care of myself. I'm going to take care of number one first. And then I'll worry about number two, which is the system. And people were investing under those under that motivation. And they were buying generators, they were buying PVs, or they had solar panels on their roofs already. They were like, at that point, all right, I'm gonna pop for the battery and pair that up with the battery, and I'm gonna make it through the next winter storm or hurricane or whatever's gonna come along. And so I knew that number, the number of those types of resources was growing out there. And I wanted to figure out a way, all right, how does our market begin to co-optimize that pool of resources within the system. And so that was the ADER pilot. That was the driving force behind allowing Virtual Power Plants or communities with aggregated resources to use technology that they had available to bid into the ERCOT energy markets, namely ancillary markets, which for you laymen out there, that's like our emergency service markets. So the backup power of the system. And sell that into the system at peak need. You know, when need determined that energy would be most valuable. And that's what the system does. It specifically targets not the big batteries or anything like that, but I'm talking about everything below one megawatt. And to put it in perspective, one megawatt is a Walmart, or it's a neighborhood of three to six hundred homes. Or it's a water treatment plant with a neighborhood around it. It's all kinds of stuff like that. It is as close as you can get to the ultimate end-use consumer and that's us. And so we did that we set up the system we created the market within a market and now they are selling in to the emergency services and people are making money and now other people are thinking about okay “Maybe this isn't a $70,000 out-of-pocket cost.” “Maybe I can build this or put it on my home and I can have it paid for in a certain amount of time under this market structure.” Now ECRS. You talk about ECRS. That is the most flexible emergency service that we have in the system. Okay, that was our newly created stealth fighter if you will of an emergency service. Um, that's the latest and greatest thing we have to deal with a system that is more variable in nature,. Meaning we have to manage a system that has more variable resources like wind and solar. But also higher load growth, and with the loads, meaning the consumers are doing more things that changes their patterns over time. So ECRS is designed to be there no matter what. And now that ECRS is open to the Virtual Power Plants they are perfect to meet that need because they can dispatch almost instantaneously. They are extremely flexible in an environment where flexibility is the watchword of the day and the thing that should be most valued. And ultimately, when we have a winter storm come through, these guys are going to be a valuable component in shoring up the system in the face of it.Doug LewinYeah, totally agree. So very related to that. And I'm interested in, you know, what you think the potential of demand response. So demand response can be storage, of course, but let's also talk about, storage is injecting power into the grid. What about actually removing the demand? So I think in my understanding, well, at this point in the pilot, there isn't any reductions, there's no like aggregation of thermostats or electric hot water heaters, is that correct or?Will McAdamsSo it is because we were first and foremost focused on because we hadn't done this before Doug in terms of injecting power into the system. So you had to learn because again, the whole point of the pilot and the reason we have it as a pilot is it's a sandbox for experimentation. But we wanted to see what the injection and dispatch looked like. But the pilot is an insert within a rarely used and not well-known program, which is the aggregated load response program inside of ERCOT. And so the ALR program can already pay loads to turn themselves off and all kinds of loads, like aggregations of small loads can start to reduce their demand at key times.When the pilot continues to move forward, we can start to co-optimize both the dispatch of the resources in the pilot, and also to incentivize and send the market signal that the aggregations of these smaller demand response pools can be valued and compensated. So I think that is in the future phase of the pilot to send a more targeted market signal for the bundled demand response to be paid.Doug LewinNo, that makes a lot of sense. So the learnings that happen within this VPP pilot can help to kind of extend that ALR, which to my understanding is mostly used for the bigger stuff now: Bitcoin mines and steel mills, stuff like that. But there's nothing, there's, I was gonna say there's nothing stopping the smaller ones from getting in. What is stopping it is, lack of market signal, lack of experience, and the VPP pilot is bringing those things forward so that the ALR can be sort of expanded to include more of these smaller resources.Will McAdamsWell, and I'll tell you what this pilot does, Doug, is it sends a value signal to create a business case for the retail electric providers to actually develop the technologies needed to telemetrically control both the dispatch of resources into the system and the demand response needed to turn consumption down into the system. And once that is certified by ERCOT, then they can back bundle the demand response together and actually provide a value stream to the end-use consumer. To date, we have not had that. With the pilot, we now have that signal.Doug LewinSo I wanna put a finer point on this just to make sure, cause this can get a little bit esoteric to those that maybe aren't involved in this, or even those that are involved in the market, but maybe don't work on these kinds of issues as much. What we're talking about here as customers getting paid, if they volunteer, if they want to, right? If they come forward and say, I want solar and storage, or I would like to participate in a program where my electric hot water heater, my pool pump, my refrigerator, my thermostat is reduced at certain times. I can actually get paid for that if I choose. So there's the affordability piece here, bringing down the cost of energy, bringing down the cost of new technologies. And there's the reliability piece, right? Which is if I'm somebody, I'm a Texan who says, I don't want any part of this. I don't want to deal with solar panels on my roof. I don't want anybody ever touching my thermostat. That's fine. If your neighbor or somebody down the street does. You're affordability gets better because the overall system cost is going down because we have more resources, more competition, and the reliability of the system is going up as well. I was struck by an exchange you had with Woody Rickerson, the COO of ERCOT. This is September 14th. It was just after we had been through 11 conservation calls over the summer, just eight days after there was an emergency alert and we were very close to having rolling outages.Will McAdams Yeah.Doug LewinYeah, and September 6th and you asked him, you said, is this the future? Meaning all these conservation calls and emergencies. And he said, yes. And I thought that was particularly striking because I think it's a possible future. Yes, we could have every summer where we have a bunch of conservation calls and emergencies, there is another future that's possible, which is a whole lot of people have devices, they're being orchestrated in a, in a coherent way. People are being paid and they're getting the bill credits, but they aren't hearing conservation alerts and emergency alerts. Am I being too overly optimistic or is that a possible future?Will McAdamsNo, but I gotta tell you, so one thing the Army taught me to do is be a natural pessimist, and so to plan for the worst possible contingencies. And do you want me to scare you a little bit? So in my last briefing with the Speaker of the House before I left the state government, I said, I'm getting out of energy, I wanna go to construction, I'm sick of it.It's too bare-knuckle of an industry. And he said, well, where's all this headed, Will? And I said, look, this is gonna get sorted out, this energy trajectory that we're on. But what's gonna sort it out is pure unmitigated volatility. And that's because we knew that the economy was taking off. We knew that load growth was there. We didn't know to what degree, and we still don't, because every system in the country is trying to figure that out. We knew that the resource mix was becoming more variable, but it was also bringing down costs, as you have pointed out, 90% of the time. It's just that 10% really gets you, because it comes at unpredictable moments. But ultimately, where I was going with the statement, and I said, ultimately, cost volatility will drive consumers and the market to answer this question and they will begin to actively engage in the market to provide solutions that will bring down these costs over the mid and long term. And we will have a more reliable and more resilient system as a result of it. But nobody's gonna get off their hind end and go and invest in that. On a hypothetical, frankly, they're gonna have to see it. And I think we're seeing that now.And ERCOT is not the only system. I work with other systems and they and will continue to do so and they are experiencing the same thing. We are just on the leading edge and I will say it's because our load growth is that much more than theirs is right now. But they see the beginnings of their load growth beginning to take off and it's taking off during the winter season for which no system in the country is designed for including the northern systems and that's changing the planning calculations on the part of the grid administrators.Doug LewinSo your contention is that there's going to be a lot of volatility going forward and it's the demand, tell me if I'm putting words in your mouth there, and the demand side resources that customers are bringing to the table themselves are gonna be a major solution.Will McAdams It’s the near-term answer.Doug Lewin Near term, is there a longer term or you're just not sure what the longer term is?Will McAdamsAnd that's where the palette comes in. It's that more aggregated dispatch of power. Because again the sun's gonna set unequally over time because again, it's setting over the arc Those electric vehicles will begin their charging patterns at different times because of the setting of the sun or when they're getting off work. Because of time zones any number of permutations will change the load profile on a regional basis. And therefore the closer to the loads that you have enough disparate resources, dispatching will satisfy their needs. It'll be a more co-optimized system. And I know I'm using a lot of big words that are common speak in our world, but bottom line is the grid will manage itself better because we'll have more options. And the market will provide those options.Doug Lewin Yeah, if there's a market, which we'll get to in a minute, what that market looks like and what that market structure is and if it's properly incentivized from these different resources. So we'll get there in a minute. But before we go there, you've talked often about the bigger challenge that is reflected in winter. You were just talking about it just a minute ago.Will McAdamsSure.Doug LewinI wanna talk a little bit about one of the things that is driving the winter problems. This is something I talk about a lot. It won't be a surprise to you I'm bringing it up, but it is the sort of inefficiency that we have built into our system, particularly from resistance heat, from really inefficient heat, which according to the Department of Energy, we have resistance heat, which for those who don't know, and I've talked about this a lot and written about it a lot, but it's basically the technology of a toaster oven or a hairdryer, but sized for an entire home. We're still building homes that have resistance heat strip heating. It's called a lot of different things, baseboard strip heating, resistance heating, but it is very inefficient. It's in three and a half million homes in Texas. I just heard a presentation just last week, Will, it was at a symposium at the University of Texas.Will McAdamsTerrific.Doug LewinSome researchers there were doing some looking back at Uri. Of course, we don't know how much demand was during Winter Storm Uri. ERCOT estimates it was 77 gigawatts. I had heard an estimate from Texas A&M that was published that said 82 gigawatts. This team of researchers at UT believes it was 87 gigawatts during Uri driven by extremely inefficient heat and poorly insulated homes.You talked about when you went to the Senate for a hearing in the summer of 2021, you talked about the need to look at energy efficiency programs and the like. We have done, there have been some increases in the energy efficiency programs to demand response. There's the VPP pilot. There's a lot of things to point to where progress has been made, but energy efficiency, as far as I can tell, and you may have a different view of things, we haven't made any progress on energy efficiency. The programs are still as they were three years ago. Why is that and what needs to be done there?Will McAdamsSo, all right, one of the conditions, and everybody needs to know about this, in PURA, the Public Utility Regulatory Act, the conditions upon which the PUC can set energy efficiency standards are pretty restrictive in terms of building an energy efficiency program that our regulated utilities manage. It's very stringent and prescriptive in the statute. This is one of the reasons, you know, when I first looked at this, you know, one of the virtues or features of being the first at the Commission, you kind of get to pick what you work on first, and that's why I focused on the VPP programs because, one, I saw the sense of urgency associated with it, and then, two, I had more flexibility to do things within the ERCOT market as a PUC commissioner, then I could as a PUC commissioner related to energy efficiency, and that's because the statute was so restrictive about what we could do and how we could do it. And so I would recommend that the legislature does need to look at the energy efficiency statutes, determine what actual powers the PUC has to create standards, what our targets for the standards are, where those costs to pay for those standards can be levied. But ultimately, absolutely, that is a midterm and long-term essential goal for the system because you have to smooth out the trajectory of demand growth and energy efficiency is that breaking mechanism because it's a difference between climbing a hill and climbing the altitude like an F35 fighter.You do not want that steep of a curve. You want to flatten out that curve to make our infrastructure planning processes more achievable and orderly, and to prevent cost shock within the wholesale market to the rest of the system. That's what you're trying to prevent, and that's what energy efficiency provides you. We just didn't get to it over the last three years because again, we were trying to one, stabilize the ship, and then two, guide it around several icebergs within this ice field and keep moving forward.Doug LewinYeah, you guys obviously had a ton on your plate. I will point out the legislature during the 2023 session, there was a bill that passed the Senate. It did not pass the House, but that would have required a 5X increase in energy efficiency. So huge credit to the Senate for getting that done. And hopefully next time the House will push it through too. But there was a bill that did pass the House and the Senate, Senate Bill 1699. It was related to DERs.Will McAdamsThat's right.Doug Lewin And it had a provision in there on energy efficiency and demand response. And I'm reading from it. “The commission by rule shall establish goals in the ERCOT power region to reduce the average total residential load.” So that is utilities code 39.919. So that's there that, and it does say shall. So hopefully, um, your successors and the current commission will, will take that up during this year, cause I think that's right. I think that's a good analogy, the difference between a climb of a you know, what did you say of an F35 or F15 or whatever it is versus a nice gradual, um, kind of a slope energy efficiency can provide that. Yeah. So, and we, look, we saw that during, go ahead…Will McAdamsYeah. It never ends. It's a- Well, so I have another recommendation on that front. One of the things that needs to be looked at is, look, the federal government just passed a, appropriated a lot of money in the Inflation Reduction Act. There is a lot of money out there for appliances that increase energy efficiency. That program is supposed to be administered by the State Energy Conservation Office. Okay, so they're supposed to find homes for this money to help people purchase appliances to bring down their energy costs and increases and manage their energy consumption. The PUC goal should be somewhat, somehow, tied to that effort, because you establish a goal, but you have to figure out how to meet the goal. Well, that is at least an existing mechanism with resources that allow you to try to meet that goal. So there needs to be a synchronized effort on the part of the state. It's not just the PUC, and that's what I'm saying, because we can be as much as of a toothless tiger as any other agency unless there's some type of way to operationalize to meet the goal.Doug LewinYeah, 1000% the funds that are coming to the state, it's $690 million over five years. There's two different programs, HOMES and HEEHRA, and those are designed for folks… so just so the public is aware, and I'll put some links in the show notes so people can find out about this. There are tax credits. This was an existing statute, but it was very limited. It was like a $500 limit tax credit for energy efficiency.That's up to, and again, I'll put it in the show notes. So I'm not an accountant. Go to your accountant for tax advice, but it's something like $3,000 a year, and it can be repeated year after year. So you can actually continue to get this. That is part of it. What the 690 million for is for the roughly 40 to 50% of the population that does not have a tax liability, because those are tax credits. So if you don't have a liability, you can't get the credit.This money is supposed to help folks that don't have a tax liability. So that is coming to the state. The state will have a lot of discretion and leeway over how to focus those funds. And if the state energy conservation office and the comptroller and the PUC all get together and focus this on HVAC and insulation, it could have not only a great impact for the people that use those funds and lower their energy bills, but also for everybody in the state to increase reliability to decrease the probability of outages.Will McAdamsAnd Doug, let me pile on to that to an extent that heat pumps, you brought up heat pumps, all right? The term heat pump terrifies me as a regulator, and I'll tell you why. Because we talk about strip heating. I was talking with Jim Robb with NERC and TEPRI. And 90% of the heat pumps that you will find in Home Depot or Lowe's are not variable cycle heat pumps. They are not the efficient heat pumps that we need to get in people's hands. They are heat pumps that are essentially strip heaters. The exact heating system that we want to try to avoid on the system is what is being marketed out there as a heat pump. But that's the type of load that will cause a reliability crisis. That's the type of load that will keep us in rotating outages for days on end. And that's what every system around the country is seeing is load growth, demand growth during winter months. And it's because people are buying the wrong kind of equipment at these stores and installing them. And that's the kind of stuff that the SECO program could help assist with and get those appliances in the hands of lower income folks who need to be using that to normalize their consumption and reduce cost and help the system. But we have to have some type of coordinated strategy and you've been preaching on that for a while, but we need it.Doug LewinYeah, that really I think is the role where the energy efficiency programs that the PUC oversees through the utilities, the SECO programs that are coming from these federal funds, that's the role of the incentive. Because I get asked this a lot, why can't the market solve this? These are such great technologies. They save people so much money. Why can't the market take care of it? Because when you have something break at your home – which I've had happen in a Texas summer, not a pleasant experience – you take what they have. You take what they have, right? So the role of incentives is to bridge that gap. So a consumer that is in trouble and needs that solution quickly has actually the option. You make sure that the stores are carrying the higher efficiency stuff and you make sure that the difference in the cost is negligible or even zero.So it's very easy for the customer, instead of putting in the very inefficient equipment that is gonna make the grid reliability problems worse, you bridge that gap so that they're putting in the higher efficiency equipment that's going to increase our reliability. So yeah, hopefully there's a lot more to come on that. I think you're exactly right that the coordination between SECO and the Comptroller's Office and the PUC is going to be incredibly important in 2024. All right, so let's shift gears just a little bit because I definitely, you know, you mentioned, we started this conversation by you saying your, I believe it was your first job at the Legislature was with Troy Frazier. Is that right in the Senate? So you were kind of, you know, you started off some of your formative experiences with a guy who was a big advocate for competitive markets, for the energy only market. Let's talk about different, and you obviously over the last 14, 15 years, Will, I admire you so much. I think you are a person that has, I don't know if this comes from military background or just your nature or whatever. I've listened to you talk a lot when you're on the dais. You question your own assumptions. You're obviously, somebody that tries to talk to a lot of different people, get a lot of different perspectives. You have looked at a lot of different markets. You've obviously been active in SPP at your time on the commission, but I've heard you talk eloquently about MISO and PJM. Even I've heard you bring up Australia a bunch of different times. Can you talk about markets and their evolution and where they're heading? We have an energy only market still mostly, though it's...Will McAdamsMm-hmm.Doug Lewin…a little bit in doubt if that's even what we actually have right now. What in your mind, I'm just going to, I could ask a question here, but I'm just going to just share your thoughts on markets and what you think the evolution of them is, where are they headed?Will McAdams (56:16.33)Yeah, so I had a role in killing capacity in Texas in 2013. I helped organize a hearing of the State Senate that questioned capacity in Texas. And this was when we were really debating, the Commission was debating whether to just unilaterally move from an energy only market design to a capacity market.And in 2021, I was wondering, okay, did we really screw up? Did we not move quickly enough to capacity? Even though we have aspects of capacity in Texas, our ancillary services, our capacity, a form of it. The methodology that we produce for ancillary services determine forward capacity values in inside markets. And so in my experience as a Commissioner when I got to see the other systems around the country and I work with SPP, Southwest Power Pool, and to put in perspective, SPP, if you're looking for the most traditional power system in the world or in the country, that's Southwest Power Pool. That's made up of 16 vertically integrated utility monopolies that have all three tiers of the supply chain from the power production to the transmission and distribution delivery of the electrons to the servicing of the actual consumers, you know, so the retail end of it. Those are vertically integrated monopolie.s And so if there's any system that is regulated, fully regulated, in the world that can manage through this energy transition that's Southwest Power Pool and then on the other extreme you have ERCOT which is completely deregulated and everybody keeps wondering if we're gonna make this thing work. But over the last three years, two years, nine months, or eight months, so I looked at PJM, I looked at their capacity monitoring, and capacity is excellent for retaining generation. Okay, it is excellent for propping up previously installed plants. Now the question is, will it pay to install anything new? The replacement values, because eventually any piece of machinery, any piece of metal, is going to break off, shear off, rust, burst into flames, meltdown, it will go away. And the question is, is the capacity value enough to install something new? And in PJM, they did do it for a finite amount of time, and that was after the shale revolution. The Marcellus shale is a captive shale play in the heart of PJM. Much of the energy value is predicated, in electricity, is predicated upon the value of natural gas and when you have captive natural gas that is going to be rock bottom cheap, you're going to get new power generation built over top of that. Oh, and they might get a side payment of a capacity payment. And that's what happened for the last 10 years. They built some new power plants, but at the same time, they lost just as many power plants as they were building new. And at the same time, their load began to take off just like ERCOT’S did. So they're experiencing load growth and they are not building enough new to support the load growth. So it's the same problem that every other system in the country is facing. So is capacity the answer? My view is it's not the whole answer. It may be a component and that's why I had more of a nuanced view on the performance credit mechanism discussion at the commission. I wanna make it work, tried to make it work.SPP is talking about how to make it work as well right now. But it isn't an all-in. In my view, it wasn't an all-in capacity construct. It was another adder that would actually pay people to perform or pay them if they in fact did perform during times of high risk and system need. And it was, again, a market-driven approach to entice you to dispatch an electron, to take the risk and dispatch an electron into the system.The jury is still out on what the best market design is. And again, that's why I don't want to put my eggs all in the basket of big power resources that are being installed at transmission. I want to get down closer to the consumer because what I do know is that technology has vastly improved since the 1970s. The computational power of our country, of our world, has increased the ability to co-optimize the system in a truly co-optimized sense to be able to dispatch the appropriate resource at the appropriate time on a millisecond basis is right at our fingertips. And that means that we can have more smaller resources working together rather than a big fleet of huge power plants across the state that basically incentivize the overbuilding of the system, inefficiently committing capital on long-term projects. I believe that's not the way we need to go. I think I might get outvoted today, but I think I'll be proven right in the future.Doug LewinYou said you wanted to make the Performance Credit Mechanism work. It's obviously, it had some, famously, some guard rails put on it by the legislature, namely a $1 billion net cost cap. I don't know, in your view, can it work? Or, I mean, it's not going to happen in the next couple of years. It would have to be after RTC, right? Real-time co-optimization, which is for those that aren't following this, a big system-wide upgrade to ERCOT that will solve, by itself, solve a lot of the problems. There's no one thing that's gonna solve everything, but real-time co-optimization will solve a lot of the problems that are existing in the system now. But I think it's gotta wait that long. I don't know, is PCM, could it actually work?Will McAdamsI think it could work in concert with the rest of the statutory framework that they put in. And I told the governor as such, I said that even with the cost cap, the cost cap constrains the PCM. However, it’s working in concert with the ancillary services, and I asked ERCOT point blank, if we had PCM tomorrow, would you still need that amount, or the suite, of ancillary services that we're developing? And would you need a fairly robust procurement of ancillary services such as we have today? And they said yes. And the reason they need that is because they need enough behind the house capability, behind the house resources, sitting on the sideline ready to go, when wind may drop off or to cope through the solar ramp or to account for the single largest contingency, which we always have, to be flexible about to meet that challenge.Doug LewinWhich is nuclear, which is nuclear. Yeah, which is nuclear by the way, right? And it's not that there's anything wrong with nuclear, it just happens, there's a lot right with nuclear, it just happens to be the largest one on the system. Will McAdamsYeah. It's a lot of eggs in one basket. That's right. And so they need a big old suite of ancillary services to cope with that so when people were talking about PCM can do all of this… Yeah, they it's gonna be doing all of this plus you're gonna be carrying the ancillary services So a 1 billion dollar cap essentially makes PCM live with the ancillaries which it was gonna have to anyway.And so you need to co-optimize the system. Real-time co-optimization does that. It hopefully will produce a more realistic picture of how much ancillaries we need to carry on a day-to-day basis to cope for contingencies and variability of the resource mix. And then a PCM adder is gonna be on top of that, along with on top of an ORDC adder that gives you that value signal that you need to be there.You need to lay on that gas in advance. You need to deal with energy transfer or any other pipeline operator to have that gas contract. And you need to perform during that high risk hour because we don't necessarily know when that's gonna be. So we're gonna do this on a settlement basis and you make sure that you're performed and you're gonna get paid. And you're gonna do very well that year.Doug LewinYeah, we could do a whole hour on PCM, but I'll restrain myself. Will McAdamsI know.Doug LewinSo I do just wanna ask you, I don't wanna spend a lot of time on this, but I think it's important to ask you this question. And in 2021, yeah, when you were first appointed, you had an idea for dispatchable energy credits. I liked that idea at the time. And I actually think that PCM seems to be sort of morphing into something that sounded like dispatchable energy credits. Like the idea that, but for that to work, doesn't it have to be technology neutral? Doesn't it have to be if you are, no, it does not. Okay, go on.Will McAdamsOh. No, no, I didn't say no. I said, oh, so that's true. It can be either. A deck is proportioned, again, not to be the all-in capacity payment. So it can be targeted. But if you want it to not produce a competitive advantage, for any particular resource because that's what it does, it pumps money toward a subset of the market which will skew, and I conceded this when I laid it out, this may have the effect of skewing bids into the dispatch engine of the system. But I rationalize that and I'll admit, look, I've worked in politics long enough, I can rationalize anything if I try hard enough, that we already have production tax credits that are skewing the bids of wind generation and now solar generation, and frankly now batteries to some degree. But my point is we already have some skewing of the market because of subsidies. And so I figured, well, you might as well just subsidize the only one thing that doesn't have a direct subsidy from ERCOT. And I understand that there's arguments that gas is subsidized and so I won't get into that. But if you wanted to, PCM is a deck, ultimately, with a one billion dollar cap for all resources that perform.So that's essentially what it does. And I said that at the time, and I thought that was the irony of where Chairman Lake kind of went, because the more it went toward establishing a clear resource adequacy equilibrium point, the more it went toward allowing demand response to be able to recover PCMs.I'm like, man, this is starting to sound more like a deck every day. And, and I'm okay with that.Doug LewinYeah, yeah. It's gonna be really interesting to watch as that concept of PCM continues to evolve and be discussed. I think the trick here is, and I think you kind of alluded to this when you talk about ancillary services, we say energy only. It was probably a misnomer from the beginning. Of course, there is some amount of capacity that is procured. You can't have a system that doesn't have some of that. And the question, I talked about this a lot, the folks after Uri, it's like it's not binary. A hundred or zero, on/off, black/white, it's a, it's a dial. It's kind of a, you know, a dial that you're going to turn up or turn down. And I think the trick is to not turn the dial so far towards capacity that you lose that competitive market signal that you do let stuff that needs to retire because it's not reliable and it's old and let it go, but also have enough of a signal that brings in resources that are available at the times of highest need.Will McAdams Absolutely.Doug LewinSo that's the trick. It may be easy to describe that problem. It's really hard to solve it. And that's, I think, what everybody in the market is kind of dealing with right now.Will McAdamsYeah, I mean, it requires a certain amount of faith in markets. And Sam Newell really got after me in the early days of our market design discussions, because he accused me of not having faith in markets. And I think it was around the debt conversation. And I'm like, oh, Sam, let's not get religious about this. You know, but I do believe in markets. And I believe they're the only way to solve this and to help us transition.But I have it at a high level.Doug LewinWell, here, yeah, yeah. I mean, here's the thing about this, because I'm certainly not religious about this. I believe that there are times, there are many things for which I think markets are not well-suited. That's my view of the world. I think for electricity, it happens to be really, really well-suited. I think markets work quite well here, but as with any market, you have to have the signal for the things that you need. And that's the question right now, is the signal getting.Will McAdamsWell, especially with the degree of sophisticated technology that we have in the energy space. Since 1974, the world has been focused on one thing, and that has been solving for a sustainable supply of energy to meet our needs. And we have the capabilities. We have to allow a market to dictate where those capabilities are deployed and employed. And that's why deregulation happened in the late 90s. And it didn't just happen in Texas, it happened everywhere. And now everybody wants to try to talk about, okay, well how would we put the toothpaste inside of the bottle? I don't know how you'd do it. I don't know.Doug LewinI mean, I guess you could, but it would be enormously expensive and it wouldn't get to the outcomes I think anybody's looking for. I think one of the key things that markets have going forward is if you do the flip side and you say, okay, what else are we gonna do? We're gonna completely regulate, it's gonna be command and control. Humans with all their problems are gonna decide this is what should happen. There's too much dynamism out there right now, right? There's too much happening. Technology is moving…Will McAdamsRight.Doug Lewin…faster than humans can keep up with. So that's why you want markets to be able to kind of skate to where that puck is going, if you will, right? I don't think, yeah.Will McAdams But an even scarier thought is like, okay, let's allow AI to do this. Let's turn it over to artificial intelligence. One of my points in coming on here is, so Winter Storm Elliott blew through the country last Christmas, not this last Christmas, Christmas before last. And Tennessee Valley Authority went into load shed for the first time in 60 years. And they did so becauseof a number of things, but chief among them was they missed their load forecast. And so did PJM, and so did ERCOT, and so did SPP, and so did every other system in the country that was affected by that storm. And they missed their load forecast from anywhere from by a magnitude of 10% to 30 to 35%. Okay? There were huge misses all over the country. That's the kind of data that will be inputted into artificial intelligence if they were monolith of the electric grid of the future. Okay, so AI is only as good as the data being inputted into it and we're really bad at load forecasting. And so I recommend allowing the markets to gauge where we're at right now because like I said you're picking your way through an ice field and that iceberg is really big that's just below the surface so you better be careful.Doug LewinAnd whatever kind of capacity market you have, you have to be able to do that. That load forecasting piece is huge. And yeah, right. And, and the ability for folks to get that right seems to your point to not be very great. That that was, that is, this is another thing I talk about a lot. That was a recommendation out of the FERC and NERC report was that the balancing authorities like, you know, for example, ERCOT need to get better at forecasting demand that miss in ERCOT was 23%.Will McAdamsIt's critical.Doug LewinSo you've mentioned that range of 10 to 30. It was on the higher end of that range in ERCOT. And it'll be interesting to see what happens in the coming weeks we're recording on January the 9th, but in the next week or two as this cold front moves through. I think that those demand forecast misses are happening because of resistance heat. They still don't understand. Yeah, yeah. One other question, a little bit of a pivot here, but I wanted to ask you about this too. I was going back in preparation for this interview and looking back on, obviously, as I've quoted you a few times, looking back on that first year as you were sort of getting adjusted to the commission and in this sort of post-Uuri reality, you said in November, 2021, you were referring to the conference of parties, the climate conference that...that was meeting at that time, that there were gonna be trillions of dollars of global capital deployed. And you said, Texas will be a great destination for that capital. At the time, you said, we might see, this is really amazing, November, 2021, you said, we might see 20 to 30 gigawatts of solar eventually. Two years later, we've already crossed about 22 gigawatts, according to the number from ERCOT just a couple days ago. So will you talk a little bit about…Will McAdamsThat's right.Doug Lewin…Texas and what the opportunity in whatever this thing that's happening right now, some call it an energy transition, some call it an energy expansion. There's lots of different words that can go on, but something is happening. There is a lot, a lot, a lot of global capital right now going into, speaking of markets and market dynamism, a lot going into, quote unquote, clean energy. In your opinion, is Texas still set up?Is it better or worse than a couple years ago? What's the trend line? Is Texas a destination for that kind of economic growth?Will McAdamsTexas, just like my ADER pilot program, is the best sandbox on the planet to test whether this energy transition is gonna work for the betterment of our people or not. And that's a great question right now. That's a historic question. But as a result, we will have capital deployed on both the load side and the resource side.And so at the same time, we saw 20 gigawatts of solar deployed in the system, or certainly another 11, and then we'll have 20 by the end of, or probably going in the next summer. So that total of 30. We've doubled our battery capacity. We will double it again very soon. And batteries are right at home in what's going on right now. It has been an invaluable resource and will be a critical resource managing through the seasons that we're soon to see with the amount of load growth patterns that we have today. And so every energy company in the world is either looking at Texas or has invested capital in Texas to some degree. And it's all in how we co-optimize the system. I'm not talking about real-time co-optimization. I'm talking about how the market co-optimizes the system. And we're proving out a lot of lessons that everybody else is learning from. This PCM concept is being analyzed in SPP. It's being looked at by other systems, but it's again more in the deck fashion than the forward long-term LSCRO or forward capacity market fashion And so we're cracking the code on some innovative stuff. We've done it on weatherization. We're gonna do it on other approaches. Now, ERCOT staff may be uncomfortable with that from time to time. PUC staff may be uncomfortable with that from time to time. Because again, it's a matter of faith. You're letting other people sort of control what happens to you. And that's an uncomfortable situation.But that's the only way we're gonna make it through this. And the market will solve for it.Doug Lewin It is uncomfortable. But I think that the alternative again, will get much more uncomfortable for Texans. Because otherwise it's an illusion of control, right? Will McAdamsThat's right.Doug LewinI'm all for focusing on what you can control in life. I named my company Stoic Energy. I love the Stoics and focus on what you could control. But you have to be clear-eyed about what you can actually control. And as a government agency, it's really hard to steer billions of dollars in global capital. They're, you know.Will McAdamsEfficiently? Absolutely not. I mean, and then you create a crony capitalist apparatus that will produce undesirable outcomes. Matter of fact, you will bumble into the outcome that you most wanted to avoid, and it'll happen to you sooner than it otherwise would have. And that's what we've got to avoid with our policymaking.Doug Lewin Yeah, it’s gotta be like shaping, guiding, steering, not commanding and controlling, right? Will McAdamsThat's right.Doug LewinYeah. All right. Well, I want to just end with these couple questions I sent you in advance to think about. None of those other questions I sent you in advance, but a couple of these I did because I wanted to get your thoughts on these. Let's start with this one. What are the two to three energy policies you think would have the biggest impact to increase reliability, lower costs, and/or reduce pollution?Will McAdamsThis will be fast. I covered a couple of these in our exchanges, but one allow broad-based and large-scale bidding of Virtual Power Plants into the current suite of ancillary services, especially ECRF since it is so well suited for that specific service and allow them to carry a larger percentage of what, as I said, is being kept behind the house. Okay, those electrons that we know are there, they can be dispatched. But eventually, what I hope to see and what that policy would allow is an overbuilding and scaling of the amount of EPPs that are out there that eventually will start to engage with our energy markets. And if they engage with our energy markets, then the ancillaries will not nearly be as necessary.And that will accomplish greater reliability and, as a secondary approach, it'll accomplish greater resiliency. And it'll ultimately bring down wholesale costs and I would point out that it would behave very similarly for the system just like wind did. Okay when we went from two gigawatts of wind at the beginning of the last decade to five gigawatts of wind and like I said for ninety percent of the hours of the year that keeps prices rock bottom. If you have enough Virtual Power Plants out there that are engaging with the system, it would reduce costs for the rest of the system. It would make our manufacturers and industrials that much more competitive on a global scale, causing business to continue to grow in Texas. So I think that's, we're at first base of a long run around the field, and that's something that could be done immediately.Second, again, I think we should consider socializing distribution costs throughout the system. Again, normalizing the standard between transmission cost allocation and distribution cost allocation because the technology has evolved to a point to where it provides the same benefits, the resources, the capabilities at distribution, especially after transportation electrification does continue to materialize on the system.The capabilities of distribution will support the entire system, not just the Houston area and not just the city of Austin. In that way, the entire system can lean on itself and not compartmentalize the cost along the consumer classes of our least fortunate. And so I think that should be taken up in the next three years.And ultimately, the industrials, who will pay more of the costs associated with that normalization of allocation ,will experience the benefit and continue to grow for the reasons I said in regards to Virtual Power Plants. It's a fairness issue.Doug Lewin Yep, yep, that's a huge one. Those are both huge ones. What, so I think you've talked about this a lot, so you don't need to go deep on this one, because I think most of the conversation is kind of focused on this, but what will the grid look like in 10 years, and how is it different for consumers? A lot of VPPs, a lot of participation, a lot of chance to earn, all that. Is there anything else you wanna say about that particular question?Will McAdams Yeah, now there's a lot more chance for them to engage, and I think they will have every reason to engage, because in the near term, costs will go up. They will go up just like they did when deregulation happened, costs went up, because you had to pay for stranded costs, you had to normalize the way the market was behaving within itself. But ultimately, I think what the systems start to look like over the next 10 and 20 years, is again, I think the grid planners start behaving more on an islanded basis. Islands connected by large-scale infrastructure like CREZ, large-scale transmission highways carrying power from more remote regions where renewables are plentiful to the load centers, to the Port of Houston industrial heavy areas like that. But ultimately, those regions closest to the loads would be self-supported through a more disparate and aggregated system of smaller resources like small modular reactors, or VPPs, or DGRs, distributed generation resources, or SODG, standalone distributed generation resources. And so it's a more co-optimized system, but it's more islanded for grid planning purposes. And that's the way everybody sort of will start building themselves back out.And ultimately we get to a point where we can start Interconnecting those zones just like we did, you know in the last century, but it's going to take a while to getDoug LewinYeah, it's a really compelling vision for the future of the grid. I think if it's right with you, we'll leave it there. Will McAdams, thank you very much for being on the Energy Capital Podcast. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.texasenergyandpower.com/subscribe