Texas spent five years rebuilding its electrical grid based on the lessons of Winter Storm Uri. Now regulators face a harder question: who pays for the surge of large new customers trying to connect?
The projections for electricity demand run far above what will actually get built, and hyperscalers want to power their data centers within 18 months, a pace much faster than the three-to-five years large industrial loads once took. ERCOT has run out of spare capacity, and the cost of building more lands squarely on residential and small-business customers if the projected load never arrives. The state’s answer is to make new load prove its intention and viability to build and pay for the grid it requires.
On this episode of the Energy Capital Podcast, Matt Boms talks with Thomas Gleeson, chairman of the Public Utility Commission of Texas, the regulator who must write the rules to make that principle work. Gleeson’s North Star is SB6, the 2025 law that rewrote how large loads connect. He explains the trade-offs behind the decisions commissioners are weighing, from financial gates that screen speculative projects to a December deadline to overhaul who pays for transmission.
Gleeson returns over and over again to the demand side, arguing that “the megawatt we don’t use is just as important as the megawatt that we generate.” The conversation works through:
Batch zero, ERCOT’s first round of committing firm capacity and the financial security and fee requirements, recently set at $50,000 per megawatt and meant to screen out projects that are purely speculative.
4CP to 12CP, the proposed overhaul of transmission cost allocation, with a minimum demand charge so that large customers cannot zero-out their shares by curtailing at a few predicted peaks.
The reliability standard, a new three-part measure of how often, how long, and how large an outage Texas will tolerate.
Demand-side resources, the aggregated distributed energy resource pilot, virtual power plants and a $1.8 billion backup-power program funded through the Texas Energy Fund.
How Gleeson and the commission write these rules will set how much cost current ratepayers must shoulder and which projects ever get built.
Timestamps
00:00 - Introduction and Chairman Gleeson’s PUC background
00:48 - A new chapter for the Texas grid: from Uri reform to implementation
04:19 - The core problem: interconnection capacity and speculative vs. real load
08:28 - SB6 and ERCOT’s Batch Zero process
15:10 - Large-load ride-through and performance standards
19:18 - The reliability standard and load modeling assumptions
23:39 - The ADER pilot: lessons and whether to scale it
25:01 - Virtual power plants and the NRG proof of concept
27:29 - Standardizing DER interconnection across the state
29:20 - The backup power package: resilience for critical facilities
32:33 - From 4CP to 12CP: reallocating transmission costs
39:30 - Closing: taking a breath, and what the era will be remembered for
Resources
People & Organizations
Matt Boms (LinkedIn)
Thomas Gleeson (PUCT Biography)
Public Utility Commission of Texas (Website)
Other Orgs
ERCOT (Website)
Texas Energy Fund (PUCT Program Page)
Company & Industry News
Texas PUC Approves TEF Backup Power Program (RTO Insider)
ERCOT’s Batch Zero Proposal and What It Means for Large-Load Projects in Texas (Seyfarth)
ERCOT’s Proposed Batch Zero Process: What Developers Need to Know (Foley & Lardner)
Related Podcasts by Energy Capital
How Texas Decides Which Data Centers Connect (Tiffany Wu) (Listen)
How Will Data Centers Pay for Power? (Travis Kavulla) (Listen)
Related Posts by Texas Energy & Power
Transcript
Matt Boms: Today, we’re very pleased to welcome back Chairman Thomas Gleeson of the Public Utility Commission of Texas. Chairman Gleeson was appointed to the commission and named Chairman by Governor Abbott in January 2024, but his service to the state of Texas goes back much further than that. Over more than 15 years at the PUC, he has served in a number of important leadership roles, including Executive Director, Chief Operating Officer, Director of Finance Administration, and Fiscal Project Manager. That gives him an unusually deep understanding of the agency, the Texas electric market, and the work required to turn major policy decisions into real world implementation. Chairman Gleeson, thank you for your years of service to Texas and welcome back to the Energy Capital Podcast.
Chairman Gleeson: Absolutely. Thank you for that introduction. Looking forward to the discussion.
Matt Boms: Awesome. Well, thank you for your time. We know that you’re really busy. This interview happens in the middle of a million conversations that are happening right now around energy in Texas. We’re gonna try to hit on as many as we can. And you know, just to kind of set this up, Texas is growing fast. The commission is trying to separate real projects from speculative ones, protect existing customers, use flexibility and customer side resources more efficiently. And build a grid that can support economic development without sacrificing reliability or affordability. So I want to start with, you know, since you last came on the podcast and Doug had you on, it feels like the Texas grid conversation has shifted a little bit from post-Uri reforms and market design and broad policy ideas into a very serious implementation phase. So, from your perspective, do you see this as a new chapter for the Texas grid?
Chairman Gleeson: Yeah, I absolutely do. I think you’re right. I think the reforms coming out of Winter Storm Uri, for the most part, have all been implemented. And I think the legislature, the governor, citizens are all happy with the reforms that we’ve put in place. You know, the grid has been tested a few times since Winter Storm Uri and has performed really well. So I think, yeah, the conversation has definitely now shifted to large loads, data centers, hyperscalers, how we’re going to incorporate those reliably and safely onto the grid. And then really, who’s going to pay for it? And I think as we move forward from today onward, who’s gonna pay for all of this is gonna take f you know, primary focus for everybody.
Matt Boms: Yeah, absolutely. And I think Texas has always been a growth state if we look back to our our history. But does this load growth moment feel different to you?
Chairman Gleeson: It feels a lot different. And the main reason for that is the speed at which it’s changing. You know, historically when large loads have come onto the system, it’s taken three, four, five years for those facilities to need their power. When you’re talking about hyperscalers, these companies want power sometimes within eighteen months to be fully operational. So the speed at which we’re being asked to make decisions that impact the economy is going quicker and having a much, you know, more difficult effect on us coming up with the right decisions in a short amount of time.
Matt Boms: And, you know, given all those decisions that need to be made and looking down, you know, over the next few years, what are two or three things that you think Texas absolutely has to get right here moving forward?
Chairman Gleeson: Yeah. So the first part again is who’s going to pay for this? We want economic development in Texas. You know, as the governor says, Texas is open for business, but we want to make sure that residential rate payers and small businesses are not bearing the brunt of all the costs that are going to come along with hyperscalers moving to the state. So I think figuring out how to effectively and efficiently allocate costs to those that are actually putting those costs on the system is going to be the number one thing that we do. Number two, and this will always be an issue coming out of Winter Storm Uri, I think, for for the rest of time for Texas and the ERCOT market. How do we ensure that we’re getting the right resource mix on the grid for generation resources? You know, we continue to see a proliferation of batteries and renewables on the grid, particularly solar. And that’s great for the state. You know, those resources keep prices down. When it comes to batteries and solar, you know, they help us a lot in the winter during our two peaks and the summer during our afternoon peak. But I think there’s a growing concern that we need more what we would consider baseload twenty four by seven generation, mostly thinking about gas generation. And so continuing to have discussions about how we incent that type of generation to come onto the grid, I think will continue to be really important for the state.
Matt Boms: Absolutely. And for listeners who are not living inside of ERCOT stakeholder meetings, that we certainly have listeners that do live inside of those meetings, but plenty of listeners that are new to the energy space. What is the actual problem that Texas is trying to solve here with large loads and data centers? Just for a beginner who is, you know, hearing this for the first time.
Chairman Gleeson: Yeah. So historically the grid has always had a lot of excess capacity. So the transmission system has capacity. A new customer can come and interconnect and not have a problem getting the service that they need. But because of the size of these facilities and the speed at which they are looking to interconnect into the grid, we’ve run out of existing capacity on the system. And so what was happening over the last say six to eight months was large loads were looking to interconnect and not being able to, because as soon as they would have a study validating. Their ability to interconnect, another load would come in behind them at relatively the same point on the grid, thereby invalidating their approval. And so that has been the problem we’ve been trying to solve for, like I said, the last eight or so months, how we can ensure that once these companies have an interconnection agreement that they are ready to move forward, they know that capacity will be there to serve them so that they can make proper business decisions.
Matt Boms: Yeah, if that’s the death spiral of the different pieces moving around, it’s just hard from the grid operator’s perspective, right? It’s how do you plan for a grid where with all those moving pieces?
Chairman Gleeson: Yeah, it’s and how you ensure that all of these loads can be interconnected reliably. Cause I think that is always going to be the key from ERCOT’s point of view is we want the economic development here, but we have to ensure it is paramount that reliability is the focus. And so it’s making sure we can interconnect all of these loads and loads in a reliable fashion. Yep.
Matt Boms: Yeah, for sure. And on reliability, I think Texas has earned a lot of credit across the country for how far we’ve come since Winter Storm Uri. And that’s that’s another podcast. And I encourage folks to check out the previous podcast that you’ve done with us because there’s a lot of good conversation there. But so for considering the load growth that’s coming, how should Texans think about the difference between projected load growth and load that’s actually ready to interconnect?
Chairman Gleeson: Yeah, so the projections are extremely high. And what we know is all of that load will not actually come here. A lot of it is speculative. But what we’re trying to endeavor to do right now is figure out what of that load is actually real. And that’s important for two main reasons that touch on the first two points I made. One, knowing what load is real ensures that we build a system, a transmission grid that meets those needs without overbuilding. You don’t want to overbuild the system to its needs. And because the main reason you don’t want to overbuild is those costs have to be borne by someone. If those loads, those large loads, don’t actually show up, most likely those costs will be borne by residential and small commercial businesses. That’s not an outcome that we want. Secondly, if the load is real, you will see an increase in what we would call wholesale electric prices, the forward markets for those prices. That should provide the incentive for new gas generation and other sources of generation to locate within ERCOT. So as we are approaching the need for more baseload generation, hopefully those future signals will allow those companies to make the business decision to locate those generation resources in the state, ensuring we have enough power for all residents and all businesses in Texas. Yeah.
Matt Boms: You keep mentioning this idea of keeping the grid affordable and reliable for Texans. You’re in this really tricky spot where you want to keep Texas open for major economic development, but still make sure that existing customers aren’t paying for speculative projects or stranded infrastructure, right?
Chairman Gleeson: That’s correct. And so what we’ve tried to do is come up as we look at interconnecting large loads with gating issues and thresholds for those issues that ensure if a project moves forward that it is real because those companies are going to have to put up real money in order to stay in the process to get interconnected. We’re hopeful that those gating issues and thresholds will accomplish that. But as always, as we’ve shown since Winter Storm Uri, if for some reason it’s not accomplishing its goal, we will analyze and iterate to make sure we get the answer right.
Matt Boms: Yeah, fix it on the fly. Right. Yeah. Okay. Well, I’m going to move into batch zero in a second here. But if you’re a large load customer in ERCOT, what do you need to demonstrate before the system starts planning major infrastructure around it?
Chairman Gleeson: Yeah. So the first thing you have to show is that you have the financial wherewithal to actually bring your project to fruition and energize it. So we’ve put in gating issues around the amount of credit that you have to put up that you show you have access to in order to move forward. The second major key element of that is site control. We want to make sure that these companies have an idea of where they’re gonna locate, that they have control over that site. So when they do get the green light to energize, they can move quickly. Because that’s the whole thing here. Once we have a plan. That is actionable. We need to ensure that the plan is being implemented in a way that those companies have certainty they can come here, but we also have certainty that they plan to be here for a long time. Cause again, we don’t want to overbuild this grid putting those costs on others. And so those are the main two things that we’re looking to accomplish that.
Matt Boms: Yep. And I think that leads us into Senate Bill Six, which passed the legislature last year. In plain English, what does SB six try to solve?
Chairman Gleeson: Tries to solve for the proliferation of large loads in this state and how to make sure we bring them online in a managed way. You know, again, post-2023’s legislative session, this was not a topic of discussion. And then probably around October of 2023, this became a hot topic through last session. This was about all we talked about. And so Senate Bill Six is really an attempt to make sure that we have guardrails around the processes we implement to make sure that. No one is harmed by these large loads coming here, but Texas is open for business. We want to ensure that economic development continues to see a pathway to Texas, but that the residents can be assured that they’re not causing these costs, so they will not be on the hook for them.
Matt Boms: Absolutely. Yeah. And there’s a reason right with why the private sector loves coming to Texas to build their project. So we had the batch zero process past the board of directors meeting this week. How does ERCOT’s batch zero proposal fit into this whole SB six implementation phase?
Chairman Gleeson: Yeah, it fits really well because for the first time we’re going to start committing capacity to these large load projects. And so that accomplishes two things. One, it gives certainty to the businesses that if they plan to come here and they can meet all of our gating issues, that once they interconnect, they will get the electricity that they need in order to fully energize in the state. So that is a huge thing. But secondly, it provides a path to ensure that all the loads coming here are real and not speculative. Because the financial gates in order to get into this process are really high, $50,000 per megawatt. And you have to be real, you have to be willing to put that skin in the game in order to move forward. And so I think it really helps ensure that the projects coming here are real. They’re not speculative. And so residents can really have a sense of certainty that we’re not overbuilding, that we’re not doing anything for businesses who don’t actually plan to locate in Texas.
Matt Boms: Right. Yeah. And that and that’s a huge point because that’s not true in other parts of the country as far as, you know, guaranteeing to some of these companies that we will have the energy that they need. And in a quick fashion, because Texas the you know, that’s the hallmark of our state is speed, right? Speed to pass.
Chairman Gleeson: That’s right. And and the other thing that this process does is we will marry this up with our transmission planning process. And so even if a company maybe doesn’t get the power on the rate that it wishes, it there we will have a six-year build-out of transmission that allows that company to know within that six year period, there will be transmission bill to ensure they are fully energized. And so that is a big selling point of this process and for these businesses locating in the state.
Matt Boms: And can you hammer that out for us? So the old approach was more of a one off, right? Where a large customer worked with the transmission provider, the studies would happen project by project, and then things move from there. But why is that no longer enough?
Chairman Gleeson: Yeah, so that was changed maybe a little over a year ago to where now ERCOT has a really, you know, front and center focus on this and they’re involved in that process. And again, previously we had a lot of capacity on the system. So it really wasn’t that big of a deal now because there is no excess capacity on the system. We have to make sure that ERCOT knows where these loads are locating, that they can do an integrated transmission planning process to ensure that they can ultimately provide the services that they need. They work with the transmission companies to ensure that they have what they need to build out the plan within six years. And we think six years is an appropriate amount of time to have all of the transmission upgrades and new builds done in order to energize these types of facilities.
Matt Boms: Right. And six years in the national context is still very fast, right? Even though some of these data centers are looking to interconnect tomorrow.
Chairman Gleeson: That’s right. And it’s a maximum of six years for full deliverability. So the hope is it can be done even quicker.
Matt Boms: So what from the PUC perspective, what does the Commission need from batch zero in order for it to be useful?
Chairman Gleeson: Yeah. So the first thing we need is we need to make sure that the number that gets out of batch zero is something that is actionable. So the idea behind, you know, there are two parts of batch zero, one that we’re calling kind of base, which those companies that get into that bucket, they’re going to get the energy they need on the ramp rate, on the schedule that they that they have requested. Then you’re going to have batch zero studied. Those projects will be a part of the first process to have that six year plan associated with them. To get fully energized. And so the first goal of batch zero, the first really need of it is what comes out of this, the number of projects in megawatts is actionable first within batch zero base, something that can be actionable today. And then within that studied or allocated piece, something that can be actionable with additional transmission upgrades over the next six years.
Matt Boms: Great. So we’re gonna move on from batch zero in a second. Sorry to grill you on. This is just a hot topic and everyone wants to know the details. So last question this would be how do you avoid both mistakes over building for projects that never show up, but also underbuilding for growth that is real?
Chairman Gleeson: Yeah. So, you know, the first thing is getting a better sense of what’s real comes from asking questions to the companies to make sure that they really have an intention to be here. Again, those gating issues around what comes in. But then we do a load forecast and we continue to try to find ways to refine that process to ask the right questions to make sure the numbers in that load forecast are a true reflection of projects that look to locate here in the near and midterm. So I think as we continue to go through those rules and look at what needs to be done to refine that process will accomplish that goal. Cause you’re right, you know, there is always the one that gets talked about the most is overbuilding, but businesses won’t come here if we underbuild. And so we have to ensure that we’re not doing that either because we want these businesses to come here, to come here in a way that is managed and doesn’t hurt reliability. And and in all the conversations I’ve had with these hyperscalers looking to locate here, they are bought in on this idea.
Matt Boms: Okay, that’s great. There’s been a lot of discussion about large loads riding through temporary grid disturbances. I know that’s a major concern from ERCOT, rather than instantly tripping offline. So how should we think about that specific reliability issue in this broad context of
Chairman Gleeson: As you see a continued increase in large loads, I think this becomes a bigger problem. I’m glad ERCOT has looked at addressing this issue. You know, the board approved this action going forward at the last board meeting a few days ago. It’ll now come to the PUC. I will say that there have been some issues brought up around the jurisdiction for URCO to require this of folks. That’ll work its way through some type of litigation potentially. So I don’t want to speak to that. But I think as a as a broad policy goal, it’s a really good goal because we have to ensure that one of these facilities tripping offline does not lead to a cascading blackout on the system. You know, I think the feds that FERC is going to tackle this as well at a national level. But as we’ve seen coming out of Winter Storm Uri and our weatherization efforts, we have the ability in ERCOT to address these issues first before the feds even, you know, take a look at this. So that’s what we’re going to try to do. We’re going to try to solve this problem. And hopefully that’s a model that can then be used and socialized around the country.
Matt Boms: Right. And which again gives us a competitive advantage over other states because we’re able to move so quickly and you know, we’re really the first state to start figuring out these tough questions.
Chairman Gleeson: That’s right. And because we have a very robust stakeholder process, my hope is always that what comes out of that is something that everyone can live with that is actionable and achieves its intended goal. And I think that’s what we’ll find coming out of this discussion as well. Yeah, I agree.
Matt Boms: So the basic principle, if I’m hearing you correctly, is that very large customers need to behave differently than ordinary load because they can affect the bulk system.
Chairman Gleeson: That’s right, because their singular impact or failure causes a much larger problem than it previously has. So we have to ensure that whatever the behavior of that of that facility is, the system is not impaired and cannot recover from it.
Matt Boms: Yeah. So how do you from your position, how do you create performance standards that protect the grid without prescribing one narrow technical design for every data center, every large campus?
Chairman Gleeson: Yeah. So I think what you try to do is be adaptable, right? And we’ve talked about this a lot over the last five years since Winter Storm Uri. The idea that we set a policy goal here, ride through, you know, events, and then work with the stakeholders to come up with a plan that achieves that goal while understanding that most of these facilities are not going to be exactly situated the same way. So allowing for the nuanced differences between these facilities, coming up with a regulatory framework for compliance. That works for everybody. And that’s and that’s what we’ve done here. Again, to the jurisdictional issue, we’ll have to kind of work that out. But I think the policy goal is a good one. And I think the plan that was approved by the ERCOT board is one that is actionable and we can move forward with.
Matt Boms: Yep. And though so for some of these large loads that say that they’re flexible, right? According to whether it’s true or not, this that’s what some large loads are telling us. How important is it that the rules and telemetry and all those incentives actually make that flexibility real?
Chairman Gleeson: It’s extremely important. I think for us to solve this, you know, we talk a lot about building transmission. But I think the other two key components are going to be bringing generation for these facilities to bring their own generation and then allowing for them to be flexible. So they will have those attributes. Like you said, that’s what we’re hearing from a lot of these facilities that they can be flexible. I will say what flexibility means is maybe not always the exact same facility to facility, but allowing that type of behavior to benefit the grid. Is really something that has to be a part of this solution because, you know, most of the time we’re not worried about the reliability of the grid. 99% of the time, the grid has plenty of capacity online. We don’t have an issue with resource adequacy. We don’t have an issue with ride-through issues. But there are going to be those times that we do having loads that are flexible that can react to the real world kind of operational situations on the grid and do that in a way that benefits the state as a whole. Is really something we need to try to find a way to incent and this is just one of those ways. Yep.
Matt Boms: That’s huge. On the reliability issue, we have something here in Texas called the reliability standard. You know, how would you explain that to someone who follows Texas energy issues but may not live in the modeling detail?
Chairman Gleeson: Yeah. So, you know, a reliability standard very colloquially is really a way of saying how often are you okay with the power going out with having some type of system outage? And so previously we had, you know, a measure of that that wasn’t really written in stone, but we were always trying to have a certain level of reserves on the grid. Now we’re doing something completely different. We’ve adopted a three-prong approach to looking at when there is an outage, how long is that outage? How often does it happen in a given year? And then what is the magnitude? Magnitude meaning how many megawatts actually have to be taken offline. And so this three-pronged approach, I think, really gives us a chance to have a holistic view of the system and what we and the citizens of Texas are willing to live with. And then what comes out of that is really simple, hopefully, I’ll say hopefully, is, you know, if we are short of the standard that we’ve selected, then we have options to provide incentives to either bring more generation. Increase flexibility of existing and future loads on the system in order to achieve that reliability standard. But the key here is we will do this on a cost basis. We’ll look at the costs and the benefits of any changes that we make. We have to ensure that the benefits outweigh the costs. We’re never going to put additional costs on the system that don’t achieve the outcomes we’re looking for. So that will be a key as we look to what the outcomes of that reliability standard are and then ultimately what the commission looks to do to achieve our reliability needs. Mm-hmm.
Matt Boms: And the load assumptions there matter so much, right? And how and can you expand on that and how we model out the reliability?
Chairman Gleeson: Yeah. So, you know, if you take the load numbers that have, you know, been talked about, say 410, you know, gigawatts, obviously trying to solve for that type of system is different than say 150 gigs. To your point, it’s very important to understand what the real load number is going to be in 2029. And that determines what the outcomes are and what levers we may have to pull to achieve that level of reliability. And so as we look to the batching process that we were discussing, you know, right now. ERCOT has out for comment two ways to maybe adjust their load forecast. One is kind of looking at history and how much of this load has come on in a given year and using that historical look back. The other, which I would give preference to right now, as I’m sitting here, is to look at what gets into the batch, how many megawatts, because those should be actionable, right? Those are going to be real projects that have a transmission plan around them. So I think solving for that for reliability standard makes a lot of sense, is incongruent. Across all different aspects of the ERCOT planning process.
Matt Boms: Absolutely. And is there a risk that we treat reliability as a supply side problem without looking at the demand side?
Chairman Gleeson: I think there is. I think we tend to think of it as a supply side problem, but I think you’re dead on. You know, there are demand solutions that can help us achieve this because again, the megawatt we don’t use is just as important as the megawatt that we generate. And so I think you have to attack it from both sides.
Matt Boms: Okay. That’s great. The market itself, when you look at the market we have here in Texas, which is robust, how should it value resources that could help during those hours where the grid is most stressed? So whether that could be generation, but it could also be storage, demand response, flexible load, right? Like how how are those tools working in the market?
Chairman Gleeson: Yeah, in kind of the value hierarchy of what we’re doing, those should be valued extremely high. And again, the way that this market is set up is we should put out as the commission and at ERCOT what we’re solving for and then allow the private sector to find a way to meet that need. And that’s what we’re gonna do here as well. So you’re right. We can look at supply side issues. Do we need to change incentives in order for more, say, gas generation to come on? Do we need to look at kind of how batteries are functioning and do we need To look at incentives for more long duration batteries? Do we need to empower residential customers to participate in demand response programs? Do we need to look at our incentives for the in current industrial demand response programs and do those need to be changed? So you have to address it comprehensively, holistically, in order to achieve this outcome because one thing is not going to fix everything.
Matt Boms: We have the ADER pilot here in Texas. So I’m really curious to hear your perspective on what we have learned so far. I mean, obviously there’s a cap on it, so it’s you know, it’s limited in scope, but what are the key lessons learned from your perspective?
Chairman Gleeson: Yeah. So the first thing we’ve learned from our ADER pilot is there is a lot there that we can win on, I think, which is key. That was the goal of the pilot was to see how much participation could we get and really was the juice worth the squeeze? And I think it’s clear coming out of the pilot that the juice is worth the squeeze. The question now is how do you scale it appropriately? Right. And so again, I think the more you can look To these different types of answers to this problem. ADER, distributed energy resources is going to be a big key for this. We just have to figure out the right policies to incent the behavior we’re looking for. You know, we’ve been working for, you know, five years on all these different issues. ADER is one that, you know, I think really needs to be brought more to the forefront and have more oxygen in the room for that type of discussion because it can’t just be bringing on new dispatchable generationly, because we don’t know if we can get prices to a point. To incent that type of behavior. I think the ADER pilot project has shown there’s a lot of desire for this in Texas. We have a lot of private companies looking for how to aggregate distributed energy resources. We should provide them with the incentives to do that and then we all reap the benefits.
Matt Boms: No question. And and there are virtual power plants now that exist outside of the ADER program, right? So I’m hoping you can unpack that for us. The one that comes to mind is the NRG renew home VPP that they’re working on, which they say will reach a gigawatt, you know, in a relatively short amount of time, just working with smart thermostats. So, like what do you see as the future here in ERCOT?
Chairman Gleeson: The best thing about that program is it is it proof of concept, right? And so having NRG, having, you know, the companies that are out there that benefit from this as well, right? Providing those incentives, looking for ways to scale this so that their customers win and they win. Again, then the whole state wins. I think proof of concept is really important. As we look to scale this up, how do we do it in a way that makes sense for the state to achieve the right outcomes? That is a great example of a private company. Looking at that, seeing a risk, but also seeing an opportunity, helping to empower their customers and then their customers and they reap the benefits. So I think the proof of concept of an issue like that is amazing. And I hope that’s something we can build upon going forward.
Matt Boms: That’s great to hear. And this conversation customer side resources, whether it’s backup generators, residential batteries, rooftop solar, smart thermostats, what needs to happen for those resources to provide real grid value at scale? Because to me, it sounds like that conversation, like the ADER pilot, started in 2022, I believe, right? Before this whole data center conversation started. And now we’re in a situation where we could really use every megawatt available on the grid. That might help us alleviate some of the strain that we’re seeing, especially on specific substations where we know if we had some, you know, some distributed batteries around that substation, we would be able to alleviate some of some of the stress. So where do you see those resources playing a role here moving forward?
Chairman Gleeson: Yeah, I think that, you know, as we talk about affordability, they’ll continue to play a really big resource. And I think an ever growing, you know, part of the discussion because the other thing they do is when you get those types of localized generation or demand response programs, it alleviates the need for transmission to be built. And so you’re doing both, right? You’re bringing megawatts onto the grid. You’re also reducing costs by not needing as much transmission. And so with affordability kind of being front of mind and, you know, everything something that everyone is looking to solve for, I think these new types of ideas like distributed energy resources, looking to use batteries in different ways, are going to continue to have to proliferate because we have to have an all of the above mentality when it comes to addressing the issue.
Matt Boms: Yeah. The the question around interconnection, I want to make sure I get that in before we move off of the DER topic. So the most common complaint that I hear from our member companies and from the private sector in general is it’s a very inconsistent interconnection process across the state, right? Because depending on which utility you work with as a DER company, you might have a completely different process for interconnection. Even within one utility, you might get different answers with within that specific TDU. So Do you have any answer to how we solve the interconnection problem here and establish some uniform rule? Because you the companies that I hear from are saying like, We’re just tell us where the goalposts are and we can do it, but like don’t move them around. Just give us some clear structure.
Chairman Gleeson: Yeah, no, I think standardization of the interconnection process is key to this. And what I’ve committed to, and I’ve had a lot of the same discussions, I’m sure you have with the companies. What I’ve committed to is once we have, you know, some of these other issues kind of, you know, in motion or dealt with, we will look at this because again, I think it does have to be a part of the solution. I’ve heard the same frustrations around not knowing company to company, or to your point, even within a company, depending on who you’re talking to, what the rules of the road are. That is Prime for us to have rules around to ensure that there’s standardization that again meets the needs of the companies, but also of the utilities who are looking to ensure that they have full visibility onto what’s going on in their grid, that any type of interconnection is done in a way that doesn’t impair reliability. We can solve for both. And the right venue to do that is through PUC rulemaking. Yep.
Matt Boms: Yeah, completely agree with you. We’ll move off the DER topic, but on the ADER program specifically, is there anything that you would need to see before it moves from a pilot? Like can we just lift off the pilot label at this point or is are we waiting on some final details?
Chairman Gleeson: There’s nothing that I’m looking for. Like I said, I think it has proven really successful. And so my hope is that we can move beyond that and really look to maximize the benefit of a program like that.
Matt Boms: Okay, that’s great to hear. Let’s talk backup power package, which is another one of my favorite topics. So the rule has been approved by the commission, which was great to see. Can you just give us an intro for folks that maybe haven’t been following us closely? What problem is that program designed to solve?
Chairman Gleeson: Yeah, so that’s really coming out of Winter Storm Uri and looking at at critical facilities and allowing for those facilities to have a cost effective way to have backup power to serve their local needs. And so the state allocated $1.8 billion in the Texas Energy Fund to address this. You know, and I had testified to this many times. My thought was and hope that this was going to be the easiest of the programs to actually implement. It has proven not to be so. Because there’s a lot of different ways you can implement a program like this with a lot of different constituencies. We wanted to make sure that we heard from everyone. We heard from engineering firms around what the specifics around a program like this needed to be to ensure it’s achieving the goals the legislature had when they passed the bill. And so we’ve done that. Like you said, the rules have been passed. Looking forward to seeing what we get in so that we can start providing grants out in order to get this backup power on the grid. Cause I think when we do get tight, when there is, you know, another really strong winter storm. I think it is helpful, even though I am secure in my belief that the grid is resilient and can respond to any type of grid you know, any type of weather condition at this point. I think it provides peace of mind knowing that those critical facilities on the grid also can isle in and have backup power just in case something were to happen locally. That’s right. And it’s and it’s one again, the state is willing to partner with those companies because they see the critical need to ensure they have twenty four by seven reliable power.
Matt Boms: It’s a last line of defense for them. Yeah. And so for Texans that are listening to this conversation, how should they think about the difference between resilience for a critical facility, maybe out in rural Texas, versus reliability for the ERCOT system as a whole?
Chairman Gleeson: Yeah. So, you know, I think of reliability as we want to make sure that the grid is reliable at the highest level, that when you turn that power switch on, you can ensure that your lights are going to turn on. Resilience is when there is an event like a Winter Storm Uri, like a winter storm [fern?], like a Hurricane Beryl, honestly, that if something happens that does affect the grid locally, right? Not again at the ERCOT wide level, but a local issue, that those critical facilities that everyone counts on. So think. Wastewater plants, right? We want to make sure that those stay up and are providing the service they need to, that if that a facility like that continues to have power even if there are localized outages that have to be addressed by the transmission distribution utility.
Matt Boms: Great. And longer term on the backup power program, is there a conversation to be had about whether some of the these backup assets at critical facilities could provide some grid value or is that outside of the scope of the program?
Chairman Gleeson: So I think right now I would consider that outside the scope. And all honesty, I think we need to really focus primarily right now on ensuring that power is there in order to serve the local need. But I think long term, again, as you continue to analyze and iterate, I think it’ll be important to see, yes, are there times when those facilities can provide power back to the grid? I just don’t know if the first iteration is the right place for that. Okay.
Matt Boms: Yeah, that makes a lot of sense. And I want to make sure we hit on four CP because we made it this far without without mentioning four C P. It was really one of the major rulemakings that came out of SB6. And maybe you could just lay out, you know, what four CP has done historically on the grid, why it may not be the best solution at this point and where the commission wants to take it from here.
Chairman Gleeson: Yeah. So four CP. So the CP stands for coincident peak. So when you think about these large customers, the way that they get their transmission costs allocated to them is when the grid during the summer months, June, July, August, and September is at its highest usage, what are those facilities using on the grid? And so that’s how we allocate transmission to those facilities, which back, you know, in 2001 made a lot of sense because we were most concerned about reliability at those gross peak times. Now, because of the proliferation really in batteries and solar, during those really gross peaks, the reliability on the grid is really solid because you have people at home running their air conditioners. The reason they’re running them is because it’s hot outside, because the sun’s also, you know, out. And so the behavior there I think has has worked itself out. What we’re trying to do now is ensure that if a company can reduce its its load during those peak times, that they don’t avoid you know, a large portion of their transmission costs. Cause again, those transmission costs have to be paid by someone. Most likely, if those large industrial customers aren’t paying some portion of their costs, those those costs are then being borne either by other industrial facilities that cannot reduce their usage at those times or by residential and small business residential customers and small businesses. And that’s not an outcome we want. We want to try to adhere to cost causation principles as much as possible. So we need to find a way to ensure That those facilities are paying for the transmission that they need. So what Senate Bill Six said is we have to, by the end of this calendar year, pass rules to look at moving away from 4 CP. The commission recently published its proposal for that rule, which included the idea of moving from a 4 CP to a 12 CP model and other things, such as a minimum demand ratchet, so that you couldn’t avoid all or most of your transmission costs.
Matt Boms: Right. And that’s I won’t make you say this. I’ll put it in my own words, which is there is an industry out there around predicting when those peaks will happen and then right the avoiding the cost of transmission essentially. So that’s what we’re trying to solve for here is you know, make sure everyone pays their fair share.
Chairman Gleeson: That’s right. And and you’re trying to solve for two things, right? Because you still want that coincident peak response. You want that demand response because the grid benefits from ensuring at those times of highest peak that of highest usage that those companies can take their facilities offline, therefore, thereby reducing the stress on the grid. But again, if you allow that too often and too easily, then a lot of these costs get shifted to other classes of customers. And that’s something that we don’t want.
Matt Boms: So we’re talking about potentially moving from a four CP to a twelve CP, which would mean if I got this right, the twelve you know, taking the f the intervals out of each of the twelve months of the year and those would be the that’s how those are the coincident peaks that we’re basing the transmission costs on.
Chairman Gleeson: So that’s the current proposal. I think we’ll endeavor through the comments to look at other ways of doing that. You could have 12 peaks, say, you know, kind of floating on the months just in the summer and the winter, if you want. You could look to have them weighted differently. So if we’re looking for more of a response in certain months, you could look to weight them differently. They don’t have to all be say one twelfth of the total. So I think there’s there’s a lot of nuance in that discussion that we have to work through between now and December when these rules finally get adopted. But I think this will be one of the more heavily invested in rules that we pass at the commission this year. And because there’s gonna be a lot of interest in how we do this.
Matt Boms: Yeah, no rest this summer for for any of us, I think.
Chairman Gleeson: That’s right. There’s there’s a lot of money at stake here and so a lot of interest in the outcomes.
Matt Boms: Well, great. And to wrap up the twelve CP conversation, you mentioned the minimum demand charges. So one thing that I’ve been thinking about is you want to keep this tool effective for the grid, right? So if if you’re a data center and you contract 80 megawatts and there’s a minimum demand charge of a hundred percent, then essentially you have no incentive to go down to sixty when the grid really needs it. Right. So how do you balance that as far as the minimum demand charges? You want to make sure the data center’s on the hook for something, but Maybe not all of it.
Chairman Gleeson: That that’s right. And so I think again, we have to look at the comments that come in because, you know, the companies and all the interested parties in this will have the best kind of line of sight on what the different options are. But I think you’re a hundred percent right. We have to balance the need to see coincident peak response to bring down demand with the idea that we can’t have these costs borne by other customer classes. And so there’s a trade-off in that, right? There’s not going to be a solution to this. There’s going to a trade-off when you solve for one thing, you’re also solving for something else and it’s having impacts. You know, as I sit here now and I think about the best way to really think about this, you could have a graduating scale based on size. You could, you know, look at other potential options for how you allocate those costs over the year to help ensure, again, that we’re not providing disincentives to the behavior that we’re looking for. Another thing in all honesty, I think you’re going to start to hear a lot of people talk about is in some of these policies, do we need to start differentiating, say, between a hyperscale large load and electronic large load? And a traditional industrial facility because, you know, historically we’ve done everything based on the amount of load on the system and kind of put everyone in one bucket. But it’s clear to me that your traditional industrial facilities behave differently than these electronic large loads. And so I think it’s time to at least have that conversation in certain policy areas. Does it make sense to have different policies for the different types of large loads?
Matt Boms: Yeah, depending on the behavior of the load, right? That that’s what really
Chairman Gleeson: That’s right. The behavior of the load and what their ability to respond to these types of things is, right? I mean, a Bitcoin miner is different from a hyperscaler, is different from a steel mill or a chemical plant. I think again, having rules that have nuance in them around the different attributes of those facilities is something we really have to start thinking about. Yeah.
Matt Boms: Agree. And I think it’s one of those things where like, you know, two things can be true at the same time. For all the criticism of four C P it still is maybe the most effective tool that ERCOT has right now as far as, you know, how you limit that peak load on a really hot summer day, right? There’s really nothing better than four C P at this point.
Chairman Gleeson: That’s right. And you can actually see when you look at the graphs of usage during those days that the companies assume will be a four C P day, you can actually see usage go down because they’re they’re chasing that interval for for that four C P reduction. And it does. It provides the grid a lot of benefit is the risk again is on the private company, not on the citizens. They chase that four C P interval and we get the benefit multiple times a month of their desire to come offline during those coincident peaks. Yeah.
Matt Boms: Well, we made it through the marathon of rulemakings and all the different topics and thank you so much because I know you got a busy schedule. I’ll let you go. I just want to close with a couple of questions about the future. And with all of the work that’s on your plate right now, like is there one topic where if you had the time and the resources and you could just sit there for a few days and actually create something new or think about things outside the box? Is there like one thing that comes to mind that you would like to spend time on?
Chairman Gleeson: You know, I don’t know if there’s one thing. I think what I would like to spend time on is we have done so much change over the last five years. I would like to be able to take a breath and see how all of these policy changes really work together. I think, you know, as as I think about if you’ve ever heard Bill Flores, the Eurocop board chair, he ends almost every conversation he has with someone with what keeps you up at night. I think if anything keeps me up at night right now, I’m proud of all the work that we’ve done. I just don’t know what the interplay between all the changes is and how that’ll work together. We want to make sure that we’re not adopting policies in one area that counteract a positive impact from a decision in another area. So my my hope is that as we head into the twenty twenty seven legislative session, we get to take a breath, look at all these changes we’ve done, be proud of the work that’s been done, but really take some time to see how they all work together before we look to make any, you know, real significant changes again.
Matt Boms: Yeah. You know, we’ve had previous commissioners and chairmen of the commission the podcast before, folks like Pat Wood have come on, Barry Smithherman. When people look back on this specific period of Texas energy policy, what do you hope that they’ll say?
Chairman Gleeson: That the challenges were great, but we were up to the challenges. I think Texas has always shown a resilience to anything. And I think history will look back upon this period and say they went first on almost everything dealing with electricity in the nation and maybe even in the world. They were up to that challenge. They met it. And then the work that they did was then used to go around the world and make sure that everyone could rise to the challenge. Couldn’t.
Matt Boms: Agree with you more and just so proud to work in a state that can attract all that investment and really meet the moment because again, I think a lot of other states, probably forty nine other states are looking at Texas right now as far as how we meet this specific moment and accommodate all this new demand.
Chairman Gleeson: That’s right. You know, as I go around the state and really the country and talk about everything we’re doing, one thing that I it reminds me of is how far ahead of everyone else we are and having these discussions and coming up with solutions. So yeah, again, my hope is we get this in a place where everyone can look at it and take it elsewhere, implement it, and everyone can be successful.
Matt Boms: Awesome. So we’ll end it there. Thank you so much again, Chairman Gleeson, for coming on the podcast, for your years of service to the state of Texas. It’s a pleasure to have you with us today.
Chairman Gleeson: Absolutely appreciate the opportunity to have the discussion.
Matt Boms: Thanks for listening to the Energy Capital Podcast. If today’s conversation helped you make sense of the energy world, share the episode with a friend and hit follow on your podcast app. You can find us on Apple Podcasts, Spotify, and all the usual platforms. For deeper analysis each week, subscribe to the Texas Energy and Power newsletter at TexasEnergyandPower.com. That’s where you’ll find every episode, every article, and all of our latest updates. We’re also on LinkedIn. X and YouTube, where we post clips, insights, and ongoing commentary. Big thanks to Nate Peavey, our producer. I’m Matt Boms and I’ll see you next time. Stay curious, stay engaged, and let’s keep building a stronger, smarter, energy future.
