Texas built its electricity market to react quickly to changes in demand, attract private capital, and protect ratepayers from private-sector investment risk.

A wave of large load interconnection requests is testing that model.

In this conversation, Katie Coleman, a leading Texas energy lawyer and partner at O’Melveny & Myers LLP, describes the pressure points facing the ERCOT grid. Officials are scrambling to determine which loads are real, how quickly they will arrive, and how the state should build transmission and other infrastructure to support them.

Coleman brings ERCOT’s challenge into focus. She explains how customers behave differently — signing different contracts, facing different operating constraints, and placing different demands on the system — and grid managers have to juggle those variables.

She also walks through a basic divide in the Texas market between generation and transmission. Private investors assume the risk of building generation. But with transmission, regulated utilities must get permission from the PUC to build power lines and then charge consumers for them (plus profit margin) over time.

As interconnection requests climb and forecasts shift, these infrastructure decisions will become increasingly important — for the ERCOT grid and Texans’ power bills.

The episode explores a range of issues, including:

* How ERCOT and policymakers should judge new load forecasts.

* Why transmission planning is a central constraint.

* How Texas can preserve market discipline while serving growth.

Coleman also points to the importance of regulatory stability. As large customers, generators, and utilities make long-term decisions about growth and investment, they need an energy market they can read.

That predictability becomes even more crucial, Coleman says, as Texas debates how to respond to unprecedented demand growth.'

Energy Capital Podcast is produced by ClarityForge Studios.

Timestamps

* 00:00 - Introduction & Katie Coleman

* 01:05 - Katie’s Energy Origin Story

* 04:01 - Why She Represents Industrials

* 05:55 - What Large Power Users Want

* 08:56 - Speed to Power in Texas

* 10:57 - How Industrial Demand Response Works

* 17:04 - Crypto, Data Centers, and Misperceptions

* 20:43 - How the Energy-Only Market Works

* 28:27 - Load Forecasts and Transmission Risk

* 36:46 - Bringing Generation With New Load

* 38:49 - Why Texas Needs Stability

* 40:32 - Final Reflections & Close

Resources

People & Organizations

* Matt Boms (LinkedIn)

* Texas Advanced Energy Business Alliance (Website - LinkedIn)

* Energy Capital Podcast (LinkedIn - YouTube)

* Katie Coleman (LinkedIn)

* O’Melveny & Myers LLP (Website - LinkedIn)

Related Podcasts by Texas Energy & Power

* Who Pays for Texas Grid Growth? - Roundtable Discussion

* More Power That’s Faster and Fairer

* Where the Grid Goes from Here | Reading and Podcast Picks - Feb. 4, 2026

* Another Winter Storm Bears Down on Texas | Reading and Podcast Picks - Jan. 23, 2026

Transcript

Matt Boms (00:05.198)

Today, I’m really excited to be joined by Katie Coleman, managing partner of the Austin office at Olmelvney and Myers. Katie is one of the leading energy regulatory attorneys in Texas. She has more than 15 years of experience representing large industrial energy customers in ERCOT and before the Public Utility Commission of Texas. She’s best known for her work representing groups like the Texas Industrial Energy Consumers, TIEC, and the Texas Association of Manufacturers, TAM.

helping shape some of the most important conversations around energy markets and policy in the state. Katie has also been deeply involved in the industry more broadly. She served as president of the Gulf Coast Power Association, and she previously led the state bar of Texas public utility law section. And across the energy community in Texas, she’s widely respected as one of the very best regulatory lawyers in our business. So Katie, thank you so much for making time for us, and thanks for joining the podcast today.

Katie Coleman (01:03.726)

Absolutely glad to be here.

Matt Boms (01:05.558)

I wanted to start with a layup and I wanted to ask you to just walk us through how you first got into energy. Like what is your origin story and how did you end up in this business?

Katie Coleman (01:15.182)

Yes, so I have no qualifications. I have no business doing this job that I’ve now been doing. My bio actually, I need to update it. This is actually the 20th year when I first started in the industry, which I count as when I clerked when I was in law school, which then turned into a permanent job. I spent the summer doing this, finished law school, and then came back in 2006. So it’s been 20 years now.

I went to UT undergrad. I was a liberal arts major. I did a small honors program at UT called Plan To, which people at UT are familiar with, but a lot of other people aren’t. But it is just an interdisciplinary liberal arts honors program. So I had no idea what I was going to do. And I did that very cliched thing where I took the LSAT to see how I did and then ended up in law school. Even in law school, I had no idea that I was going to end up in this field.

So I’m not from Texas. I’m actually from outside of Asheville in North Carolina. And Austin felt like a huge city to me when I was in school here. And in law school, I looked at jobs in Houston. I looked at jobs in Dallas. I actually split my summer in Austin and Dallas. And Dallas just felt unmanageable for me being from a very small mountain town. And so I really focused on Austin. And obviously there’s a big regulatory workforce here.

in Austin with the capital and all the state agencies. And so the firm that I clerked with, which was at the time Andrews Kerr, this was a big part of the work they did. So I tried several different sections and really liked the policy aspect of the energy practice. And the partner that originally hired me, I think took me around and met some of the clients, met some of the stakeholders that we were going to interact with regularly. And it seemed like a good fit. So he,

hired me on a little bit of a whim. And here we are. I feel really lucky. It’s been a really good fit and I’ve really enjoyed it, especially all of the people that we work with, I think make this a really unique, special industry. And I think that’s what I picked up on when I was looking at options. And so I’ve kind of learned it as we’ve gone and I’ve had great mentors that are very credentialed and do know a lot of things about power markets and

Katie Coleman (03:36.706)

just industrials in general that have taught me everything I know along the way. So that’s really been key.

Matt Boms (03:42.978)

That’s awesome. And when you say 20 years, I’m sure it probably feels like where did those 20 years go? Cause the time goes by so quickly.

Katie Coleman (03:49.806)

You know, it felt like that for a while and then in 2021 it stopped feeling like that. From 2021 until now it feels like it’s been like another 20 years.

Matt Boms (04:01.036)

Yeah, well, I guess the last part of the origin story is like, did you come to represent the large industrial customers? Like, how did the door open for you and how did you take that path?

Katie Coleman (04:10.296)

So I inherited it, is the short story. The group of attorneys that I started my career with, who I still work with, have a legacy that goes all the way back to the original adoption of the Public Utility Regulatory Act, and back in the 70s. And at that time, there was a lawyer in Houston, he was at a different firm, Mayor Day Caldwell and Keaton at the time. Jonathan Day was involved in writing Pura.

along with some other attorneys. And when the bill passed, they sort of divided up, you know, who was going to take which sector of the industry, who was going to work with the utilities. And Jonathan in Houston, with the Ship Channel and with strong industrial relationships, decided he was going to represent the industrial users. And so he then trained another attorney who then trained another attorney who then trained me. And so we have kind of a lineage back to the seventies representing these same clients.

And I think that’s really been official for the group’s advocacy because we do have a lot of history about how we got to be here, how different policy changes have actually impacted industry over the years. And it just helps to have that knowledge base to draw from and sort of the institutional experience. So it’s a pretty unique thing. And actually, if you look in Texas, there’s a lot of groups that are that way, like the cities, the...

city’s representatives, they’ve had a lineage of representing those stakeholders back for a long time. Some of the firms that represent utilities, you know, like I think about the relationship with MakerBot and Centerpoint, for example, you know, that goes way, way, way back. So it’s actually a pretty common thing, but that’s how it happened. I sort of joined the group, inherited this legacy.

Matt Boms (05:55.768)

That’s also, it’s also a great reminder that you think that this current generation of folks that work in our industry just showed up one day, but it is great reminder that there’s a whole line of people that came before us in our current roles that really carved out these roles and like made the industry what it is today. I love that you mentioned that. Well, I want to jump into industrial customers that you represent and kind of talking us through maybe spelling out and explaining some of the misperceptions there are about large power users. So.

Just to kick this off, what do large power users prioritize when it comes to electricity markets in general?

Katie Coleman (06:32.248)

So above all, they want reliability. They’re not primarily in the power industry. They’re primarily making widgets of some variety to sell in global markets. The number one thing that they want is to make sure that they’re going to have a reliable source of power that’s not going to damage their equipment, not going to cause them to lose product or feed stocks, not going to cause health and safety risks to their employees. So that is far and away the number one concern.

But of course, they’re businesses and so they care about cost. And in particular, they care about the ability to contract, to meet their individual business priorities and all of my clients are different. They all have sort of different profiles. They’re all in manufacturing of some variety, but different products, different sectors, and even within a sector, different goals. And so one of the things that has been

A real driver for businesses to site in Texas has been the flexibility that the deregulated market provides because you can have one customer who just cares about having price locked in and wants to hedge and is agnostic about fuel source. You can have other customers who really care a lot about green certifications and things like that. They can contract in a certain way.

You have other types of customers that maybe are flexible and can turn off if prices are too high. Maybe they don’t want to hedge in the same way that other types of customers do. And so our market really provides an endless suite of options for large industrial users. So I would say reliability and cost. If you ever hear me testify at the legislature, I often start with, this is sort of like the time honored, Tam talking point on electricity.

Electricity for a manufacturer in Texas is typically one of the top three production costs. Often it’s number one or number two. And for some of our members, it’s up to 70 % of their production costs. So it really is a driver in siting and expansion decisions and which assets, you know, our company’s choosing to operate at any given time. And it’s something, like I said, that people look at when they’re choosing where they want to build, where they want to be.

Matt Boms (08:47.298)

Yeah, correct me if I’m wrong, but that’s been the secret to our success in Texas is the abundance of electrons and low prices compared to other markets.

Katie Coleman (08:56.236)

Yes, I’ll say another thing that’s come into the forefront lately, which is not something I focused on a lot until maybe the last 10 years, but it’s definitely accelerated is speed to market. So getting interconnected has become a lot more challenging, not just in Texas, but across the country. And it has to do with this data center AI boom. But of course my clients are competing with.

all of the transmission voltage large load clients are customers are competing to get interconnected. And there’s only so many utility resources, only so many crews, only so much capital, only so much infrastructure that can go around. And so being able to get a quick and predictable interconnection has also become a real priority in a way that it’s not something I probably would have talked about.

well, maybe five years ago, but not 10 years ago, certainly. And five years ago, really only in areas that were experiencing oil and gas booms, West Texas has been an issue. Trying to get service out there has been an issue because they really needed to upgrade the transmission system and the import paths into West Texas. But other than that, you didn’t really have issues with going to the utility and asking to be interconnected.

and getting an uncertain answer or a really protracted timeline. So that’s something that’s changing rapidly that, like I said, it’s happening around the country, but it’s become more of a focal point in Texas recently.

Matt Boms (10:28.758)

Yeah, absolutely. Yeah, that’s speed to power has become like our thing in Texas, right? In other parts of the country, it’s just not as quick as it is here. Well, I wanted to ask you about the kind of demand response issue and when we do have grid stress events in Texas, I’m just curious how industrial customers respond to those grid stress events. And if you can just dispel maybe some of the ideas there are around how that works. Can you explain it to us? Like a two year old, how does demand response work for the industrials?

Katie Coleman (10:57.326)

Yeah, so again, it’s not homogenous, but there’s different varieties of response that you see. I’ll start with, we’ve got one set of customers who are what we call high load factor, which they’re using 95 % plus of their maximum possible demand at any given time. And those customers tend to not be price responsive, they tend to not be flexible. So when a grid emergency occurs,

You know, they will try to do their part to the extent they can and try to reduce usage to the extent they can, but you’re not going to get major response out of those sites. They just don’t have that capability because the reliability is so essential. Some of them may have invested in their own generation at the site. And so that’s something that can sometimes be utilized to provide additional electrons to the market in times of need. You know, they might have a generator that they don’t typically run, but they can turn on.

And again, they might be able to curtail a little bit, but there’s a whole category of customers that are not able to provide a lot of response. I would say that is well over 50 % of industrial sites are in that category and are not actively participating in the market. I think that’s a misconception that all industrials have their own trading desks and are all offering an ancillary services and responding to price. For most of them, it’s around the margins.

So you might get some response. certainly watch it. They certainly, you know, are aware of market conditions, but they’re not actively responding. You have another category of customers who can do things if really necessary. You know, they can do things at their site. They can reduce their usage, but it’s really only when they, like a winter storm, you’re a event or, you know, something that’s kind of foreseen that they can prepare for.

Then you’ll have customers that can do things at their site to reduce usage even further. And then you’ve got this other category of customers who are really actively participating in the market in one way or the other. So some of them provide ancillary services as load resources. Some of them participate in a program at ERCOT called Emergency Response Service. The profile of those customers is a little different. So the ones that are in responsive reserve service have to respond really, really quickly.

Katie Coleman (13:23.062)

like within a few cycles when they get an instruction from ERCOT. So they’re able to ramp down really quickly. They have to offer into the ancillary service market, you know, in the day ahead market if they want to provide that service. ERS providers, they’re not called on as often. They’re contracted seasonally, so they don’t have to actively offer into the market. And they have a little longer response time, so they don’t have to respond quite as quickly as responsive reserve providers.

Then you have another category of customers who will opportunistically respond. So they may not be offering into a formal service like ERS or like responsive reserve service. But if prices are high and it looks like they’re going to stay high, they might reduce their usage for economic reasons. And so there’s a category of customers that actively does that. There’s probably some overlap in the ERS responsive reserve and price responsive. But again, I would say that’s probably like

25 to 30 % of industrial sites. It’s not monolithic and it’s not everybody. But the thing that I think people have a major misconception about is the ones who do that, there has been this narrative that it’s a moneymaker for them, that by selling into ancillary services when prices are clearing up the cap, that they’re making money. And that is so far from the case.

I’m not aware of any client that has ever actually made money on a net basis providing ancillary services. It is a mitigation tool for what is overall a major cost for industrial. So a typical manufacturer in Texas will spend hundreds of millions of dollars a year on electricity. Offering into ancillary services is a way to mitigate some of those costs, but never under any scenario are they profiting.

from making money in the market, if that makes sense. And so I think after, for example, Winter Storm, URI, and some other events right after that, there were narratives about large users profiting from an unreliable grid, and that’s just the furthest thing from the truth. They want reliability, but remember that price signals are there to elicit behavior. You know, if that’s an issue, you’ve got a fundamental issue with competitive markets and supply and demand, because the whole

Katie Coleman (15:49.07)

point is you send a higher and higher and higher price to encourage users to stop using energy, to stop utilizing that resource that’s being priced at scarcity pricing. That’s why you do it. And so our clients who are, you know, sophisticated global businesses will respond to that price, some of them in certain circumstances, and that’s what you want. And actually, I think we should really be aiming collectively as an industry to get more of that response, not just from

my clients, but also from residential and commercial clients. That’s sort of the key to a well-functioning market is that price elasticity.

Matt Boms (16:29.88)

really appreciate you spelling that out. And I almost wonder if the misconceptions around large load behavior, because the large loads themselves have changed so much over the last few years. Like you’ve been doing this for 20 years and I just wonder like how much the profile has changed of those large loads in the past couple of decades, right? Like you didn’t have crypto miners 20 years ago.

You definitely didn’t have the volume of data centers that we’re seeing now. So can you speak to that a little bit? Maybe that’s part of the reason why policymakers and regulators are a bit confused about the way large loads behave.

Katie Coleman (17:04.609)

Definitely. So the cryptocurrency build out a few years ago took things that industrials have typically done in moderation and took it to sort of extremes. And the reason for that is obvious and just purely financial. The whole crypto business is basically converting electricity to cryptocurrency. There’s no other real feedstocks or, you know, there’s nothing else in the calculation. Right.

It’s electricity in, cryptocurrency out. And that’s different from a traditional manufacturer where we’re also making other products and with other feedstocks and with customers that have contracted with, you know, my clients for offtake agreements that they have to fulfill or be subject to, you know, damage clauses. So it’s a much more complicated calculus for an industrial to decide how and when to curtail usage.

because you’ve got to balance all of those things. Like, how am I doing on my production quotas? How many times have I curtailed this month? You know, there’s all kinds of things that go into that analysis. I think with the cryptocurrency, like I said, it’s a more purist application of this. And so you saw more dramatic response, more sort of predictable response, and at a larger scale. And I think there were companies in that space that were

touting their sophistication and efficiency for investors as businesses do, and talking about either the money they saved or the profits they made by liquidating power they bought forward into the market or selling ancillary services or some variety of that. And so I think that got regulators’ attention because they’re thinking, well, you’ve got residential and commercial customers at risk of...

power outage and then you’ve got these large companies that are making money off of it. But the piece of the logic that’s missing there is the behavior of those large customers is going to reduce the likelihood that there’s any reliability event for the residential and small commercial customers. And so you want that behavior. And I think you have to acknowledge sort of like the rational economic outcome there. If we’re sending a price trying to get people to portray all you can only

Katie Coleman (19:26.22)

have so negative a response if they respond to that signal, right? It’s ultimately what you want, but it certainly highlighted some things that the market was designed to elicit, but maybe weren’t as familiar to people. I think since Winter Storm URI and since some of the new trends and large loads starting with crypto and now getting into sort of larger AI data centers, there’s been a lot more...

public awareness and public knowledge around these issues, which I think is good. I think the narrative on this stuff has actually gotten a lot more rational and sophisticated over the last four five years just because of this sort of education that was forced through all of these major changes that we’re experiencing.

Matt Boms (20:12.066)

think also Texans are just like more fluent in energy than the rest of the country. Like we’ll just understand our energy bills, I think a little bit better because of the deregulation and retail providers and all that stuff. Well, we’re getting into like market design and I want to get into the weeds a little bit. And maybe you can help us understand how the energy only market is supposed to work in theory and whether the price signals that we’re seeing now are enough to bring in all the investment we need for reliability.

Katie Coleman (20:43.468)

Yeah. So go back to like a regulated model, because I like to compare what the energy market is supposed to look like to a regulated model. So in a regulated model, customers pay actual cost for energy and for power plants. So when you say, I’ve got your utility, you’ve got this load growth coming, you go and you say, I need to build this power plant. Here’s the most economic option to meet this need.

And then that goes into customer’s rates and they pay for it over the life of the power plant at actual cost plus a built-in return for the utility, a built-in profit for the utility. And they get the energy that that plant produces at actual cost. And that is an important difference that you’re getting energy at actual cost in a regulated model. In the deregulated model, the whole concept was we’re going to take that financial risk

of the capital investment for a power plant off regulated rate payers and we’re going to put it into the private sector. And we are going to let businesses compete for who can build the best mousetrap and who can meet the needs most efficiently. And in exchange, we’re not going to have customers pay the capital costs of power plants, but we’re not going to give them the energy at cost. We’re going to set a clearing price for the energy.

So that means whoever is the most expensive power plant that’s running, they set the price and everybody that’s cheaper than that power plant, they get a profit. And so the concept was all of those more efficient, cheaper power plants would get built and you’d have an incentive to continue building like more efficient power plants because they would continue to get this clearing price that’s gonna be set by older, less efficient technologies.

with a higher heat rate, et cetera. And you’re gonna get this financial risk off of Texas customers. Texas has historically been a very pro-markets state philosophically. And so there was a belief that as technology changed, as market needs changed, that a competitive construct would be more flexible, faster, and better suited to meet those needs, which I strongly believe

Katie Coleman (23:03.224)

continues to be the case. And it’s one of the reasons why one of the consultants that we work with a lot, Charles Griffey, he often says the energy only market works in practice, but not in theory. Because in theory, everybody’s like, the missing money and da da da da, which I’ll address what that is in a second. But we’ve for 25 years now had all these predictions that we’re going to have a reliability problem. We’re not going to have enough generation.

It never materializes. And part of that is because fundamentally, regulators can’t see more than a couple years down the road. They are not as good at rationalizing market incentives and dynamics as, again, the private sector. And so you can try your best to predict what’s going to happen, but in a market, you’re always wrong, right? And we’ve now got 25 years of experience showing that, that we’ve continued to replace plants, to get plants built.

get different types of technologies integrated in a way that has overall been reliable. Now, Winter Storm URI, I think probably people who are listening to this podcast right now are thinking, what about URI? Is it a reliable grid because of Winter Storm URI? And again, what I think people who are not in the industry don’t understand about URI is that was not really an issue of how much generation we have in Texas. It was an issue of the generation performing.

We had 50 % of our gas fleet was on outage and no system in the world is designed to continue to provide power when you have 50 % of your generators on outage. It’s just not economic. It’s not realistic to have that level of a reserve margin. I’d have to go back and look, but I want to say our reserve margins at that time were like 25 % or something. I mean, it was a healthy reserve margin by any standard, but we had...

weatherization issues, every variety of issues. There were plants that were getting water from nearby cities whose water lines froze or busted. I mean, it just couldn’t get workers to the plant to clear alarms after there was a unit trip. Every variety of issue that you would expect for a state that is not used to those types of temperatures for a sustained period of time. So all that to say, yes, URI was a terrible event.

Katie Coleman (25:22.262)

a lot of lessons learned, but it really wasn’t an indictment. It was not an indictment of the fundamental construct of the energy market. The other thing I would say is this missing money problem that people talk about. The missing money theory is, as I described earlier, one of the generators sets the price, whoever’s the most expensive generator sets the price, and then all the more efficient generators get a profit from the inframarginal rents between their actual cost and the

clearing price, right? But the question is, well, the unit that’s setting the marginal clearing price, when do they make money? Okay, and this is like a very oversimplified view of how the market actually works. But that is the missing money problem is, you know, that that entity that’s setting the clearing price, they don’t get money to reinvest in capital to keep their plant running or to build new plants or anything like that. And so in theory, that’s going to put retirement risk on those plants on the margin.

The reason that is not true is because we do have administrative scarcity pricing of various types. So we have features in the market where prices are not actually set by that last unit. So when we start getting toward emergency events, there’s actually administrative pricing that kicks in, that sets prices far above any unit’s actual cost. And so it’s the ability to show up and perform during those periods

that can really drive investment for the units that can reliably perform, the types of units that can reliably perform. And from the consumer standpoint, that’s a really efficient market design. You’re only paying people to be there when you need them, to provide energy to you when you want it, and to perform when the grid needs it most. And you’re not making sort of like fixed payments, irrespective of what’s happening on the grid for a generator to just exist.

And so that’s one of the reasons that I think Texas’s market has been more efficient, lower cost, and has performed really well compared to other markets around the country.

Matt Boms (27:28.652)

That was an awesome explanation. And it’s like, I said that all the time that ultimately the rate payer is not putting themselves on the line in Texas. It’s the private investor that goes out and wants to build project. And if it doesn’t work out, it’s on them. It’s not on the rate payer ultimately. But what is on the rate payer is the transmission system. So that was a great transition there. So I wanted to ask you about all this load growth that’s happening and dominating the conversations in Texas.

I don’t think anyone knows how much of it will materialize. If you do let us know what the number is, but I think no one really has that exact number. But what are the kind of challenges and opportunities around building out this transmission infrastructure, which takes time, right? And that is on the rate payer because that’s the piece of our system that is still very much regulated by the public utility commission. like, can you talk us through.

how you can build out that transmission system efficiently and allocate the costs in a fair way.

Katie Coleman (28:27.95)

Well, so just to tie this topic into the last one, there’s so much uncertainty about these load forecasts and the demand that we’re going to see and what level of infrastructure we need to build to serve that demand in the space that’s still regulated. Okay. In the generation side, we’re allowing private capital providers to make those assessments about what they believe is real and build plants at their own risk. And can you imagine if we were dealing with this problem?

both on the transmission side on building generation plants, which in the regulated areas of the country, they’re having to deal with both. And it’s again, an area where I think a market is well suited to rationalize this behavior. And so I think the competitive generation market is gonna be an advantage for Texas as we move forward more than it even has been to date. But on the transmission side, yes, the biggest difference in what we’re seeing now

And what we saw before in terms of load growth is because of the money involved in developing an AI data center and the value of actually getting an interconnection in again, the race to market for AI companies, you’re seeing a lot of third party developers in this space that are out developing sites and they’re not going to be the customer at the end of the day. They’re trying to get powered land.

or get a site constructed and then have one of the computing company, one hyperscalers or whatever type of computing it is, but typically it’s the AI hyperscalers right now. They would then come into the site and operate there, but they’re not often the ones that are interacting with the utility. Now, some of them do self-build, but even those are often also looking at sites that are being developed by a project developer.

So the question of what is real becomes really esoteric because there’s all these steps that have to happen after a developer gets an interconnection. They’ve got to develop the site in other ways aside from electricity. Different applications need access to fiber or robust communications networks. You need gas supply. There’s all other types of things that have to happen at a site. And so you don’t have, like we used to have, a customer like

Katie Coleman (30:53.622)

a refinery or a semiconductor fab, I’m a chemical company, you don’t have that entity interacting with the utility in this sector. It’s these third party developers. And it’s this race to get powered land that I think is causing these huge numbers that nobody knows what to do with, because it’s just a new type of project development that we’re seeing at a much different scale than we ever have before.

I think ultimately we’re going to get experience with what are the indicators that really should tell you that a site is going to make. But we just don’t have that yet. It’s a new industry. new data centers are not new, but this AI application and the size and the type of development is new. And again, the presence of third parties who are developing these sites, it’s not been at this scale before. So I think that is causing these huge numbers.

Senate Bill 6 was an important step in Texas toward trying to rationalize some of these load numbers. Before, when you were dealing with the direct consumer, there was not a lot of financial commitment required in order to get a utility to study you and to sign an interconnect. Really, when you sign an interconnection agreement, there was a decent amount of security, but to get studied and to get reflected in our cuts planning models was not a big.

financial commitment until you got to the point where the utility was offering you an interconnection and you posted security for that interconnection. So that’s changing. That was probably the main thing. Senate Bill 6 changed is to require proof of financial wherewithal earlier in the process. So we’re not just getting a ton of speculation. But I think what nobody realized when we were doing SB 6 is that solves part of the problem.

That’s all sort of unsophisticated speculators who just have a piece of property with a transmission line across it they don’t really know anything else about interconnections or developing a data center. But for the companies that do actually know that they’re very cost insensitive. And we’ve seen an appetite to put up big application fees, big security. And so it has not kind of culled these numbers in the way that people expect it. And in fact,

Katie Coleman (33:14.478)

what my industrial manufacturing clients would tell you is that it’s gotten to a point where the pay to play proposals are threatening to kind of push them out of the market. So right now there’s a rule pending at the Public Utility Commission where in order to get studied and get an allocation of capacity to interconnect, you would have to post $100,000 per megawatt non-refundable security fee.

If you’re talking about one huge hyperscaler company developing a data center or a couple data centers, maybe that makes sense. I don’t really know. But when you’re talking about oil and gas and midstream companies that are developing multiple sites a year that are over 75 megawatts, and they might get a lead time on interconnection that’s three or four years. And so you’re having them post tens of millions of dollars of credit each year.

that the utility has been holding until they energize, it just gets to be kind of silly. And it’s not something that other jurisdictions do. And so I think you’re going to see possibly two types of behavior from the traditional manufacturing sector. They’re going to try to get under that 75 megawatt threshold if they can. And they’re going to look elsewhere. And again, this rule hasn’t been adopted. It’s still under consideration. But I think we’re at a point right now where we’re having to

grapple with, do we need to treat this new type of development differently from kind of the traditional industrial manufacturing development? It’s something that my clients have struggled with because we fundamentally don’t want to discriminate based on what people are doing with the power. So we really have not wanted a different set of rules because these people are doing AI and we’re doing traditional manufacturing processes. That’s been something that we’ve not.

pushed for. But I think what you’re starting to see is other potential sources of demarcations like size, like a traditional manufacturing site. There are exceptions, but a lot of them are 200, 250 megawatts or less. They’re not a gig. They’re not two gigs. And it’s really that type of behavior that’s causing, you know, a lot of the major transmission needs and things like that, as opposed to what we’ve seen again for 30 years, 50 years in Texas with the industrial sector. So

Katie Coleman (35:41.986)

I think it’s going to be a tricky needle to thread how you put appropriate financial incentives for this new type of development without really harming the traditional business sector that’s been a key part of the economic story in Texas. I think everybody’s struggling with the right answer to that.

Matt Boms (35:59.862)

Yeah, I think that’s reasonable. And you don’t want to pit certain industries against each other. And you definitely don’t want to become a state that relies just on data centers and not on any other industry. Right. So there are huge questions, I think, happening at the highest levels of our state right now. And it’ll be interesting to see how this shakes out over the next few years, because like you said, this is kind of unprecedented, right? At least in our lifetimes, like we haven’t seen this kind of load growth before. So I think it just raises new questions that we haven’t needed to ask for a very long time about.

Who gets interconnected? How much do they need to pay? Because I think probably the thing that most people don’t want to admit at this point is like, we just don’t have enough generation to meet all of this load. It’s going to take time to build it. I mean, we could definitely build enough generation, but it’s going to take some time for the transmission system to catch up to that. The infrastructure is just not there yet.

Katie Coleman (36:46.968)

Well, let me mention one thing on that, which is, you know, a lot of the data center developers and the hyperscalers themselves are interested in supporting generation development. And they are not as cost sensitive in many instances, like I said, the traditional manufacturing community. So they’re interested in bringing generation, especially if it means that they can get interconnected faster.

But there’s not right now a formal way in the planning process to give a customer credit for that generation when they’re interconnecting. The way it’s studied is, well, what if the generation’s not there? We have to plan to serve the full load or what if the load’s not there? We have to plan for all the generation to export and show up on the grid. That’s something that I think the commission has recently given really strong direction to try to come up with a way that you get credit if you’re bringing generation and ERCOT’s working on that.

But I think that’s going to be a key part of the solution going forward is if I’m building a gigawatt load and I don’t get it to interconnect any faster, if I bring my own generation, it really diminishes the incentive to do that. So I think fixing that is going to be a key part of the solution. Cause I do think people want to build stuff, not just the companies themselves for self use, but the traditional dispatchable generators in Texas. think they want to build things too.

But figuring out exactly what the load looks like and, you know, if you can get credit for having this relationship with a large customer, I think those two things would go a long way toward making that happen.

Matt Boms (38:22.85)

Yeah, the system has changed so much, right, that it’s not simple anymore as the utility brings you the poles and wires and delivers the electrons, right? Like now you’ve got these large customers bringing their own generation. That’s a huge game changer. Okay, well, as we wrap this up, moving forward, what is your vision for the Texas grid? If we could snap our fingers and just travel 10 years into the future, like what is the best case scenario here of how this all shakes out?

Katie Coleman (38:49.368)

I really am hopeful that we’ve been through a period of really rapid change and dramatic change since Winter Storm URI. And I feel like we were just kind of coming out of all of that, reassessing market design, making a lot of changes. And there was hope that this last legislative session, it was going to be a quieter session on the electricity front. And then, of course, we got these data center numbers.

And so we had a very active session on electricity again last session and now there’s ongoing rulemaking. So there’s just been a ton of turn. What I’m really hoping for, and I hear this echoed from people at the legislature and at the commission, is a period of more stability where we get these impending problems addressed and then we let things ride, let the market digest it, let people react to it.

Because I think you’re seeing right now, I mean, I every day get questions from clients trying to understand the batching process that’s going on. Just understanding what it looks like to try to get an interconnection here. There’ve been major structural changes to rates recently, and they’re considering additional structural changes to transmission rates that people are still trying to understand. Wholesale pricing, has there been significant changes in that regard?

It’s really hard to get investment of any kind in an environment that’s changing that rapidly. And so I really think the key to the long-term success of the Texas market is again, to rely on market forces as much as you possibly can and to create stability and predictability. I think that’s gonna be the key to long-term success of the market.

Matt Boms (40:32.908)

Yeah, totally. Like the companies that I talk to also are, they’re all saying the same thing. It’s just show us where the goal posts are and just keep them there for a while and that’ll help. Well, Katie, thank you so much. know you’re extremely busy and I just really appreciate the time that you took out of your day to talk with me and just share your expertise. You’re such a brilliant person and so well respected in our industry. So it means a lot that you came on to spend some time with us today. So thank you so much.

Katie Coleman (40:57.848)

Glad to do it. Thanks for the invitation.

Matt Boms (41:02.008)

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 Empowered newsletter at texasenergyempowered.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 Bombs and I’ll see you next time. Stay curious, stay engaged and let’s keep building a stronger, smarter energy future.

For a century, the Strait of Hormuz has been one of the world’s key energy choke points. But during the past couple of decades, the U.S. relationship to the shipping lane has changed.

In this special episode of the Energy Capital Podcast, Josh Rhodes talks with Michael Webber about what the Iran conflict means now, especially for Texas. The U.S. is not as vulnerable to oil shortage as it once was, but greater energy self-sufficiency does not insulate the country from global prices.

The U.S. now produces more oil and gas than it did in the 1970s, when another energy crisis rooted in the Middle East rattled the U.S. economy. That leaves the nation less vulnerable from a security perspective.

But consumers in Texas are still tied to global markets through pricing, refining constraints, and fuel trade flows. As Webber explains, even if the country has enough energy overall, price spikes abroad can still show up here at the pump, and they can linger.

The conversation gets into a few issues that will develop over the coming weeks and months:

* Why gasoline and diesel prices may rise with a delay, then fall more slowly than consumers expect.

* Why U.S. oil abundance does not fully protect Americans from disruption overseas.

* Why Texas benefits, and what’s at risk, from the state’s current energy mix.

Rhodes and Webber also stress that resilience covers a range of issues: what resources can be refined, what generation and infrastructure can be built, and how quickly the system can adapt to challenges. That spotlights variables including refining capacity, permitting reform, and the roles of wind, solar, batteries, and electrification in reducing exposure to fuel volatility.

The episode explores how Texas fits into a deeply interconnected global energy system, even after the state’s shale revolution.The unresolved question: if the disruption in the Middle East continues, where will the state’s real vulnerabilities start to show?

Energy Capital Podcast is produced by ClarityForge Studios.

Timestamps

* 00:00 - Iran Conflict & U.S. Exposure

* 02:29 - Why Prices May Rise

* 03:57 - Self-Sufficient, Still Coupled

* 06:07 - Texas Refining Constraints

* 08:03 - SPR, Export Bans, and Policy Tools

* 10:48 - Renewables, Gas, and Energy Security

* 16:35 - Affordability Politics

* 19:14 - Permitting Reform & Outro

Resources

People & Organizations

* Texas Energy & Power (Website - LinkedIn - YouTube)

* Joshua Rhodes (LinkedIn)

* IdeaSmiths (Website - LinkedIn)

* Michael Webber (LinkedIn)

* Webber Energy Group (Website - LinkedIn)

* International Energy Agency (Website)

* U.S. Strategic Petroleum Reserve (Website)

Company & Industry News

* US gasoline prices soar past $3.75 a gallon as Middle East war rages on

* Oil settles up 9% as Iran vows to keep Strait of Hormuz closed

* Goldman Sachs raises Q4 Brent, WTI crude price forecast amid longer Hormuz disruption

* Here’s the energy policy we need for the war in Iran

Related Podcasts by Energy Capital Podcast

* Build Fast or Fall Behind with Michael Webber

* Interview with Energy Expert Dr. Michael Webber

Related Posts by Texas Energy & Power

* The Growing Importance of Energy Efficiency

* Why Are Energy Bills Rising So Fast?

Transcript

Joshua Rhodes: Welcome to the Energy Capital podcast. This is a bit of a special edition where we’re going to talk to Dr. Webber again. We’re talking on Friday, March 13th, and we’re really kind of doing a little bit of a current events type take on the energy impacts of the current conflict in Iran and the Strait of Hormuz. Dr. Webber just published an article or an op-ed in the Houston Chronicle where he just talked about the energy implications of what that would mean for the U.S. So Dr. Michael Webber, welcome back to the Energy Capital Podcast.

Michael Webber: Thanks so much. It was great to be here and have another conversation with you. I appreciate you inviting me. Absolutely.

Joshua Rhodes: Well, let’s dive in. You wrote in your op-ed that the energy risks we worried about 20 years ago, like disruptions to the Strait of Hormuz, that are actually happening right now, but you argue that the U.S. Might not care as much this time around. Why is that?

Michael Webber: That’s right. I’ll say that first of all, the risks of the Strait of Hormuz have been known since the seventies, but really amplified as a risk in the eighties with the Iran-Iraq Tanker War that happened in the eighties and is really the main justification for why the US Navy projects so much force there just to keep the shipping lanes open, all that kind of thing. So the risk of the Strait of Hormuz as a choke point for global commerce around oil and refined products and helium and aluminum and other things like fertilizer area, that’s been known. But what has changed is how much we might care. So 20 years ago, when I studied this for Think Tank doing national security work for the Pentagon, we identified the closure of the Strait of Hormuz as one of the biggest single point risk failures the world could go through in terms of destabilizing global energy markets. But that was before the shale revolution, all these other things that happened 20 years ago. So we were really worried about what this might mean in terms of United States even getting access to the resources in the first place, plus price spikes and everything else. In the 20 years since we did that study for the Pentagon, The Shale Revolution’s come through, so we have a lot more domestic oil and gas production. We’re now exporting instead of importing. We have a lot more wind and solar, so we need less domestic fuels like coal or natural gas in the power sector. The whole situation’s changed where we’ll be exposed to the risks of higher prices, but we have enough supplies. We don’t have worry about absolute supply cutoff. And that’s a good position to be in. I think we should celebrate when we can policy successes. And I would say the last 20 years have been a combination of policy successes. That put us in a better national security position when it comes to disruption to Middle Eastern flows of energy.

Joshua Rhodes: So Americans are already seeing higher gasoline prices and diesel prices after this escalation. You mentioned that these price spikes can often lag disruption by a week or two, but should consumers expect this to get worse?

Michael Webber: I expect it to get worse and I also expect the high prices to linger for a while. So there are a couple of things that happen. The disruption happens physically. The prices start to reflect it in the futures market pretty quickly, but at the gasoline pump say a little bit later. So there’s some lag time between physical disruption and higher prices. And then there’s also lag time from when the disruptions are settled and when prices come back down. But sadly, as one of the sort of bitter ironies of life, prices go up a lot faster than they come down for variety of reasons. Yep. So even if the disruptions sorted out in the next few days, I expect higher prices to hang around for a while because people have to refill their inventories and they have to price in the risk of volatility or the risk of additional tax. So high prices will be here for a little while. And I think that’s one of the things about the US situation is that we are now self-sufficient on energy. It’s not like we’re independent. We’re still coupled to the global markets and being independent is different than being self-sufficient. We’re self-sufficient. We have enough energy to run our economy, but we are connected to the global economy. So even if we have the energy, if the global price goes up, our price will grow up as well. And there’s all these sort of couplings that happen to the prices, but also these lag times. So I think we got prices that’ll be high for a while. Secretary of Energy Chris Wright says it’ll be settled in a couple of weeks, not months. I expect prices to be high for a few months, but who knows? We’ll see how it goes.

Joshua Rhodes: Okay. We produce a lot of oil in the US now after the shale revolution, but we can’t always refine that oil here. I mean, we import a lot of crude from other regions like the Middle East, but we also export a lot of our sweeter crude to Europe where they can actually refine it. So can you speak to how even though we produce a lot of oil now, we’re still coupled to the global markets?

Michael Webber: It’s really kind of a fascinating irony in many ways that we did not foresee the Shale Revolution. And so what we saw instead, looking forward from the 1980s onwards, was more imports of heavier oils from Venezuela or the Canadian oil sands, or even like the heavy sour crude from Saudi Arabia or other places. These heavier crudes, which are more difficult to refine, but we put the money into our refineries to make the refineries capable to handle those heavier crudes. Then we find all those light sweet crude, which is like the champagne of oil, and we’re buying the beer of oil. The less valuable coarser crude that we know how to refine, but selling our more valuable champagne crude. So we can sell our light sweet crude at a higher price than what we pay for the heavier sour crudes. But the challenge is even when you have an abundance of the light sweet crude in West Texas for East Texas refiners, those East Texas refiners are not fine tuned for it. So you’re exactly right. We’re exporting the West Texas light sweet stuff to other people, refineries in say Asia or Europe and importing the heavier crudes to turn into jet fuels and things like that. And that’s one of the couplings of the global market. Though we have enough energy in the nation to be self-sufficient, we’re not refining our own crude into the products we need for our cars and trucks and planes. We’re still depending on the global market to provide the crude to do that. And that’s okay. Like financially, that works out for us until there’s a major disruption and we can’t get the crude we need for our refineries. And that’s a risk we have to think about.

Joshua Rhodes: Well, High Life claims to be the champagne of beers, but I don’t know if there’s a... Oil.

Michael Webber: Yeah, so I haven’t seen that ad yet. I feel like someone should do that. Yeah, the West Texas Intermediate is the champagne of beers, something like that. It is kind of a funny sort of global trade situation because you could do that with foods as well like, hey, I’ll buy your champagne if you buy my beer, is a pretty typical global trade kind of conversation to have. Or I’ll buy your really high-end cheese if you buy my low-end refined food products or something like that. So we do that kind of thing for other markets as well.

Joshua Rhodes: they recently announced like a new refinery in Texas that might be able to handle this.

Michael Webber: That’s pretty exciting. So there is a big announcement for a new refinery for the first time in 50 years, for the most part for the last several decades, four or five decades, we’ve been shutting down refineries, primarily around environmental reasons. Some of the older refineries were less efficient and dirtier. So refineries in the United States have becoming fewer but bigger and more capable and cleaner. So we have fewer refineries, but more refining capacity. And that refining capacity has lower emissions and more efficient throughput and things like that, but designed for the heavier crudes like we mentioned. There’s an announcement of a new refinery in Brownsville that can take the light sweet crude, which is pretty exciting. And it’s a new refinery. It’s kind of exciting because it’s been 50 years. It’s also not a new announcement. It was first proposed a decade ago and they announced their construction permits in 2024, like two years ago. So the latest announcement, it’s not really clear it’s going to be built, but there is an announcement. President Trump announced it, for example, and the Secretary of Energy was celebrating it. It’s not even 100 % clear to me who the actual investors are or whether there are the firm off-take agreements. But if there are actual investors in off-take agreements and it gets built, it will take several years. That would be pretty interesting. It would be probably good for the Texas economy and good for us to have a local user of the light sweet crude. There’s a lot of reason to be skeptical that it’s not really going to happen, but high prices are interesting because it helps the producers, but high prices make it harder for the refiners. And so a high price environment might not be a great time to build a refinery in terms of high price crude, except that Jet fuel and diesel and gasoline prices are high, so the product prices are higher, so then it would be a good time. And if you can’t get the crudes, like if the Gulf Coast refiners can’t get the heavier crudes, and you have a refinery that can get the light sweet crudes, it might be competitive advantage. So it’s all pretty complex. It takes a lot of risk, and that’s why these things cost billions of dollars and require 20-year off-take agreements. But there’s a long way to say that if it gets built, it’ll be the first new refinery in decades, and we’ll see if it gets built.

Joshua Rhodes: Fair enough. So the administration has just ordered a release of oil from the strategic petroleum reserves after the Iranian attacks on shipping. Is this the right tool in a situation like this?

Michael Webber: The SPR, the Strategic Petroleum Reserve is one of the right tools. It’s actually a tool that was custom designed for this exact situation. After the supply cutoffs in the 70s, happened in the early 70s and late 70s for different reasons, but the same region, the United States and other importing consuming countries all came to realization that there’s a vulnerability depending on a handful of countries for oil if those countries decide not to sell you oil anymore. So that was what led to the creation of the International Energy Agency primarily to coordinate strategic petroleum reserves around the world and coordinate their release. So the SPR was developed first in the seventies and really expanded over a couple of decades for this purpose. And releasing oil from the SPR to settle price spikes or to fill a physical gap of deliveries is exactly what’s designed for. This is the right tool for the job. It’s also not a sufficient tool for the job. Meaning like you’re going to need other tools. Like it’s one of the tools, but we need to think about efficiency and fuel switching and alternative routes for delivery. And there’s all sorts of things we need to do. This is one of the important ones because we can do it quickly. But if there’s a sustained outage or sustained disruption at the Strait of Hormuz, there’s not enough oil in the SPRs around the world to really fill that gap if it’s a multi-month situation. If it’s a few weeks, we’re good. If it’s months or years, we’re going to have to find alternatives.

Joshua Rhodes: That’s a good point. It’s not only the US has an SPR, they’re SPR’s equivalents around the world,

Michael Webber: Yeah, China, Japan, lot of European nations. United States has a very big one, so ours is very relevant. And just the announcement that the United States and other countries would release some oil kept oil prices down. And that release hasn’t even happened yet, I don’t think. It takes a while to get the oil out. But just the announcement itself was enough to calm markets a little bit.

Joshua Rhodes: got it. You know, whenever gasoline prices spikes, sometimes there’s political calls for the US to restrict oil exports. And we’re hearing that again, like we’re talking about stopping oil exports. Given what we talked about just a minute ago, would banning exports actually do anything or lower prices?

Michael Webber: I don’t think banning exports would lower prices and it’s really kind of amazing to have President Trump say that oil and gas industry does not want that solution. Right. And he presents himself as like a friend of the oil and gas industry and they’re like, okay, that’s not the statement we want you to make. So I think economists don’t like that idea. Think national security people don’t like the idea. The oil and gas industry doesn’t like it. I think in the end it wouldn’t even work. Frankly, we tried that after the 70s. We put a ban on exports and that wasn’t the appropriate solution. That would have been better just to increase domestic production or implement more efficiency to reduce consumption. I don’t think that will actually become policy, his announcement to ban exports. I think there’s too much resistance, but you never know these days.

Joshua Rhodes: Yeah, fair enough. You know, you argue that in the op-ed that deploying more wind, solar, and batteries can actually strengthen national security in times like these. How does building more renewables help in a crisis like this?

Michael Webber: There are a couple of things about renewables that are really handy for something like this and primarily in the power sector, if we look at wind and solar, they displace our demand for natural gas, which means we have more natural gas we can export to global markets. Gas prices are going up because LNG is disrupted as well. LNG is a liquefied natural gas and Qatar in the Middle East is a major LNG exporter. If they can’t get their LNG to market, then global gas prices will go up. Our domestic gas prices are lower than the global price, but they’ll be affected by that a little bit. If global price has gone up and we consume less gas here, that frees up some volumes for us to export. So we can sell it to our friends in Europe or Asia and help out our ally while also making a handsome profit. So it’s a good moneymaker for us. The more wind and solar we have in the grid, the more gas we can sell. We also have coal in the grid. We’re mostly shutting down coal, but coal can ramp up for months or years at a time to help offset some of the gas needs as well. But it’s hard to build a new coal plant. Meanwhile, we’re building a lot of wind and solar. So wind and solar is immediately a benefit in terms of freeing up how much gas we use, but it also is something we can build on the order of 18 months to 24 months to get new construction in place. It doesn’t take 10 years to build the way it does for nuclear, for example. So we can ramp up on this production if we think this is going to be a sustained disruption.

Joshua Rhodes: Yeah, one of the things you and I were talking about the other day is like the possibility for high oil prices to actually incentivize more or potentially lower natural gas prices because a lot of natural gas production, particularly in Texas, is associated with oil. And so the higher the oil price, the more oil production, maybe the more gas it gets, but then maybe the more exports. Do we know which where that falls?

Michael Webber: All of it, everything you say is possible. So these price spikes might lead to a glut, which leads to low prices. That might be a uniquely American situation because we have so much domestic production. But if we take what you said and carry through, there’ll be high oil prices, which means we’ll drill more. So we’ll get more oil. We’ll produce more gas, which will lead to a supply glut, which leads to lower gas prices. But there are also high gas prices and those high gas prices will lead us to build more wind and solar to use less gas, which means there’s even more of a gas glut. So the high gas prices and the high oil prices might simultaneously lead to more gas production in the United States and less gas consumption, which will then lower the prices. And this is the problem with oil and gas. The world is, it’s kind of complicated because high prices will bring on the solutions to the high prices, which will lower prices and the solutions are less consumption, more production. But low prices will also lead to higher prices because if you have low prices, you’ll produce less but consume more. And eventually you get a scarcity situation, prices go back up. So it’s hard for me to really anticipate, but the geographic tension with the United States is the West Texas oil will be produced getting associated gas kind of for free, but the shale production say in Pennsylvania is really just gas. And so as we’ve been drilling less for oil in the last year, one of the consequences of the Trump administration is less oil drilling. We’ve been doing more gas drilling in Pennsylvania. And then the question is like, okay, in a high oil and gas price environment, do those drilling rigs come back to Texas to produce oil, giving you gas for free? Because it’s associated gas? Or do they stay in Pennsylvania and keep drilling gas because gas prices are high? Or do we just do more drilling of everything, right? All of these things are possible. But I think any way you slice it, probably our prices are lower than in Europe and Japan. But whether prices collapse again, that’s hard to predict unless there’s like some real global economic collapse and then prices will drop for sure. But yeah, I think you’re exactly right that higher prices for oil will lead to more oil production, which leads to more associated gas. If you can get that gas to market because of new pipelines, in which there are some, then gas prices should stay relatively mild and won’t spike as much.

Joshua Rhodes: fascinating. You know, one of the things that I’ve kind of always said about energy is like, no one really wants energy, they want the things that energy gives us, right? And so I was talking the other day or conversing with folks online about if you want to be insulated against high gasoline prices, then get an electric vehicle. And some of the things we’ve been talking about, like a lot of those fuels like natural gas and renewables that kind of flow into the electricity sector, is that the right argument to make? Would that make us more resilient against these types of events?

Michael Webber: Absolutely. So I think the technologies to consider are not just wind and solar or more domestic oil and gas production. It’s also in the consuming appliances and electric vehicles are a classic example of this. By using electric vehicle, I reduce my exposure to gasoline prices. Like I just don’t have exposure to gasoline prices. Right. But I do have exposure indirectly to natural gas prices in the power sector. So if the higher oil prices are accompanied by higher gas prices, which seems to be happening right now. By gas, I mean natural gas, not gasoline. If natural gas prices are higher, then power prices should be higher, which means my electric vehicle will have some exposure. But what we find is electricity price spikes are not anywhere close to the same thing as the wholesale commodity price spike. So crude oil and natural gas and gasoline prices can really spike. They can go up by factor of two or in some cases factor of 100, like in Winter Storm Uri. But retail electricity prices don’t spike. We have a rate making process that protects consumers, especially retail residential consumers, which is who most of us are when we’re charging up our electric vehicles. We don’t have price spikes. And so even though the wholesale price for electricity might be going up because the wholesale price for gas has gone up, the price you and I pay to charge up electric car probably has not spiked. So we’re protected through a rate making process. So it is a great hedge against this. And my costs for my car aren’t gonna go up with these price spikes. If they happen for years, maybe it’ll take a while to adjust the rates. But I think it’s a great individual level hedge we can make. You could say the same thing about electric heat pumps instead of natural gas furnaces and electric cooktops instead of gas burners and things like that. By going electric and having a rate making process that’s designed to reduce exposure to high price spikes, we’ll be fine.

Joshua Rhodes: Yeah, and I always think about there’s really only one one economical way to make gasoline and diesel is using oil, but there’s like dozens of ways to make electricity.

Michael Webber: Yeah, it’s got a built-in diversification, a built-in hedge, right? It breaks the monopoly of any one particular fuel or technology, which means that the consumers have power on this, not just the producers, which is really handy. And if you look at transportation, light duty vehicles in particular have been dominated by gasoline historically in the United States, heavy duty trucking dominated by diesel and planes dominated by jet fuel. They can’t electrify or find alternative fuels very easily. At our home with our electrons, we have so many choices, some of which are on a rooftop or our backyard, some of which are at the local utility, maybe dozens or hundreds of miles away, but we get a lot of options and that’s a nice built-in hedge for these kind of uncertain times.

Joshua Rhodes: is interesting about the timing of this and like how long things may go. There’s already political unrest around like rising cost of energy. And so as we’re kind of heading into like a political season, is this going to be a big player? Is it going to be a big impact?

Michael Webber: I think it will be. Think the electricity affordability crisis is already a political issue. I think it will remain a political issue for the elections in November because I expect prices to be high for months. Even if prices aren’t high for months, the lingering memory of it will show up at the ballot box is what I expect. That was one of the main reasons that Trump won. He ran on a platform of affordability. He used that to beat up on his opponent, Kamala Harris, and that was successful. So think a lot of people will take a page from that playbook and say, okay, well, running on affordability of eggs or milk or other food items, but also energy will be something that I expect candidates to run on. We’ve seen it already a little bit. There was an election a year ago, so in Georgia, where the statewide elected official for the public service commission, like the Public Utility Commission in Texas, was thrown out of office because of concerns around electricity rates. And usually the statewide commissioner positions are not one that people pay lot of attention to politically, but... That was when we were like, they flipped the party and threw out the incumbent, all this kind of stuff. So clearly there was some anger there and that might be a preview of what’s to come. And we don’t often get to vote on the commissioners themselves who regulate energy. Some states do, some states don’t. And so I think if people are grumpy, they’ll take it out on whatever people they can vote for or vote against. So I think it will be an issue. I think it is an issue. I think it’s already showing up at the ballot box. I don’t expect that to change by November.

Joshua Rhodes: Okay, last question. If you were advising policymakers right now, what’s the single most important energy policy decision that they can make?

Michael Webber: I think the best thing we can do right now is permitting reform to get more stuff built quickly. These supply disruptions and price spikes are a reminder that being able to have your own supply, which means your ability to build things, which could be power plants or oil and gas production or pipelines or transmission lines, all of that is important. So we got to get things built. And another thing, if I can take a second point, just say we’ve actually had some pretty good success the last 20 years, increasing domestic production of oil, gas, wind and solar, batteries, things like that, and reducing consumption. Our consumption per person and per dollar of unit of economic activity are down because of efficiency. So let’s keep the successes going. Let’s not give up on the things that have been working for us. And let’s get a lot more things built.

Joshua Rhodes: I’m Michael Webber. Thank you for coming on the Energy Capital Podcast.

Michael Webber: Thanks for the real-time current events discussion.

Joshua Rhodes: Absolutely, it was great. 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 Texas Energy and Power at texasenergyandpower.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, IdeaSmiths, Austin Energy, or Columbia University. A big thanks to Nate Peavey, our producer. I’m Joshua Rhodes. Thanks for listening, and we’ll see you next time.

For a long time, the basic story in U.S. energy was stability. Demand growth had flattened, efficiency was doing more work than most people realized, and expansion was steady.

Not anymore.

In this week’s conversation, Josh Rhodes talks with Michael Webber about what may be the most important shift now underway in energy: the dramatic growth in electricity demand, in Texas and beyond. Data centers are a big part of the story, but not all of it. Electrification, industrial growth, and population growth are also fueling the need for more energy.

In this episode, Webber notes that energy progress moves fastest when markets, policy, and engineering align. That is true for shale development, and it may be true again with the coming growth of the grid.

Texas is well-positioned to lead this next stage of energy development — we have a strong energy base, growing demand, and a mix of technologies competing to meet it. Josh and Michael talk through why geothermal power is gaining attention, why nuclear expansion plans feel different this time, and why wind, solar, storage, gas, and transmission remain essential.

They also address a problem that is becoming hard to ignore: new load can be built faster than new generation, and new generation can be built faster than transmission. That mismatch is showing up in transformer backlogs, turbine supply constraints, and growing pressure to move much faster than some energy executives are used to.

n many cases, the challenge Texas faces is not a lack of energy throughout the year — rather, it’s a shortage of power during a relatively small number of peak hours. That has real implications for cost, reliability, and what kinds of loads and technologies make sense for ERCOT.

Tune in to hear Michael and Josh talk through those challenges — and opportunities.

Energy Capital Podcast is produced by ClarityForge Studios.

Timestamps

* 00:03 – Introduction & Michael Webber Background

* 01:14 – The Energy Three-Body Problem

* 04:16 – Shale Revolution & Forecasting Misses

* 08:42 – Webber’s 2029 Energy Predictions

* 09:42 – Why Efficiency Still Matters

* 13:37 – Gasoline, Natural Gas & Texas Exports

* 18:13 – Electrifying the Texas Oil Patch

* 19:45 – Why Webber Is Bullish on Geothermal

* 23:32 – Nuclear’s New Momentum

* 26:27 – The Three-Part Energy Transition

* 33:30 – Scarcity, Flexibility & Data Centers

* 39:11 – Build Faster, Then Career Advice

* 45:15 – Closing & Outro

Resources

People & Organizations

* Joshua Rhodes (LinkedIn)

* IdeaSmiths (Website - LinkedIn)

* Michael Webber (Website - LinkedIn)

* Webber Energy Group (Website - LinkedIn)

Company & Industry News

* US power use to beat record highs in 2026 and 2027 as AI use surges, EIA says

* GE Vernova expects to end 2025 with an 80-GW gas turbine backlog that stretches into 2029

* A tour of global geothermal projects in progress

Books & Articles Discussed

* Annual Energy Outlook Products - Archive

* Energy Policy Act of 2005

Related Podcasts by Energy Capital

* Interview with Energy Expert Dr. Michael Webber

* Drilling for Geothermal Power and Storage with Cindy Taff

* More Power that’s Faster and Fairer

Related Posts by Texas Energy & Power

* Reading & Podcast Picks — March 4, 2025: Data Centers, Nukes, VPPs, and More

* The Growing Importance of Energy Efficiency, Reading and Podcast Picks

Transcript

Joshua Rhodes (00:03.726)

Hey everyone, and welcome to the Energy Capital podcast. I am really excited to have Dr. Michael Weber on to talk about, well, energy. He’s an energy guy, and I’m really excited to talk to him about energy and Texas energy and all kinds of things. Most of you probably know Michael, but just really quickly, he’s got a PhD from mechanical engineering from Stanford. He’s worked at Rand, various clean energy incubators, really been in kind of the energy space for a long time.

Joshua Rhodes (00:32.472)

But really the kind of the main areas right now that Michael’s he’s a double chaired professor at the University of Texas, which is pretty rare thing. The Sid Richardson chair at the LBJ School of Public Affairs and the Cockrell family chair number 16 in mechanical engineering. He’s a former CTO at Energy Impact Partners, which is a big climate clean tech venture fund and a former chief science and technology officer at Engie, one of the world’s largest energy companies, as well as a founding partner of Ideasmus upon which he and I work together.

Joshua Rhodes (01:01.688)

So he really sits at the intersection of engineering and policy and commercialization. Welcome to the Energy Capital Podcast.

Dr. Michael Webber (01:10.008)

Thanks for having me. Very excited to be part of the conversation today after being a long time listener.

Joshua Rhodes (01:14.574)

And so you really are kind of like a rare three world energy person. I mean you’ve kind of like gone across the spectrum from engineering to policy and you know commercialization. One of the things that this actually reminded me of and I’m gonna go off script almost immediately is kind of like the three body problem. You’re familiar with the three body problem in classical mechanics is that it’s basically impossible to predict the motions of three things that are gravitationally

Joshua Rhodes (01:42.786)

connected to each other at the same time. you feel this way in your three worlds? An engineering policy in the technical space? Like, is it similar?

Dr. Michael Webber (01:51.34)

That is a great orbital mechanics reference. did my undergraduate degree in aerospace engineering at UT. I took a class on orbital mechanics from one of the famous professors, Zabihay. Professor Zabihay taught that. And we could solve the two-body problem. You cannot solve the three-body problem. You can only approximate it. So you’re exactly right. And it does feel like this tension between engineering policy and markets or commercialization are in tension where you can’t completely solve the problem with all three. Although in orbital mechanics, you do get alignment if one’s swallowed.

Dr. Michael Webber (02:19.47)

where the planets align or the different celestial bodies align. And in my observation, at least in the United States, things work best when policies and markets and innovation are all aligned. If they’re all pointed the same direction, amazing things can happen very quickly. And so I like this sort of idea, like you can’t solve it perfectly, you can kind of get close, you can do some numerical approximation, but sometimes you have alignment. And if you have alignment, then great things happen. So let me give an example of that from like 2005 to seven timeframe, the Energy Policy Act of 2005.

Dr. Michael Webber (02:49.454)

in other things were happening where the policies were calling for more domestic production. We more natural gas in particular. The markets were calling for more natural gas production. Natural gas prices were quite high, say 2003 and other years. So the markets were calling for more natural gas. The policies were calling for more natural gas. And the innovation engineering was also unlocking a lot of new natural gas, which was a combination of technologies of hydraulic fracturing and horizontal drilling. So we had engineering policy and markets all aligned.

Dr. Michael Webber (03:16.044)

The world flipped, the whole shale revolution of producing so much oil and gas in such a sudden turnaround flipped geopolitics on its head. Where we went from LNG imports to exports, we went from feeling at the mercy of foreign countries for their oil and gas production to feeling a little more confident on the energy stage globally. That was a remarkable instance where things aligned. And we don’t have that very often in energy, frankly, for the decades before that.

Dr. Michael Webber (03:41.164)

We had groups calling for less production because of environmental concerns. have policies that inhibited production. The markets and innovation work there. So we often have misalignment, though when you have alignment, it goes quickly. And that’s another cool thing from Celestial Mechanics. So maybe we should write an article that says, what Celestial Mechanics teaches us about the energy three-body problem. That’d be a great op-ed. Let’s write that essay.

Joshua Rhodes (04:00.239)

Like we’re getting work done immediately even when we’re doing a podcast. This is great.

Dr. Michael Webber (04:04.204)

Yes, our to-do list just grew though, unfortunately.

Joshua Rhodes (04:07.106)

folks

Joshua Rhodes (04:07.307)

are interested in Three-Body Problem, there’s actually a Netflix series on it right now based on a series of books that have been written.

Dr. Michael Webber (04:13.026)

Yeah, and I feel like I should watch it. I hear it’s violent though. I don’t know. So we’ll have to check it out.

Joshua Rhodes (04:16.91)

I read the first book. I think there’s three of them, which of course there would be three, a trilogy on the three body problem. But it is on my list of things to watch. So that was interesting that we immediately got into a situation where we’re talking about fracking just a minute ago. If you had gone just a few years before that, no one saw that coming or very few people saw that coming. I did an exercise once where I went back and looked at all of like the annual energy outlooks from the EIA in like early 2000s. And you know,

Joshua Rhodes (04:44.47)

natural gas was on the decline. were going to be importing natural gas. Like LNG imports were like big chunks of charts. Coal consumption was going up. And then, boom, this thing happened. Hydraulic fracturing that no one was really thinking about or people didn’t see, weren’t predicting. And it completely flipped the script, as you say. We started turned around import terminals and, you know, turned them into export terminals and, you know, made us one of the energy powerhouses of today.

Dr. Michael Webber (05:09.166)

So the era of say like 2001 to 2007, it was a uniquely bad era when it comes to EIA forecasting. And I’m not trying to pick on them because what they do is very hard and they’re better at it than anybody yet they were wrong. They were wrong on top level energy consumption. Like they thought energy consumption was going to increase forever in the United States.

Dr. Michael Webber (05:30.51)

The EIA forecast were particularly bad. They thought top level energy consumption was going to grow forever. They failed to anticipate the effects of efficiency, for example, with the light bulbs and cars and other things. They missed on the fuels. They missed on whether it’s imports or exports or whether it’s domestically produced. A lot of mistakes were made. And that’s something we should all keep in mind and use as a source of humility. It’s easy to be wrong about the future of energy when making predictions. So let’s keep that in mind. The first I heard of shale in eventually hydraulic fracturing was in 2007 from a man named Robert Heffner.

Dr. Michael Webber (06:00.174)

who is a very famous sort of producer of gas, especially, but only gas in Oklahoma. He and I were at a conference together. He gave a presentation of the Shell resource in the United States and how much energy is there. And I was like, I’d never heard of this. So I heard about it in 2007. Then T. Boone Pickens, another Oklahoman, came to Texas, UT, and gave a lecture around 2008. And he talked about it. So Shell really hit my radar in 2007, 2008. It had been on policymakers’ radars in 2005, the Energy Policy Act of 2005.

Dr. Michael Webber (06:29.934)

had some clarity around how hydraulic reaction would be regulated. And they clarified that it would be the states would regulate it to the federal government. People called that the Halliburton loophole. Dick Cheney could put that into place. Dick Cheney from only guess since she knew it very well. So it was certainly on the radar of industry. It was on the radar of policymakers and a few wildcatters, but it wasn’t on my radar until I heard them talk about it. And then so to my eye, the shale revolution was really born from around 2007, 2008. It really took off around then.

Dr. Michael Webber (06:58.862)

from basically a zero dollar industry in 2008 to $150 billion a year in 2019. So it from zero to 150 billion in 11 years. And then if you dig into history, people like George Mitchell and Mitchell Energy or Devon Energy have been trying it since the seventies or the eighties. If you go back in time, there was dynamite fracturing in the 1860s and 1880s. wasn’t hydraulic fracturing. So we’ve been knocking on the door for quite some time, but it didn’t really hit the poppet of conscience even for energy analysts like me.

Dr. Michael Webber (07:25.856)

until 2007 or so. So there were a few people who saw it. There are a people who were evangelical about it, sort of preaching that it was going to change things. And they ended up being correct. But I feel like a lot of people missed it. I feel like Exxon Mobil missed it. Like some really big companies didn’t have a place. So they had to do an acquisition. They had to buy their way into it at the top of the market. So a lot of us missed it. But there were a few people who were singing it from the rooftops. And that’s something for us to keep in mind that the conventional wisdom could be wrong.

Dr. Michael Webber (07:54.178)

but there’s always someone who’s got some idea of the future, they might be right, there’s also a lot of people wrong who are seeing it from the rooftop, so we can’t believe all of them. But hydroelectric fraction really changed things quickly.

Joshua Rhodes (08:02.914)

Didn’t in the 70s we also try to do it with nuclear? Didn’t we try to do nuclear bombs?

Dr. Michael Webber (08:07.086)

Yeah. So there was projects to put nuclear down hole in the seventies to do fracturing. There were a lot of down hole nuclear tests for weapons purposes, but also for energy production. In the seventies, there were a couple of oil crises. like, let’s try everything. Let’s turn coal into liquid. Let’s try gasification. Let’s put nuclear down holes. See how that goes. We looked at nuclear aircraft that made people nervous. So there was like all sorts of things we tried in the seventies. Some were goofy. Some ended up leading to the development of hydraulic fracturing, which ended up

Dr. Michael Webber (08:34.689)

been very beneficial in solar and wind got their start in 70s. Didn’t really make sense for decades, but we fiddled around with it back then as well. Yeah.

Joshua Rhodes (08:42.83)

No, absolutely. So now that we’ve talked about how hard it is to get things right, I kind of want to put you on the spot a little bit because you’re a bit famous or infamous, I don’t know, depending on how you want to say it, for making predictions about the future. But I appreciate you willing to talk about the predictions after you’ve made them because I most people make them and then try to forget them, right?

Dr. Michael Webber (08:59.086)

Dr. Michael Webber (08:59.387)

That’s right, and I write them down and I publish them and so everyone can hold me accountable which is I think silly. I’ve made but anyway here we

Joshua Rhodes (09:06.656)

are.

Joshua Rhodes (09:06.946)

Yeah, here we are. about a year ago, roughly, you made some predictions about kind of where US energy would be in 2029 or so, kind of at the end of the Trump administration. Let’s just take like intermediate step on these and just kind of see how they’re going and if you would change them or if you’re still bullish in the direction that you’re going. One of the first ones you said is you said you think that national energy consumption will decrease, which is kind of counter in terms of

Joshua Rhodes (09:35.65)

We’re talking about data centers and electrification, like building out all this infrastructure. So what do you mean by that? And do you still stand by that?

Dr. Michael Webber (09:42.798)

So the context was it was April 19th, 2025. So we’re at the end of three months of the Trump administration. So by the end of three months, had a pretty clear view of what the Trump administration’s energy priorities would be. And not really many surprises. They were the things that he said he would do in the campaign trail. And so trying to flash forward, OK, at the end of the Trump administration, which is four years, so three years and nine months remaining when I wrote this on LinkedIn, what will the energy situation be in United States on January 20th, 2029?

Dr. Michael Webber (10:09.862)

And I think I stand by all my predictions. I haven’t really changed my mind, but we can go through them. the first one is your point out, and I’ve even tagged this or pinned it or bookmarked it whatever on LinkedIn so people can come back and make fun of me when I’m wrong, is that national energy consumption will decrease. And primarily, that is my hat tip towards energy efficiency. That efficiency will continue to be deployed and that despite population growth and economic growth, we will use less energy as a nation four years from now.

Dr. Michael Webber (10:37.922)

than today, well, I three years from now, but at this point, because of the new devices we are implementing and the ones that come to mind for you like electric cooktops, electric heat pumps, electric cars, more efficient industry. We already have better light bulbs. So we already done what we can there, but we have more ways to do things that accommodate even the low growth of data centers because we’ll have so many savings elsewhere. If we just take cars and the electrification of cars and despite Trump and despite policies that are not friendly to electric cars, electric cars are growing in their adoption.

Dr. Michael Webber (11:07.534)

might not be fully electric, it might be electrified drive trains like hybridized drive trains, things that will reduce the amount of gasoline and diesel we need to move about. Plus we have work from home and zoom and other things. So we have a variety of ways that our gasoline consumption will drop. It actually peaked in 2018, will continue to drop. the electricity we use in place either for working remotely or for electric cars is all more efficient. We use less energy. And so we can get a couple of percentage points of savings just on light duty vehicle transportation.

Dr. Michael Webber (11:35.374)

and then add this to the devices, we’ll get some savings. And in fact, I think efficiency is the unsung hero of the last 25 years. In the last 25 years, the United States, our energy consumption has been level or dropped, but our population has grown 20 % and the economy has doubled or tripled, depending on whether you look at nominal or real terms. So I think we’ll continue to have population economic growth, but energy consumption will drop, primarily because of this efficiency play. I stand by that. I think that’s gonna be the trend that continues.

Joshua Rhodes (12:00.418)

You think it’ll be resilient even in terms of the rollback of the endangerment finding?

Dr. Michael Webber (12:04.044)

Yes, so the endangerment is a very big news. So endangerment findings been rolled back. We’ll also have a lot of lawsuits that will go to the Supreme Court. Who knows what the Supreme Court says. Sure. But I think at this point, the endangerment finding really drives EPA decisions, for example. Yeah. But it doesn’t drive all the market decisions and the market decisions are going to go by what’s easiest or cheapest to build. And that’s not going to be a coal plant. Yeah. And coal plants, even if they don’t have endangerment finding for CO2, do have to deal with ash and NOx and SOx, the precursors to acid rain.

Dr. Michael Webber (12:31.65)

And they have to deal with mercury and the mercury rules are from the Bush administration. Those rules aren’t going away. And so no one’s going to build new coal. And then we have all this gas and wind and solar batteries that are cheaper than coal. So we’ll shut that down and even cheaper than gas in some cases. And then if we look beyond the Trump administration to the rise of geothermal nuclear. So I think endangerment finding is kind of sand in the gear. I’m going keep using that phrase probably in our coverage. Sand in the gears, it slows down the progress, but doesn’t stop the progress. We’re still going to move towards cleaner stuff.

Joshua Rhodes (13:00.492)

Yeah, I I think for a lot of our industry to be competitive in the global market, if we’re going to be at trade parity with other countries, they’re not going to want to buy stuff that they can’t use that’s less efficient, right?

Dr. Michael Webber (13:10.062)

I mean, maybe the Trump administration doesn’t care about CO2, but customers in Europe do. Right. And so people making products here for European market or Japanese market, you name the market that cares about CO2, there are several, they sell to clean up the supply chain to satisfy that market. So I think those fundamentals haven’t shifted. In fact, Europe’s now got the C-band, the carbon border adjustment mechanism. So there are even policies in place that will push for cleaning things up, even if those policies aren’t domestic out of DC. Yeah.

Joshua Rhodes (13:37.582)

You touched a bit on oil consumption, gasoline consumption. One of the predictions you made is gasoline exports will increase. So where are we going to send that gasoline?

Dr. Michael Webber (13:45.902)

Yeah, so there’s a phenomenon going on right now for the oil and gas world where half the products laid out of a barrel, the barrel goes of crude and the refinery comes out roughly half gasoline. The other half is diesel, jet fuel, waxes and tars and things like that. The demand for diesel and jet fuel is increasing, but the demand for gasoline domestically is dropping and has been dropping. We’re in year eight of the drop of gasoline. And so that means gasoline will be cheap. So gasoline is pretty cheap in the United States right now. And that will slow down the adoption of electric vehicles, but not stop the adoption of electric vehicles.

Dr. Michael Webber (14:14.902)

So I expect we’ll dump cheap gasoline on the world markets to other customers around the world who might want it for their light duty transportation and older cars or other purposes. So I’m thinking to sub-Saharan Africa or other markets around the world that would be happy to have the gasoline, they’ll export it. Now that might be a uniquely American problem because the refineries in Europe already produce more diesel and jet fuel than gasoline. So they’re less at risk for this problem. The American refineries have been tuned for a hundred years to produce more gasoline. So I think we’ll have to...

Dr. Michael Webber (14:44.61)

find other markets for it. We still need our diesel and jet fuel. So the refinery is going to keep running. And they’ll have this excess gasoline, which will lower prices. We’ll find someone for it potentially.

Joshua Rhodes (14:54.742)

Yeah, I guess similar for natural gas, like you predict natural gas production will increase and LNG exports will increase. I similar things are that like finding customers and

Dr. Michael Webber (15:03.886)

And there are lot of customers for natural gas globally. There might be more customers for natural gas than gasoline. The way I think about it, I feel like we’re entering a natural gas era. had a wood era, coal era. We’re in an oil era. Natural gas might have overtaken oil in terms of consumption in the United States last year. If not last year, probably this year. We just are producing so much gas. We consume so much gas, but we produce more than we consume. So we have gas that we can export to customers in Europe or Asia who are happy to have it.

Dr. Michael Webber (15:32.014)

For us, that’s good because they might use that gas to displace some coal, or they might use that gas to make electricity to displace some gasoline in those countries, and that would be good for the environment. So I think natural gas as a nation, we’re leaning in, in the Trump administration. People are very angry about the Biden administration, but frankly, natural gas production and consumption grew a lot under the Biden administration as well, and in the first Trump administration, and under the Obama administrations. So natural gas has been on the rise, has been ascended for a while, and I’ll see that stopping anytime soon.

Dr. Michael Webber (16:00.586)

maybe in a few decades, but it looks like the next five or 15 years natural gas. That’s a really good run ahead of it.

Joshua Rhodes (16:06.232)

absolutely. I think we’ve been talking about this in more of kind of a US context. Like, what do you think this means for the traditional energy production in Texas and how these like new exports and other things like that? Like, what does that mean for Texas here?

Dr. Michael Webber (16:19.352)

Texas has a good export capacity. We actually all have the ports. We have the LNG refrigeration trains. We have a lot of pipes that can move the oil and gas from West Texas or Haynesville or wherever to the ports. We can export to other states in the United States, not just other countries. So Texas is in a position. But if you look at the oil and gas policies under Trump administration, they’re actually not so good for oil and gas. In particular, they’re bad for domestic oil drillers. So oil drilling is down 20 % or something in Texas.

Dr. Michael Webber (16:47.638)

gas drilling is up 10 % nationally. so drilling overall is down say 10 % nationally. The rise has been in gas, the decline in oil, and that gas drilling is mostly in like Pennsylvania. The gas we produce in Texas is mostly, least in West Texas, mostly associated gas. It is the gas that is associated with oil production. So as long as we’re drilling for oil, we will have a lot of gas in Texas from the West. But if we...

Dr. Michael Webber (17:12.462)

drill less for oil or produce less oil, we will eventually have less natural gas in West Texas. The Haynesville areas in East Texas probably will still keep producing these gases in demand. And so there’s already been some warning signs that the CAPEX or the capital expenditures, the drilling investments, new sites for drilling in West Texas are down. So far, oil production has not dropped because they’re more efficient or more productive per well. But you can anticipate that in 2026 oil production in West Texas might drop.

Dr. Michael Webber (17:41.262)

which means gas production in West Texas might drop, which mean prices might go up. That might be good for natural gas sellers. It might be tough for consumers. If natural gas prices go up, it might make our exports less desirable on the global scene, depending on what price Australia or Russia are charging or Qatar, you name your country. We’re competing in a global marketplace and American gas is always undercut on price other providers. But that might be harder if our gas prices go up because our oil production goes out. It gets a very tangled mess, is the guess I’m saying.

Dr. Michael Webber (18:09.514)

And Texas benefits and loses simultaneously from all these maneuvers.

Joshua Rhodes (18:13.326)

We’ve been talking about energy writ large and focusing in on electricity. I one of the policy decisions we’ve made in Texas is to electrify those oil and gas operations out in West Texas, right? And so, if we run into these other kinds of pressures, they’ve been talking about at the same time, we’re getting them cheaper energy to get the energy out of the ground. Is this a wash? Do you think it’s net positive, net negative?

Dr. Michael Webber (18:32.014)

One of the hidden heroes of the oil and gas success in Texas, certainly a lot of innovation in the oil and gas sector, hydraulic fracturing, horizontal drilling, but electrification of the oil patch. I believe that the West Texas production, the Permian, is the most electrified oil field in the world at any significant scale. And having access to cheap electricity has improved productivity. It’s cleaned up production by reducing the venting or flaring of gases in some cases. It’s also improved

Dr. Michael Webber (18:57.454)

improved the boost with these downhole electric submersible pumps. electrification of oil and gas helps keep it competitive while also making it more environmentally friendly because of reduced emissions. And so, I think if we keep expanding the grid and keep installing transmission lines, which I know you’ve talked about and thought about, that will keep electricity cheaper for oil and gas. That is a competitive advantage that we get to have in Texas that not every oil and gas patch in America or around the world has. I think that’s kind of cool. And then if you look at Governor Abbott really pushing to expand the grid, he’s really leaning in hard on nuclear especially, but

Dr. Michael Webber (19:26.99)

he seems friendly to geothermal and other technologies. We’re going to have a pretty diverse mix of electricity. We’re going to build a lot of power plants. That means in my mind, despite data center load growth, we might still have low prices and that’ll be really good for oil and gas. oil and gas benefits from a big cheap reliable grid, just like we all do.

Joshua Rhodes (19:45.804)

Yeah, at the same time, you you’re bullish on wind, you’re bullish on solar, geothermal, nuclear will stay roughly about the same. I think some of this transmission we’ve been talking about are going to benefit particularly those first two. You’re bullish on geothermal. Talk about that.

Dr. Michael Webber (19:59.35)

Also in geothermal, I don’t think a whole lot of new geothermal will come online before January 2029, but there’ll be some. I think we’re entering in a few years, the geothermal decade. We’ve been in a solar and battery decade. Before that, we were in a wind decade. And wind growth has slowed down a lot. Solar growth doesn’t look like it’s slowing down again soon, but geothermal is about to take off for a couple of reasons. The technology has gotten better, especially for drilling. The technologies for finding the pockets of heat has gotten better with startups like Zanskar and others.

Dr. Michael Webber (20:28.878)

The demand for the power is there. We have a new customer class, these data center companies that have a lot of money and really want round the clock performance, but they want clean, they want renewable. So geothermal meets a lot of those. Geothermal doesn’t really compete with wind and solar. It competes with nuclear or competes with natural gas or carbon capture. So geothermal looks pretty good. It’s a good hedge against gas prices and it’s a good sort of speed to power choice because probably you can get geothermal online faster than nuclear. So geothermal looks good. It also seems to be

Dr. Michael Webber (20:58.566)

a favorite in a bipartisan way. Democrats and liberals and environmentalists like it because it’s clean and renewable and sustainable. think Republicans like it because it leverages drilling technologies, it’s domestic. So it’s got unique bipartisan, well maybe it’s not unique, along with nuclear has bipartisan support. And I think that means you’ll get good alignment on policies at the state, local and federal levels. And so there’s support for the Trump administration. I think Trump doesn’t love it as much as he loves nuclear.

Dr. Michael Webber (21:26.182)

But he seems to like it and he’s not beating up on it for sure. So geothermal looks like a winner. And one of the things that geothermal can leverage is all the advances in drilling technology that have happened in the last 20 years. It will also make advances, but it can leverage other people’s investments, namely the only gas industry’s investments in drilling technology. The geothermal industry can ride that cost curve down. And then they have this stable around the clock performance and customers who have the cash to pay for it. So geothermal looks really good.

Dr. Michael Webber (21:53.184)

It’s limited in location. tends to be Nevada, Utah, California, like Hawaii, places where have volcanoes or tectonic activity. There are a few pockets in Texas where you can do it. What I like from the Texas perspective as a Texas patriot is even if we’re not producing a lot of geothermal in Texas, the companies are talent or know-how might be here. So there’s a real good Texas angle for this, even if it’s for a site in Utah.

Joshua Rhodes (22:15.522)

That makes a lot of sense. I was thinking about this concept of talking about multiple different constituencies. They probably won’t want to use this as a tagline, but carbon-free drilling or something like that or low carbon drilling. It’s like got both buzzwords for both sides of this thing.

Dr. Michael Webber (22:27.456)

Yes, it’s one of the few options that satisfies most different people’s priorities, which is really great. think that’s one reason why it’ll be a winner.

Joshua Rhodes (22:35.512)

Yeah, it reminds me of the Green Tea Party, which is a coalition of Sierra Club and the Tea Party in Georgia back in like the early 2000s. They got together to force the utility to let them put solar on their roof. And was the libertarians were like, you won’t tell me what I won’t do on my own property. Thank you very much. And Sierra Club was like solar. In the Venn diagram of things, I was like the one thing that they kind of agreed on, but it was powerful enough to force Southern Company to let them do it, which is not an easy thing to do. It worked. It worked.

Dr. Michael Webber (22:59.522)

right? Yeah, they wanted to push back against the utility control. Environmentalists wanted the low emissions profile and the cleanliness. So yeah, and that’s a sign and I think solar still has that by the way, solar opportunity to grow because it satisfies some libertarian instinct as well as some environmental instinct. And so you look at those solutions that get there, they’ll do okay. Nuclear doesn’t satisfy a libertarian instinct so much nuclear is very clean. It is very reliable. It needs a very strong hand from government that is back to succeed. So you have a

Dr. Michael Webber (23:27.778)

kind of intervention in the markets to really give nuclear boost, but some of the other options do.

Joshua Rhodes (23:32.364)

Yeah, nuclear feels like it’s gone through a bit of a renaissance too in terms of like, it’s acceptance. There’s a lot of new environmentalist movements that are very pro-nuclear, just like, okay, we got to build something. We can’t just say no to building everything. Like the new environmental movement has to be about building something. And it doesn’t seem like it’s getting beat up on as much as it used to.

Dr. Michael Webber (23:52.11)

feel

Dr. Michael Webber (23:52.21)

like this is my third nuclear renaissance I’ve watched in the last 20 years. Everyone feels different. This one feels different. It feels stickier for that reasons you said, which is the environmental movement has been sort of looking at nuclear with a wary eye for one time because of the concerns around nuclear waste or meltdowns or public risk. Some security folks have looked at nuclear with a wary eye because of the connections with weapons proliferation. But I think the security establishment’s more concerned about other things in the energy system. And environmentalists had come around to the idea like, okay, nuclear still needs a lot of water.

Dr. Michael Webber (24:21.87)

There’s a nuclear waste issue, but there’s technologies for that. But it’s got a really clean profile. It doesn’t have the air emissions that are toxic. It doesn’t have the greenhouse gases. So the environmental movement’s kind of come around on nuclear after a hesitant relationship for many decades. But then there’s a cultural movement where you have students at universities like, why don’t we build nuclear? So you see nuclear engineering students from Texas A &M on ESPN College game day holding them a sign like, we love nuclear. And this moment went viral. And you have like,

Dr. Michael Webber (24:50.264)

beauty pageant winner who’s in nuclear engineering working for Constellation. She’s talking about nuclear, a Brazilian fashion model. So we have like fashion models and beauty pageant winners and engineering students on college game day all seeing the same thing, which is nuclear is a part of the future. And so there is a youthful cultural force that’s very different than the people who had been promoting nuclear for many decades. There’s going to be older engineers who worked at a utility or something. So it’s very different profile. So nuclear looks good. And then what that sort of manifests itself as is

Dr. Michael Webber (25:20.416)

local state and federal policies as far as certainly Trump administration supportive. But as I mentioned, Governor Abbott supportive, but even cities like city of Austin doesn’t seem opposed, right? Austin actually has a six of a nuclear reactor. I think you started to get this political and policy alignment, which is really interesting.

Joshua Rhodes (25:35.018)

totally. So thank you for letting us go through your historical predictions, predictions from last year about still into the future. And so I’m hoping you can come on and we can do this multiple times and you can either be proved right over and over again or wrong. So switching gears a little bit. So some folks may know that every year we have the annual Weber Energy Group Symposium, which is at the University of Texas. I’m in your research group and it’s kind of a celebration of all the research that we do.

Joshua Rhodes (26:01.964)

in the group. But one of the highlights of that event is you kind of give state of the energy or whatever talk, like a big wide ranging talk about where we’ve been, where we are, maybe where we’re going in terms of energy. And to keep with the theme of this podcast, one of the big themes of that talk you gave was energy is going through a three-part transition, right? So could you tell me what is that three-part transition that you think energy is going through?

Dr. Michael Webber (26:27.086)

Yeah, now we’re on our third trilemma, our third three-part transition, I would say. to my eye, it looks like three dimensions of the energy transition we’re going through right now. One is expanding the energy system or particular, expanding energy access. We have universal energy access in the United States, but we don’t around the world. There’s a billion or more people who don’t have access to electricity. A billion or more people don’t have access to other modern fuels, say gasoline or propane or something. They’re using solid fuels like wood or caldunga or straw or something like that.

Dr. Michael Webber (26:55.274)

And then we have a couple billion people who don’t have access to pipe to treated water or sanitation. So the sole access problem to clean resources or modern energy forms. And part of the transition is to expand energy access so that those people will have access to the energy that you and I already have access to. So that’s part number one, expanding energy access globally. Second is cleaning up the energy system. Those of us who have access, have a lot of emissions or land or water impacts must reduce our impacts.

Dr. Michael Webber (27:22.86)

And the energy system generally gets cleaner per unit of energy and cleaner per person, but we have more people, so it gets dirtier as a whole. It feels like we’re hitting a turning point where the energy system will get cleaner on absolute terms, even as we have population economic growth. So we have to expand energy access, that’s part one, but to clean up the energy system, that’s part two. Part three is operate in a warmer world. A lot of our energy system was built, for example, in the power sector 40 or 50 years ago in the United States, the pipelines often built

Dr. Michael Webber (27:50.828)

long before that, or the transmission lines built long before that. So we have a multi-decade or century old system in many parts of the United States that was designed for a different population, different strain on the system from the population, but also different weather. So as the climate warms on average, that means we’ll have milder winters, warmer summers, so more heat waves and droughts in the summers, but also perhaps more frequent and intense polar vortices or these cold snaps, which we just had a couple weeks ago in Texas and...

Dr. Michael Webber (28:18.904)

five years ago with winter storm Uri and we had all sorts of winter storms. So we have warmer weather, which will strain the system if you design it for different weather. And the heat waves are a typical problem in Texas, but the heat waves are hotter and lasting longer. Think of the heat dome in 2023 where it was summer for like four and a half months or something. heat waves in early May and heat waves in November, that’s six months, I can’t even do my math, but the heat waves in November and it was so hot for so long, that’s a real strain on the system.

Dr. Michael Webber (28:47.096)

but it is accompanied by droughts. You don’t have the cooling water you need for the power plants. We also have more people doing irrigation, which means more electric pumps for water, which means the demand goes up and blah, blah, blah. So we have all these things, that’s a real problem. So expanding energy access, decarbonizing, operating a warming world, that’s what we have to do with the entire system. And a lot of these assets are kind of old. The newer assets will be easier to design for, but we have to work with what we got and a lot of what we got isn’t new.

Joshua Rhodes (29:11.682)

Yeah, no, I think sometimes, you for some people now the term energy transition is kind of a triggering phrase. We have any other ideas for other things?

Dr. Michael Webber (29:21.006)

Yeah, I’ve got a list of phrases we no longer we used to call energy revolution unacceptable for a while we talked about energy evolution that’s no longer acceptable. For the last few years, we talked about energy transition that’s also unacceptable. So there were now like a short list of acceptable phrases, meaning like non triggering for different constituencies, things like energy innovation or energy expansion or energy addition or energy abundance or energy dominance. And you hear like with Trump administration’s energy

Dr. Michael Webber (29:48.524)

dominance. Secretary of Energy Chris Wright talks a lot about energy addition and energy abundance. And I like the innovation. I don’t really like the word dominant. That sounds like you’re beating someone up. But these are the kind of the phrases that work with the Trump administration that are less triggering. But within, say, the concept of energy innovation or energy expansion or energy addition, we have a lot of opportunity to add a lot of cool things to the grid or to the energy system that are cleaner and higher performing and more affordable and more reliable.

Joshua Rhodes (30:15.566)

Oh, totally. And so, maybe we’re beating up on the term energy transition. I mean, as it’s become, I guess, embody what it means, is it getting anything wrong right now? Like in 2026, what is the phrase energy transition get wrong?

Dr. Michael Webber (30:27.458)

I feel like a transition is still happening. I feel like for the most part, the fundamental trends are still occurring. We have to label it something different. Energy dominance, I think means exporting a lot of energy to the world and dominating the geopolitics of the markets, which actually we started around 21 or 22. Like a few years ago, we became the biggest exporter of qualified natural gas. For example, the biggest producer of hydrocarbons in the world. So we were kind of already been energy dominant for years, but we didn’t call it that. The Biden administration didn’t talk about energy dominance. They talked about energy transition.

Dr. Michael Webber (30:56.514)

The Trump administration talks about energy dominance, but not transition, but not a whole lot has changed for the most part. Some of the rhetoric has changed. Some of the policies has changed. The market preferences haven’t changed a whole lot to my eye. No one in the markets is really clamoring to build a new coal plant and the people who own coal plants are actually looking to shut them down. But they’re often forced to keep them online, even if they’re expensive because of policy fiat. So I think the word transition is too triggering. We had to drop it, but what the markets are doing hasn’t changed a whole lot.

Dr. Michael Webber (31:26.732)

The biggest change of the Trump administration has been sort of the all out war on offshore wind. That’s where the president has had the biggest impact. He’s revoked the permits or tried to cancel five projects that are either operating or closed operating. All have led to lawsuits. He’s lost every one of those lawsuits. All five of those wind farms will operate or are operational. But it’s going be hard to build a new offshore wind farm. So that’s one distinct change from the dominance. And I was like, well, if you really believe in energy expansion, we’ll expand everything. So that doesn’t make sense to me.

Dr. Michael Webber (31:56.046)

But he’s got his preferred fuels and the fuels he doesn’t like. Onshore wind and onshore solar will also suffer, but not as badly as offshore wind. And onshore solar is too competitive to keep out of the bar. The markets just are calling for it. Yeah. Yeah. Wind’s actually started to slow down in 2021 in the Biden administration. Yeah. Primarily because its supply profile doesn’t match our load profile and the lines were getting congested. So the new power plants with solar are a good compliment to that wind. I think we just had different phrases, but

Dr. Michael Webber (32:25.42)

the trends are basically the same.

Joshua Rhodes (32:27.982)

But even so, you said like the output may be not matching our load profile. But if we add a bunch of data centers that have not exactly flat, but flat-ish load profiles, I think that that script could flip back.

Dr. Michael Webber (32:40.024)

I mean, data centers want round the clock load. That’s not wind and that’s not solar, but wind plus solar plus a little bit of battery looks pretty flat in most places because the supply profiles of solar wind are so out of phase that you might get there. Data centers, a key thing there is they’re rich, they’re in a hurry, and they have high demands on reliability. And so that’s why they can pay for geothermal and nuclear, which is exciting. But because they’re in a hurry, they can’t wait till 2029 or 2035.

Dr. Michael Webber (33:08.75)

And if you’re in a hurry, it’s going to be wind, solar and batteries. So the thing is there’s room for everybody. would say we need fast simplicity of wind, solar and batteries and it’s cleanliness. We need around the clock performance. We’re doable source like geothermal. need the round the clock performance of large scale dense options. There’s room for all of them, but they arrive on different timelines. If you’re in a hurry, you’ll start to say, we’ll pay for everything. We just want everything we can get.

Joshua Rhodes (33:30.008)

Yeah. Do you think we’re given that we need everything? Like are we in an era, are we entering an era of energy scarcity or energy abundance?

Dr. Michael Webber (33:37.582)

That’s a great question. So if you look at the backlogs for like say natural gas turbines at Siemens and GE, there’s a rush on gas turbines, primarily for data centers behind the meter, say they might want natural gas combined cycle power plants, which are really good for around the clock performance. For grid reliability reasons, there’s a rush for the aerodirative fast ramping gas turbines, which you don’t use around the clock, but use on the hours or days you don’t have say winter, solar or other options.

Dr. Michael Webber (34:02.936)

So there’s a rush on the fast ramping gas turbines. There’s a rush on natural gas to mine cycle, but there are backlogs at all the different manufacturers. And so you could say, there’s a backlog, there’s gonna be scarcity. But fundamentally, we have plenty of energy available in the grid. We don’t have plenty of power. The scarcity is only a few hours of a few days of the year. And if we get to operate flexibly, dialing down the data centers or water treatment plants or steel smelters or whatever, we actually are fine.

Dr. Michael Webber (34:29.646)

We’re having all this argument, seems like over a few hours and a few days of the year. The rest of the year we have access capacity. And I think what people will find in our finding again and again is that the fastest way to get more power is through flexibility, or you can ramp your load up and down. You and I don’t worry about that so much at our houses with our light switches and each vac and heating and cooling. If you’re a crypto miner, especially, but if you’re some other big industrial load, you could totally dial down your load at peak times.

Dr. Michael Webber (34:56.706)

And that flexibility is going to look really cheap and fast to bring online. And we’re already seeing that. So I think that avoids scarcity. So I don’t think we’re heading towards a scarce situation very quickly. The scarcity will solve itself with flexibility.

Joshua Rhodes (35:07.406)

I think you noted in that presentation, know, peak load is a challenge, but you know, the grid is utilized on average less than 50 % of the time or something like that. yeah, with these new loads that are causing a lot of these backlogs at Siemens and GE and others, are these new loads, data centers in particular, are they a problem or an opportunity?

Dr. Michael Webber (35:23.086)

Dr. Michael Webber (35:23.406)

I think they’re an opportunity. I know they’re hated because there’s a fear they’ll drive up electric rates. There’s a concern about the land impacts and the water use. People are worried that it’ll make electricity more expensive. If we do it the right way and data centers and other loads are flexible, then all that new investment of the grid will actually lower the cost for everybody. It should improve the capital utilization. So we have a multi-trillion dollar power sector. We use it less than 50 % of the time. But if we had a lot of new electric users to the grid and they’re able to schedule their load, like charge

Dr. Michael Webber (35:51.63)

management for electric vehicles or flexibility at peak times with data centers and crypto miners, then we’ll get greater than 50 % capital utilization of entry 60 or 70 or 80%. That means we’re using the same asset base, the same trillions of dollars, but for more kilowatt hours. And so for dividing the same trillions over more kilowatt hours, that’s a lower cost per kilowatt hour. I think that’s where we’ll end up a few years from now. The intervening fears will be very painful because it takes a little while to get there. So we’re going to feel rates go up rates have already gone up rates are on the way up.

Dr. Michael Webber (36:21.016)

But I think as we get through this crush, we’ll get to higher performance, lower emissions, lower cost. That’s where I think we’ll end up. And I think we’ll get there within three to five years. I don’t think we’ll get there in one to three years. So it’s going to be pretty politically painful incumbents for the next few years. In fact, we already have politicians paying the price, losing office because rates have gone up. So I think that will continue for another couple of years.

Joshua Rhodes (36:47.348)

You talk about we’re moving into a transmission scarce environment. Is that part of that short term? These issues or is that more of a long term?

Dr. Michael Webber (36:54.56)

It’s all happening right now. these transitions, I talk about the trilemma now with energy access expansion, decarbonization and operating normal world, but we’ve always had change. Sometimes these changes happen in a condensed period of like 10 to 20 years. And we’ve had prior energy transitions that were very rapid. We call that the industrial revolution or the second industrial revolution or the jet age or the silicon age and now maybe the next energy transition. So there is a timing situation right now.

Dr. Michael Webber (37:21.438)

And one thing we’ve been at for a while is we’ve generally had an excess of transmission capacity and those days are over. Because you can build new load, a new data center, a new factory, a gigafactory, whatever it is, in like two years or less. You can build a new solar wind farm in say a couple years, a new gas plant maybe in five years, new geothermal nuclear for like four to 10 years. But transmission historically is six years in Texas, say, but 20 years elsewhere. So the time it takes to build new load is faster than the time it takes to

Dr. Michael Webber (37:50.254)

build new supply is faster than it to build new transmission. And we’ve gotten away with this tiny mismatch because of excess capacity in the grid. But we’re running out of excess capacity in the grid. We’re running out of excess capacity at the power plants. So we’re going to have to manage everything a little better. And I think we’re going to expand transmission. It’s just hard to expand it as quickly as the other things. But if you ramp up on flexibility, then we can solve all that, I think.

Joshua Rhodes (38:13.548)

Yeah, there’s other parts of that too. think you mentioned that we’ve got a gas turbine backlog that’s masking a gas pipeline backlog. Like it’s not just one part, it’s all parts of the system that are going to have to like grow quickly, right?

Dr. Michael Webber (38:25.134)

Everybody’s in a hurry for everything. We’re all waiting two to five years for transformers and three to five years for turbines. And then by the way, a gas pipeline hookup might take four to six years as well. So there’s just a lot that has happened. And I think a lot of that is consequence of we haven’t really grown to the power sector for 20 years. We’ve gone from a level mode where you don’t grow to also grow very quickly. So we’re taking a very large lumbering, continentally sized industry, causing it to grow five to 10 % a year.

Dr. Michael Webber (38:54.782)

Software and other parts of the world have done that. know how to do it. But energy, power sector, we’ve kind of forgotten how to do it. We’ve lost our muscle memory. So we got to break ground quickly, get steel on the ground quickly, regulatory approvals quickly, get your investment lined up quickly. Anyone’s really done that since the 80s. So it’s been a while since we’ve had to learn how to do that.

Joshua Rhodes (39:11.736)

So if there’s something you could get every policymaker out there to understand about how the energy sector is changing different, how fast it needs to go, like what’s one or two things you wish every policymaker would know about this current state of the energy sector?

Dr. Michael Webber (39:24.014)

I think there are two things on my mind. One is we’re going through a capex wave, a capital expenditures wave that is at really rare levels. Yeah. Exceeds what we did in the 50s with interstate highways. It exceeds what we did in 2000 with rural broadband. It exceeds what we did with the railroads and canals in the late 1800s. It exceeds wartime footing in some cases. Yeah. So it’s really a dramatic level of investment. So this isn’t some kind of ephemeral fly-by-night thing. There might be a bubble, but the numbers are real. Like there’s big investment.

Dr. Michael Webber (39:53.784)

just appreciate the scale of the situation and the opportunity. And secondly, I think we’ve been too fussy about our culture war of hating particular forms of energy or preferring certain forms of energy. I think if we just let people build stuff and make it easier to get our permitting, for the most part, we’ll build the right things. It won’t be perfect. We have to be willing to tolerate some imperfection. But I say the moment is calling for us to build quickly, let’s go quickly or else we won’t meet the moment. And if we...

Dr. Michael Webber (40:22.36)

build quickly and meet the moment, we’ll mostly meet it the right way. We’ll have a few things we build that we regret without a doubt. But I’d rather have a few things that we regret that we built than not build enough and then regret having missed out on one of the most important economic and national security opportunities in history. So I guess I’d rather err on the side of build too many things we regret than build too few capabilities that we’re really going to need in the future. Otherwise, you’re not going to meet the moment. Those are the two things I say is a real sort of interesting historical time. Let’s build. Let’s catch up.

Joshua Rhodes (40:51.052)

Yeah, I think it also exceeds the moon landing, but like we landed a few times. We haven’t been back. Maybe we’re going back. I don’t know. We’ll see what Elon’s talking about in this day and age.

Dr. Michael Webber (40:59.114)

He’s talking about Mars too, so who knows, right? So a lot of things going on and mostly private capital for that. that market has evolved as well.

Joshua Rhodes (41:05.902)

Okay, this is a part of the podcast where we’ve flipped the script. You’re now interviewing me. I’m on your podcast. What do you want to ask me?

Dr. Michael Webber (41:13.588)

What I want ask you, I love this. Okay, so if you were to talk to 18 year olds graduating from high school, and they’re confident in what they should do with their future for studies or career or whatever, would you recommend they go into energy?

Joshua Rhodes (41:27.374)

Totally. Of course, I’m going to be biased, but I definitely would recommend folks go into energy. I that doesn’t necessarily mean that you’re out on an oil rig or being in utility space. There’s lots of companies that are in this space. But in particularly, I think I would focus people on electricity. And again, I’m going to be double biased here that that’s what I study. That’s what I do. The thing is, I’ve heard people say the phrase peak oil. I’ve heard people say peak gas. I’ve never heard anyone say peak electricity like a real straight face.

Dr. Michael Webber (41:54.328)

peak electron. Yeah, that’s interesting. Yeah, that’s right. I’ve never heard that either. That’s right.

Joshua Rhodes (41:58.094)

Yeah. So I don’t think anyone said it because I don’t think anyone’s ever thinking that we’re going to use less electricity over time. mean, energy perhaps, but I think the electrification part of that continues to grow. think energy is going to be, or electricity in particular is going to be in a growth phase. Particularly right now, it’s in a massive growth phase with AI and data centers and all these other types of things. But yeah, I know I think it’s a great place to be in. I think some of this stuff AI is not going to be able to take over, at least in the next employment cycle wave or whatever. We’ll see where we eventually get to.

Joshua Rhodes (42:26.604)

I know we’re all kind of struggling with this, but yeah, think energy is a great place to be.

Dr. Michael Webber (42:29.966)

And electricity in particular, which says maybe it’s because you’re biased, but you also did your own thinking and arrived at that conclusion. Electricity is an exciting place to be and that’s why you’re excited. Okay. Can I ask you one more related following question? Yeah. Let’s say those 18 year olds are trying to decide to go to college or not. If they don’t go to college, should they just start working or get like a technical trade or some other thing? So what would you tell that 18 year old?

Joshua Rhodes (42:51.63)

Yeah, I I think if you’re not going to go to college, I mean, right now, sticking with the theme like electrician is a great career to be in. I’ve heard rumors of folks like working on data centers. Now you’re working multiple over times and other types of things, but making the equivalent of like three, $400,000 per year salaries right now. Hard work, a lot of work, but it’s probably hard to automate that at least at this point. I mean, if you’re going to college, I mean, I think one of the things that has changed that I would say, I mean,

Joshua Rhodes (43:18.914)

The advice I always give to people is study the hardest thing you like because it opens the most doors. If you like history and you like physics, equally, then study physics, minor in history or something like that. Just like study the hardest thing that you like. And that’s been the traditional advice that I’ve given to most that are going to college. Right now, I would focus on critical thinking. We’ve pushed hard into STEM. We’ve pushed hard into computer science and coding and a lot of this other kind of stuff. A lot of these things that are rules-based and...

Joshua Rhodes (43:45.888)

AI is pretty good at that kind of thing. AI is really good at things that have definite rules and even getting into law and like other types of things. But if you can still have the critical thinking to know how to guide these systems that we’re starting to use more, I think that’s still going to be valuable. I mean, it’s going to evolve over time. But yeah, so study the hardest thing that you like, but don’t skip liberal arts, the humanities, other types of things that make you actually have to think because some of the other types of technical thinking are getting co-opted by some of these.

Joshua Rhodes (44:14.678)

machines but kind of the bigger questions I mean I think we’re still going to need to know how to handle to guide the systems wherever they want to go.

Dr. Michael Webber (44:20.91)

I think I told you, I would say get a trade, pipe fitting, welding, electrician work, something, and study philosophy or humanities. So you could do both, by the way, you don’t have to do this, but I think humanities prepares us better to deal with the complexities of society that hasn’t presented itself yet with rise of AI and everything else. But the trades will call for a lot of work and lucrative careers and will be displaced by robotics later than coders who will be displaced by AI today or have been displaced.

Dr. Michael Webber (44:49.664)

I think I agree with you. There’s some combination there, perhaps.

Joshua Rhodes (44:51.918)

Yeah, and I still think things like engineering are extremely valuable in terms of just understanding systems and how they work and being able to like look at something and say, that’s a perpetual motion machine. That kind of intuition I think is super valuable. Intuition is I think is going to be lacking going into the future as we offload some of our cognitive processing.

Dr. Michael Webber (45:10.008)

That’s a point. And you only get that intuition from grappling with the problem and thinking that through. Yeah, totally.

Joshua Rhodes (45:15.726)

Michael

Joshua Rhodes (45:16.548)

Weber, thank you for being on the Energy Capital Podcast.

Dr. Michael Webber (45:19.096)

Thanks so much, I’m having a great conversation as always.

Joshua Rhodes (45:22.168)

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 (45:51.534)

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.

Behind the scenes, every few minutes, the ERCOT system generates tens of thousands of price signals, outage updates, and operational reports that demonstrate and drive the cost and availability of electricity.

Most of that data is public. But how can Texans access it?

This week, Joshua Rhodes talks with Max Kanter, chief executive officer of GridStatus, about the gap between public data and practical visibility and application, and why that matters in Texas.

In this episode, they discuss:

* Why public grid data is harder to use than it would seem.

* What real-time pricing signals reveal about system stress.

* How outage and congestion data shape ERCOT debates.

There are more than 70,000 pricing nodes across U.S. energy markets, updating every five minutes. ERCOT alone produces enormous volumes of operational data.Those signals often spotlight stresses on the system before they show up in prices and control rooms.

As Texas adds new industrial loads and faces continued risks from extreme weather, more policymakers, analysts, and large customers want to know what’s coming. They’re looking for distress signals.

On this week’s episode, Josh and Max tell you where to find them – and what to do with them.

Timestamps

* 00:06 – Welcome, Max Kanter intro

* 02:00 – Computer science, AI shifts

* 03:32 – What is GridStatus?

* 04:36 – What users see first

* 05:31 – Who uses GridStatus today

* 06:56 – Tiers, hobbyists, accessibility

* 07:52 – AI tools, new builders

* 09:47 – Why a business existed

* 12:49 – Early demand validated product

* 14:18 – From carbon to markets

* 16:44 – Data scale, nodal pricing map

* 32:20 – Flip script, Rhodes on public role

Resources

Guest & Company• Max Kanter - LinkedIn • Grid Status - LinkedIn

Company & Industry News• The power grid is hard to understand. This startup is trying to help. • Why We Invested in Grid Status

Related Podcasts by TEAP• The New Rules Behind ERCOT Prices with Andrew Reimers • Who Pays for Texas Grid Growth? - Roundtable Discussion• Texas’ Load Growth Challenges – And Opportunities, with Arushi Sharma Frank

Energy Capital Podcast is produced by ClarityForge Studios.

Transcript

Joshua Rhodes (00:05.778)

everyone, and welcome to the Energy Capital podcast. I am really excited to have Max Cantor, CEO of GridStatus on today to just talk about data, all the data that are coming off the grid and everything like that. If you’re steeped in grids, you’ve probably heard of GridStatus, you’ve probably seen at least a screenshot of dashboards and things like that floating around social media. But one of the things I wanted to bring to this podcast was to kind of dig a little bit deeper into some of the more technical side of things. And I promised all

Joshua Rhodes (00:35.278)

I’d be listeners that I wouldn’t completely bore you to tears with data, but we are going to talk about it a little bit because it is so important. So we have Max Cantor on. has a bachelor’s and a master’s of computer science from MIT. And I don’t usually name check theses, but this one actually caught my eye. So his master’s thesis was the data science machine emulating human intelligence in data science endeavors, which sounds like a harbinger of basically AI. We’ll get back to that here in a bit.

Joshua Rhodes (01:05.294)

He started off as CEO and co-founder of Feature Labs, which was acquired by Alteryx in 2019. At that point, was the VP of Engineering at Alteryx for the next couple of years before going back to MIT as a visiting scholar in the Data to AI lab, where at that time when he was at MIT, launched Grid Status in August of 2022. And the tagline, or at least the one that’s on his socials is, the future of the electric grid runs on data and AI. Grid Status provides

Joshua Rhodes (01:34.562)

data and insights for the understanding, investing and operating of the electrical grid. And our goal is to be the most trusted source for whatever is happening on the grid. Max Kanner, welcome to the Energy Capital Podcast.

Max Kanter (01:47.522)

Thank you, Joshua. Happy to be here.

Joshua Rhodes (01:49.452)

Yeah, I should probably say full disclosure, I’m actually a client as well. So I have a subscription to GridStatus. So thank you for making it so easy to get all of these data.

Max Kanter (01:58.456)

Yeah, that was the goal from the very beginning.

Joshua Rhodes (02:00.46)

Yeah, no, I think it’s worked out quite a bit. It’s much easier. I wanted to actually immediately kind of go off script. Your bachelor’s and master’s are in computer science. Do you have a feel for what computer science means today, kind of in this age of AI? How has it changed since you were there?

Max Kanter (02:16.312)

Computer science as an academic field is younger than many, right? So things like biology or physics, right? Computer science, I’d have to double check, but I think it’s probably a phrase that has only formally been studied for less than a hundred years. And so it’s come a long way in just that time from something minor to one of the hottest topics. One of the things I think is so interesting though about AI in particular though is

Max Kanter (02:42.87)

A lot of the earliest computer scientists, their goal from the very beginning was to create an artificial intelligence. That’s actually how they thought about computers, know, replicate the stuff that humans were doing. And so in some sense, the goals actually haven’t changed at all, right? I think over the decades, think the biggest thing that’s different is, really the size of the compute that’s being undertaken to actually accomplish it. And, know, one of the things, you know, thinking back to when I first started doing say academic computer science is so much.

Max Kanter (03:12.45)

of the forefront of the field was happening within universities. think nowadays when you think of, well, where’s the frontier AI research happening, know, oftentimes it’s thought of outside of universities. And I think that’s one of the biggest changes I’ve seen. And why is that? There might be many reasons, but think one of them is just the size of the compute and the cost of doing that.

Joshua Rhodes (03:31.916)

Yeah, that’s big implications of particularly like size of the compute. I mean for the electricity grid, right? Because you got to get a bunch of electricity to that. I apologize for throwing you a curveball right off. Yeah, totally. So, I’ve introduced grid status a bit. With someone who’s outside of energy, I think a lot of folks who listen to this podcast are kind of in energy. But if someone’s outside of energy, ask you what you do. Like how do you describe, you know, grid status?

Max Kanter (03:41.998)

that makes it more interesting.

Max Kanter (03:56.514)

Yeah. I would say grid status is the homepage for the electric grid. I think a lot of people, when they think about the grid, well, first they don’t actually think about it that much. You you plug something into an outlet, you get power, right? But behind the scenes, it’s actually the world’s most complex machine. And even though it’s this big machine, it’s not like you have one person operating it or one person putting power into it or one person regulating it. It’s actually very complex with a lot of different stakeholders.

Max Kanter (04:24.82)

And so, yeah, the role of grid status is to be, you if you have a question about the grid or you want to have an understanding about what’s going on, we want to be the first place people go. And so, yeah, we’re the homepage of the electric grid.

Joshua Rhodes (04:36.27)

That’s cool. Grid status started out as doing mostly data, Mostly hosting data and having data. Now there’s a lot more dashboards and other types of things. Can you just talk through a little bit, of like, if someone goes to the homepage of the electric grids, you say like, what are they going to find?

Max Kanter (04:52.748)

Yeah, I’d say that’s kind of the core product and technical question we’re trying to answer or solve, I should say. Right. And what are you going to find is, you know, the answer really is like, whatever is relevant for you. And we serve a lot of different types of users. Some people care a lot about, you know, what the fuel mix on the grid is. Some people care a lot about pricing. Some people care about forecasts and, know, grid operations for the coming days. And so our goal at GridSat is to show you what’s relevant.

Max Kanter (05:22.088)

And we’ve honed in on that over time.

Joshua Rhodes (05:24.76)

Nice. And talk about like you said for different types of users, what all types of users do you have?

Max Kanter (05:30.84)

I would say anybody who cares about the grid is part of our user base. And that’s one of the things that’s most exciting about grid status for me. think if you rewind five, 10 years and you were to say, your electric grid data and analytics company, who do you serve? The answer would be pretty narrow. Energy traders, utilities, power plant operators. What I see with grid status is really have expanded the pie of people who can make use of the data. So today I think some of our bread and butter

Max Kanter (06:00.318)

are people who are buying and selling large amounts of power. You know, it’s energy traders, it’s asset operators, but we’ve also expanded it. We have researchers, we have these like large loads who need to be responsive to the grid. Even the regulators, you we talk to people in the federal government who are trying to make laws about the grid and, the fastest place them to figure out what’s going on is grid status. Very large swath of people.

Joshua Rhodes (06:26.572)

Yeah, know used to, someone would ask me what was going on in ERCOT, which is a common thing. Well, when people start asking me what’s going on in ERCOT, I start to get worried. I used to go to the ERCOT website and, you know, grab a screenshot of something, but now more or less it’s to the grid status web page. You got better colors and fonts too, by the way. So that’s really nice. In the app, you’ve got multiple different tiers of access that folks can get. I noticed recently you put in like a hobby tier. Are you starting to see more hobbyists out there? Like using the data?

Max Kanter (06:55.928)

For sure. And one of the fun challenges with grid status is, you know, didn’t even actually start this thinking about me as company. It was very much around how do we make it easier to get access to this data? And that came from a personal problem I had. I wanted to build some actually machine learning algorithms for forecasting the price of electricity. And well, I needed to get access to the raw data to train those models. And so a lot of our journey over the last couple of years has been, you know, how do you solve the problem of making data accessible?

Max Kanter (07:25.262)

but also do it in a sustainable way. I mean, it’s not cheap or free to be collecting all this. And so, yeah, I think one of the fun things about Gridset as you talk about the tiers is yeah, we have evolved into, we have a free offering that is for everybody, hobbyist offering that you mentioned, and then also professional enterprise offerings and figuring out what goes into each bucket and how to, you know, sort of serve everybody is kind of like the fun side of developing the business.

Joshua Rhodes (07:52.398)

Kind of sticking to that hobby tier, you know, one of the things that AI has done is really democratize coding. You can write a thousand lines of code so much faster. It was so much less, how do I say, experience than it used to take. I mean, these models are pretty great. mean, like, have you seen anyone create anything from the hobby tier or other things like that? Really, since like, AI has made it lot easier to code?

Max Kanter (08:15.822)

I would say so. think from the kind of building blocks of it all, we’ve seen people actually take our tools and then wrap them in basically libraries to make it very easy for the AI tools to automatically consume them. so, you know, one of the things I think a lot of people end up using that for and on the hobby tier is there’s this whole group, I’d say of like policy advocacy, nonprofits, you know, people that have in the past had very limited budgets.

Max Kanter (08:45.784)

to get access to this data. Having to go to the ISOs themselves is either too time prohibitive, right? Or yeah, you know, as you kind of alluded to, like too expensive to actually write the code to grab all the data. And so using grid status, they’re able to kind of further whatever policy objective that they have. We don’t personally take any sort of stance, but it is definitely a goal of ours to supply the facts and the data for people to explore and make their case.

Max Kanter (09:13.024)

And so, yeah, like one of the things I’ve seen with the AI tools is I’m thinking of like a particular example of somebody in Illinois, you know, that’s where GridStats is actually based here in Chicago. So, you know, something that I personally like to pay attention to, you know, someone who’s a nuclear advocate, right? And, you know, being able to pull the data from GridStats about how nuclear power, the amount of generation in Illinois, where it’s getting imported and exported, how that affects costs. Yeah, it’s, you know, somebody who’s definitely very talented, but they certainly don’t have a computer science or programming background.

Max Kanter (09:42.51)

you’re not able to use our free and hobby products to accomplish that.

Joshua Rhodes (09:46.712)

So one of the things you said there was talking about like not being able to go to the ISO to get the data. I mean, I’ve done that before, right? Like I’ve played mostly in ERCOT. So I’ve gone to ERCOT’s website and downloaded a CSV that has like five minutes worth of data for like all the nodes and like all these other types of things. it just, well, one, they can only host like so much of it. You know, it was free, but it was very painful, right? We’ll give you the confidence that a business could be built around, you know, cleaning it up and getting it.

Joshua Rhodes (10:15.318)

organized in one spot.

Max Kanter (10:18.062)

Figuring out how to gain the confidence, I think, is a key part of the story of grid status. So early on, there was no goal to make it into a business. I had my own goal of actually trying to build out a vehicle to grid product. And I was like, in order to implement vehicle to grid, you need to have a sense or a forecast of where you think prices are going to be the next day. And so I started this grid status actually as an open source library, just going to be a little side quest.

Max Kanter (10:46.572)

to make it easy to collect this data. You know, if I had this problem, I’m sure somebody else is going to want to run this code. But yeah, I’d spend a few weeks on this and then get back to building Veil Code to Grid software. So actually, yeah, first I didn’t think there was a business here. However, I put that code out publicly. So I put it out on a product called GitHub, right? Where software developers hang out and, you know, very quickly met a handful of people who were saying things like, Hey, I wish this existed when I started my current job, because I would have just used that directly.

Max Kanter (11:16.098)

Right. And then people started asking for more features. They started contributing some code themselves. And, you know, that’s when I realized that, I’m not the only person who has this problem. And at that stage, it wasn’t even, let’s turn this into a company. was like, well, let me just listen to what people are asking for and build out some of those things. Because honestly, what gets me most excited and motivated is to build a product people use. And so you have someone basically telling you they’re going to use this software. you build that X, Y, and Z, you know, I did it. And.

Max Kanter (11:45.474)

Basically what happened is, you one thing led to another. We started adding in data sets and then people were like, you know, I don’t want to run your open source scrapers myself. I wish I could just hit an API and it would return me the data from your servers. And so then we built out the API and then people were asking, well, how do I even know what data is on the API? So then we built out the homepage that would just let people go to a URL and see what data is available. Right. And then they were like, couldn’t you show the data like this? And we started showing the data like we started showing, let’s say all the LMPs in one place.

Max Kanter (12:15.182)

And like, could you put that on a map? And we built that out. And you know, one thing led to another. And you know, now we have tens of thousands of people that are coming to this site every month because we just listened to our users. And somewhere in the middle there, I realized if a couple of people find this very useful, you we could probably find a lot more and find one people who are willing to pay.

Joshua Rhodes (12:34.222)

I think I was probably one of the people emailing you in 2022 when you started this about like... You were. How to use your Python, like how to use the API or how to use... I mean, I literally have it up on my computer right now. was pulling data the other day.

Max Kanter (12:48.002)

You probably don’t realize how impactful those early emails were because, I didn’t come from the energy industry. You guys had to know there was business here and it’s like, you know, I came from the general purpose data science world. I kind of just stumbled into energy really as a hobby project, right? Related to the vehicle to grid stuff I was mentioning. And so, yeah, you know, you are someone who obviously knows the energy industry very well. And so being able to see people like yourself feel like there was an unmet need. That’s when I said like, Hey, there are some underserved people.

Max Kanter (13:16.95)

And that’s ultimately, you know, I think if you were to say like, what is the actual inflection point to starting a business is, well, find a big industry, pretty hard to find a bigger industry than energy. And then, you know, find a group of people that have an unmet need or are underserved by the incumbents and build the product that they want. I think that’s a pretty good formula for starting a company.

Joshua Rhodes (13:39.662)

Okay, maybe this makes sense in terms of like the timeline of kind of when grid status started, like you were still at MIT. And you mentioned it just a minute ago. When was that inflection point when you’re like, okay, this is no longer the side hustle, this is going to be the full hustle? Like when did that flip?

Max Kanter (13:55.19)

Yeah, I would say I waited as long as possible. We signed a contract with one of our first customers who actually happened to be a very large entity in the grid who I never thought would decide to be the first customer of a startup. But I was like, yeah, mean, if they’re willing to pay us, we should make this formal and really go after it.

Joshua Rhodes (14:17.646)

That’s really cool. So you’ve kind of alluded to it a little bit like before you were working on machine learning algorithms to do like be able to grid. I think there was something in there about looking even for the carbon intensity. How did that play into when you went on your side quest looking for all this data?

Max Kanter (14:34.638)

So

Max Kanter (14:34.998)

I’d say early when I thought about energy, I think what was very much in the zeitgeist was climate, carbon emissions. I think, you you try to buy like an airplane ticket. say, you know, paying $10 more and we’ll, you know, reduce your emissions or, you know, buy some offsets. And so I think when I first thought about energy, like that was very top of mind at the time I saw, you know, there’s probably a dozen different startups doing carbon accounting. It’s a very like, I’d say intuitive.

Max Kanter (15:04.824)

thing when you say you want to get into energy, where should I start? And so definitely that was on my mind. I still find it very interesting, but what I kind of found in building the company is like, what I really had taken for granted was the part that wasn’t intuitive. And that was how the electric grid actually works. The markets themselves, you know, there’s not an inherently best way to run an electricity market, right? And that’s why we have a bunch of different ISOs and they all do things slightly differently.

Joshua Rhodes (15:32.728)

Besides Texas though, right? Sorry.

Max Kanter (15:35.182)

besides

Max Kanter (15:35.642)

that’s the best way. Yeah. And maybe they are the best way. And I think part of the reason why they can make a claim for that is because they have chosen to make decisions in a certain way. And maybe other people will all copy them, right? But that’s kind of like the beauty of the markets. Even though that’s where I started, like what was really cool about this whole space is just how many layers to the onion there are. And, you know, can just continually appeal them back at a greater understanding.

Max Kanter (16:02.286)

And, know, from someone outside of the industry, was like drinking from the fire hose. And that’s why I got really lucky to, ultimately meet my co-founder, Connor, who kind of unlike me had spent his entire career in energy because now I had someone to help me learn this stuff. And then the feedback loop of working with the data, working with someone who, you know, is clearly an expert in these energy markets, that kind of just caught the bug. And I’ve been focused on that ever since.

Max Kanter (16:29.474)

What still amazes me is actually how little public awareness there is. And I know I’m preaching to the choir here with you, but you how little public awareness there is of just how both interestingly complex these markets are and how consequential there are.

Joshua Rhodes (16:43.694)

Yeah, I mean, you can kind of see it like in the data, right? know, prices are formed every five minutes. Dispatch decisions are made, you know, in RCOT every five minutes are getting bids every 15 minutes. I know RCOT the best and so I know there’s other regions that may do things differently. But like, what’s the velocity or volume of data that you pull in every day? How much are you adding to your suitcases full of data like every day?

Max Kanter (17:11.374)

So

Max Kanter (17:12.174)

there’s a lot of different dimensions to think about it. So I think the first dimension is how many different data sets do we collect? Right. So we collect, you know, over 500 data sets at this point from all the different regions or all the different grids in North America. And then each of those data sets, you know, might have updates ranging from every 10 seconds to once a day or once a week. And then within each one of those updates, and this is where I think

Max Kanter (17:39.402)

It is an example of something that didn’t come intuitively to me is the granularity of some of those updates. So the pricing information is perhaps the most interesting where there’s not just one global price of electricity on the grid, as you know, it gets down to like the node level and there are 70,000 plus nodes in the United States that are getting priced on a real time basis. And so that’s a huge dimensionality to this data that we’re updating.

Max Kanter (18:06.728)

And all that kind of led to like one of my favorite product releases we’ve ever done at Grid Status was making our nodal price map. So without an account to Grid Status, you can come to the homepage and you can see we’ve manually kind of mapped the geographic locations for over 20,000 of these nodes. And you can see for free without an account, how those are getting updated across the United States in one place every five minutes. you

Max Kanter (18:33.698)

As far as I know to this day, there’s no one else that offers that product. Going back to the point about being, do we become the homepage of the grid? To me, that’s the best encapsulation of it. Where can you go to see the most granular data possible? The data, you know, being updated every five minutes at 20,000 locations in one spot, kind of summarize in a very intuitive way. That’s been my favorite product release probably. We’re trying to one up it, but that’s a tough one to beat.

Joshua Rhodes (18:58.61)

awesome. I look forward to seeing how you’re going to best a map. People love maps. mean, one of the things that I learned, one of my most popular tools that I created, it’s an online map that shows the levelized cost of electricity in every county in the US and you can change the cost of fuel and it’ll update and all that kind of thing. And people love maps. And I think it’s intuitive because people know how to get around maps, right? They may not know how to get around the box plot or a scatter plot or something like that, but people generally, you’re from somewhere on that map.

Joshua Rhodes (19:26.85)

your kid lives somewhere on that map, right? Like it’s just intuitive. I think you’ve done a great job of getting all that data onto one map. Cause I know what we used to do back when X was called Twitter, whenever like people would want to look at price of electricity across different regions is you’d have Vercot’s map and it would have its color scheme. You’d have MISO’s map and you’d have SPP’s map and like all these others. And then you would like put them together, but the colors would be different. Yeah, it is nice just having them all in one place.

Max Kanter (19:55.584)

Yeah. I in one place I’d say is one of the most repeated value propositions I hear for users of grid status. You know, they say I used to have six different tabs open at a time when I wanted to figure out what was going on in the grid. Yeah. And now I just have one, you know, and they say grid status is my new tab in my browser. And so, you know, that’s not the only thing that we do, but what differentiates us, you can get this data from a bunch of different places. It is public. You go to the ISO directly.

Max Kanter (20:23.992)

but to have one place that is super fast, convenient, intuitive, know, what I think we do best.

Joshua Rhodes (20:30.39)

I mean, I’m probably sound like a fanboy here, but like, I mean, it’s true. The all in one place thing is so useful. I used to know my way around the aircott website pretty well, probably less so now because I haven’t had to go get it anymore. But if I remember one time trying to go look for KISO data and just like, it’s so completely different. Like I had no idea of where to go and like what I was doing.

Max Kanter (20:51.586)

Yeah. And you know, it’s one of the interesting aspects of the fact that it’s public data because, know, I think a lot of people say, Hey, this data is public. And I say, yeah, it’s public, but if you don’t know where to find it, does it matter? And so part of the value proposition is just making public data discoverable. And you know, one other point I want to make too is, we don’t necessarily see ourselves replacing any of the ISO sites. Like we wouldn’t exist if each of the ISOs didn’t put in tremendous effort.

Max Kanter (21:20.972)

right, to make this data accessible in public. So, you one of things that we do is, you we try to be very transparent to our users of where did we get it on the ISO site. We know we have a data catalog and on every page we have a link back, you know, as much as we can to like literally, you know, click this URL and you will see the exact same data on grid status and in the ISO. No, there’s no goal to like this and intermediate. It really is just to be, we’re not the source of truth, but how can we be kind of like the public record?

Max Kanter (21:50.784)

of where people find the data.

Joshua Rhodes (21:52.428)

Yeah, citations and getting that as an academic, that’s super helpful all the time. You mentioned how you started as kind of data, now you’re doing kind of these insights. How do you choose when you want to publish an insight and maybe explain, we’ve talked mostly about grid status, posting a whole bunch of data, making it easy to get, but what is this insights piece?

Max Kanter (22:13.142)

Yeah. So the way I think about grid status, what we build is it all starts with, you know, we live in the energy markets ourselves, right? Like we spend all of our days thinking about what’s going on. And so to actually do that, right, we build the tools that we want to use to understand what’s going on. And so that’s why we started collecting the data. That’s how we build the different applications for monitoring it. And then the third step is to share out what we see.

Max Kanter (22:41.134)

And so, know, insights and this new insights product you’re referring to is essentially us just sharing out what we’re finding and how we’re using our tools to find it. Because then the fourth step is to then enable our customers and our users to do the same thing. Then the process repeats itself with them living in the markets alongside of us, building out the tools, right? For all of us to use it better, sharing what we see. And so, you know, the insights release is really meant to kind of flush out our platform. We have the data.

Max Kanter (23:10.222)

You have the tools to understand it. And then of course, the final, you know, actionable analysis of what’s going on.

Joshua Rhodes (23:16.226)

Are there any data sources or are there other things that you found really interesting that you wish people knew more about? is there some undiscovered piece there?

Max Kanter (23:25.998)

Yes. I mean, the true answer is yes. I mean, I think almost every customer I talk to, they’re not using our entire catalog. In probably 99 % of cases, right? Like they haven’t spent as much time clicking through parts of these sites that we have, or we just talk to so many people every day. Like if a customer requests a data set and we add to our catalog, it’s now available to everybody as well. This discoverability question, I think it’s actually very pertinent to how we develop a product.

Max Kanter (23:54.862)

Cause one of the biggest challenges we’ve had, you know, I’ll say over the last few years is, know, when the site started, it was very simple. We had a dozen data sets and we visualize a dozen data sets. Now we have 500 data sets. can’t put 500 data sets on the homepage. And so what happens is as you start building out your breath of data and functionality, you make it kind of harder to find things. And so I think about that a lot for, you know, a particular customer and their use case, how do you make it possible for them to find?

Max Kanter (24:24.438)

And so like an example of something that comes up a lot is like people want to know outage information, you know, which power plants are going offline, which transmission lines are going out, which of these things are happening, you know, on a scheduled basis or which ones are, you know, unexpected, right. And both of those, you know, have very different implications for operations pricing. And so I want all of our customers to find many different data sets, but that’s one in particular that I was trying to point users to because

Max Kanter (24:53.4)

They don’t always realize how much publicly available information there is in that regard.

Joshua Rhodes (24:57.452)

Yeah. Do people ever come back to you and say like, this is what I built with your data? Has anyone ever done that? Said, Hey, I built this cool thing. Like I just wanted to share it with you.

Max Kanter (25:06.99)

all the time, I’d say, you know, some of the really cool things are, you know, I’d say like the people who are actually physically participating on the grid. Okay. Right. So, you know, I think when you think about say like some energy traders, you know, a lot of them are virtually trading power, right? They’re kind of taking a position in one market and then later closing out that position in another market. And they’re not ever physically producing or consuming power.

Max Kanter (25:37.038)

Other users of ours, so like one of our users is Rayburn Electric Cooperative, a municipal generation transmission co-op, you know, in Texas. They actually service, I believe, know, 600, 700,000, you know, people and their member utilities. Right. And what’s really cool about their usage of grid status is the stuff that they build is, you know, actually translating to the physical world. Take a little bit of a tangent.

Max Kanter (26:04.728)

One of the things that really attracted me to the grid and energy from my previous world, or my previous life of really working in AI and data science was, so much of software never crosses that boundary into actually making a physical impact. so energy really felt that way. So we can influence decisions about how power plants are generating power, or people are building things on the grid, or where and when they’re deciding to buy power. That has just this early clear

Max Kanter (26:34.062)

physical real world implications. And so yeah, I could talk about Rayburn Electric, they’re a big user of ours. They actually became an investor in grid status as well. The stuff that they’ve built and just how they’re kind of rising to the challenge of the demand growth that they’re seeing is really cool. And we’re just along for the ride trying to build out some software to help them do that. But it’s always cool to see the stuff that they’re building.

Joshua Rhodes (26:56.396)

That’s really cool. If you’re talking about electricity, particularly like electricity grid, there’s a lot of carbon implications like that. There’s climate stories that are happening. How has grid status been used to talk about the climate and the impacts from the electricity?

Max Kanter (27:10.648)

I’d say one of the biggest ways I think we play a role in that story. First thing you need to decide is where is your power coming from? And when I say where is it coming from, like what generation, what fuel sources is it coming from? So one of the most prominent things we show on grid status is the basically generation stack. How much power is going from nuclear, solar, wind, natural gas, oil, and you know, the list actually goes on like some parts of the country.

Max Kanter (27:38.584)

For example, in New England, like they actually burn wood to generate power at times. And so, you when you think of the climate conversation or carbon or anything like that, it’s aware, how are we actually generating the power? And I believe a lot of people, they have very strong views and biases towards what they want the generation sources to be. And, some of those might be well-founded, very well-founded, but you need the data to actually back it up. And so, know, how is Goodsad contributing to that is like,

Max Kanter (28:08.194)

How do we make sure people who have very different opinions on where we should generate our power, how do we make sure they’re at least talking with the same facts, right? Having a conversation, you know, looking at the same data, understanding what’s going on together. And so one of my favorite things that happens with grid status and our visuals is like, we’ll have two people share the exact same picture of California’s fuel mix with solar in the middle of the day, taking up a huge share and decreasing prices.

Max Kanter (28:37.674)

Some people, people who are proponents of solar will share that and say one thing, people who are proponents of natural gas will point to a different part of the graph and share that. People who like batteries will point to the same graph. And so that to me is like one of the most powerful things. And I would say a very divisive kind of topic of how we should be providing power to the grid and what do we optimize for the effect that people can use grid status to be looking at the same data, I think is a huge win. And that’s kind of the role we hope to play.

Joshua Rhodes (29:08.14)

Yeah, that source is like ground source of truth. People who can have arguments but from the same set of principles or same set of facts or like same set of like data. It’s actually kind of rare these days, right? I remember the same thing like when I built the online map that I built, I mean that was one of the things that we saw was, you know, people would take the map. It has the same math underlies it. It’s very simple like calculating the levelized cost of electricity. People could put their own cost and their own fuel costs in there and it would update and then people could

Joshua Rhodes (29:37.87)

basically use it to discourse with each other, but they were starting from like a ground truth, right? They weren’t able to like manipulate things. that says, guess it feels like that translates here. You’re starting from the data and like people can do whatever they want, but if they’re using your product, they’re not going to be able to manipulate it, which seems like it’s a really good place to be.

Max Kanter (29:58.162)

Yeah, that all goes back to our mission, right? We want to be a centralized place that people can go to to understand what’s happening. two different counterparties in a transaction or, two different policy positions, right? They can take their stance, but making sure they have common ground on the facts is I think pretty enabling.

Joshua Rhodes (30:19.714)

Yeah. So do you have the data you need now to do your carbon accounting for charging your electric vehicle?

Max Kanter (30:25.39)

Short answer is yes. The longer answer is I thought when I started GridSats to get this data, was going to be a four week side quest and that would get back to building what I wanted. Turns out it’s a lot more complex than I expected. for example, we started 2025 with 200 datasets in our catalog. We ended 2025 with over double that. And the pace has kept up in 2026. So I thought that this was a very concrete

Max Kanter (30:54.894)

discrete challenge of collecting data about the grid. It really isn’t. And so I think at this point, the goal is not to get back to building vehicle to grid software, but it is to enable users and our customers to build that. know, since embarking on grid sets, you know, I’ve learned of so many different use cases and honestly, just like companies and organizations I didn’t even know existed a few years ago, but are very important for the operations and reliability of the grid.

Max Kanter (31:23.106)

Data has become table stakes for these companies to operate, right? And just making sure that they have what they need. We will always keep on trying to get the best data available to make even better vehicle to grid or other kind of innovative use cases like that possible.

Joshua Rhodes (31:37.934)

Yeah, absolutely. You 500 datasets. We talked a little bit about like how much you’re pulling every day and the granularity. If you had to count all your data points, LMP at this time is one point. Do you have any feel for how many data points you have in your database? Multiple databases. How many trillions? I’m assuming it’s trillions.

Max Kanter (31:58.808)

Fair to say hundreds of billions. Fair to say that. It depends how you count a data point. But yeah, hundreds of billions for sure. But like we’re collecting like tens of millions of rows of data a day. And each of those rows of data have multiple columns. You can multiply it out. It’s a lot of data, put it that way.

Joshua Rhodes (32:19.638)

Yeah, I’m sure it is. Okay, so one thing that I am asking folks is like, if we could flip the script right now, you’re interviewing me. Is there a question you would like to ask me?

Max Kanter (32:30.232)

I do have a question for you. So before Grid Status, I had completely taken the grid for granted. One of the things, you know, following you over the years is you are one of the more visible voices talking about the grid, you know, both in, you know, I’d say close industry circles, right? But also more broadly in the mainstream media and, national publications. I guess, how do you approach, I guess, that role? Because I find there’s a lot of needles to thread.

Max Kanter (32:59.936)

And so, yeah, I’m curious how you approach that role of being a very public face of the grid.

Joshua Rhodes (33:05.73)

When I started, my dissertation work was on Smart Grid 1.0. So this was like money coming out of the American Recovery and Reinvestment Act after the Great Recession area. Like I actually wanted to look at green roofs and other types of things, but they’re like, hey, we’ve got this project looking at Smart Grid. And I’m like, what is Smart Grid? And they’re like, yeah, we’re going to figure that out. As I dove deeper kind of into the data, I just got really comfortable there. I just got really comfortable looking at how homes are using energy and looking at how

Joshua Rhodes (33:35.596)

that would translate to, you know, what home makeups were and that type of thing. And I had a mentor, Dr. Michael Weber, who like he was also in the media quite a bit and he couldn’t do all of his media stuff. And he would just suggest me for things that he kind of couldn’t get to. And so I just I’ve never really been afraid of trying new things. And so I just kind of like tried it and turned out I’m pretty good at talking in analogies in a way that normal people could understand kind of these complex things. And so just being able to take the complexity of the grid or in the data to underlie it.

Joshua Rhodes (34:05.398)

and put it into terms that normal people can understand. Like I was just pretty good at that. So I just kind of kept going with it. And then once you get in someone’s, know, Rolodex, they tend to keep calling you. So.

Max Kanter (34:16.206)

Awesome. Does it feel like a lot of responsibility?

Joshua Rhodes (34:19.244)

You know, it does actually because I don’t ever want to be wrong. Like if I’m going to be interviewed or asked about something, I’m going to go do research. And in these days, it’s generally pulling a lot of data and looking at things. And part of that research is going to grid status and looking and seeing kind of what’s going on in MISO or wherever. I think that one of the tricks is never getting over your skis, being able to appropriately caveat things.

Joshua Rhodes (34:47.277)

I do have like a little bit of a good setup such that like if folks are wanting to interview me, it’s generally they’re looking for an expert so they’ll actually make me sound smarter than I am, which helps me out quite a bit. And so maybe that’s actually what it is. Is there actually looking for someone smarter so they make me smarter? I don’t know. We’ll see. But anyways, Max Cantor, thanks for being on the Energy Capital Podcast.

Max Kanter (35:08.328)

My pleasure, anytime.

Joshua Rhodes (35:12.024)

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 (35:41.39)

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.

Texas’s new era of electricity demand is forcing policymakers to walk an unprecedented tightrope.

The state has to keep the lights on – and it has to make sure that Texans can afford to do so..

Massive load growth from data centers, population, and electrification is teeing up existential questions for the ERCOT grid. How do we build what we need without overbuilding? And how do we avoid burdening households with costs that businesses and large users should be paying?

Those questions framed our latest Energy Capital roundtable with Matt Boms and Dr. Joshua Rhodes.

Why bills are rising faster than people expect

Utilities across the country are planning massive infrastructure investments over the next several years, and Texas is leading the way. Between new generation, transmission, and distribution upgrades, the price tag for this growth is substantial.

Texas has covered recent load growth primarily with a mix of solar, wind and batteries. Some state leaders have prioritized new gas plants as well, though capital costs for these facilities has more than doubled in some cases, even as wait lists for turbines have grown.

At the same time, transmission and distribution companies are filing rate cases tied to resiliency, reliability, and growth. Those investments often show up in rates years before customers see any economic benefit from load growth.

What’s driving costs matters more than ever

As large new loads, especially data centers, request connection to the grid, the question of who pays becomes unavoidable.

The basic principle is simple: if infrastructure is built for a specific customer, that customer should bear the cost. If infrastructure provides broad system value, then costs should be shared. Problems arise when all customers pay for expensive upgrades to cover loads that may be temporary or never fully materialize – especially with transformers, substations, and core hardware now costing multiples more than they did just a few years ago.

Without guardrails, Texas risks building expensive infrastructure that everyone pays for, even if demand disappears for the energy that infrastructure is meant to support.

Underused tools

There are ways to blunt this load-growth pressure.

Distributed energy resources (i.e. community power or local power), demand response, and energy waste reduction can reduce peak demand and delay or avoid costly grid upgrades. In many cases, these solutions are faster and cheaper than traditional investments in poles and wires.

Analyses show that even modest levels of community power can save ratepayers meaningful amounts of money by deferring transmission and distribution spending while also delivering wholesale market value.

One way or another, decisions made in upcoming utility rate cases will lock in costs for decades.

Grid growth is real. Infrastructure costs are rising. Ignoring either won’t protect customers. The state must align costs with the parties driving them, wringing out value from lower-cost flexibility strategies before committing to the most expensive build-outs.

If Texas effectively walks the line between affordability and reliability, this period of load growth can strengthen the grid without punishing Texans who rely on it.

Timestamps

* 00:06 – Rising Costs, Rising Stakes

* 01:17 – Load Growth and System Pressure

* 03:16 – Gas Dependence and Fuel Risk

* 06:21 – New Generation Costs and Competition

* 07:05 – Oncor Rate Case, $830M Request

* 08:27 – Who Pays, ERCOT vs Other States

* 12:08 – Driveway vs Highway Cost Test

* 15:33 – Capital Bias and Regulatory Incentives

* 18:49 – Avoiding Rate Shock, Role of DERs

* 24:07 – Higher Prices, Solar Payback Effect

* 34:12 – Missing Price Signals in Distribution

* 37:05 – Final Takeaways and Wrap

Resources

Hosts Platforms

* Texas Energy & Power - LinkedIn, Twitter (X), and Bluesky

* Micalah Spenrath - LinkedIn

* Matt Boms - LinkedIn

* Texas Advanced Energy Business Alliance (TAEBA) - LinkedIn

* Joshua Rhodes - LinkedIn

* IdeaSmiths

* Webber Energy Group, UT Austin

Company & Industry News

* Electricity rate hikes slash commercial solar payback periods by 33%, says Wood Mackenzie (pv magazine USA)

* Rising retail rates are accelerating commercial solar payback periods (Wood Mackenzie)

* The Value of Integrating Distributed Energy Resources in Texas (Advanced Energy United)

* TAEBA news page, DER study links (Texas Advanced Energy Business Alliance)

* CenterPoint raises 10-year spending plan to $65.5B (Reuters)

Related Podcasts by TEAP

* More Power that’s Faster and Fairer, Roundtable Discussion (TEAP)

* Why Are Utility Bills Rising So Fast? (Powerlines) (TEAP)

* Distributed Energy Resources and all-of-the-above energy solutions (TEAP)

* Texas’ Load Growth Challenges, And Opportunities (TEAP)

* Texas Needs a Vision for Customer-Side Solutions (TEAP)

* Where the Grid Goes from Here, Reading and Podcast Picks (TEAP)

Energy Capital Podcast is produced by ClarityForge Studios.

Transcript

Micalah Spenrath (00:05.55)

Hi everybody and welcome back to the Energy Capital podcast. I’m your host, Makayla, and I’m joined by Josh Rhodes and Matt Bonds. We are at an interesting place in the energy transition. Energy costs are rising. Utilities are planning to spend trillions of dollars across the country to keep up with rising energy demand. And at the heart of these macro trends is us, the consumers, the payers of electricity bills. So that raises a question. How do we build the grid that we need today?

Micalah Spenrath (00:34.868)

and tomorrow without overbuilding it or pricing people out. I’d like to dig into what’s driving energy costs, where utilities are planning to spend those billions and trillions of dollars, and how we can modernize the grid in a way that’s reliable, efficient, and still affordable. So setting the stage, demand for energy is rising, outpacing traditional energy system planning frameworks and timelines, and utilities are in the middle. Challenge with meeting that demand and keeping costs.

Micalah Spenrath (01:03.778)

to consumers reasonable. So starting with the primary question, what is the primary driver of these increased energy costs in Texas or nationally?

Joshua Rhodes (01:17.038)

You know, there’s just this massive growth in electricity. There’s like a lot of things kind of coming together, kind of been kind of a perfect storm here, right? It’s like one across, you know, the US electricity growth has been flat. It’s been growing in Texas. Texas has been an exception to other places. I mean, really demand growth has been kind of flat, right? And managing a system that is just kind of going from day to day, not really changing is much different than managing a system that’s growing. The amount of inputs you need to that are just different.

Joshua Rhodes (01:46.734)

A lot of the utility spending and buying has been responding to storms or just replacing things kind of at the end of their life, but not really building for growth. And that’s just a different mindset. The big topic right now is like data centers and like all this other kind of stuff driving up demand. But I mean, even before this, 2022, 2023, before we taught the internet how to talk to us, we were already expecting.

Joshua Rhodes (02:11.532)

electricity used to go up, right? We were already looking at electrification of buildings and electrification of transportation and kind of reshoring of like, you know, manufacturing and all this other kind of stuff. I mean, we’re already looking at a lot of that, but then AI is here, you know, among us and demand is going up. There’s still hangovers from like, you know, COVID supply chain. Surprisingly, it’s really like at the same time that we’re looking to grow everything that we need to buy to facilitate that now costs like way more than it did five years ago. It’s kind of a perfect storm.

Joshua Rhodes (02:41.518)

Onomat, you got any extra thoughts?

Matt Boms (02:43.66)

I think Josh said it perfectly. The pie is getting bigger for everyone, right? Everything’s getting more expensive. We’ve got supply chain issues. And at the same time, I feel like we’re in the best possible place to meet all of this load growth. Michaela, you know I’m a glass heffal kind of guy. And I tend to think that where else would you rather be living and working when it comes to which market is best positioned to meet all of this load? And I think we’re seeing the answer play out in front of our eyes with all the action that’s happening in ERCOT, right? That’s true.

Matt Boms (03:11.362)

So yeah, I’m feeling more optimistic by the day. think it’s a huge challenge, but I think we’ll be able to meet it.

Joshua Rhodes (03:16.216)

some other interesting things in there. As I was thinking about what types of fuels and things like that that we’re going to use to meet this electricity sector growth. I think if you look at the interconnection queue, we’re going to build a lot of solar and storage, or what is like chock full there. we have gigawatts of natural gas in that queue as well. And long term, ERCOT’s gotten about 45 % of electricity from natural gas. I mean, there is pressure on natural gas prices, right? mean, they fluctuate.

Joshua Rhodes (03:45.55)

We’re going to export more from LNG and like how associated gas production is dependent on the price of oil and like all these other kinds of things. know, natural gas can be volatile in terms of its fuel price, which we saw in 2022 in Russia invaded Ukraine, natural gas prices tripled over two years. They tripled. And then two years, they came back down. It doesn’t mean that some other shock couldn’t do that as well. And 25 years ago, there was first generation tech bubble. thought we were going to be building a bunch of data centers for, you know, pets.com and

Joshua Rhodes (04:15.586)

what the original tech bubble that was out there and through efficiencies and switching to cloud and like a whole bunch of other things that demand growth really didn’t materialize. And there were utilities and builders of natural gas turbines and things like that, that kind of over invested, overbuilt and kind of got burned in that space. And I think there’s a bit more discipline right now in terms of, okay, we see the growth, maybe we’ll output of this factory by 20%, but we’re not going to increase it by 120 % or something like that, right? I think there’s some kind of

Joshua Rhodes (04:45.016)

things going there. And just, it made me also think of back in the seventies, even going further back, we actually used a lot of oil to generate electricity. And then we had the energy crises of the 1970s that kind of got us off of using oil for electricity because oil got super volatile. I don’t know. It just makes me think, could that be something that happens in gas too? I mean, probably not in the near term, but long-term it could be interesting to watch.

Micalah Spenrath (05:10.742)

Yeah, I think the word that stuck out to me there was discipline. So I think disciplined utility spending is music to my ears. So hopefully, hopefully we will implement some of the lessons learned from the 70s and prior. So for me, from what I’ve been seeing, a primary driver to increased energy costs nationally, but also Texas, is that

Micalah Spenrath (05:34.58)

utilities are leaning into natural gas in order to meet some of that demand. And as you noted, there’s fuel costs associated with that. There’s higher operating costs associated with that as compared to some of the other technologies at our disposal. So I think it’s really interesting to see that natural gas is still playing a very large role in utility strategies, even though the cost of natural gas is increasing. So that’s based on EIA data. So I think that’s part of it, right? And then I think another

Micalah Spenrath (06:04.12)

contributor to increased prices is barriers to low-cost energy deployment, whether that be market-driven or policy-driven. So if we don’t have as many low-cost electrons on the grid, you’re going to be spending more on things like natural gas. So that’s definitely going to drive up prices as well.

Joshua Rhodes (06:21.23)

Even like the costs for the gas power plants are up, right? When we do grid modeling, we used to do like a thousand bucks a kilowatt, right? That was like our thing for like a natural gas combined cycle. then somewhere now between, you know, 2,500 and 4,500, depending on which study you’re looking at. And does that include new pipeline infrastructure and all this other kind of stuff? Which is interesting because we did a study last year or two years ago that looked at how cheap does nuclear have to get versus when it becomes competitive in like a unbundled or deregulated kind of market.

Joshua Rhodes (06:51.84)

If we’re at 4,500 bucks per kilowatt for like combined cycle, that’s about where it started to look really competitive, which is just interesting to note. We’ll see, like, you know, do people think those are long-term prices or whatever? It is an interesting point.

Micalah Spenrath (07:05.122)

Yeah,

Micalah Spenrath (07:05.482)

okay. Continuing on, so looking a little bit deeper into utility spending. So as I mentioned, utilities are planning to spend trillions of dollars across the nation through 2030. And much of this investment is to expand capacity, modernize the grid and infrastructure, and then also respond to demand growth. So bringing it closer to home, looking at Encore in Texas, Encore recommended their revenues be increased by approximately, I think it was like eight

Micalah Spenrath (07:33.998)

$130 million or something like that, looking at about a 13 % increase over their current annualized revenues, which is a lot. That proposal can translate into meaningful bill increases for customers if regulators ultimately approve them. We haven’t found out the results of that just yet, but what they’re looking at primarily is resiliency and reliability projects and really infrastructure build out, which is not a surprise given the cost of service regulatory model we have in Texas.

Micalah Spenrath (08:04.226)

So when we talk about utilities needing to invest all of these billions of dollars, millions and billions of dollars, what types of projects are truly necessary for reliability and what might be deferred or approached differently? Simply put, are utilities investing in the right places in order to meet demand but also meet responsible costs for consumers?

Matt Boms (08:27.162)

I’ll take a stab at that Josh. My feeling on that Michaela is most people just want to know who’s left holding the bag. Who’s going to end up paying for all of this? Like if we were in a house state affairs hearing and chairman Todd Hunter were asking us questions, the first thing he would ask us is who’s ultimately paying for this? And that’s again, like bringing it back to Texas. That’s where we’re lucky that our utilities are just transmission and distribution and they’re not generators. So going back to the gas projects that are being built.

Matt Boms (08:56.556)

That’s happening all across the country with vertically integrated utilities who ultimately they’ll build the plant, they’ll own the plant, they’ll put them to the right base and they’ll get the guaranteed return on the gas plant, right? Regardless of what happens next, we know what the steps are, it’s predetermined, right? Versus in ERCOT, the company that builds the plant puts themselves at risk because they’re bidding into the market, right? So we’ve got a great market-based system where...

Matt Boms (09:21.824)

In my view, we can have that conversation on transmission and distribution infrastructure and what we need to meet all the load. at least when it comes to what I’m seeing, what I’m hearing from folks in other states is a whole lot of construction that may or may not be worth it for ratepayers. So that’s at least one thing that I’m grateful for working in Texas, in Urquhart specifically.

Joshua Rhodes (09:41.888)

Yeah, I think the national numbers are just some of the reading we’re doing before. It’s something like almost 71 billion in rate increases between now and 2028, like across the country. Like it’s not a little bit of money, right? I’m curious what the number would have been five years ago before all of this. this triple that or double that or is it similar magnitude? I don’t know. We’re just paying more attention to it lately. Some of these companies are starting to come out with like plans for this, which I think a lot of the big tech companies, now that they’re moving into hard infrastructure.

Joshua Rhodes (10:11.64)

They just didn’t really know how to deal with that. Like when you’re doing software and you’re dealing with a different kind of use case than you are for like grid infrastructure, sunk costs, fixed costs, things that other people are kind of paying for and kind of the whole Silicon Valley ethos of move fast and break things, you know, doesn’t work super great in the utility space, right? Whether that’s electricity or water or other types of things. And so, mean, there’s been some interesting stuff like, I think Microsoft recently came out with community first plan for like data centers that they’re going to

Joshua Rhodes (10:40.866)

shoulder a whole lot more of the cost and not ask for some of these tax abatement programs that maybe exist in certain regions, which is really interesting. I’ve been saying things like if these companies have buckets of money, let them spend it. And so maybe they sounds like starting to do some of that, but it’s been interesting, probably like, you know, working through that regulatory structure, right? It’s like, this is probably the first time that companies have come in, been willing to do that, or at least got to the point where they’ve been willing to do that, right? Just because of how fast they want to move and all this kind of stuff. So, I mean, I think it’s a really interesting.

Joshua Rhodes (11:10.638)

model that may start working, particularly in some of the regulated parts of the state. Now I talking about we are unbundled and we have deregulation in most of the state, but there’s some parts of the state that don’t. I think there’s a story just yesterday or that I read just yesterday talking about that Metta is going to pay for a brand new gas plant in the El Paso electric region, which is a regulated area. I swear it up and down that they’re going to pay for the whole cost because it’s all going to go to support a data center. I think it’s a 366 megawatt gas plant.

Joshua Rhodes (11:40.044)

and about there. So that’s an interesting thing because there’s a lot of competitive in Texas, but there’s still the non-optin entities, the non-ERCOT parts of the state, whether that’s in the far west, the panhandle, or the eastern or the far eastern part of the state. And then we’ve got these transmission and generate co-ops and other types of things like that. So there’s a big portion of the state that some of that thinking might be able to work its way into. mean, the majority of the power is in the deregulated competitive area, but there’s a good chunk of it that’s not.

Micalah Spenrath (12:08.354)

Yeah,

Micalah Spenrath (12:08.744)

I think what you said was Microsoft and their proposal to pay for the infrastructure that they are incurring. It just reminds me of conversations that we had at the Public Utility Commission of Texas, right? So driveway costs versus highway costs. Yeah. So I think many people understand the concept of if this is your driveway and it’s dedicated to you for your use, you should pay for it. Yeah. If it’s going to be something that all of us are using, then feel free to socialize those costs.

Micalah Spenrath (12:37.944)

but you don’t wanna have rate payers paying for something that they’re not gonna be benefiting from. So if that natural gas plant in El Paso is dedicated to this data center, then I think it makes common sense that Microsoft should pay for it. Although many people might interpret that as an act of goodwill, I interpret that as just aligning with cost causation principles. So it’ll be interesting to see if the community side of things evolves beyond that.

Micalah Spenrath (13:07.342)

or if it doesn’t. So I suppose we’ll see.

Joshua Rhodes (13:10.838)

Yeah, it’s an interesting, I think it’s Meta, the one on Microsoft and El Paso one, but it will be interesting to see like if some of those principles can also work their way into the competitive part of the state, right? I think there are some mechanisms. I may have talked about this in our last round table and I know I’ve talked to a bunch of folks around it, but like there’s this principle of how infrastructure is paid for in the Alberta system operators. Alberta is like the Texas of Canada, right? It really is. It is kind of uncanny in a lot of different ways, but they do this for generators and we can do this for load.

Joshua Rhodes (13:40.014)

New generators have to pay for like the cost upgrades that go into the system to be able to deliver that power. But then they’re paid back over time. So the generators pay for the driveway and the highway, but then they’re paid back for the highway over time if they exist over a long period of time and provide the market benefit that existing in that system does. And so, right, think some of the concerns, if some of this AI, you know, stuff turns out to be bubble-ish or

Joshua Rhodes (14:06.542)

partial bubble or whatever that like we build out all this infrastructure and then there’s no one there, you know, using that infrastructure or consuming that power that would pay for that infrastructure. And then right payers get left, you know, everyone else gets left holding the bag for that, right? If Matt was, was talking about, I mean, I think we could do something similar. It’s like right now in ERCOT, we just make you pay for the driveway, but we could make you pay for the driveway and highway and then pay you back for the highway over time. Put that up to load if you exist for 10, 15 years, whatever it takes.

Joshua Rhodes (14:36.236)

to pay that infrastructure cost back. And then if you are a bubble, if you’re gone in two years, then you defer the other 13 years worth of payment or something like that. And we’re not left holding the bag, right? So I think there are some mechanisms. I think they’re clear in like the regulated space, even in the deregulated space. I think we could do some learnings from other regions.

Matt Boms (14:54.518)

Yeah, it would be a good, interesting solution because under that scenario, Josh, you would take away some of the risk from the investors. ERCOT is completely dependent on those investors. And like you said, if it is a bubble, then you lose them, right? Right. Versus a middle ground. You don’t want to go to vertically integrated because then, the rate payer is paying for that drive. That drive is going to get turned into a highway or will pretend that it’s a highway, even though it’s really just a driveway.

Joshua Rhodes (15:21.73)

Five lane driveway, yeah.

Matt Boms (15:23.042)

Yeah, so you’d want some middle ground where the investment doesn’t dry up, but at the same time, you give it the value it deserves instead of prepaying and assuming that there’s some value there.

Joshua Rhodes (15:32.471)

for

Joshua Rhodes (15:32.646)

sure.

Micalah Spenrath (15:33.282)

This might be a hot potato of a question. if it is just. Many utilities are referencing historic load growth as justification for their historic spending, primarily pointing the finger at large loads and data centers. My question is, is this truly a new constraint that utilities are facing or does it largely and perhaps conveniently fit within the traditional utility model that prioritizes capital investment?

Micalah Spenrath (16:02.616)

So basically like, are utilities just doing what they’ve always done in that they’re spending on capital because that’s what they get a rate of return on and they’re just using data centers as a convenient justification for that? Or is this genuinely something that is catapulting them into a whole new order of magnitude of spending? I hope that’s not too controversial.

Matt Boms (16:25.706)

No, I don’t think so. I think that the answer is always somewhere in the middle because they’ve already been spending about $9 billion a year on poles and wires in Texas, right? And that’s roughly $5 billion on distribution, $4 billion on transmission. So you add that up, that’s $80 billion over the past 10 years. And that was all without the load growth that we’re seeing now. So the nature of utilities is to build because that’s what we’ve asked them to do in ERCOT. The shareholders want more capital expenditure, so you can’t blame them for

Matt Boms (16:55.224)

doing their job well. And I’ll let Josh answer the more difficult question, which is like how much of that is reasonable?

Joshua Rhodes (17:01.87)

Yeah, I mean the engineering answer it depends right but like I think there’s two camps on this right is one was like well the load growth will come and they’ll take care of all of that and a lot of people point to like that LBNL study that looked at like historically how you know electricity costs have maybe not risen as fast in places that have had low growth versus those that haven’t. There’s always a danger of saying this time is different but there are some flags that kind of this time is a little bit different in terms of the low growth is just much faster than we’ve done in the past. I mean I think it does come back to like

Joshua Rhodes (17:31.434)

Everything that we need to buy from the poles, the wires, the transformers, the conductors, everything, the power plants, everything that we need to buy cost way more than it did five years ago. mean, if you got mad about inflation on the cost of eggs, you should look at pad mount transformers in terms of how much more expensive they are. CPI on eggs is like 10 % and people were like in the streets, right? The inflation on like transformers is 200%.

Joshua Rhodes (17:56.44)

You know, those green boxes that are like out in your neighborhood or the cans that are mounted on poles and then all the way up into like the big pieces of equipment that, know, step voltage and things like up and down on the transmission system and, and other parts. mean, all that costs more money. And so it’s like, if all that didn’t cost double, triple, like what it did a few years ago, then I could be more convinced that, okay, this low growth is going to like help with that. Those costs will be spread out over a whole lot more megawatt hours and kilowatt hours.

Joshua Rhodes (18:23.798)

everything’s just more expensive. And so, I mean, I’m afraid because we’re asking the system to like grow much faster than it has and everything that we need to build is more expensive, there’s going to be more money quicker moving into that rate base and there could be a rate shock, right? I mean, that’s what I’m worried about is it’s the mechanisms are probably long-term we’ll even out, but like the short-term, know, people got to pay mortgage this month, not the average over the next 10 or 15 years.

Micalah Spenrath (18:48.62)

Yeah, and I think the idea of rate shock is something that is certainly the big bad wolf that everybody’s looking at. So in terms of what practical solutions are to moderate cost and to avoid rate shock, right? I’m thinking about a few options, distributed energy resources. Matt, looking at you, we’ll come back to that, right? So rooftop solar storage, demand response, energy efficiency generally, and flexibility.

Micalah Spenrath (19:17.772)

So virtual power plants and things like that, those can really temper peak demand and defer costly investments if we actually incorporate those into our strategy. So the question is, are utilities doing that sufficiently or aggressively? So Matt, know that Teba has a report on that very question, like how can distributed energy resources defer some of this to indie investment? So can you share any high level findings with the listeners?

Matt Boms (19:47.278)

Yeah, thanks for teaming up there, McKinna. That was awesome. Well, I think the total savings that we came up with was $1,850 per rate payer over 10 years. And that number was calculated on the one hand, the TND deferral, right? So like how much of the distribution upgrades are not being made immediately because you’ve got more DERs on the system, whether they’re distributed batteries or any one of the technologies you just mentioned.

Matt Boms (20:13.038)

And then the other half of it is wholesale market value. like, think the assumption we had in there was pretty small, but it was like 2.5 gigawatts of DERs over the next 10 years. And just that alone yielded over $1,800 per rate there. So there’s a lot of value on the table, right? And I think we’ll see moving forward how utilities incorporate that into their strategy. think your question is dead on because you asked if they’re doing enough, I would say no, because they’re leaving distributed.

Matt Boms (20:42.786)

technologies on the table and they’re not taking advantage of them. But again, poles and wires only ERCOT. So if you’re a TDU in ERCOT, you’re just building out grid infrastructure. You’re not allowed to deal with storage unless you’re a CPS or an Austin Energy or one of the vertically integrated ones. So that would be the reason why.

Micalah Spenrath (21:02.058)

Yeah. So where my mind goes with this is it’s going to be very difficult to reorient utilities to prioritize some of these cost effective technologies, which can be cost moderators is something that we’ve discussed. Without a regulation reform, I think cost of service regulatory models had their purpose and I think they’ve served people well in the grid of yesterday. But I think that performance based regulation is

Micalah Spenrath (21:32.066)

Hard pressed, I’m hard pressed to understand how we’re going to get to a more flexible, dynamic energy system, distributed energy system, without taking a hard look at how utilities are financially incentivized to get there. And in Texas, I just don’t think that many of them are, unless of course you’re an integrated utility or don’t know what you’re something like that. But that leaves a lot of other folks on the table that don’t have those incentives. So.

Micalah Spenrath (22:00.952)

That’s a question. And is there the political appetite to tackle that, right? Because we’ve had cost of service regulation in Texas for so long. So that’s certainly a question I have.

Joshua Rhodes (22:12.674)

I think your spot on, Michaela and Matt was mentioning it earlier. I mean, just follow the incentives, right? It’s like, if you change the incentives, the companies will change their behavior, right? It’s just cartoon, like a trail of money, right? It’s just make it go a different direction or whatever and they’ll go a different direction, right? It’s just pretty much that simple in concept, probably not so much in terms of changing like, you know, the regulations and things like that. I think you sent this out. There was something about, okay, if like costs are going to go up, it actually starts to make distributed energy resources look

Joshua Rhodes (22:41.506)

better, right? Because I mean, a lot of times you’re making comparisons like, do I get solar? Do I get storage? What does that cost relative to like my electricity bill or whatever arrangement I have for energy? And like, as the electricity, you know, as one side of that equation goes up, then like, you know, systems that were more marginal or maybe didn’t pencil out, you know, start to pencil out, right? I mean, I think we’re seeing this in ERCOT, like wholesale prices as those have gone up, particularly in like the western part of the state. I mean, those have gone up. I was just looking at the western load zone.

Joshua Rhodes (23:11.384)

prices yesterday and they’ve gone up last year quite a bit further than like the years before in other parts. And so as those costs go up, whether that’s distributed energy resources or more utility scale, know, wind and solar projects, they start to pencil out even with the loss of the tax credits. There’s kind of like, we’ll see which one wins there, right? There’s like dueling things. One, the loss of the tax credits makes it more expensive, but if the cost of the grid is going to go up and electricity prices are going to go up, then maybe they start to pencil out again, right? It’s a weird

Joshua Rhodes (23:40.034)

What’s the new equilibrium going to be? When have we ever had an equilibrium? But when will we get there? But even getting back down to the distributed side, for distributed energy resources, I I don’t love that this is the mechanism, but it’s the silver solar lining of this, right? As more of those DERs become like more competitive in this region where prices are going up. Again, don’t love that that’s the reason why, but it might be the case, right? Yeah.

Micalah Spenrath (24:07.402)

Yeah, I think for me, it’s a very interesting and perhaps unintended consequence of some of the federal policy changes that we’ve seen related to clean energy. So rising energy prices might actually make it more financially viable or feasible for people to make these investments. So to quote what the resource I had shared, it was a Wood Mackenzie report, and it found that increasing retail rate escalation

Micalah Spenrath (24:34.648)

can reduce payback periods by about a third for commercial systems. So my interpretation of that is that could spur more renewable energy deployment even as we contend with the materially different federal tax credit landscape. So I think that that’s really interesting because it’s a bit counterintuitive. You wouldn’t expect that to be the result, but it absolutely makes sense. If energy is more expensive, it makes it more feasible for me to just

Micalah Spenrath (25:02.624)

invest in my own energy and produce it at home rather than buying it for my utility. So I think it’ll be interesting while those changes may have been intended to decrease renewable energy deployment, it might actually have the opposite effect now that markets have kind of taken hold and we’re seeing these different trends.

Joshua Rhodes (25:20.362)

Yeah, like I’ve not looked at this at all, but it’d be really interesting if, okay, with loss of the federal tax credits means less utility scale gets built. the price of electricity wholesale goes up. So that means that retail goes up. that means people build more distributed energy resources because the cost of has gone up. If we just completed the circle on that and that’s actually where it came to, like, and I have no data for that whatsoever, just a hot take on it. But I don’t know, that would be really interesting to see, but maybe we’re starting to see that. Yeah.

Micalah Spenrath (25:48.12)

If you

Micalah Spenrath (25:48.352)

do any research on it, please report back.

Joshua Rhodes (25:50.894)

Okay,

Joshua Rhodes (25:51.814)

I will do.

Micalah Spenrath (25:52.974)

Ha

Matt Boms (25:53.998)

The problem is also like to unlock the real value of those distributed resources. There’s so many layers of the value stack that are currently not accessible, that are not available in ERCAD to customers, right? Like I mentioned the TND deferral, that’s not on the table. The way that price is settled is only instead of notally, right? If we want to get real nerdy and talk about if there’s a customer in a really overloaded substation in Houston on a really hot day in August.

Matt Boms (26:20.46)

Why aren’t they getting rewarded? Like we have all the technology in place to make that happen, but it’s ultimately a policy choice. And that’s what I love about what you said, Michaela, because we’re not asking anyone to reinvent the wheel. if, when you say performance based regulation, what we’re saying is essentially, shouldn’t we reward utilities based on how reliable they are and how much money they save for their rate payers, right? And like there are other states across the country that do that. Like Arizona, Georgia, Illinois.

Matt Boms (26:49.73)

We can look to other places and like Josh mentioned, Alberta, there’s plenty of successful case studies where folks are doing that in a better way because ultimately the way that we set up our system here in ERCOT is cost recovery for all capital expenditure. It’s not based on how many consecutive days you keep the lights on for your customers and how much money you save them.

Micalah Spenrath (27:10.422)

And I think you hit the nail on the head with it mostly being a policy choice, right? We can choose to better compensate residential customers for grid services. We just have to commit to it. And I think we’ve started a lot of progress there, but to your point, there are additional pathways or components of the value stack that we could really be utilizing to deliver even more benefits to consumers. It’ll be interesting to see how that evolves over time and if there is the momentum to get there.

Micalah Spenrath (27:40.184)

But to your point, yes, I think that we do want to reward utilities for performance, not necessarily just for capital investment.

Matt Boms (27:49.806)

And also to take it one step further, Michaela, I don’t know if you agree with this, but it sometimes takes emergency or a disaster to shake people because I remember Hurricane Barrel when folks started questioning Centerpoint and folks in Houston were really outraged at what happened. I hope it doesn’t take that. Like I hope that we’ll be more sensible and plan for this and really be able to meet the moment. Like actually reward utilities for performance instead of just writing blank checks.

Micalah Spenrath (28:15.518)

Yeah, so I think my interpretation of a lot of the utility spending that I’ve seen, and I haven’t read every proposed rate case or strategic plan that a utility puts out, but a lot of them are reactive, right? So it’s we experienced a hurricane, we experienced a wildfire, so now we’re going to be investing in these strategies versus an adaptation perspective. So if we know and

Micalah Spenrath (28:42.4)

If we look at the data, we are going to be experiencing more challenges in the future, but perhaps not less, right? So it would be interesting to see how utilities plan to innovate and adapt over a long time horizon versus having plans that are a bit reactive in nature. And that can really change the perspective, I think. It can also change how a consumer is actually going to be serviced. So I want to be able to rely on my utility.

Micalah Spenrath (29:12.242)

And being aware of them looking into the future versus the past, I think would really increase confidence that they’re actually going to be doing that. I’ll pay for that. Like as a consumer, I will pay for adaptation because I think that’s going to benefit us in the long run. For me, it’s a bit harder to pencil out if you’re only going to be reacting to things that we’ve experienced thus far, because we know that the future is going to look a little different.

Joshua Rhodes (29:40.046)

Yeah, I will say it is. Maybe I’ll provide a little bit of pushback. Predicting the future is hard. Yogi Berra taught us this. Or making predictions is hard, especially about the future, I think is a quote that’s probably misapplied to him. But anyways, building out stuff for like an adaptation against an uncertain future, like utilities kind of get caught with their pants down if they like make the wrong investments. They can get dragged before committees and other kinds of stuff. And like, why did you spend this money on this thing?

Micalah Spenrath (29:41.084)

That might be a hot take.

Joshua Rhodes (30:07.042)

you haven’t used or it’s not going to be useful or like other types of things. If we’re going to do that route, like we have to be willing to let them make some mistakes because no one can predict the future. But that’s hard is like how much, how much of making a mistakes is, you know, just imprudent or whatever the terms are in terms of how that works. And so like, I understand why they’re like always being kind of more reactive than proactive. And maybe it’s just whenever they want to be proactive, there’s not enough buy-in from the

Joshua Rhodes (30:34.584)

communities and folks and everyone and everyone just getting to an understanding of like, hey, we’re building this for the future. There’s a potential that we don’t do this exactly right. It’s one thing to like look back and say, okay, you this storm took out like all transformers that were below a certain sea level in Houston or whatever, like, okay, all those need to be either all stilts or whatever, right? Versus we think that the next hurricane is going to get them at 20 feet higher or whatever the metric would be. I think, you know, utilities are pretty sensitive on like

Joshua Rhodes (31:02.83)

spending money that they may get called out on so far in the future. I think we need more consensus on that and consensus is hard, right? That’s really hard to get. On the other hand, you can look at the Texas has experienced like 27 plus billion dollar CPI adjusted storms over the past 20 years, right? And if you look at the chart, it’s just going up and up and up. And so like basically maybe the base level of every resilience needs to get better on spending on that kind of stuff. I can kind of have a little sympathy there for like being against a rock and hard place.

Micalah Spenrath (31:33.27)

Absolutely. So the two words that come to my mind are prudently incurred.

Joshua Rhodes (31:38.646)

Okay, I’m the engineer.

Micalah Spenrath (31:41.08)

So yeah, so that’s one of the standards when it comes to costs and utility spending. So prudently incurred, I think what is it, and reasonable. And I’m sure someone listening who’s a lawyer is probably gonna add something to this.

Joshua Rhodes (31:55.54)

I was trying to just put them together, yeah.

Micalah Spenrath (31:57.694)

No, no, no. So that’s one of the standards that I think they have to meet, right? These costs have to be prudently incurred. So I think to your point, we do want to make sure that they have this space in order to innovate and experiment and even make a mistake every now and then because they are adjusting to an uncertain future. at the same time, that has to be based on some sort of prudent strategy that they have. And if they’re not looking into the future and seeing that

Micalah Spenrath (32:25.192)

our extreme weather costs are going up, then it’s hard to understand how the billions that they plan to spend are going to be prudent. So I actually think that does give them some cover, right? So like we are looking, we’re staring down the barrel of an uncertain future and this is what we think we need to do. And hopefully we will have the policy spaces to encourage experimentation. Josh, I have a quick question for you. To your point,

Micalah Spenrath (32:53.322)

What do you think is missing that would basically encourage a utility to be more innovative and take, I don’t want to say risks, but essentially take the leap that they feel they need to take in order to meet the challenges of the future based on currently available models and data. Cause it sounds like you might think that the current incentive structure that they have might not allow them to feel that way. And I could be misinterpreting.

Joshua Rhodes (33:21.582)

Well, I mean, I utilities can do things like pilot projects that are like, you know, it’s kind of in the name, right? Okay, there’s a pilot. We’re going to try something out. Who knows maybe in the face of like how fast things are like set to grow and how much more we’re sort of set to spend on like electricity and how much more electricity is going to be going. Maybe we just need bigger pilots. The ability to take some bigger steps kind of in that direction. And maybe that’s the vehicle that it can be shielded through. actually don’t know if there’s okay. Pilots can’t be more than 2 % of.

Joshua Rhodes (33:49.45)

operating or whatever. have no idea like if there are even like current constraints on that, but maybe in the face of, you know, higher levels of growth, being able to have some like higher value pilots and things like that to try out some of these new technologies, whether that’s bigger virtual power plants or advanced conductoring or whatever it is to let them try some of these things.

Matt Boms (34:11.928)

think, Michaela, this is also the problem with central planning because what Doug used to talk about this on the podcast, right? I won’t get into Hayek and I won’t be as intellectual as Doug, but I do think these are the dangers of a centrally planned system because you don’t have the price signals. the ones that we have in the wholesale market are pretty damn good. And that’s why folks love doing business in Texas. And conversely, we don’t have those price signals for the TDUs, right?

Matt Boms (34:41.1)

And like, we’re both relatively familiar with resiliency plans that were proposed by the utilities and approved by the commission and roughly a billion dollars a year for Encore and Centerpoint each. none of us are arguing on this podcast that they shouldn’t do hardening and they shouldn’t do vegetation management. Like we all agree on that stuff. It makes sense to be preventative.

Matt Boms (35:03.17)

But at the same time, like there were no DERs in those resiliency plans, right? There wasn’t a demand response program or energy efficiency or you name it. None of that is part of the resiliency strategy of the TDUs in Texas. And that’s a big problem because we all know that moving forward, that’s exactly what we need in Texas is more demand side solutions because most of the time we’re fine, but there’s always the chance of a winter storm and there’s always a chance of a really hot day in August. Then we’re kind of reaching the limits of what our grid can handle.

Joshua Rhodes (35:33.134)

So this is an interesting thing. I’ll agree like on half of that, that we don’t have the price signals. I think maybe not on the distribution side, because we don’t have prices down at the distribution edge or whatever. But on the transmission side, we do have congestion, right? Because of the way we do invest and connect and like we have our location of marginal pricing, LMPs, we do congestion revenue rights and all other kinds of complex things. I think we do have pretty good economic signals of like where new transmission is beneficial. But right now the way that we handle that,

Joshua Rhodes (36:02.434)

the economic test for transmission is so hard to overcome, the test doesn’t make sense. It essentially is like to pass the economic test and someone in chat or whatever is gonna tell me how I’m not exactly right on this, but essentially like you have to be able to make up all of the costs in one year or something. Whereas like transmission infrastructure upgrades and stuff, or that infrastructure is decade long infrastructure, right? It lasts for decades. And so like if we can take the congestion

Joshua Rhodes (36:32.602)

LMP signals, like I think it sends a very clear signal of where economic upgrades in transmission would be useful if we had a more sane economic test for that. So I think for the transmission side, we could, we have the data to be able to do this, but we’re just not doing it. But on the distribution side, yeah, it’s like if you want to do the same thing, you would need prices down there. And that does get pretty complex pretty fast. Maybe there’s always a divorce there somewhere, but like, I think at least on the transmission side, I think we do have the ability to do this now. just

Joshua Rhodes (37:01.696)

not doing it as good as I think we could.

Micalah Spenrath (37:04.59)

All right, so thank you so much for this amazing conversation. We are just about at time. So we’ve touched on a lot of different things, utility innovation, utility regulation, the pressures facing the energy system, whether that be cost or just speed of growth. So just quickly, what are your final takeaways from this conversation?

Joshua Rhodes (37:24.942)

I mean, think it just comes down to the pace at which this is happening is just so different than in the past, right? So I think we need to relook at how we’ve handled growth in the past and some of the mechanisms probably need to change to be able to handle how fast it’s coming to us now.

Matt Boms (37:38.958)

completely agree, Josh. And I think this is the moment where we need more innovation. I think we need to change the way we think about planning for the future. And if that means that our utilities have to become a little more innovative to meet the moment, then that probably makes sense as far as rewarding performance instead of just writing those checks for capital expenditure.

Micalah Spenrath (38:00.034)

Well, thank you so much for this amazing conversation, guys. And thanks so much to our listeners. Signing off, I’m Mikayla.

Matt Boms (38:06.731)

A man?

Joshua Rhodes (38:07.798)

I’m Josh.

Micalah Spenrath (38:08.93)

and we’ll see you next time.

Matt Boms (38:12.376)

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 Empowered newsletter at texasenergyempowered.com. That’s where you’ll find every episode, every article, and all of our latest updates. We’re also on LinkedIn,

Matt Boms (38:41.618)

X and YouTube, where we post clips, insights and ongoing commentary. Big thanks to Nate Peavey, our producer. I’m Matt Bombs and I’ll see you next time. Stay curious, stay engaged and let’s keep building a stronger, smarter energy future.

Texas keeps adding load, adding generation, and adding complexity. But attracting the next wave of investment often comes down to a crucial question:

How does ERCOT use market forces – especially signals that determine where energy prices are set – to boost reliability on the grid?

In this episode, Josh Rhodes sits down with Andrew Reimers to pull back the curtain on the machinery most people never see, including operating reserves, scarcity pricing, and what changed when ERCOT launched real-time co-optimization in December.

The quiet lever: reserves, scarcity, and incentives

Andrew breaks down the pricing story to a simple idea: when electricity on the grid gets tight, the value of the next increment of reliability rises fast, which should signal to investors that they can make money by building more generation in Texas. ERCOT tries to reflect that through scarcity pricing and its operating reserve demand curve.

The hard part is running the grid in a way that ensures affordable, reliable electricity, and that doesn’t smother the very price signal that’s supposed to attract new capacity to the market.

“Carrying this large volume of operating reserves… you can suppress the prices… disincentivizing investments in new generation.”

That tension – lowering the risk of outages today vs. maintaining investable signals for tomorrow – drives the entire market design debate in Texas.

Reliability policy is also investment policy.

What changed on Dec. 5, and why it matters

In this episode, Josh and Andrew discuss ERCOT’s move to real-time co-optimization late last year and what it means for the ways reserves are procured and obligations show up in real time. That can change outcomes, even if the physical grid looks the same.

The conversation covers:

* Why pricing can look wrong even when the grid is fine.

* How rule changes can create unexpected incentives.

* Why these mechanics matter more as demand rises and the resource mix shifts.

Batteries, forecasting, and the value of looking ahead

Josh and Andrew also show how this all connects to batteries.

Andrew frames batteries as a question of timing and trade-offs, not just megawatts.

“Batteries… it’s opportunity cost. If I discharge now, I can’t necessarily discharge in the future.”

If ERCOT’s market structure encourages operators to look ahead even an hour or two, the state will end up valuing flexibility more intelligently – and customers will avoid the excess cost of simply buying more reserves to cover forecasting errors.

Final Thoughts

This episode shows that the Texas grid is not just about steel in the ground. It’s also a unique, and largely successful, experiment in how free-market policy – with smart guardrails – can translate individual investment into reliability for all.

If you want to understand why ERCOT decisions spark so much argument, and why market design tweaks can have outsized consequences, this conversation is a great map.

If this prompted questions for you, drop one in the comments. And if you know someone who cares about ERCOT prices but hates reading market docs, send them this episode.

Energy Capital Podcast is produced by ClarityForge Studios.

Timestamps:

* 00:05 – Episode Setup, Why This Matters

* 01:09 – Andrew Reimers, Role of the IMM

* 05:03 – Operating Reserves and Market Design

* 09:55 – Real-Time Co-Optimization Explained

* 14:30 – ERCOT vs Other Markets

* 16:42 – Post-Uri Conservatism and Price Signals

* 19:12 – Scarcity Pricing and Investment Incentives

* 23:50 – DRRS, RUC, and Reliability Tradeoffs

* 28:26 – NPRR 1309 vs 1310 Debate

* 31:02 – Load Forecasting and “Officer Letter Load”

* 36:55 – Solar, Wind, and Shifting Peak Dynamics

* 40:45 – Batteries and Multi-Interval Markets

* 49:15 – Out-of-Market Actions and Hidden Impacts

* 53:59 – Final Takeaways and Wrap-Up

Resources:

Guest & Company

* Andrew Reimers (LinkedIn)

* Potomac Economics (Website - LinkedIn)

* Potomac Economics - ERCOT IMM overview

* Joshua Rhodes (LinkedIn)

* Webber Energy Group (LinkedIn)

* IdeaSmiths (Website - LinkedIn)

Company & Industry News

* ERCOT NPRR 1310, IMM comments (Feb 3, 2026)

* S&P Global, ERCOT ancillary services rule changes and IMM perspective (Aug 6, 2025)

* RTO Insider, ERCOT and IMM ancillary services study (Jul 1, 2024)

* Potomac Economics, 2024 State of the Market Report for ERCOT (PDF)

Books & Articles Discussed

* Ancillary Service Study, Initial IMM Results (Aug 28, 2024)

Transcript

Josh Rhodes (00:05.174)

Right now, Texas is planning for rapid load growth while still catching up on transmission and interconnection constraints. The challenge is not whether demand is coming, but how fast the system can realistically respond. Welcome to the Energy Capital Podcast, where we cover the decisions, data, and debates shaping the Texas grid and the energy future. I’m your host, Joshua Rhodes. Today’s guest is Andrew Reimers. He’s deputy director of ERCOT at Potomac Economics, the independent market monitor. Andrew is an expert on grid planning,

Josh Rhodes (00:35.234)

load growth, and how infrastructure decisions actually get made in Texas. In this episode, we walk through what planners know, what they are assuming, and where uncertainty is doing real work in the system. We discuss load forecast, transmission bottlenecks, and the trade-offs between moving quickly and maintaining reliability. You’ll walk away with a decision-useful lens for understanding how Texas is navigating growth right now, and where the biggest pressure points are likely to emerge next. Let’s get into it.

Josh Rhodes (01:09.25)

Andrew Imers, welcome to the Energy Capital Podcast.

Andrew Reimers (01:11.566)

Happy to be here. Thanks for the introduction. You and I have, I think, known each other for like 13 years now.

Josh Rhodes (01:17.154)

Yeah, I it has been a while. I was wondering at a high level if you could just describe what Potomac Economics does relative to Earth.

Andrew Reimers (01:24.098)

Yeah. So, you you have ERCOT who is the independent system operator. So they are sort of a quasi government institution. They’re really a nonprofit institution with a charter through the state of Texas to manage the flow of electricity on the transmission network, and then also run various wholesale electricity markets. And, you know, there are several different flavors of that. The most important one for the conversation we’re going to have today is the real time market.

Andrew Reimers (01:53.752)

So that’s really where the physical scheduling of generation happens and everything ultimately is transacted according to the prices that come out of the real time market. That’s ERCOT where Potomac Economics comes in. This whole concept of an independent market monitor, if you kind of take it back historically, all of these power grids and deregulated electricity markets used to be like vertically integrated.

Andrew Reimers (02:18.58)

utility markets where you’d have retail customers that were in a monopoly all the way up to the firms that own the generation and stuff. and that model still exists in certain parts of America. Yeah, the Southeast parts of the Midwest are still kind of like this. The Rockies are like this, although that’s kind of an evolving situation. Yeah. Most of the rest of the US is what we call deregulated. That means that you have

Josh Rhodes (02:30.328)

like the Southeast.

Andrew Reimers (02:44.204)

divested the transmission system from the generation system. And there is no longer necessarily as strict of a monopoly on the retail side. And be that as it may, you still had a lot of legacy firms that had a lot of concentration in the market. So like in Texas, the big firms might be Luminant slash Vistra that historically could be traced back to Dallas Power and Light. And maybe you have NRG Reliant.

Andrew Reimers (03:13.24)

who can be traced back to Houston Power and Light, these two firms, even though they’re now in a deregulated market, are still very big players. And so there’s a concern about the ability of these players to exercise market power and whether or not the market is sufficiently competitive to kind of incentivize those players to bid competitively. That’s really where the role of an independent market monitor comes in. We kind of have...

Andrew Reimers (03:41.56)

two different fundamental roles. The first of which is to monitor the market for uncompetitive behavior. We have various screens and things going on that are meant to catch peculiar looking behavior, maybe uneconomic offer behavior, uneconomic outage behavior. And then related to that to identify problematic market design.

Andrew Reimers (04:07.126)

situations, maybe make recommendations for improving market design to kind of improve the competitiveness of the market. My firm in particular is called Potomac Economics. And so we have a contract with the state of Texas to serve as the independent market monitor for ERCOT. We also are the independent market monitor for several other of the big deregulated systems in America. So MISO, which is kind of the big Midwestern ISO, ISO New England.

Andrew Reimers (04:36.726)

New York ISO. And then we also are the market monitor for Reggie, RGGI, which is the regional greenhouse gas initiative in the Northeast. those are all different aspects of what our firm does. And my team in particular focuses on ERCOP. And my role within that team, I kind of manage the personnel. And then I’m particularly

Andrew Reimers (05:03.222)

oriented around the market design aspect of the job. So most of my work kind of individually has been more on market design stuff than necessarily the market monitoring stuff. And in particular, what I’m hoping we can talk a lot about today, I’ve worked a lot on operating reserve policy. And so that is a big part of market design where things are changing very quickly and it’s very important that we kind of get the details right.

Josh Rhodes (05:33.26)

Yeah, no, I know that that’s a really big aspect of what’s going on in Texas and ERCOT. I do want to get there. But before we get there, I kind of wanted to ask like, so in that role, you know, there’s the market monitoring and then there’s the market design. You know, what do you see in that role that other folks in ERCOT don’t see?

Andrew Reimers (05:49.944)

Well, the biggest thing if you’re taking what we see versus everyone who isn’t ERCOT, the biggest difference would just be we have direct access to all of ERCOT’s data. And so, you know, that is a major distinction between what, say, market participants would be able to see versus what we can see. As far as what we’re doing and why it’s distinct from what ERCOT does, several of the ISOs have an internal market model.

Andrew Reimers (06:16.758)

So, KAISO and SPP, for example, have their own internal market monitoring division. Some of the ISOs, to my understanding, have both internal and external market monitors. I know it’s the case with New England and it might be the case with NISO as well. The reason to have an independent market monitor is really that there are going to be cases where you’re making recommendations that go against what the ISO has proposed and you need an independent third party to effectively

Andrew Reimers (06:45.322)

make an alternative case than what the ISO has proposed for why they want to do things. You know, this sort of situation is going to vary depending on the kind of nature of the ISO. So for example, a single state ISO has a different kind of set of political incentives than a multi-state ISO. Right. The other thing is that Texas is unique in furcot being entirely isolated in Texas. So in Kaizo or

Andrew Reimers (07:14.412)

New York ISO, even though they’re single state ISOs, they’re synchronized on a bigger grid. And so there still is some extent to which the politics of those states can’t entirely dictate what the ISO is going to do. In Texas, that’s a lot less the case. And, you know, that has implications for the role of the ISO.

Josh Rhodes (07:35.47)

Josh Rhodes (07:35.95)

Yeah, that’s really interesting. You talked a little bit about that, you know, pushing back against Irkut and that as the role is the independent, like why it’s important to be independent. mean, Potomac has pushed back on Irkut against several rulemakings. You know, what usually drives those disagreements?

Andrew Reimers (07:50.062)

Well, at least since I’ve been here, it’s mainly been operating reserve policy. And so I mentioned that earlier. It might be worth going ahead and explaining what that is. But there have been plenty of other issues in the past and they aren’t always directed at ERCOT per se. So we also have proposals against rule makings at the legislative or PUC level. So for example, we’ve been critical of 4CP a lot. We can talk about that later. I know that’s topic that you’re interested in.

Andrew Reimers (08:19.554)

But as far as things at ERCOT, it’s probably helpful to explain what an operating reserve is. So your audience, know, you know, I listened to this show, I suspect your audience is fairly savvy about how some of this works. Worth going into the background a little bit. So the real time market for electricity technically clears every five minutes. So every five minutes, the market is kind of producing new instructions for who’s supposed to be generating how much.

Josh Rhodes (08:24.684)

Yeah, go for it.

Andrew Reimers (08:49.014)

Importantly, one of the kind of nuances here is that this market isn’t necessarily instructing resources to turn on or off. So that aspect of things we call that commitment is a more complicated scheduling process. And ideally the way this market functions when everything’s going smoothly is generators decide for themselves when they’re going to turn their resources on. Usually it takes

Andrew Reimers (09:16.224)

More than an hour to turn those resources on. And so it’s something they kind of have to have a view for what prices are going to be during the day. And then once they’re online, the real time market moves them up and down according to changes in supply and demand. You can think of, you know, on a summer day, the sun is coming up in the morning. We might turn down some of the thermal power plants because the solar is starting to enter the system.

Andrew Reimers (09:45.26)

We might also start having higher temperatures. so the demand for electricity overall is going up as the air conditioning load is going up. And then maybe at some point in the day, thermal power plant trips and you need to schedule some generation to fill the gap from that power plant tripping offline. So those are all examples of kind of what the real time market is doing to schedule generation.

Josh Rhodes (10:09.666)

And before December, those reserves are being scheduled in the day ahead market, but now they’re being co-optimized in the real time market. Is that right?

Andrew Reimers (10:16.376)

That’s right. Yep. And so what you’re referring to is called real time co-optimization, which also happens to be a former Potomac economics recommendation for ERCOT to implement. Yes. We finally made it. took almost two decades. So, but we got there. So you referred to December. on December 5th, real time co-optimization went live and so far we haven’t seen any major system issues. There are some pricing outcomes that we think are

Josh Rhodes (10:28.088)

Congratulations on getting it through.

Andrew Reimers (10:46.254)

problematic that we might get into later, but that’s all very in the weeds. Yeah. So just to clarify the point you were saying before, until December 5th, the way the market worked is operating reserves were only procured in the day ahead market. And then that award was effectively a physical obligation to carry operating reserves in real time. There were nuances to this. You could trade in and out of these positions, what have you, but

Andrew Reimers (11:14.542)

In real time, if you were carrying an operating reserve, then you were expected to be able to provide it. Whereas the way it works now, you don’t even have to sell operating reserves in the day ad market. If you do, they are entirely just financial positions and your awards in real time kind of determine what you’re physically obligated to do in real time. And you’re kind of just arbitraging between day ad and real time.

Andrew Reimers (11:38.85)

That introduces all sorts of things that we haven’t really covered yet. We haven’t really covered what the day ahead market is or what operating reserves even are. So maybe it’s helpful to go back into that. So if the market only clears every five minutes and we’re not actually scheduling who turns online, that is really where the need for operating reserves kind of comes from. So you can imagine the demand and supply of electricity are actually changing on a much faster time scale than every five minutes.

Andrew Reimers (12:08.738)

So you need some capacity in the system that can respond to those short-term fluctuations. So for example, a common type of operating reserve is something called regulation or regulating reserve. If you’re providing regulating reserves, you’re getting signals every four seconds to adjust your output to address every time someone flips a light switch, someone turns on their dryer or something like that. There needs to be capacity in the system that can respond to those short-term fluctuations in supply and demand.

Andrew Reimers (12:38.062)

But then you also have issues related to how these commitment decisions work and if there were forecast uncertainty in the day. So for example, there’s really volatile weather conditions and at 12 p.m. we think demand at 4 p.m. is going to be relatively low. And then as 4 p.m. approaches, we realize demand is actually a lot higher than we thought. The clouds are clearing. It’s hotter than we expected.

Andrew Reimers (13:05.996)

Maybe the clouds are coming in and it’s just cloudier than we expected and we don’t have as much solar generation online. These dynamics can leave you where you don’t have enough generation online to serve load effectively. And so you procure some amount of reserves in advance to handle these kinds of forecast errors. And for some added context to that, that problem has gotten a lot more complicated.

Andrew Reimers (13:34.092)

with the combination of intermittent renewables, duration limited resources, i.e. batteries, and then the kind of aging of the thermal fleet. And so those are all different things that are leading to a situation where operating reserves are a much more impactful policy and where there’s a lot of new thinking about how to handle them correctly. So, you know, the forecast there for the weather.

Andrew Reimers (14:00.724)

is more impactful on the supply side than it used to be. It always was impactful on the demand side, but now it also has big implications for how much you’re generating with wind and solar.

Josh Rhodes (14:11.374)

is

Josh Rhodes (14:11.494)

affecting both sides of that supply must equal demand equation. That’s right. Yeah. OK. And this is in contrast to how other regions do it, right? Like ERCOT has SCAD, Securities Constrained Economic Dispatch, but PJM, believe, also in the day ahead, or other regions have SCUD.

Andrew Reimers (14:27.202)

I’ve heard it called STUCK is what KAISO calls it, short term unit commitment.

Josh Rhodes (14:30.826)

Okay, so there’s a whole alphabet soup of things, but basically it’s like they pre-commit generators in the day ahead, right?

Andrew Reimers (14:37.132)

So as far as the biggest difference between ERCOT and other ISOs in terms of operating reserve policy, the biggest difference is that we are in electrical islands. And so if things really hit the fan in Texas, the downsides are a lot greater. You have a lot of generation trip offline, something like that. In the big Eastern interconnect, PJM can kind of rely on the fact that they’re in a big synchronized network and

Andrew Reimers (15:03.692)

They don’t need necessarily as much of their own operating reserves to keep things stable. The NERC kind of requirements for grid reliability and things like that are sort of the minimum requirements. And then what you see in Texas is a lot more, you know, extreme than that. And some of that is valid and some of it is questionable. The other big thing is just the percentage of generation from intermittent renewables and storage is way higher in Texas than just about anywhere.

Andrew Reimers (15:32.78)

The only place that might be comparable and I think Texas is rapidly exceeding this would be maybe like California, which has a ton of solar demand isn’t as high. So the percentage is, you know, maybe about the same, but like I said, California is in the Western interconnect. So they are less anxious about having to deal with all of this on their own. You know, random States like Iowa have a lot of their generation from renewables. Iowa is actually the

Josh Rhodes (15:53.89)

Yeah, they can import power.

Andrew Reimers (16:00.406)

second or third biggest wind generating state in America, despite only having, you know, three or 4 million people or something like that. And so there are exceptions, but for the most part, the island nature of the ERCOT grid and the much larger penetration of renewables make it sort of a unique situation from operating reserves.

Josh Rhodes (16:22.646)

Yeah. And want to touch on some of those implications, the fifth anniversary of winter storm Uri. And I want to get there and chat about that. But before we kind of leave some of the disagreements and things that Potomac has had with either ERCOT or the PC or the legislature, can you point to an example of like, maybe there’s a current one, but like a well-intentioned change that created issues or long-term risk or pricing issues like we might be seeing right now? I know you’ve been working on some stuff like that.

Andrew Reimers (16:48.194)

Yeah. So this ultimately does kind of get into the winter storm URI talk. So yes, does. So the elephant in the room is still the kind of aftermath of winter storm URI and without relitigating that whole situation, even though it really didn’t have much or anything to do with operating reserves. One of the kind of political effects of it was that a decision was made that the grid would operate more conservatively.

Josh Rhodes (16:52.824)

It all does these days, right? It all-

Andrew Reimers (17:17.326)

And what was meant by that is that more operating reserves would be kept online to deal with potential supply shortfalls or something like that to avoid, you know, not just to avoid outages, but even to avoid the concern about outages. So you might recall a few summers ago when it seemed like every other day we were getting a conservation warning. This kind of stuff was seen as politically problematic, especially after how traumatizing.

Josh Rhodes (17:37.87)

2023, I believe,

Andrew Reimers (17:45.366)

Winter Storm Yuri was. And so a decision was made that we’d operate the system with a lot more reserves. That can have negative impacts on pricing in either direction. So it’s important to kind of spell out the nuances here. You mentioned PJM and the fact that they schedule a lot of their generation the day ahead. That is really a downstream consequence of the fact that they have a capacity market. And so

Andrew Reimers (18:14.934)

ERCOT, famously energy only market, the signals for investment decisions only come through the energy and ancillary service prices in the real time market. We’ll get more into how that actually works. In pretty much every other ISO, there is some kind of forward capacity construct, which is how you go about looking ahead to see how much demand you think you’re going to have and then acquiring capacity through an auction.

Andrew Reimers (18:43.48)

to cover that kind of future demand. One downstream aspect of that is if you are picked up in that capacity auction, there are certain must offer obligations in the day ahead market in PJM. so that day ahead scheduling, a lot of that is a function of how many of those resources participated in the capacity market. And so you have something like 95 % of all of the available generation has to participate in the day ahead market. And so you come into real time with.

Andrew Reimers (19:12.938)

a schedule that’s already pretty close to what you’re expecting in real time. Workout isn’t like that. Instead of having this capacity construct, we have all of our kind of revenue for incentivizing new generation comes from the real time market ultimately. And the important aspect to how those prices are formed is something called scarcity or shortage pricing. Basically in situations where

Andrew Reimers (19:41.622)

reserves get really tight. Conceptually, what’s happening is the probability of some kind of loss of load event is getting higher. And you try to impose something called a operating reserve demand curve on top of that, which is going to produce elevated pricing to reflect the fact that the marginal value of the reserves is going up as they’re becoming more scarce. So

Andrew Reimers (20:07.82)

You can imagine what that looks like. Basically, the tighter the system is, the smaller the difference between the available supply and demand. You’re going to clear at bigger prices. part of the problem with conservative operations, as it’s called, i.e. carrying this large volume of operating reserves. One of the problems is you can suppress the prices. now your MO is that outages are to be avoided.

Josh Rhodes (20:17.87)

Hmm.

Andrew Reimers (20:36.566)

And the way you’re avoiding it is causing prices to be suppressed, which is disincentivizing investments in new generation, which you can see coming back to bite you in the long run, if you are concerned about demand increasing. So that’s one aspect of it. You kind of alluded to something earlier with how the market design has changed before co-optimization. It’s also possible for this.

Andrew Reimers (21:04.974)

kind of conservative operations posture to result in prices being higher than they should be. So what happened a few years ago, ERCOT introduced a new ancillary service called ECRS. The way this was implemented before real-time co-optimization meant all of that capacity was kept out of the energy market. And so in the summer of 2023, we now had

Andrew Reimers (21:28.29)

thousands of megawatts of capacity that used to be in the energy market and was effectively removed from the energy market and kept in reserve. And now what happened a lot that year, even though we had a lot of capacity in reserve, the energy market perceived itself as being in scarcity because it couldn’t access those reserves because we didn’t have real-time co-optimization yet. And so rather than suppressing prices, this caused prices to blow out.

Andrew Reimers (21:57.256)

And we estimated billions of dollars of excess costs caused by how the situation was managed. And so you can have price distortions in either way. And on one hand, they’re reducing the incentive to build new generation, which creates kind of resource adequacy concerns. On the other hand, you’re creating excess and unreasonable costs for consumers. And in either case, you’re creating a lot of uncertainty and risk for anyone who’s trying to figure out.

Andrew Reimers (22:26.616)

How should we go about investing in this market, whether it’s on the load side or the generation side?

Josh Rhodes (22:33.58)

Yeah, it’s been interesting, you know, since winter storm, Yuri, we’ve had a bunch of discussions of, well, frankly, capacity like products, right? know, capacity is a four letter word in RECOT, but I remember there was the LSE obligation. There was the PCM performance credit mechanism. We’re now looking at another ancillary service. mentioned ECRS, we’re talking about DRRS. Do you want to touch on DRRS? Like what that might look like, what it actually stands for, et cetera.

Andrew Reimers (23:01.57)

Yeah. So DRRS stands for Dispatchable Reliability Reserve Service. And believe it or not, the origins of DRRS also come from a Potomac economics recommendation. know, part of the story with conservative operations that I haven’t really touched on is a concept called reliability unit commitment. So I mentioned in general, the market does not

Andrew Reimers (23:30.134)

decide when to commit resources. So ideally resource operators decide for themselves when they’re going to turn their power plants on based on some view of what prices are going to be that day. But in the case of forecast error or what have you, ERCOT does have the ability to force generators to turn on. And this process is called reliability unit commitment or Ruck. Everybody hates Ruck.

Josh Rhodes (23:58.412)

Why does everyone hate Ruff?

Andrew Reimers (23:59.562)

Everyone hates Ruck because the impact it has on clearing prices and because it isn’t hedgeable. And what that might mean is if you’re a load serving entity, whatever your cost exposure to Ruck is, you may have hedged your other kind of cost exposure. So regardless of what happens in real time, you have a price locked in. But if you’re then on the hook to help cover the cost of committing these resources.

Andrew Reimers (24:28.088)

then you weren’t able to hedge that in advance. So that is one reason people hate it. Another reason is a lot of times what’s getting committed are older resources and it’s just kind of a pain to start these up and there’s an implied opportunity cost of starting them up. So if you imagine like CPS in San Antonio has big issues with their emissions constraints. So since they’re right near a city, there’s air quality constraints they’re trying to manage. If you turn on my resource in March,

Andrew Reimers (24:58.304)

And it say it’s an annual emission limit that I’m trying to stay under. Now I’m running in March. I would really like to save my emissions kind of threshold for in the summer when the prices are higher, for example, or I might not want to have to keep as many staff around in March, or I might not want to have to do my maintenance during this window when the kind of maintenance market is more expensive. So, you know, I know you’ve reported on this before.

Andrew Reimers (25:24.802)

the maintenance window in ERCOT keeps getting tighter and tighter because everyone wants to be available in the summer when prices are elevated, that we increasingly have big winter events where people need to be around. And so in the fall and spring, everyone’s competing for the same relatively small market of maintenance vendors. And so you might want to be able to kind of stagger when you’re getting some of your facilities worked on. And if you keep getting instructions from ERCOT,

Andrew Reimers (25:53.656)

to turn on these old plants, it’s harder for you to do that. So those are just some examples of why people hate rock. And DRRS in some respects was really imagined as a way to bring that process into the market in a more economical, transparent, hedgeable way. And we initially referred to it as an uncertainty product. So kind of like what I was talking about earlier, you look a few hours ahead,

Andrew Reimers (26:23.03)

And it looks like you had been under forecasting load and over forecasting renewables. And you realize you have a supply shortfall on your hands and we can send out an instruction to commit a resource now or several resources because we see that there’s this looming shortfall. That’s the idea of the RRS originally. Now people tell me that if you went to those hearings where they were referring to DCRS, where they were talking about it.

Andrew Reimers (26:51.552)

It was also well understood that part of the motivation of DRRS was to, to some extent, incentivize new investment in dispatchable generation. That might’ve been part of the spirit of DRRS, but it’s hard to say. There was all this other stuff in the mix. There was the PCM, like you mentioned before. Eventually there was the Texas Energy Funds. There are all these different things in the mix that are trying to incentivize new thermal generation.

Josh Rhodes (27:19.328)

at Texas Energy Insurance product. Remember that 10 gigawatt thing too? Yeah.

Andrew Reimers (27:23.298)

Yep.

Andrew Reimers (27:23.718)

So the PCM didn’t really get off the ground. There were various proposals to try to design something that would satisfy the legislation. TEF seems to be having a hard time maintaining interest and the original series of proposals for it has winnowed down to a relatively small stack and it’s unclear how much of that’s actually going to get built. And now we’re left with the RRS and ERCOT feels like they

Andrew Reimers (27:52.994)

have to at least try to inject a kind of resource adequacy objective into the DRRS product. And so one of our big fights with ERCOT right now is to push back against this concept and insist that DRRS be developed as strictly an operating reserve product because there are some kind of fundamental flaws with the resource adequacy concept they’ve come up with.

Andrew Reimers (28:21.332)

And I’m happy to get into all that. This is something we’ve been talking a lot about lately.

Josh Rhodes (28:26.038)

Yeah, if you could, mean, you know, part of what Potomac does is comment in dockets and other types of things like that. Can you talk a little bit about those disagreements there that y’all have had in the public sphere? Yeah.

Andrew Reimers (28:37.228)

Yeah. So they’ve had various workshops on DRRS. I’ve been at all or most of them. They have two distinct rule makings out. These are called NPRRs. Nodal protocol revision request. so anytime there are changes to the ERCOP market, they are usually instantiated through this NPRR process. And the two NPRRs related to DRRS currently are 1309.

Josh Rhodes (28:47.63)

And what does that stand for again?

Andrew Reimers (29:06.798)

which defines DRRS as an operating reserve product. And 1310, which incorporates the kind of resource adequacy components for DRRS. We are mostly okay with 1309. I think it might be too in the weeds to explain where we have issues with that, but sure. 75 % on board with it, know, qualified support for it. 1310, we recommend that it be.

Andrew Reimers (29:34.252)

dismissed with prejudice. we have severe issues with 1310. So what are we talking about? ERCOT is talking about implementing an hourly capacity product, which they want to refer to as an ancillary service. And so you can imagine that every hour you are procuring a certain amount of capacity. The idea of this capacity product is simply to inject revenue into the market to support

Andrew Reimers (30:03.18)

resource adequacy. Fundamentally, the problem with this concept is you can’t effectively set procurement targets today to satisfy demand in the future. So we’re procuring this capacity in the day ahead in real time markets, according to a demand curve. And that’s supposed to produce enough revenue that we’re going to get the investment that we need to have the capacity built for the future.

Andrew Reimers (30:33.048)

So that’s kind of the fundamental issue here.

Josh Rhodes (30:35.97)

Yeah. Anymore thoughts you’ve got on that, that would be great. I mean, you also brought up a good point about it’s trying to plan today for what the future looks like. And that’s also somewhere where I wanted to go because I mean, you know, the future of five years from now, at least from all the charts and all the reports and like, you know, everything in terms of demand growth look way different than they did five years ago. Right? Sure. And so what’s different there? And if you want to tie in like,

Josh Rhodes (31:02.508)

what your feelings are on this product relative to where demand looks like it’s going. That’d be great to know.

Andrew Reimers (31:08.472)

Yeah, so we covered the kind of demand forecast prospectus in our last edition of the State of the Market Report. So I don’t know if I mentioned that at the top. So one of the main deliverables that my office produces is something called the State of the Market Report. Right. Every IMM produces these for whichever ISOs they monitor. And it’s a series of metrics and trends and things like that that have been observed in the market over the last several years.

Andrew Reimers (31:37.376)

And then usually there are deep dives into a handful of contemporary issues where we’ve either identified something strange or problematic, or we are using it as a case study to propose some kind of recommendation.

Josh Rhodes (31:51.864)

Okay. It’s a very useful report. I’ve used every single one of them, think, for the past decade or so. On some level.

Andrew Reimers (31:57.614)

Happy

Andrew Reimers (31:57.774)

to hear it. The 2024 edition of the report features a kind of long deep dive into the whole demand forecast situation. And these numbers are really crazy to put it simply. as far as the actual, yes, as far as the actual forecasts on demand, our position on that has been that the analysis that’s been done to produce those forecasts

Josh Rhodes (32:13.933)

I that’s the scientific term.

Andrew Reimers (32:26.808)

probably is over forecasting how much load we’re going to have. I could get into specifics. There’s this officer letter load business, which is effectively transmission utilities get a request to interconnect something. And the developer of that project signs something saying that they intend to develop this project. That gets sent to ERCOT. Now this is in ERCOT’s demand forecast.

Josh Rhodes (32:53.59)

And part of that was driven by like a bill in 2023, like HB 5066, right? It’s not just ERCOT, it’s the legislature saying thou shall consider this, right?

Andrew Reimers (33:01.794)

Right.

Andrew Reimers (33:01.994)

Well, a lot of the problem that we are seeing for better or worse is the way that legislation actually manifests itself on the ground. And, you know, I’ve seen it firsthand. I totally sympathize with how difficult it is to satisfy the language of a lot of this legislation, because once you actually start trying to implement these things, it’s hard to do it in a way that

Andrew Reimers (33:27.872)

is going to satisfy the statutory language while also being sound market design and everything.

Josh Rhodes (33:34.102)

I remember like post-URI, it seemed like the legislation was getting more and more specific, whereas before it was the legislature sets like general goals, the public utility commission puts them into like policies and then ERCOT creates metrics or protocols, right?

Andrew Reimers (33:50.328)

Well, and actually designs the, you know, technical things that are needed to satisfy the PUC rulemaking or what have you. And that is conceptually how I think it’s supposed to work. And the more detailed the legislation is, the harder it is to actually implement it properly or in a way that isn’t going to have other negative consequences. And so I’m not an expert on how you would necessarily go about doing this. If you were trying to do it effectively, it’s a perfectly reasonable.

Andrew Reimers (34:19.274)

idea that future demand growth should be factored into whether it’s, I mean, a big part of it would be transmission upgrades, for example. And maybe if you want to factor into your shortage pricing mechanism in a market like ERCOT, having some future view on both supply and demand. Cause I keep mentioning how forecast error factors into the operating reserve situation. If you’re imagining the rate at which we’ve built more solar,

Andrew Reimers (34:48.386)

then you might want to formulate your shortage pricing over the next year based on the fact that you’re expecting even more solar in the system. The magnitude of your forecast area is gonna grow a certain amount and you want to account for that in the way your shortage pricing works. And so it’s a reasonable enough thing that you’d wanna factor these forecasted changes into market design, transmission planning, things like that. But when we looked into it as far as last year,

Andrew Reimers (35:17.964)

The forecasted load growth didn’t seem to be very reasonable to us based on what we were able to get our hands on. And so if you’re going to use that kind of forecasted load to justify some kind of market design change, that’s going to be a problem. But the real problem with the DRS thing isn’t so much that they’re trying to incorporate future demand growth into some kind of resource adequacy product. It’s they want to clear that product in real time.

Andrew Reimers (35:46.37)

based on real-time operating conditions to produce the revenue to satisfy capacity needs in the future. And that’s really where the disconnect comes from. It’s a completely different thing if you’re talking about, we have scarcity pricing in the market today. You’re getting paid based on the value you’re providing the system today, but that elevated pricing is also telling investors, okay, there’s room in the market for more capacity. If we’re producing high prices like this today,

Andrew Reimers (36:15.33)

then that means that already based on the current kind of supply and demand dynamics in the system, we can expect prices to stay high until more generation gets built. And so in that sense, producing prices today based on real-time operating conditions is an effective incentive to build more capacity for the future. Putting in a capacity product where you’re trying to produce revenue, even if the supply and demand conditions today are not stressed,

Andrew Reimers (36:45.002)

And the whole objective is to hope that that’s going to be like some efficient allocation of capital to invest in the future. The signals just don’t work very well that way.

Josh Rhodes (36:56.59)

Okay. So we’ve talked about pricing and we’ve talked about products. We’ve talked about, you know, summer demand and all this kind of thing. And we talked about 2023. One of the things that I have seen the past couple summers though, is prices seem to be a bit divorced from peak demand, right? I mean, the past couple summers, 2024 and 2025 didn’t hit the peaks that 2023 did. But I mean, I think one of the big drivers there was like a lot more solar, right? So even when the systems...

Josh Rhodes (37:24.162)

Delivering the maximum amount of electricity to end users like prices have been low and the spicy part of the grid has been pushed to like, you know, the net peak demand the 7 to 9 p.m. like How are y’all thinking about that in terms of price signals and things like that? seems like that price window is getting a bit narrower and I whether been any conservation alerts in the past couple years

Andrew Reimers (37:47.546)

Right, right. So you’re definitely correct that the massive increase in solar has kind of disconnected the correlation between prices and demand. So you still have some elevated pricing like in the evening when the sun is going down. Batteries are quickly kind of cannibalizing all of that. They’re really effective at managing that situation because usually it’s pretty predictable. Like every night the sun goes down and you need

Andrew Reimers (38:16.652)

batteries to fill the gap of tens of gigawatts of solar coming offline. And we have something like 15 gigawatts of batteries in the network now. And so they’re pretty effective at doing that. Even though they’re duration constrained, usually they can generate power for one or two hours at full output. And so that’s more than enough usually to handle this kind of situation. But like I’ve been saying all along, it’s not as simple as just what’s the peak demand or even the peak net demand. It’s really the

Andrew Reimers (38:46.552)

Forecast error. So something that happens not infrequently is, know, wind is a lot trickier to forecast than solar. you know, the sun comes up, the sun goes down, know, in regularity. Yes. Shocking regularity. Clouds do complicate solar and the magnitude of the forecast error is still, you know, something that has to be designed around. But the general shape of the generation profile is pretty consistent. Wind is

Josh Rhodes (38:58.83)

shocking.

Andrew Reimers (39:15.722)

more mercurial and just a quick aside on a Andrew Reimer’s take that is not a Potomac economics take. think wind is a trickier resource to design your system around for all those reasons. mean, it generates a lot, which means it kind of cannibalizes the market for other resources. So maybe a lot of thermal resources that used to stay on overnight now turn off overnight because the wind is blowing a lot and.

Andrew Reimers (39:43.182)

they’re not going to make any money because prices are depressed. And then you can’t necessarily count on the wind to be there when you really need it. And an example of that is say the solar downramp happens almost every day. The way that happens is the sun is going down and then the wind kind of picks up as it cools off and gets darker. Well, say that wind picking up is just delayed by 30 minutes to an hour. Now you have a

Andrew Reimers (40:09.706)

reliability situation on your hands where you’re probably going to see elevated pricing. And depending on how big that delay is and the magnitude of that delay, are you concerned that you’re going to use your storage resources effectively to manage it? This is all kind of a long way of getting to my point. We think the way to kind of manage that situation is something called a multi interval real time market. So they already have these and Kaizo has this. You really need something like this. If you’re going to.

Andrew Reimers (40:38.7)

strategically and economically schedule batteries. So batteries, the important thing to think of is opportunity cost. If I discharge the battery now, I can’t necessarily discharge it in the future and I might really prefer to have it in the future. It might even make more money in the future. And so if you can run a real time market that looks ahead over the next hour or two hours and sees that you want to reserve some of that battery capacity,

Andrew Reimers (41:08.226)

because demand is going up and because the wind forecast has changed or something like that. That’s really how you would go about doing that rather than what we see ERCA doing, which is trying to account for more and more forecast error in their operating reserve policy.

Josh Rhodes (41:25.216)

Is this kind of the pushback that y’all have been having on the post real-time co-optimization in terms of like the battery duration requirements?

Andrew Reimers (41:32.896)

It 100 % is. for example, non-spinning reserve. Non-spinning reserve is, you know, until taking DRS out of the question or whatever, kind of the lowest, lowest grade quality of reserves that ERCOT has in the system really meant for over an hour or so dealing with forecast error. ERCOT has committed to maintaining a four hour duration requirement for non-spin, meaning whatever.

Andrew Reimers (41:58.39)

volume of non-spin they want to procure is related to the forecast error over four hours. You know, where does that four hour number come from? A lot of it comes from looking at the existing gen mix where we, seem to be rucking these four and six hour start time units a lot. It is based on concerns over duration constraints or duration limited resources rather. Our position on that has basically been.

Andrew Reimers (42:28.268)

Say you have an issue that manifests itself over an hour and you’re worried about the duration that the batteries have. If this is a real, you know, scarcity situation, you’re going to expect elevated prices. And as that hour goes along, that’s plenty of time for, we usually have a gigawatt or more of quick start gas turbines that can turn on in an hour. And so the idea would be the batteries have more than enough juice to

Andrew Reimers (42:58.688)

handle things for an hour and then by the end of that hour you’ve sent the signal to this gas generation to commit. And so the idea that you need all of that baked into your operating reserve policy as opposed to letting real-time market prices incentivize more generation to come online, that has been sort of a big part of our complaint here. Another aspect of this complaint, and this is a little more technical, but let’s see if I can explain it.

Andrew Reimers (43:25.858)

By imposing a four hour duration requirement on batteries to provide non-spend, you’re actually incentivizing them to sell energy rather than to carry operating reserves. So I always use the example of as a hundred megawatt, hundred megawatt hour battery. So I can only output at full power for one hour. I can either sell a hundred megawatts of energy or I can sell 25 megawatts of non-spend.

Andrew Reimers (43:52.128)

And so unless the price of non-spend is four times higher than the price of energy, I would just rather sell energy and say all the other operating reserves are fully subscribed. So this, I’m just making a trade-off between non-spend and energy. So now I’m going to sell energy and I’m going to run out of state of charge and then say the problem persists. I mean, if I had just been selling reserves instead of selling energy, I’d have more gas in the tank to be around for this problem. You can see how this is the kind of thing that a multi-interval market

Andrew Reimers (44:20.76)

could potentially help mitigate.

Josh Rhodes (44:23.542)

Is that something Potomac’s making recommendations on and push for?

Andrew Reimers (44:26.622)

Yeah, yeah, it’s been a recommendation of ours for a while. It’s something that would take forever to actually make its way through the ERCOT stakeholder process. It’s not a trivial thing at all.

Josh Rhodes (44:35.916)

Yeah, who would be for and who would be against that? Would there be camps on that one?

Andrew Reimers (44:40.066)

I’m sure there would be, but I would need to think more about it because a lot of entities, even if you can imagine them benefiting from the situation, they might have their business model oriented around the status quo. Sure. You could imagine like if you’re a thermal resource where I’m like a 30 minute turbine or something like that, having the ability to be economically committed by the system could be beneficial to me. It could reduce risk that I’m going to commit.

Andrew Reimers (45:09.258)

and prices aren’t going to be like sufficient to cover my costs, for example. I think it could also be beneficial to batteries, but you create all this uplift problem as well, which is if I, you know, am looking ahead and see a need for generation in the future, but then it turns out I had the forecast wrong and I saved you now. I didn’t discharge you now and I discharged you 30 minutes from now and you lost money because I didn’t discharge you when prices were actually high.

Andrew Reimers (45:39.01)

that creates kind an opportunity cost problem that you have to figure out how to deal with. So it introduces new complexities. It’s really an effective kind of reliability scheduling tool more than anything else.

Josh Rhodes (45:51.054)

Josh Rhodes (45:51.655)

Okay. Just a couple more questions. What’s one thing you wish policymakers better understood about the electricity system in Texas?

Andrew Reimers (45:59.662)

Yeah, so here’s the story I have been spinning recently. Let’s follow the logic of conservative operations a little bit and let’s take it for granted and try to fix it instead of arguing against it. So say you want to operate the grid more conservatively because you have a very low tolerance for outages. Well, one thing you’re saying is you have a very

Josh Rhodes (46:15.084)

Okay.

Andrew Reimers (46:28.034)

high value of lost load. We haven’t really gotten into value of lost load. It’s a, it’s a very controversial topic. I actually have a paper here from our friend, Will Gorman at Lawrence Berkeley. Also former Weber group, the quest to quantify the value of lost load. So it is as academic as it gets, but conceptually it relates to how you formulate shortage pricing. So if you’re worried about some probability of load shed,

Josh Rhodes (46:41.036)

Also a Weber Group student.

Andrew Reimers (46:57.538)

You have to also put a price on how costly load shed is before you can really do anything about scarcity pricing. So we need to adjust this shortage pricing to reflect the fact that we have a very high value of lost load. So now we’re going to take all those demand curves I was talking about earlier, and we’re going to calibrate them to the fact that we have a low tolerance for outages. So far, so good. That’s at least a consistent way to go about doing things. But now what are you going to do?

Andrew Reimers (47:26.786)

You’re going to tend to raise the price of electricity. You’ve effectively bumped up the floor on the clearing price for electricity. Maybe that’s okay. Maybe people are really, would prefer to pay more for electricity if it meant that they were really buying themselves, you know, security against outages.

Josh Rhodes (47:45.272)

Like you pay for firm gas versus like market gas or something like that.

Andrew Reimers (47:49.304)

Perhaps it’s not entirely unlike thinking about insurance or something like that. I would posit that as a native Texan, the whole kind of reason that this, you know, sun bleached hellscape has become a massive economy and a very dynamic place is really because it’s been a good place for doing business. It’s been cost effective, the energy markets and things like that, whatever their flaws have been, have been efficient and

Josh Rhodes (47:53.368)

Yeah, okay.

Andrew Reimers (48:17.248)

relatively lower cost than a lot of the competition. mean, if you compare Texas and California, there’s a big difference in the access to and cost of energy. And so I would just suggest that if you follow the logic where to get the reliability that conservative operations supposedly is trying to get you, the only way to do it is ultimately to pay more for electricity. And then you’re left with a real conversation about how much more are we willing to pay for?

Andrew Reimers (48:45.654)

this level of reliability and is this kind of a reasonable end goal?

Josh Rhodes (48:50.936)

Hmm, sure. I’ll make a plug for my part of Texas, East Texas, which is less sun bleached. Lots of pine trees, really tall pine trees. Yeah, yeah, yeah. I guess my last question is, Andrew, is there anything I didn’t ask you that you wish I had?

Andrew Reimers (49:07.008)

Okay, so something that you didn’t ask me about that is another topic that, you know, relates to this whole issue is the concept of out of market actions. And so basically there are all these different programs that get glued into the electricity market design kind of landscape. And you’re familiar, I’m sure with a lot of these, we have emergency reserve service, we have firm fuel supply service. There’s a proposal for an out of market.

Andrew Reimers (49:36.278)

residential demand response service. Something I want to highlight for listeners of this podcast who are interested in these topics is that all of these programs are ways of kind of injecting revenue into the energy market that is not directly coming out of the clearing prices themselves. And what they actually do is they incentivize behaviors that tend to suppress the energy price. So for example, if you’re paying

Andrew Reimers (50:04.878)

through some sort of backdoor mechanism to turn down residential load, for example, that’s going to have an impact on the clearing price of electricity. And so what we’re trying to get at here, and this is kind of a big push from my office is all of these programs ultimately are pulling revenue out of what is set by the energy price and sort of inefficiently allocating it through all of these other programs. We’d really recommend

Andrew Reimers (50:32.032)

Really nailing down the shortage pricing mechanism as the primary way that investment signals are made in ERCOT is kind of the overriding mission of this office presently.

Josh Rhodes (50:44.504)

So to keep it pure, what you’re saying?

Andrew Reimers (50:46.83)

Keep it

Andrew Reimers (50:47.05)

pure. mean, you know, we don’t want to be overly ideological about it. It’s just that there are counteracting forces here if you go the other direction. So you might think you’re improving the situation by implementing some of these programs, but it’s hard to actually say how any of that’s going to net out. And what we’re confident of is that it’s going to have an impact on efficient price formation. And if you believe that the wholesale market is a really efficient way of allocating

Andrew Reimers (51:14.978)

you know, scheduling who’s going to run and forming a price, then you would be apprehensive to do anything that’s going to interfere with that.

Josh Rhodes (51:25.294)

So would that look like all of these programs figuring out how to actively bid into the market?

Andrew Reimers (51:32.844)

Yeah, sure. So a good kind of juxtaposition here. The AIDR program we’ve generally been pretty favorable for. you know, the guys from base may have been on the podcast already. I’m not sure. They’re basically like a residential battery developer. They have a pretty interesting business model where they’re now a pretty big player in our cuts. AIDR program where that is one way of kind of getting retail customers exposed to wholesale prices.

Andrew Reimers (52:01.826)

That’s a much more efficient solution than this resDR program that our cot has proposed.

Josh Rhodes (52:08.256)

And ADER stands for Advanced Distributed Energy Resources.

Andrew Reimers (52:11.906)

I think it’s aggregated distributed energy resources. Cause they basically for each kind of load zone, you aggregate all of the customers who are participating in that program. And now they’re treated as one resource in kind of the ERCOT market model per load zone.

Josh Rhodes (52:29.368)

So if you’re in that program and you’re actively participating in, you know, ERCOT’s market dispatch through SCED, I mean, that’s kind of like, you’re participating in the energy side of the market, right? Versus like some of the other things you’re saying, if they’re more capacity type products, because we don’t have a capacity market, like they’re being shoehorned in there. Is that the fair summary?

Andrew Reimers (52:46.808)

Well, so for example, ERS, ERCOT recently presented that a huge percentage of the emergency reserve service market has been taken over by crypto operators. I’m not here to throw crypto operators under the bus. I used to work for one. Fair enough. But part of the whole point of the way the economics of that kind of business is it’s very price responsive. And so when wholesale prices are higher,

Andrew Reimers (53:16.882)

they have a strong incentive to reduce their load. And so they’re already going to be responsive to price conditions on the grid that are supposed to be reflective of the reliability situation on the grid. And now you’re just funneling all of this extra money to them for something they were going to do anyway. And so that would be another example where, you know, rate payer money is being distributed really inefficiently. You’re not really getting anything extra for what you’re buying in that case.

Josh Rhodes (53:45.442)

Yeah, okay. That sounds like something that the market monitor would want to be on top of.

Andrew Reimers (53:50.156)

Yeah, this is definitely something we’re kind of working on our response to now that we’ve seen this report from ERCOT at a recent market meeting presentation.

Josh Rhodes (53:58.776)

With that, Andrew Remmers, thanks for being on the Energy Capital Podcast.

Andrew Reimers (54:01.806)

Thanks a lot Josh, it was fun.

Josh Rhodes (54:04.984)

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.

Josh Rhodes (54:34.35)

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.

Every time a winter storm hits, Texans run through a mental checklist: gather more blankets, drip the pipes, and hope the grid holds up. Kurt Heim, Vice President of Environmental Advancement at Daikin Comfort Technologies North America Inc., understands why that anxiety stuck after 2021’s devastating Winter Storm Uri.

But this reliability and affordability problem has a surprisingly accessible solution.

In this episode, Kurt and host Matt Boms zero in on a big part of winter peak demand that doesn’t get enough attention: electric resistance heating, especially in older houses and apartments. These systems use excessive amounts of electricity to heat homes in one of the least efficient ways possible.

It’s an easy issue to miss … until you run the math for millions of housing units.

As Matt notes, if Texas has to serve roughly 12 gigawatts of resistance heating load during extreme cold temperatures, that represents real low-hanging fruit. Addressing it would fortify the grid in a way that helps Texans who struggle to afford their power bills:

“What it would do is pay some really good dividends around affordability.”

Kurt also talks about “flattening the peaks” so Texas gets more value out of infrastructure that Texans already paid for, instead of constantly adding fixed costs that show up in rates.

That framing lands even harder in light of ERCOT’s booming load forecasts: if Texas is serious about serving this growth, we should be just as serious about reducing waste, especially during the most extreme weather.

Policy levers that are already moving

Diving into the weeds, Kurt discusses updates to the technical reference manual that sets industry calculations for energy efficiency. The updates will make it easier for new construction and multifamily development to have more efficient systems.

New construction is only part of the story—improving existing structures will take more work. But as this episode makes clear, such investments will pay off in greater reliability and affordability.

Final Thoughts

Texas can chase growth and reliability at the same time. But we can’t afford to do so with outdated systems that exacerbate grid weaknesses and punish the people least able to absorb their bills.

The grid has a waste problem. Texas needs to deal with it. The best place to start is with a readily accessible solution that addresses a clear problem, lowers bills, frees up capacity when Texas needs it the most, and allows the grid to keep growing.

If this sparked a question for you, drop it in the comments. And if you know someone who still thinks winter reliability is only about power plants, send them this episode.

Energy Capital is produced by ClarityForge Studios.

Timeline:

* 00:00 – Winter peaks, why it matters

* 01:20 – Kurt Heim, background

* 02:59 – Winter anxiety, resilience mindset

* 05:08 – The resistance heating problem

* 07:08 – How big these loads get

* 09:21 – Heat pumps, how they work

* 13:11 – Climate tech, variable speed

* 15:10 – Efficiency math, 1x vs 2–4x

* 16:50 – Economics, bills and adoption

* 18:57 – ACEEE study, scale of savings

* 26:58 – What blocks heat pump adoption

* 29:05 – Codes, standards, and design basis

* 35:30 – Incentives and contractor training

* 37:53 – Political will, signs of progress

Resources:

Guest & Company

* Kurt Heim - LinkedIn

* Daikin Comfort - LinkedIn

* Matt Boms - LinkedIn

* Texas Advanced Energy Business Alliance - LinkedIn

Books & Articles Discussed

* Transforming Texas: How Heat Pumps Can Replace Electric Resistance Heat, Reducing Costs and Winter Power Peaks

* Quantifying the impact of residential space heating electrification on the Texas electric grid

* Our Homes Aren’t Ready for Extreme Cold and Power Outages

Related Posts by Texas Energy and Power

* Texas Got Tested, Grid Stayed Upright

* 2022 Cold Snap Shows Resistance is Futile

* ERCOT calculates a 1:7 chance of outages in December; could be worse in January and February

* ERCOT Still Doesn’t Understand Winter Demand

* NRG’s Gigawatt VPP in Texas with Travis Kavulla

External References and Tools

* Energy Efficiency at the PUCT

* Texas Climate Zones by County

* State Energy Conservation Office Programs

Transcript

Matt Boms (00:05.004)

Why does Texas continue to see winter peak demand spike so sharply during cold weather, even years after winter storm Uri put winter reliability front and center? Welcome back to the Energy Capital podcast. I’m Matt Bombs. And today we have a really special guest and someone I’ve been excited to talk with for a very long time. Joining me is Kurt Heim. Kurt is vice president of environmental advancement.

Matt Boms (00:32.662)

and Texas Government Affairs at Deichen Comfort Technologies, one of the world’s largest manufacturers of high efficiency heating and cooling systems. Kurt has spent more than two decades in the HVAC industry, including leading the development of Deichen’s massive manufacturing facility in Waller, Texas, one of the largest HVAC plants in the world. He works at the intersection of technology, manufacturing, policy, and grid reliability.

Matt Boms (01:02.102)

And he is exactly the right person to help us talk about how heat pumps can lower bills, strengthen the Texas grid and help us stop panicking every time winter shows up. So Kurt, you’re the star today. Welcome to the show and thanks so much for your time.

Kurt Heim (01:20.108)

Matt, thank you very much for having me. I’m a long time listener of the podcast and I’m really excited about the direction that you’re going in. I’m just really pleased to be here and get a chance to talk about ePumps.

Matt Boms (01:32.91)

Thanks so much, I appreciate that. So I want to kick us off. We’re coming off of this winter storm Fern and it feels like this anxiety cycle that we go through in Texas. You can trace this all the way back to Yuri and understandably Texans get nervous when they hear a winter storm is coming. We had a few since then, we had winter storm Heather that hit, now we have Fern. And I think just to tee this up, why do we still feel like the grid is on knife’s edge?

Matt Boms (02:02.41)

every time it gets cold in Texas.

Kurt Heim (02:05.036)

Yeah, that’s a good place to start. I am probably going to say that really Yuri was a shared experience in a searing event that touched a lot of people. I don’t know anybody that didn’t have some level of disruption in their life. Mild forms of it would have been that you lost your power for a few days, but you know, a lot of people had severe issues. My neighbor was one of them that lost power, but then had pipes burst in his

Kurt Heim (02:34.026)

ceiling in his attic. And so he had a major, you know, rehabilitation of his, of his house. So those things really make an impression in your mind when we watched it happen in front of us. And there were a lot of scary things that were talked about at the time. Like would we lose the grid? Would it lose functionality? And that was something that I think sticks in our mind going forward. So I think that’s why we still have some anxiety around it.

Kurt Heim (02:59.434)

I think for me, I try to use the anxiety to my benefit. Like, Hey, let’s prepare for it. Let’s get things in line to do it so that you can personally be more resilient. But I think that’s where it comes from, Matt. We just all had that very, very visceral experience with Yuri.

Matt Boms (03:14.87)

Yeah, it’s definitely a shared experience. And I know that the media pays a lot of attention now when a winter storm comes. And the question that I get asked the most is, you know, will the grid survive this winter storm? And luckily we did make it through the last one, right? But I want to really pick your brain on what the root of the problem is here, right? Does Texas have a winter grid problem and what can we do to solve it?

Kurt Heim (03:43.148)

Yeah, I think you’re putting a fine point on it. You know, we’ll talk a little bit about technology and heating technology specifically as one of the, I guess you could call it vulnerabilities that we have. But you know, what these events really teach us is that we can put a button on some of the things that we need to change and do. And so, you know, out of URI, there was a lot of attention paid to weatherization. And I think that the

Kurt Heim (04:11.106)

The legislature has done a lot of good work and then the PUC and ERCOT have done a lot with that too. We may have that largely behind us, but then we’re also exposing these other rocks. And one of them is around heating technology. We’ll talk a lot today about electric resistance heating. And that is a form of heating that is extremely wasteful. It’s an old technology that we still have on our grid, but we have it its scale.

Kurt Heim (04:38.986)

And so that’s the concern really that we’re driving forward and one that we really need to keep in front of us. And one that we can solve as, you know, if we’re talking about the energy discussions, one of the nice things about where we are today is that it’s more of an all of the above discussion. And I truly sense that when I’m talking to people about it. so finding places to understand where we have opportunities, where we have levers, where we have things that we can change.

Kurt Heim (05:08.546)

that are not terribly expensive, but they need to be addressed is really where we are. so I think winter grid problem, I think we have an electric resistance heating issue that we need to solve. And that’s one that we’ll probably talk about some of the stats in this discussion, but it’s not insignificant. And I think that it fits a lot with where Texas wants to go. We probably want to use that power that we could save by changing heating technology.

Kurt Heim (05:34.882)

to do other more value added things that will help the state prosper. that’s really what I think we have is a heating problem, heating technology problem.

Matt Boms (05:43.862)

Yeah, well said and help us understand what that means, Kurt. So when you say resistance heating for someone listening to this podcast and maybe they’re in a house or an apartment and they have resistance heating, what does that look like? And how could that person look at alternatives, right? Like walk us through why so much construction in Texas is already built with resistance heating versus more advanced technologies.

Kurt Heim (06:14.076)

yeah, this is a good place to start. So an electric resistance heater is basically what you see in your toaster. What you do is you run electric current through resistive wires and those wires heat up and they glow. And so then if you push air across that, now you’re heating with electric resistance heating. And they’re called a lot of different things like electric furnaces, for example.

Kurt Heim (06:38.7)

But what it is is it’s one unit of electricity produces one unit of heat, heating energy. And so it requires a lot of electricity to generate a lot of heat so that you can heat a dwelling. A couple examples of where that is. If you’re in a single family home and that home was about, let’s say, 2,000 square feet, you might have 10,000 watts of electric resistance heating if that’s how you’re heating it.

Kurt Heim (07:08.334)

10kW. If you’re in an apartment, like a one bedroom apartment in Houston, Texas, you might have five. So that’s a lot of energy that you’re using. Now you’re not heating. We don’t have the most severe winters, but really that starts to kick in around, you know, where your set point is. So if you keep your thermostat at about 68 degrees, you’re going to start seeing that electric resistance heater come on.

Kurt Heim (07:36.052)

at that point. Now it operates a little bit different than other technologies, but that is the most basic heating technology I think that’s out there other than, you know, like a gas furnace. And I think one of the reasons why we see it quite a bit is if you look at multifamily, a lot of multifamily is all electric. So in all electric areas, you really don’t have a lot of options for other fuels. So that’s why you see there, but at its core, it’s a hot wire that you blow air across.

Matt Boms (08:04.448)

Yeah, that’s really well said and I want to hear more about heat pumps from you because you’re such an expert on this. And I think there’s a myth out there that heat pumps don’t work in the cold. So can you take us through this and just explain in simple terms what a heat pump does and why it’s so much more efficient than resistance heating?

Kurt Heim (08:26.21)

Yeah, completely. think you’re right. I think there’s some misperceptions out there and it may stem from really what a modern heat pump is to maybe what a heat pump might’ve been and how it works. And really and truly most of the time you’re not going to know the difference between an air conditioner and a heat pump because the technology is held in the outdoor unit. And so what it is at its core is an air conditioner that can run backwards and it doesn’t create heat, it moves heat. So even

Kurt Heim (08:56.136)

zero degrees Fahrenheit or freezing, there’s a lot of heat in the atmosphere. And when the refrigerant cycle runs backwards, it collects that heat from outside and it moves it inside. So the parts of your air conditioner in the summer that get cold that you blow air across get warm and you blow that warm air around your dwelling and you get heat from it. So

Kurt Heim (09:21.292)

Because it doesn’t have to create the heat, it moves the heat and it uses the refrigerant cycle to do that. It can do it up to four times more efficient than the electric resistance heat. So think about it that way. It’s an air conditioner with a few different technology differences that allow it to run backwards and then collect that heat, which we know the sun’s renewing that heat all the time, but even at those low temperatures, there is...

Kurt Heim (09:47.65)

heat there to gather and move into your house to provide that more efficient heating.

Matt Boms (09:53.922)

Yeah, that’s really helpful, Kurt. And you mentioned the history and I think it actually is worth diving in a little bit and unpacking that because that’s the great thing about a podcast is we have time to talk and the long form conversation I think lends into getting into the weeds a little bit on this. So help me unpack how far heat pumps have come over the past few decades here. And maybe that’s where some of the misperceptions are.

Matt Boms (10:21.782)

as far as how efficient or how effective heat pumps can be in cold weather.

Kurt Heim (10:26.594)

Yeah, I think using kind of Houston or most of our state is in two different climate zones, climate zone two and three. So you think of it this way, Houston’s in two, Dallas is in three. So you get that kind of differential and that’s where most of the population is kind of, you know, above I-20, around I-20, between I-20 and I-10 and then south of I-10. But in those particular climates.

Kurt Heim (10:53.63)

We don’t have severe winters, right? We’ll have an occasional winter storm. But one of the areas that heat pumps have improved over the years is in their capacity, their ability to deliver and gather more heat and move more heat at lower ambient temperatures. And so one of the things that I think contributed to some hesitation about using heat pumps in the past is that that capacity would, start to run out of capacity at higher ambient temperatures.

Kurt Heim (11:21.868)

So if your heat pump wasn’t working well around 30 degrees and you need to design for 30 degrees, then you’ve got to look at some other technologies. But as things have evolved, compression technology, refrigerants, and things of that nature have improved, it’s improved the efficiency and capacity of that. And so now you see them operate very well in our climate zone. I think part of what we, I think, want to...

Kurt Heim (11:49.134)

talk about as well is the future. So one of the things that Dyken has as a core technology is variable speed. So a lot of what we’ll talk about in basic heat pumps is a single speed technology, which is really like your air conditioner turns on, it turns off. But variable speed will actually modulate or adjust with the need of heating and cooling that is required.

Kurt Heim (12:14.754)

what’s exciting about where the technology is going, it’s starting to move more into variable speed. And variable speed actually offers even more heat delivery at lower temperatures. So even, you know, as low as negative five, you’re going to have some variable speed heat pumps that are going to perform very well. For reference, you know, that negative five is probably mostly out of the design standards for, you know, Texas. Maybe you might get into some of that.

Kurt Heim (12:42.198)

in the pan handle, some of those variable speed will require no heating backup at all. So a lot of heat pumps will have a backup electric heater. Kind of the one that we talked about before will work the same way that if you are starting to get into a temperature where the capacity is going down, you’re not left without heat. It’s going to work in conjunction with that heater to deliver. But the promise that we really see a variable speed is being able to go to a lot lower ambient temperature.

Kurt Heim (13:11.978)

with very little, if any requirement for electric resistance heating. And another exciting thing just to kind of put out there for variable speed. I know you guys have done a lot of work on, you know, what needs to be on the grid. How can we actually create value with our consumption, so to speak? Variable speed offers a lot of promise for being responsive to grid conditions and

Kurt Heim (13:38.702)

because of the efficiency that it delivers. But the fact that, you know, if you needed to do a demand response in today’s world, you got to turn your system off, basically, you know, either move your set point to where it’s off or physically turn the system off. Variable speed could just go down to like, well, we’re operating at 80 % speed, we’ll go to 75 % or we’ll go to 65 % speed and really still have a lot of comfort.

Kurt Heim (14:03.97)

I say comfort. If some people really need, it’s a health issue. They need to have a pretty moderate climate in their home. They need a certain amount of heat, a certain amount of cool, but you may be able to achieve that with variable speed and not really have to turn anything off. So that’s really kind of going from, you know, the past where the capacities weren’t as good as they are now, improvements in refrigerant compression technology and heat exchange, bringing it to the future. Now variable speed is factoring into it and

Kurt Heim (14:32.554)

even getting to a place where backup heating isn’t really required in a lot of climates with those variable speed systems.

Matt Boms (14:41.184)

Yeah, that’s a game changer. And it sounds like what I take away from that is Texas is uniquely suited for heat pumps, right? Like I think some people think of heat pumps as, you know, a great solution in a place like New England or the Midwest. But what I’m hearing from you is actually we’re uniquely positioned in Texas to benefit from heat pumps because of the climate that we have down here. And I think what I wanted to know, Kurt, also is when you were talking about resistance heating, said, you talked about that one to one.

Matt Boms (15:10.956)

Right, one unit of electricity yields one unit of heat. What does that look like on the heat pump side?

Kurt Heim (15:17.654)

It’s more like two to four times. So that’s where the efficiency is gained really, and not having to create, not having to use the energy to create the heat, but actually just use it to move around. So it can have what’s called the coefficient of performance. electric resistance heat has a one on your scale and heat pumps are going to be anywhere up to four. So that’s where you’re really driving a lot of efficiency. Let’s put that in perspective.

Kurt Heim (15:46.976)

And I’ll use for a point of reference, a project that we did in Houston’s fifth ward in an apartment complex where we took about 25 % of the HVAC systems that were electric resistance heat, and we converted them to heat pumps and nothing else was done to the dwelling. No added insulation, no windows and door ceilings. Nothing of that, just technology A and replace it with technology B.

Kurt Heim (16:13.07)

In those particular instances, we’ve seen about a 50 % reduction in the demand for energy in order to heat those dwellings. So those went in, in December of 2024. So we caught a really cold February in 2025. And now we’ll catch the data from this past winter storm as we’re kind of sitting here recording it. We’re on the last day, I guess, of the winter storm that we had in January of 2026. So we’ll catch.

Kurt Heim (16:41.794)

some of that data and it’ll be interesting to see, but yeah, those are delivering about 50 % reduction in demand.

Matt Boms (16:50.146)

That’s so wild because your baseline is cutting energy costs in half basically for folks who have heat pumps installed. And I want to jump into that and talk about the economics because Texans are very savvy when it comes to energy use, right? And we’ll jump into that in just a second. But I didn’t want to skip over the grid level conversation and how much of a difference this could make during a winter storm event, right? Because we have a winter problem in Texas.

Matt Boms (17:18.68)

There was a Texas A study that came out last year that talked about resistance heating over 2.7 million homes in Texas and still use electric resistance heat. They can each pull about nine kilowatts of, you know, during a cold snap like we saw last weekend. And if you add that all up, that’s 12 gigawatts of winter demand equivalent to 40 large power plants, right? So are we essentially looking at

Matt Boms (17:47.99)

millions of homes turning into giant space heaters at the same time. Is that really what we’re doing in Texas, the way that we built our homes and apartment buildings?

Kurt Heim (17:58.274)

Sometimes I look at it that way. Sometimes I’ll drive around and I’ll see a new apartment complex going up. And I think about each one of those with the five KW heater or maybe a bigger apartment with an eight KW heater in it. And we know that that’s happening. We’ve done our own research in the market. And we know that about 85 % of the apartments that you see, if we just talk about multifamily as a big cohort.

Kurt Heim (18:28.064)

About 85 % of those are going in with electric resistance heaters. So, and they’re going in at scale. And when you think about that, the life of that equipment could be 15 years. So you’re 15 years away from an end of life technology change where you have the opportunity to make a different decision, not necessarily that you are going to, but you’re about 15 years away from that. And so the Texas A study.

Kurt Heim (18:57.094)

And the ACEEE study really put a bright light on the potential that we have in changing out that technology and what that could go towards. You you hit it on, on the head about almost 3 million homes. think a big percentage of those are apartments. And I think a big percentage of those are all electric apartments, but that’s a big number, 9 KW per using that to heat. You know, that starts to.

Kurt Heim (19:26.786)

help you reason around why we had a winter peak that was over 80 gigawatts. You know, that’s like an August number, right? And so you start to see that at scale and it is something that really needs to be addressed and thought through. You know, we’ll probably talk about it. There are some levers to get there, but really that you framed up the problem right there. There’s a lot of waste there, but I think in our state, one of the good things about it is that

Kurt Heim (19:56.556)

You know, you could reframe where that energy could go and that energy could go to adding industry and jobs and prosperity, but we’ve got to draw big distinctions in how we go after it and really divvy up the problem and find these little pockets and areas of opportunity and go after them.

Matt Boms (20:14.758)

Absolutely. And now that Texas is ushering in this new age of data centers and AI and we’ve seen some load forecasting over at ERCOT that sees us doubling our peak demand in the next five or six years, right? So considering those numbers, you’ve got 12 gigawatts on the table right now in the form of resistance heating, right? So you would think that

Matt Boms (20:42.988)

The easiest and quickest solution would be picking that low-hanging fruit and saying, that’s something we could take care of tomorrow. That’s just an easy solution that’s sitting on the table. And it could at least, at a very minimum, avoid the anxiety that we all go through every winter time when there’s a storm and we’re sitting around wondering if the grid will survive.

Kurt Heim (21:05.6)

I think going after it makes a lot of sense. What it would do is pay some really good dividends around affordability. So if we, if we need to add that capacity, like you’re talking about, what we’re really talking about is increasing the fixed cost of our energy bill, right? There’s a lot that needs to go into that. Now there will be users of all that load, but if we can find ways to more fully use the capacity that we have.

Kurt Heim (21:33.878)

We can hold down the costs and the costs are going to be very important. There’s a lot of good research by TEPRI that really gets into how energy vulnerable people are and the things that they go through with their own curtailment and discomfort. You know, in the summer, they’re too hot. In the winter, they’re too cold and they’re trying to save. And really we can find these areas and eliminate this waste and help hold those costs down. We are going to grow and that’s going to happen, but I think.

Kurt Heim (22:02.772)

One of the things that sticks in my mind is at the Texas Energy Summit, Doug Lewin gave kind of a really nice Ted talk kind of thought discussion. And he talked about utilization of the existing infrastructure that we have and higher percentages of utilization are really what we need to strive for. We need to flatten the peaks so that we can get more utilization. Cause there we’re using the assets that we already have.

Kurt Heim (22:28.908)

And so that actually can start to make an argument that it could lower costs over time. So really that’s got to be part of the focus is getting to that.

Matt Boms (22:37.294)

Absolutely. Yeah. And let’s get into the economics here, Kurt, and you mentioned the AACEE study and we’ll share the study in the notes. Can you walk us through the economics here at, you know, just the household level? And there’s, think, common misperception that heat pumps are so expensive that they don’t make economic sense, right? So help us understand the real economics here.

Matt Boms (23:04.012)

What’s the return on investment, right? How long will it take me to recover those upfront costs?

Kurt Heim (23:09.762)

Yeah, really when we think about this, let’s go back to the kind of the original discussion that we had where, you know, what is a basic single speed heat pump look like? It looks like your air conditioner outside. So that’s kind of the starting point. And what does it have that’s different than that air conditioner outside? It’s got, you know, a few modifications to it. It’s got something called a reversing valve, and then it’s got a little bit of a different control board.

Kurt Heim (23:34.988)

When you’re talking about the added costs of that, you’re talking about a few hundred dollars between, you know, the sunk cost of buying a basic air conditioner and then the amount of additional spend and costs that you have to buy a basic heat pump. So a few hundred dollars in that. In that ACEE study, it looked at couple different ways that you would get into a heat pump. There’s a little bit more expense for retrofitting. So let’s say.

Kurt Heim (24:04.878)

$700, $800 or less on average is what they found. I think those are probably pretty good figures, but the savings could be substantial and it could be as high as, you know, close to $400 a year. So you’re looking at one to two year paybacks for the rate payer on that. They also looked at new construction. New construction is the cheapest way to put in a heat pump. You’ve got a lot of things at your advantage in that, in the procurement.

Kurt Heim (24:32.142)

because you’re buying at scale probably, you know, if you’re, if you’re a builder and you’re putting in a neighborhood, you’re not buying one system, you’re buying, you know, dozens, if not hundreds of systems. So there’s some benefit there and then lower cost if it’s designed in as a basis of design. And so, you know, we took that seven, $800 retrofit example, ACEE thought that that would come down by about half. So what would that give you?

Kurt Heim (24:59.126)

That would give you like a one year payback, right? On that for the people that go in that direction and the people that use a heat pump. So those are the economics. I think if you start to roll that into annual, if we started today and we started working through getting more and more systems retrofitted and then in construction, if we started, you know, having a higher percentage of them go in with heat pumps, that would have been electric resistance furnaces.

Kurt Heim (25:26.668)

then you could start to see in the billion dollar range per year after a few years in bill savings. And so there’s, you know, some calculations on that. What are the costs going to be per kilowatt hour? But right now we’re expecting those to probably go up 30 % over the next, you know, period of time before 2030. And I don’t think that’s a crazy thing to think about. So those improvements and paybacks are even going to go up.

Kurt Heim (25:52.578)

So in the example that we’re giving, it’s really, you you’re the homeowner. This is something that you should really take a hard look at. You’re the rate payer as well. So you’re making the decision in that. But also we talk about the multifamily piece of it. That’s where there’s some need for some economic alignment around incentives because the landlord or the builder or the developer has one set of incentives that are different from the rate payer. The rate payer doesn’t get to participate in the choice.

Kurt Heim (26:22.106)

of the heating technology so they can be the recipient of a higher bill due to that technology.

Matt Boms (26:29.292)

Yeah, you teed up my next question perfectly because in listening to you, it’s such a no brainer, right? Like, why wouldn’t you do this? If you’re saying that for new construction, essentially you’re getting a hundred percent ROI, right? On that initial investment of the heat pump. And then for retrofits, you’re making your money back in the initial one or two years. So the fundamental question in my mind is, well, why haven’t we fixed this already? Like.

Matt Boms (26:58.434)

What are the main obstacles here? Because it just sounds like a no brainer, Kurt. It sounds like we should all have heat pumps up and running in our homes and businesses. Yeah.

Kurt Heim (27:08.406)

Yeah, know, this is a question that vexes me quite a bit. Why can’t we get there? I think we’ve got a lot of tools to help us get there. Sometimes it’s a little frustrating because those tools are, you know, like incentives and rebates, et cetera, will pay for the switch back, you know, switch from electric to heat pump. But what is making you make the right decision out of the gate, right? How do we get there?

Kurt Heim (27:38.516)

And so really, I think it comes down to education because if somebody’s designing, we’ll use the apartment as an example. They’re designing an apartment. There’s a basis of design. If that basis of design is the code minimum, which is really what probably it is or heavily influences it, then you’re going to get the cheapest alternative, the least expensive capital outlay to get there. And that’s going to be an electric resistance heat, you know, an electric furnace.

Kurt Heim (28:08.52)

And why is that okay? Because you’re not the rate payer, right? You’re putting capital into the system, but you’re not actually paying the operating costs of it. So I think basis of design is something that we have to really look at, which goes back to the energy codes. And so really happy that the state is, you know, through a process in the midst of a process of updating those to a 2024 standard. But when you peel back the onion on that 2024 standard, it doesn’t deal with electric resistance heating.

Kurt Heim (28:37.976)

the way it needs to. It has a lot of restrictions on electric resistance heating for climate zones for and above. But remember earlier in the podcast, we talked about most of our state’s population is in climate zone two and three, and it doesn’t address climate zone two and three. That’s something that we’re hoping that the State Energy Conservation Office and Texas A who’s doing the evaluation will take a very hard look at. Because if they can

Kurt Heim (29:05.366)

understand how to make that code work better for the population in the state, then we’re going to get a basis of design that is going to be more restrictive of heat pumps. And then we’ll start to see the market change on that. But you asked a very good question. And I think for me today, as I sit here, we studied this problem quite a bit. It’s really comes down to a lot of a basis of design.

Matt Boms (29:29.27)

Yeah, it sounds like a combination of inertia, maybe lack of awareness and just business as usual, right? We’ve always built this way and this is how we’ll continue to build instead of looking at more advanced technology that really could save hundreds if not thousands of dollars for folks that are actually living in these homes, right? It’s a huge opportunity. mean, this is every time we have these winter storms in Texas,

Matt Boms (29:56.054)

It’s heartbreaking when you see the bills that folks have to pay because they just have old resistance heating and their homes can’t keep up with these temperatures that dip into the teens. if God forbid we end up in single-pitch temperatures, that could be a grid crisis, right? Just because of resistance heating.

Kurt Heim (30:12.844)

Yeah, you really put a good visual on it. I would say one other thing contributes to it in business as usual, I think is good, but we’re almost a victim of our own success. the rates, the kilowatt hour rate in the state is low relative to a lot of other parts of the country. That’s why we’re seeing a lot of load growth come to the state and the potential is even more.

Kurt Heim (30:38.038)

So there’s a lot that this state has exactly right, which attracts it to it. We just have a few of these tweaks that we need to go after in order to really shore things up. But, you know, I would add to that just kind of a victim of our own success.

Matt Boms (30:54.338)

Yeah, absolutely. And for someone who’s living in a multifamily apartment building, that person might not feel like energy is affordable because of how much energy they’re forced to consume, right? Because they’ve got resistance heating and the kilowatt hour might not be expensive, but if you add up all the kilowatt hours, it certainly is a lot of money that they’re paying at the end of the month.

Kurt Heim (31:18.946)

Yeah, you could, you you kind of set this up in a nice way to think about it from a cost perspective. The human part of it is really hard. People are dealing with a lot, but you could see somebody with a winter storm bill. Like if we had an extended cold snap, you know, they’re using 5kWs to heat that one bedroom apartment to cool it in August. You know, they’re probably using half of that for the compressor to run. Right. And so that compressor.

Kurt Heim (31:47.552)

in a heat pump is going to deliver the same heating that you’re going to get out of the summer, but it’s going to do it at a lower kilowatt per hour. And so they’re not experiencing that. And so for them, they’re not getting a break and they have to adjust their behavior. think in our fifth ward project, we’ve seen on average right at a hundred dollars in savings in the first winter that we had the units in. And I’m expecting that we’ll see that again.

Kurt Heim (32:14.894)

this winter, maybe even a little bit more, because we didn’t get them in until December of 2024. So we missed a little bit. It was a warmer winter, but 2025 was pretty cold for that. And then 2026 is starting off pretty cold too. So you think about the impact that somebody on a fixed income, know, hundred dollars, or we even saw one that was closer to $140. You spread that all across two or three months. That can really be a big impact to their budget.

Matt Boms (32:44.512)

Absolutely. Yeah. Well, I do want to focus here in the last bit of our conversation on what can be done to solve this problem, right? Like it’s a hard nut to crack. We’ve already talked about the reasons why heat pumps aren’t widely installed in Texas and why they should be installed in Texas is pretty much common sense for anyone who’s made it this far into the podcast. So what can we practically do about this problem, Kurt? You know,

Matt Boms (33:12.728)

Texas is a pro-business state, we’re not mandating anything anytime soon, but we do want a free competitive market that supports common sense technologies like heat pumps, right? So business as usual can’t be acceptable anymore. And for decision makers in this state, they are certainly looking at this as the next logical solution for saving money for their constituents.

Kurt Heim (33:38.208)

I think we’ve got to really engage more with policymakers and do a good job of educating on the issue. had Chairman Anchi of Dallas introduced a bill and Senator Boris Miles of Houston introduced it in the Senate in the last legislature and we had a hearing on it and the hearing started to really educate the lawmakers on, you know, electric resistance heating and why the bill was actually asking them to.

Kurt Heim (34:05.698)

prohibit it from being used as a primary heat source. So electric resistance heating under that bill could be a backup or supplemental heat, but you had to have a heat pump as the primary, which is kind of similar to the building code that we talked about that won’t really impact our state. So now you’re starting to see why, you know, the legislative route made sense. We’ve got to educate more on the topic. We’ve got to really draw good examples.

Kurt Heim (34:32.386)

You know, talk about the economics of it, talk about what you can do in terms of greater grid utilization. We have good programs out there for utilities. We’ve got to publicize those. I think of Dyken as an OEM, a manufacturer. We want to make sure that our customers are aware that there are options out there offered by the utilities to supplement or, you know, provide rebates and incentives to change the technology, right? To transform that. So we have to educate more on all that and bring it forward.

Kurt Heim (35:02.552)

We also have to take a hard look at some of our building standards. And then I think we have to look at the priorities that we need to make. think that if you take the ACEE at 12 gigawatts or Texas A at almost 14 gigawatts that they think this is, there’s a lot more higher value add that the state can bring to bear by spending those gigawatts on new business or expanding industry, et cetera. And we have to start to look at that.

Kurt Heim (35:30.744)

paradigm, so educate on the value, educate on the ways that exist today to transform the market by way of incentives and rebates. We’ve got to continue to focus on contractor training. One of the things that we see is, you know, who the expert is on HVAC when you’re sitting in August in a hundred degree home. The contractor is really the expert that you rely on to help you make a technology selection. We’ve got to help them understand what they can offer in terms of different technologies.

Kurt Heim (36:00.854)

And then just public education. think we have to raise the issue as much as we can. And I think all those things will contribute. We see really positive results when the legislature and the different policy agencies in the state are well informed on an issue. And it just looks like this is almost a no brainer, but it’s one that you have to get out there and really advocate for and educate.

Matt Boms (36:26.242)

Yeah, absolutely. And there was a great article that came out recently in the Houston Chronicle from Claire Howe talking about how this is the next logical step for Texas in meeting all of this load growth that’s coming, right? And if you can bring in more market incentives for this technology, as an example, the utilities are responsible for upgrading our distribution grid in Texas, right? So

Matt Boms (36:54.146)

They ultimately spend millions of dollars and recover those costs and the rate payers end up paying for the infrastructure. But there are cases where technology like heat pumps could step in and play a really important role in reducing the local load, right? Like we’re talking about 12 gigawatts or even 14 gigawatts here. That’s a significant chunk of our winter peak load, right? So if a utility can come in and say, look,

Matt Boms (37:23.266)

we know we can solve part of this problem with heat pumps, then the state should take a serious look at that and actually allow utilities and different market players to come in and provide that solution for the customer. Because ultimately we’re all trying to help the customer here, right? Like we’re all trying to make sure that we’re lowering bills for customers and making energy more affordable. I’m cautiously optimistic here listening to you, Kirk, because I feel like we do have the next steps that we need to take here as a state.

Matt Boms (37:53.014)

I just hope there’s enough political willpower to get it done.

Kurt Heim (37:56.578)

Yeah, I agree with you. I would like to highlight something that really encourages me quite a bit. know, utilities need tools or they need the PUC to kind of align with where they want to go. And one area that I can talk about is a success area is that we had a heat pump working group that was helping provide feedback on potential updates to the TRM, the technical reference manual, which is kind of like the rule book in the score book.

Kurt Heim (38:24.504)

for how utilities work with incentives. And one of the things that we found was that the baseline, so anything you get benefit from, you have to exceed the baseline, but the baseline for new construction and multifamily actually assumed that the heat pump was being put in. So you had to go to an Energy Star heat pump or a high efficiency heat pump in order to really qualify. The working group kind of provided some data and information to the PUC that say, actually,

Kurt Heim (38:52.032)

We don’t think that that’s accurate. And they made a change and they lowered the baseline. So what that is going to allow is that, you know, greater amount of incentive could be paid for somebody installing like a mid-efficiency heat pump than before where the baseline just assumed you had a heat pump in there anyway. This is one of the great things about this state that we’re really practical in how we operate. But when facts and figures and people align on it, you can see change, but that change is really.

Kurt Heim (39:21.494)

going to be for utilities can offer that, but they have to offer a program. Somebody has to take you up on the program and then they have to, you know, put in the system and that’s really for new construction. So it helps us stop digging the hole, but really the nearly 3 million homes that we talked about earlier are already out there. They’re already built, the built environment is there. We need more to address that, but it’s very encouraging that when you can bring all that together, you can actually see some change happen.

Matt Boms (39:51.822)

Absolutely. you know, Texas is obviously leading the country in a lot of different categories. It’s a pro-business state. I think that technology moves a lot quicker than the policy does sometimes, right? But no better company or business or case study than Dyken, one of the largest HVAC manufacturers based right here in Waller, Texas. So keep up the great work, Kurt, and I’m sure we’ll have you back and we’ll be hearing from you soon.

Matt Boms (40:19.276)

I think this is just the easiest step that the state could take to meet all of its energy demand and lower bills for customers. So thank you so much for joining us today and thanks for unpacking all of these complicated topics for us.

Kurt Heim (40:31.66)

You bet, Matt. Really appreciate getting the opportunity to come in here and talk about heat pumps today and how we really think that they offer something that is a tremendous benefit to the state. So good luck to you and the rest of your podcast this year. And really, really glad to be a part of this one.

Matt Boms (40:47.736)

Thanks, Kurt.

Matt Boms (40:50.786)

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 Empowered newsletter at texasenergyempowered.com. That’s where you’ll find every episode, every article, and all of our latest updates. We’re also on LinkedIn.

Matt Boms (41:20.038)

X and YouTube where we post clips, insights and ongoing commentary. Big thanks to Nate Peavey, our producer. I’m Matt Bombs and I’ll see you next time. Stay curious, stay engaged and let’s keep building a stronger, smarter energy future.

Texas just got another winter gut-check—not on the level of the deadly 2021 freeze, but still with enough ice, outages, and anxious headlines to remind everyone how fast confidence can evaporate.

In this episode, Matt Boms and Josh Rhodes unpack what they saw in real time. The biggest takeaways are simple: a lot has improved, and some of the hardest problems are still sitting right in the open.

“There were a lot of questions… what has changed since Winter Storm Uri [in 2021]. The first part of that is absolutely the winterization efforts.”“Texas deserves a lot of credit for how far it’s come since then.”

The first misunderstanding, grid vs. everything else

A chunk of what people experience as grid failure is not the bulk power system at all, but rather the distribution layer: the poles and wires in neighborhoods, tree limbs, cars that skid into poles, and ice that turns ordinary infrastructure into a brittle mess.

That distinction matters:even if ERCOT grid is in decent shape, plenty of Texans could still be in the dark because local equipment gets wrecked.

What actually got better since Uri

The hosts give credit where it is due: far more power plants have been winterized since 2021.At the same time, their conversation keeps circling back to one big concern: natural gas.

Texas leans hard on gas in peak winter conditions, so energy insiders end up asking some version of: Will the gas system hold up when demand spikes and the weather is ugly?

That question is not ideological. It is operational.

The quiet headline: new capacity, new shape

Over the last five years, Texas added a lot of generation, and a big share of it is solar plus batteries. That changes the daily rhythm of how ERCOT meets load.

And it changes the conversation during winter events, too.

Renewables and batteries strengthened the grid last weekend and helped shield Texans from theprice spikes that other regions saw. While batteries do not solve winter, this storm shows how they provide essential electricity when conditions are tight and every megawatt matters.

Josh also gets specific about how people should think about storage—not as a magical substitute for everything else, but as a tool that can provide particular services at particular moments.

The public narrative still lags the reality

Coverage of extreme weather events often flattens into a single question: Did the grid fail?

That framing misses the more interesting, more actionable questions:

* What failed: generation, transmission, distribution, fuel supply, or communications?

* What was close to failing, but did not?

* What investments best reduce the next risk Texas will face?

As the panelists note, there was some tightness and scarcity on the grid last weekend. It was not nothing. But it was nothing like the challenge we faced in 2021.

The next wave is not weather, it is load

Winter events are the stress tests everyone feels, but load growth is the slow-motion pressure that can change everything, including market behavior and planning decisions.

The hosts touch on the reality that even partial progress matters. That is not a victory lap, it is just what real system improvement looks like.

As they note, Texas needs to focus on reliability math, not vibes. What policies move the needle, and what trade-offs Texans are making when we choose between speed, cost, and resilience?

The ERCOT grid is getting stronger. Winterization has helped. The resource mix is changing quickly. Batteries are becoming real operational players. Gas still matters.

But distribution outages still hurt. And load growth is coming, ready or not.

Energy Capital is produced by ClarityForge Studios.

Timestamps:

* 00:05 – Winter Storm Fern, system performance

* 01:56 – Uri comparisons and media anxiety

* 03:17 – ERCOT forecasts, winterization progress

* 05:21 – Batteries, frequency and morning ramp

* 07:30 – Natural gas risk and Permian freeze-offs

* 11:56 – Resistance heating and winter peak demand

* 16:00 – Diversified grid, solar, wind, gas together

* 24:33 – DOE order, demand response, what’s next

In two weeks, Texas will observe the five-year anniversary of Winter Storm Uri — the devastating 2021 freeze that drove electricity demand to unprecedented heights, froze gas lines and plants, and triggered a blackout that darkened nearly half of the state.

The anniversary will come just days after the latest arctic blast hits Texas; this coming weekend, people across the state will likely see lows well below freezing, as well as snow and freezing rain.

It’s meaningful that state leaders expressed confidence this week that “there will be sufficient generation to meet demand this winter,” thanks both to five years of weatherization efforts and burgeoning supplies of renewables, especially batteries.

But as this week’s Energy Capital Podcast shows, the defining grid issue in Texas is not simply whether it will survive the next extreme weather event.

It’s whether Texas can serve skyrocketing load growth without once again facing the systemic risk that Winter Storm Uri exposed.

Former Texas PUC Commissioner Will McAdams joined The Energy Capital Podcast to reflect on what really went wrong five years ago, how Texas legislators and regulators responded, and what has to go right next.

As McAdams notes, Uri was not a single failure — it was a cascading series of failures.

“There were a number of events that occurred that stacked on top of each other. You had generation outages, you had frequency issues, you had other generators tripping offline as they tried to arrest the frequency freefall of the system. And then that led to deep load shed, situations where power was curtailed to the entire energy system. So it was a series of dominoes that ended up falling.”

In the years since, the state has bolstered protections against extreme weather. ERCOT now conducts regular winterization inspections of generators, McAdams said, and the Public Utility Commission has authority to hold generators accountable.

“ERCOT has hired hundreds of inspectors that go out every season to inspect to those standards… the PUC can fine [generators] up to a million dollars per day per incident where they’re out of compliance.”

The state’s booming battery storage industry has also changed the game. In 2021, Texas had less than one gigawatt of batteries on the grid. Today, it has more than ten times that. McAdams said that dispatchable battery capacity can transform the way the system responds to a Uri-like emergency:

“If we had had the batteries that we have today during Winter Storm Uri, those batteries would have instantaneously reacted. They would have arrested the frequency freefall, stabilized the system, and bought time for other generation to respond. That doesn’t mean it solves everything, but it changes the dynamics dramatically.”

That helps ERCOT navigate extreme weather — and accommodate massive load growth.

ERCOT’s large load interconnection queue grew nearly 300% last year, with large industrial and data-center loads seeking service at a scale ERCOT has never managed before. But just as he expressed confidence about the state of the grid heading into next winter storm, McAdams said the state is well-positioned to serve the economic growth that’s coming.

“This feels unprecedented because of the size and speed, but Texas has gone through major load growth before. After World War II, with the buildout of air conditioning, we saw huge increases in demand. And we innovated our way through that. That’s what we’ve always done.”

Five years after Uri, Texas is more prepared than it was in 2021. The grid is bigger, stronger, faster, and safer. That will matter this weekend, helping keep the lights on when the cold temperatures arrive. It will matter even more down the road, as large loads come to Texas.

Please subscribe and share.

Timestamps:

* 00:05 – Intro, Will McAdams

* 01:19 – PUC path, lessons from Uri

* 05:20 – Weatherization rules, what changed

* 07:33 – Demand growth, defining decade

* 09:38 – Building generation, lead times

* 11:45 – Why bills rose, T&D costs

* 16:32 – DERs and new grid tech

* 20:50 – ADER, dispatch at distribution level

* 22:38 – Flexible demand, smart load shifting

* 26:51 – Deferring wires, market incentives

* 30:31 – Batteries, volatility, price impacts

* 32:41 – Transmission vs DERs, politics

* 35:17 – What Will is doing next

* 38:52 – Final thanks and outro

Resources:

Host, Guest & Company

* Matt Boms - LinkedIn

* Texas Advanced Energy Business Alliance - LinkedIn

* Will McAdams - Linkedin

* McAdams Energy Group - LinkedIn

* Texas Lobby Strategies

Books, Articles, Reports Discussed

* The Value of Integrating Distributed Energy Resources in Texas - TAEBA

* Aggregate Distributed Energy Resource (ADER) Pilot Project

* Winter Weather Readiness - ERCOT

Related Podcasts • All Energy Capital Podcasts • Flexibility Driving Reliability and Affordability with Matt Boms• How AI Data Centers Can Go From Villain to Hero with Varun Sivaram

Transcript:

Matt Boms (00:00.0)

Hi everyone, I’m really excited to welcome Will McAdams to the podcast today. This is a really exciting chapter in our state’s energy history and I am very excited to be joined by an amazing guest today. So thank you so much, Will, for joining.

Will McAdams (00:22.156)

What a privilege, all right.

Matt Boms (00:24.088)

Will is a former commissioner at the Public Utility Commission of Texas. One of the architects of Texas’s modern grid reforms after Winter Storm Uri. At the PUC, Will helped establish some of the most stringent power plant weatherization standards in the country. He also led the creation of the ADER pilot program, the first program in the U.S. to allow virtual power plants to provide reliability services to a major grid. Will also represented Texas at the Southwest Power Pool.

Matt Boms (00:54.274)

shaped regional energy reliability policy, and he also served in senior roles in the Texas legislature. Will is also an Army veteran, and I want to thank him for his service on the podcast here, and really just for your leadership, Will, in the state of Texas, and just to say thank you on all of us who work in the industry, because we are all following your footsteps, and just thank you for playing such a pivotal role in our energy policy.

Will McAdams (01:17.784)

Glad I could help Matt. Thanks.

Matt Boms (01:19.714)

So I wanted you to take us back in time here. You stepped into a role in probably the most dramatic grid event in Texas history. We’re coming up on the five year anniversary of Winter Storm Yuri. So if you could just reflect on that and what was going through your mind in the first few weeks when you were appointed commissioner.

Will McAdams (01:39.554)

Yeah,

Will McAdams (01:40.034)

the first thing I had to do was try to figure out what happened. And, you know, there was information for public consumption and then there was information that we needed just to figure out the mechanics of the disaster, the crisis, how it unfolded, the sequence, how one step led to another that resulted in such deep and long lasting outages, which resulted in loss of life and property damage and just devastating economic effects for the state.

Will McAdams (02:09.695)

And we did that. So that first week was just a series of calling in, you know, former colleagues, friends that I knew in the industry and just asking them point blank in front of a dry erase board, what happened? And at some brutally honest answers, a lot of it was very fresh for them. A lot of them were picking up the pieces to businesses, to facilities that were damaged by the crisis, power generators that were wrecked.

Will McAdams (02:38.38)

We really had to rebuild the system, rebuild how the system operated together and take a look at how to hold people accountable and how to check that this never happens again.

Matt Boms (02:48.118)

Yeah. And obviously we’ve got a lot of folks now asking questions at the five year anniversary of how are we better prepared now than we were five years ago. And I can’t think of a better person to ask that question to.

Will McAdams (03:01.102)

Yeah, actually, I was speaking with a new commissioner not that long ago. And they asked me if I thought we were ready. And I said, point blank, absolutely. And the reason I said that is because in my experience in that first week, asking those questions, how did this happen? What happened? You got to remember how the event transpired. We had 14 days of...

Will McAdams (03:25.504)

weather forecast that showed that as that storm crossed the Great Plains, was building power, speed, force, temperatures continued to drop. As it moved into Texas, it brought freezing rain and we lost four gigawatts of power generation in less than 30 minutes, which is unheard of. That caused frequency variations and volatility on the system that ended up tripping up other essential generation as they were tried to arrest the frequency freefall of the system.

Will McAdams (03:54.464)

And then that led to deep load shed situations where power was curtailed to the entire energy system, the natural gas system that was moving gas molecules along the pipelines to power generation plants. And when those molecules stopped, when the power was cut off, they froze in place. And that led to even longer lasting blackouts. And we didn’t come out of it for another four days. So it was a series of dominoes that ended up falling. And I want to point out

Will McAdams (04:22.604)

Because of that frequency anomaly, because the stability of the system was the first trigger that began leading to the cascading outages, we only had one gigawatt of batteries on the system at that time. One gigawatt to 1.5 gigawatts. If we had had the batteries that we have today, then there would have been no frequency volatility on the system because those batteries would have instantaneously reacted. They would have arrested the frequency freefall, stabilized the system, allowed the gas fleet to catch up.

Will McAdams (04:52.722)

And we may not have had any outages at that time. mean, we don’t know. It’s really, you know, Monday morning quarterbacking five years later, but that was a critical capability that we did not have. And so today, instead of one gigawatt of batteries, we have 15 gigawatts of batteries, 11 to 15, many that are in development that will be energized in the next three months before summer.

Will McAdams (05:20.654)

And then, as you stated, we imposed the most conservative and stringent weatherization requirements in the entire United States in the aftermath of that. And we imposed an ambient weather temperature standard on our entire generation fleet, where if you’re in the panhandle of Texas, you have to weatherize your power plant to a minus 17 degree standard. That necessitates you wrapping pipes. That necessitates you putting up windshielding. That necessitates you putting in space heaters and making sure that

Will McAdams (05:49.428)

intake valves or steam vents don’t freeze up. You’re going to have to take steps and you’re going to have to have people there before these weather events to maintain them throughout the event. And our generators have done that. And not only that, but ERCOT has hired hundreds of inspectors that go out every season to inspect to those standards. And if those generators don’t meet those standards, there’s fines that start to apply. And the PUC can fine them up to a million dollars per day per incident.

Will McAdams (06:19.138)

where they’re out of compliance. That’s in the statute. So our power generators take this very seriously. The PUC takes it very seriously and ERCOT takes it deadly seriously. So you won’t have the catastrophic cascade of events like we had in URI. That sequence is disrupted. Now it’s not to say we’re not going to have outages in the future. We’ve got a lot of load growth. We’ve got a lot of

Will McAdams (06:45.664)

new industrial development in Texas, the economy is booming, it’s growing. And the grid hasn’t caught up to that. And it’s going to take years for that to catch up. So you’re going to, you may have temporary disruptions, but you will not have the long lasting outages like we saw in 2021.

Matt Boms (07:04.814)

Yeah. And so you hinted at this and we’re entering this new chapter in Texas Energy and it’s, think no one knows exactly where this chapter is headed. We have an idea of how much load is coming online over the next few years. Looking at the interconnection queue, about 2000 projects adding up to 435 gigawatts, which is more than five times the peak demand that we have today. And so the question I want to ask you is, are we entering

Matt Boms (07:33.452)

the most consequential decade in Texas grid history? Are these decisions gonna define what our grid looks like here moving forward?

Will McAdams (07:42.496)

Look, I’d advise everybody not to, you know, let the magnitude of the moment just cloud their perspective of history. We’ve seen this before. Load growth after World War II and air conditioners started becoming ubiquitous. It was pretty extreme. And Wall Street Journal has published graphs of basically the big spike in the 1950s and 60s after the home builders started building out all the ranch style homes for all the GIs coming back, settling in.

Will McAdams (08:11.66)

The middle class boomed and that drove large scale energy consumption growth for almost three decades, two and a half decades, 1950s and 60s leading into the 1970s. That’s why all the nuclear power plants were built during the 70s to satisfy all that load growth. But then globalization happened, industries moved overseas. We’re just coming off of 25 years of negligible load growth compared to that historic comparison.

Will McAdams (08:41.078)

And that’s why we think this is unprecedented, but we’ve seen this before and we innovated our way out of it. We grew our way out of it. And that’s what we’re going to do again. And that’s why you see the PUC policymakers, state legislature, and basically businesses of all shapes and sizes collaborating to become innovative. And how do we incrementally allow energy consumers to receive grid service over the next five years? And you threw out.

Will McAdams (09:10.146)

very large numbers, you know, the amount of energy consumers that we have in queue that want to receive grid service, they are not all going to be served in the next five years. There’s not enough capacity of either delivery capacity, like the wires capacity outside of your homes and towns, or the high line capacity to move power over great distances to serve that need at the moment. So we’re going to have to build that and it’s going to take time and there’s not enough supply right now.

Will McAdams (09:38.914)

So there’s not enough power generation units in the state to serve that amount of supply. So that’s going to take some time. Everybody’s going to have to be patient. And frankly, we need to be creative about old systems that we hadn’t, you know, looked at for efficiencies for 50 years. We’re going to need to reevaluate that and see if new technology can be brought to bear to more efficiently utilize existing systems in the intervening years. The grid that we have versus the grid that we will have.

Matt Boms (10:06.954)

Yeah. Well, I think on that point, we’ll take us through some of the load growth that’s coming because the one you hear most about is certainly data centers and AI. What you don’t hear as much about would be on the industrial side, on folks moving to Texas from other places. There’s a lot of other key factors here that are driving load growth in Texas, not to mention our booming economy. So the question I have is, do you have some really creative solutions for how you can meet that load moving forward?

Matt Boms (10:36.822)

And if you can touch on how you can limit costs to rate payers, think that’s going to be a really important piece of this, right? It’s like the pie is expanding for everyone. How do you keep the rates low for millions of Texans who ultimately have to pay their electric bills at the end of every month?

Will McAdams (10:51.916)

Yeah, everybody, and I was really sensitive to this when I was at the PUC, but all former commissioners are sensitive to affordability of power. And look, there’s two parts of the electricity bill. If you’re a Texan, there’s the energy and then there’s the delivery charge that it takes to move the power to you. Okay. The energy is by definition deregulated.

Will McAdams (11:14.786)

That’s basically going to be a combination of whatever the fuel cost is, know, whatever gas you’re burning to make the electricity to power your home or renewable energy, which is zero marginal cost. And it’s based on the market, wherever it settles. That’s what you pay. The delivery charge is regulated. Okay. So that’s based on how much that big power line cost over 30 years. You divide that up by 30 and you give a return on the investment to the utility to manage it.

Will McAdams (11:45.056)

And that’s what you see in the delivery charge on your utility bill. And, you know, that number stayed relatively constant with little blips over 25 years, but now we’re in a growth cycle. So we need new infrastructure. So the delivery charge is actually going to start to incrementally go up on people’s bill. Traditionally over the last 25 years, when we didn’t have big industries moving into Texas, other than oil and gas, which is traditional industries.

Will McAdams (12:14.712)

the big energy consuming industries. Basically, our load growth consisted of air conditioner based load growth of normal people living in their homes, turning on the AC at four o’clock in the afternoon in August. And they would get charged a lot of money for doing that because the energy is expensive and the delivery charges were applying. And there wasn’t a lot of other industries to spread the cost over. So there wasn’t a lot of other

Will McAdams (12:43.426)

Businesses to socialize the cost that average Texans were paying for because the average Texans were driving the need case for the new infrastructure. That’s how costs are assigned. So here’s where this moment is an opportunity for Texas. For the first time in a long time, we’ve got some big businesses moving in that are starting to put in some major pieces of investment. And they’re going to consume a lot of energy. And every electron that they consume, they’re going to pay a delivery charge on.

Will McAdams (13:13.792)

And because they’re consuming more, they’re going to socialize the cost of all the infrastructure that’s coming in across a broader base of ratepayers. Because of that, that should incrementally reduce the need for residential ratepayers to pay more of that regulated cost. It actually should bring down electric rates over time. But here’s the trick. You have to synchronize

Will McAdams (13:43.112)

grid of today and as they’re building out, you have to continue to allow those large industrial consumers to incrementally keep interconnecting and receiving grid service so that they can pay their regulated delivery charges and take the burden off of the residential consumer. And so there’s a tension there because you still need to safely integrate those large loads.

Will McAdams (14:09.43)

So you don’t want there to be a lag in the big new transmission lines being built and those costs being imposed on people and new loads coming in to help pay for it. And so that’s the situation we find ourselves in. We’ve never had loads of this size requesting grid service. When you have a facility that consumes as much power at a single point of interconnection, a single point of grid service,

Will McAdams (14:39.192)

that’s the same level of consumption as the greater Los Angeles area in California. That is something we’ve never seen before. And we are technically trying to figure out how to safely manage, that grid service to that consumer. And that’s something that our scientists, our industry, our researchers are all trying to figure out right now. So,

Will McAdams (15:07.714)

That’s why we, in these intervening years, in order to keep consumers’ cost down, we need as many innovative solutions as possible to support grid resiliency, to support grid reliability, to allow consumers to take themselves off the grid if they want to. That means solar panels on houses, batteries on the back of houses. Put that both systems on businesses.

Will McAdams (15:35.072)

allow them to take tax deductions, allow them to invest in the grid, and then create mechanisms like we did with the ADR pilot where they can participate in the market and help align their interests with the reliability and affordability of the system. And then hopefully, if enough of that starts to happen and allow technology to manage that, if enough of that starts to happen, that starts reducing costs in and around the concentration of those consumers for everyone else.

Will McAdams (16:03.17)

because they’re producing, storing, and discharging power when those people in and around that system most need it. And that’s the beauty of the sophisticated grid that we’ve built. There’s an opportunity. It requires our regulators and our grid operators to be innovative. And I know that’s a hard ask because they want to retreat to the means of providing power that they’ve known for the last hundred years. But we do have

Will McAdams (16:32.002)

brilliant new technologies coming into the system. We do see how these are being employed in other areas of the world. And it is supporting reliability and affordability. So we have test cases that we can follow. And frankly, Texas has always been a leader in these approaches and we need to continue that tradition.

Matt Boms (16:52.482)

That’s great. Well, and I was going to ask you about the AIDR program specifically. So I’m happy you brought this up. You played a really important role at the commission in spearheading the pilot program. It has grown to, I believe, seven aggregated DER pilots that are currently running over at ERCOT. And it feels like we’re at a pivotal moment now where it should be moving from the pilot phase to becoming just a fixture in normal ERCOT operations.

Matt Boms (17:20.907)

What do you see as the next logical step? mean, there were the discussions over telemetry, interoperability, all the technical hurdles, and it feels like we’re at a point now where most of those hurdles have been cleared, but is there some more unlocking that needs to be done as far as the real economic value of these distributed resources?

Will McAdams (17:43.04)

Yeah, I mean, especially now where you have these large industrial consumers coming in, that’s going to impact prices on a neighborhood by neighborhood basis on a very granular basis. right. And our market system in Texas is hyper sophisticated in that it receives price signals based on the substation that’s outside of your neighborhood. OK, that’s very locationally driven.

Will McAdams (18:10.274)

The ADR pilot was never able to receive what we call locational marginal prices, which is that nodal price at the substation that’s outside of your neighborhood. And the reason was, is because it’s based on aggregations. So you have a, could have a concentration of homes in disparate areas within a certain geographic territory. So take Centerpoint. Centerpoint covers what we call Houston zone. It’s the city of Houston.

Will McAdams (18:39.598)

3.3 million people, actually closer to four now. Most of the Houston Ship Channel, all that industrial activity, it’s the economic engine of the state. They only get a price point that’s settled on a regional basis. And that dilutes the overall value for anybody wanting to participate in the program. But if someone living in Pasadena, okay, right there on the ship channel, right there next to Exxon and Chevron’s industrial plants,

Will McAdams (19:08.782)

Those industrial consumers consume a lot of energy and the the nodal price at that substation is really high because they’re consuming a lot of energy and they need a lot of energy. So if someone was able to put solar panels and a battery in the Pasadena area next to the substation, next to the Chevron and Exxon refinery and produce more power, generate more power than they ultimately consume, if we had prices that were set just like we do on the regular market,

Will McAdams (19:38.346)

at that substation, that household would be able to make a lot of money. And that would demonstrate value for them. And that would demonstrate value for any of their neighbors who want to do the same thing. And then you have like a replicative effect across entire neighborhoods, cities, regions. And that is the system we need. And as these new loads come in that are so big,

Will McAdams (20:05.888)

If they should trip offline, if we have a system of batteries at every household or at every business that could help absorb the shock and help re-stabilize the system, those business owners and Texans are assisting in resiliency and reliability, which is the spirit of how the market’s to work.

Matt Boms (20:25.582)

That’s the competitive market that we have in Texas and that works so well. Yeah, so what’s stopping us from getting there? Like it feels like you can go down the list of categories that were number one and fill in the blank, number one in everything, but on distributed resources, it does feel like there’s more work to be done. It does feel like we could be setting the standard for the entire country. What is it going to take to get there?

Will McAdams (20:30.102)

a real world experience.

Will McAdams (20:50.754)

technology. ERCOT has been testing, expanding, and conducting exercises with new technology to see how safely they can settle aggregations of energy dispatch on these very small levels, in these distribution levels, to see if they can actually safely dispatch energy on a neighborhood-by-neighborhood basis, on an area-by-area basis.

Will McAdams (21:19.638)

so that they can actually apply those values on a nodal basis for the ADER. If they can, this opens up the entire distribution system for resource development. This would allow gas stations, warehouse owners and operators, apartment building complexes, residences of apartment buildings or cooperatives to experience the value off the energy system and tie the realization of that value

Will McAdams (21:49.518)

to reliability, resiliency, and energy security of the system. That co-optimizes and aligns everyone’s interests. And I think we’re right there. It is my hope in the next six months to 12 months, ERCOT is able to employ this technology and implement that.

Matt Boms (22:07.756)

Yeah, that’s really exciting. And I think it would set an example and a strong signal to the rest of the country because it shows that the free market, the competitive market works really well, right? When there’s an equal playing field and when customers have their resources set up, they’re able to generate their own energy. Essentially, they should be rewarded or compensated for that accordingly. So that’s, think we’re moving, we’re getting there. It’s going to take some time, but I think you deserve a lot of credit for the AIDR pilot program has come a long way since

Matt Boms (22:36.12)

when it was first launched.

Will McAdams (22:38.378)

I think we’re going to need this. Like I said, the numbers are just getting bigger. At single points of interconnection on what energy needs look like and are supposed to look like, that means we need to fully utilize every resource that we have at both the transmission level and the distribution level. We can’t leave any tools on the table now.

Matt Boms (22:59.34)

Yeah, I think that’s right. And the next logical question for you there would be, does the same principle apply to residential demand response or whether you have a smart thermostat, you’re able to pump up your thermostat a couple of degrees on a hot day in August. Should those customers also be getting some compensation if they’re able to have some more flexible demand than what we’ve seen traditionally?

Will McAdams (23:23.796)

Absolutely. So, here’s going to be the system that we see in the next two to five years. The system used to be, it would be down 90 % of the day, you’d have a system that basically ran at 30 % of your installed capacity. Consumers were consuming 70 % less than they normally would. Because during the morning hours it’s cooler, or in the winter the afternoon hours are warmer.

Will McAdams (23:53.346)

Your heating system or your cooling system would have to run less. But then as the sun rose and it got hotter or colder, depending on the season, all those appliances would crank up and they’d move up and the system would be very peaky. Now, with these consumers who consume energy all hours of the day, OK, the system is going to run much more efficiently. Those generation resources are going to try to produce power much more consistently.

Will McAdams (24:23.438)

70 % of the time, but the peaks are still going to be there because AC load is going to fill in right on top of that. So that’s going to present a value proposition for anybody wanting to participate in the energy market. And that’s where aggregations and most especially demand response are going to serve a vital purpose. It will allow us to shave off those peaks at the most critical time so that the impact of air conditioning load or heating load isn’t so acute on the system.

Will McAdams (24:52.972)

and grid managers can more accurately prepare for how those demand response systems are going to engage and assist the system through those tight moments. So they should experience value. The systems are already in place for them to be able to do that at ERCOT. But like the ADER, they just haven’t been allowed to settle on the most valuable points within the market. Once that is completed,

Will McAdams (25:23.192)

we’re going to have a lot more capabilities. average residential consumers should be able to be part of the value proposition of the system unlike today.

Matt Boms (25:32.172)

Yeah, it’s really exciting because what I hear you saying is customer empowerment and handing the keys over to the customer and saying, look, if you’re able to make your demand more flexible during these key hours, then you’ll be rewarded accordingly. If you’re able to have a battery in your garage or a backup generator, whatever it might be, they also will be rewarded. Right. So.

Will McAdams (25:54.24)

And the key thing between all of the capabilities, is why was it different a year ago for energy efficiency versus where it’s going next year? What I would say to that is technology. What makes this more dependable for ERCOT to count on today? There was the threat in the past when you said residential demand response that a consumer would override a thermometer.

Will McAdams (26:23.66)

that had been adjusted to take demand off the system. Technology is available now to manage that consumption over not just that consumer’s home, but across tens of thousands of consumer’s homes. So that whatever is provided to the utility and ERCOT, for ERCOT to be able to count on, they will build in a margin to where they know they are going to hit their number. And ERCOT can actually plan for that load to be reduced.

Will McAdams (26:51.522)

That will negate the need for future transmission potentially, distribution infrastructure, saving costs for every one of the ratepayers along that system.

Matt Boms (27:02.38)

Yeah, we just did a study on the value of DERs in ERCOT and it came out to about $1,850 per customer over the next 10 years in savings. So there’s a lot of money on the table potentially if you’re able to unlock that value and give customers, know, Texas don’t get enough credit, I think, because they’re extremely savvy energy customers compared to the rest of the country, right? We’ve got a competitive market where they already have an existing relationship with the retail provider.

Matt Boms (27:32.566)

And I think that what you’re saying is the retail providers are going to have to innovate, right? The free market forces them to innovate. That competition is good ultimately for the customer.

Will McAdams (27:40.95)

Well, so the system we’ve set up is after Yuri, people didn’t want to have to be savvy, you know, about the energy market. They didn’t like it. The energy market had harmed them because of that catastrophic sequence of outcomes that I described earlier. But the beauty of our system is they actually don’t have to be that savvy. We have entire industry set up to empower the consumer to share value with them, as long as they will empower that industry.

Will McAdams (28:10.018)

to act on their behalf. And that’s where you have retail electric providers. That’s where you have municipal utilities or cooperatives that can innovate as well that participate in the market on their behalf. They take on the risk, shielding the consumer from the risk in exchange for the consumer allowing them to use their capabilities on an aggregated basis to engage in that market. And that’s, again, like I said, it’s the alignment of interests.

Will McAdams (28:38.752)

And so that retail electric provider has an interest in taking power needs off the system so that they can pay less for the next incremental value of energy. And they’re well incentivized to do that. And they buy and sell and trade power all day long, every day, 365 days a year. And it helps manage their exposure to the risks of the market. And that’s just business.

Matt Boms (29:03.054)

Yeah. Well said, Will. Well, you mentioned batteries earlier and that being one of the main differences in our grid, if you compare what it looks like today to five years ago. And I mentioned that the Q, there’s about 160 gigs of solar, 174 gigs of battery storage, about 53 gigs of natural gas. All of the Q is rising, but what does it say that storage is now the single largest category?

Matt Boms (29:32.94)

when it comes to the interconnection queue.

Will McAdams (29:35.63)

I think it’s great. One, I was in a debate with the independent market monitor. Oh gosh, I guess it was 10 years ago now, a long time ago. And I said, why are all these batteries coming in? And she said, because that’s what the market is telling the system is needed. And the reason is, is because we have very granular pricing. If something bad happens to anyone, like if a load trips offline or if a generator trips offline,

Will McAdams (30:04.81)

Outside of a substation, want that substation to scream loud and clear that something is needed at that location and that sets a value. The price either goes sky high or the price goes rock bottom. Batteries are the Swiss Army knife of utility tools. right. They can be located outside of every substation. They can be located anywhere. They can be as big or small as you want.

Will McAdams (30:31.468)

And that battery either absorbs power or it discharges power. And so, in effect, what it is, it acts as like a shock absorber to the system. It acts as a shock absorber on price. It also acts as a shock absorber on physical stability. And so, if something bad happens, that battery can buy you time. The more batteries we have across our system, in every disparate location through Texas, they will actually solve for volatility.

Will McAdams (31:00.352)

And consumers don’t like volatility. And that’s a good thing for Texans. So a lot of grids have criticized Texas that we love volatility, we feed off volatility. We’ve created a system that at its core is volatile, but it attracts innovative solutions to help solve for volatility. And I know that may not make sense, but think about it, it does. And the cure for high prices

Will McAdams (31:29.622)

are high prices and batteries follow that. since 2021, matter of fact, since 2022, and we really crossed a real demarcation line on batteries, I think we had, we went from five gigawatts of batteries to 10 gigawatts of batteries. After that point, we haven’t hit the system wide offer cap, but like two times, or we didn’t in all of 2024, which meant prices didn’t shoot to the roof, but two times.

Will McAdams (31:59.456)

And the reason they didn’t shoot to the roof is because batteries were sitting there, ready to go. And every time a price went higher than the next value, a battery was sitting there dispatching into the system, solving the condition. That’s exactly the way Texas is supposed to work.

Matt Boms (32:14.126)

Yeah, well, I’m going to ask you then a controversial question, which is, you know, we’re building these high voltage 765 lines, the first of their kind in Texas. And I think the commission deserves a lot of credit for their advocacy and for pushing for the high voltage lines, because we’re not going to grow as a state if we can’t move these cheap electrons around more efficiently. And a lot of the lines are just overloaded, as you know, in South Texas and different parts of the state. my question is, you know,

Matt Boms (32:41.484)

while we get those lines built, it’s gonna take time, right? Those lines don’t get built overnight. Couldn’t a utility come in and put some batteries along one of those lines in Texas? Now they’re not allowed to deal in generation, right? But should they be, right? Like that’s a controversial question. So shouldn’t a utility be able to come in and say, look, we can do this for a fraction of the cost. We can line up batteries. We can get those electrons moving through distributed energy versus the more traditional capital expenditure.

Will McAdams (32:54.446)

how to own the battery.

Will McAdams (33:12.886)

Well, one, that’s a political topic. It’s a subject for argument, certainly at the Capitol. I think a position that we should all agree to is a distribution operator. A wires delivery system operator should have access to the technology of batteries. Whether that is through owning it or renting it, they need access to batteries because they are, like I said, the Swiss Army knife of utility tools.

Will McAdams (33:41.944)

They can do amazing things. They can act as a substation if they need to. Basically converting power flows up and down. Whatever that area of the system dictates is needed. And as we enter the, I call this the Jurassic Age of grid evolution. Because everything’s just bigger. Think of dinosaurs. My kids like Jurassic Park. Everything is bigger now. And you’re gonna need batteries to help stabilize the system when everything is bigger.

Matt Boms (34:11.084)

Yeah, I think you’re right. And it feels like we’re moving in that direction. And I love what you said about batteries answering the call because you can see other states looking at Texas as the example and kind of building the roadmap for how you manage those peaks and valleys with batteries charging and discharging. But the way we did it is so unique, right? Like it’s all with competitive markets and there are very few parts of the country that can really do what Texas did.

Will McAdams (34:36.448)

No, and our queue has responded to the sense of urgency so quickly. Our queue expanded so quickly because they saw the need and it was based on the market signals. And our market is criticized, but one thing our market is, is hyper efficient. And you can see 40 gigawatts of natural gas generation installed over 10 years. And then you can see 10 gigawatts at a time have a signal to retire.

Will McAdams (35:04.706)

But that is what the market is signaling. Now, we will debate whether we need insurance policies and extra money in the system. That’s a political argument, but we are efficient.

Matt Boms (35:17.878)

Yeah, yeah, that’s for sure. Well, I want to wrap this up. I don’t want to take up too much of your time, but I do want to mention that since leaving the commission, you started your own firm. So McAdams Energy Group, that’s the plug for everyone who’s looking for great energy expertise. And, you know, I’m working at a trade association. We both have those relationships with companies that are innovating. I want to hear from you from, you know, the commission to advising some of these companies.

Matt Boms (35:44.332)

which side is moving faster, right? Like what are you seeing in the private sector that maybe you weren’t seeing on the policy side and vice versa? Like what can you give us a little bit of, what are the differences there?

Will McAdams (35:55.43)

companies, people are bringing their own tools. So Matt, when we were working together and I was on the commission, what was put in motion in the aftermath of Yuri driven by fear. Okay. Fear of it reoccurring again has only picked up pace, but it’s not fear. It’s I need these tools. You know, I need to provide for myself or at least have the capability to provide for myself because

Will McAdams (36:21.952)

I know that that next factory is going to come in next door to me and they may change up the level of service that I experienced. I just need to provide for myself. So the beauty of ERCOT is we can align the interests of everybody in a given area very quickly with a price signal or a market-based mechanism. And that’s loads of all shapes and sizes. I see them all. I see a factory come in to Texas because they’re reshoring. I mean, this is happening.

Will McAdams (36:49.954)

because the United States wants to have their own capabilities here. And they are bringing their own capabilities. They’re putting in their own behind the meter generation. They’re putting their own batteries in. They’re putting their own solar panels up. And it’s all of the above. It is not a one trick cony. There’s not just natural gas. It’s natural gas paired with battery, paired with solar, all this stuff. It’s an amazing time. And the reason I’m out of the commission and I feel for the commission because they have a lot of

Will McAdams (37:20.014)

truly consequential decisions left to make. But it is fun being on the outside, being able to innovate, work on what is the optimal configuration of capabilities at a given location and how does that serve the greater good of that entire area around that. That is a good feeling and I’m blessed to be a part of

Matt Boms (37:41.164)

Yeah, I completely agree. Like the private sector moved so quickly and a lot of times the technology pushes the policy, right? So it’s fun seeing where the technology is at and then anticipating where the policy is heading over the next five to 10 years. Well, thank you so much, Will. I want to say thank you again for your service to the country, to the state. I think you deserve a ton of credit for all of your leadership during your time at the legislature, during your time as a public utility commissioner. And you really got us to the place we’re at now, which is a state that’s leading the charge.

Matt Boms (38:11.296)

and welcoming all of these new innovative businesses. So thank you so much and just looking forward to rolling up our sleeves and getting to work.

Will McAdams (38:19.968)

Me too. Good to be with you, Matt. Thank you.

Matt Boms (38:22.958)

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 Empowered newsletter at texasenergyempowered.com. That’s where you’ll find every episode, every article, and all of our latest updates.

Matt Boms (38:52.834)

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 Bombs, and I’ll see you next time. Stay curious, stay engaged, and let’s keep building a stronger, smarter energy future.

Texas is not short on energy.

Texas is short on time.

New load is arriving faster than the grid can plan, permit, and build, raising a question that will shape our state’s future: can Texas grow without sacrificing reliability or pushing costs onto the wrong people?

That was the backdrop for our first Energy Capital roundtable with Matt Boms, Joshua Rhodes, and Micalah Spenrath.

The Defining Story of 2025

When we talked about the biggest energy story of 2025, everything circled back to load. Not just more demand, but uncertain demand.

Planning gets harder when projections keep shifting. Transmission, interconnection, and long-term investments all depend on forecasts, and those forecasts suddenly feel less stable.

And yes, data centers are at the center of it.

As Josh put it, you almost cannot talk about energy anymore without talking about data centers. They are reshaping how fast demand shows up and where reliability pressure lands.

Markets still matter, but speed does too

Texas remains an energy-only market. Resources still need to compete on cost, reliability, and performance.

But markets only work if the system underneath them can move fast enough.

ERCOT and the PUC are working to plan for the future, but compressed timelines make responsible planning harder. Speed is no longer just a project challenge. It is becoming a grid constraint.

What constraints unlock

This is about more than just generation — ERCOT’s transmission system also is racing to keep up with rising load. Given such constraints, Texas needs to embrace fast, close-to-home energy strategies, including:

* Distributed energy resources (DERs)

* Demand response

* Backup power

* Energy waste reduction

As Josh noted, constraints force innovation. When the old approach cannot keep pace, the economics for flexibility get much clearer.

What we’re watching in 2026

Looking ahead, Micalah, Matt, and Josh kept returning to a few basic themes:

* Clean, firm power that can scale

* Backup power and resilience

* The untapped potential of DERs

These policy solutions sit at the intersection of reliability, affordability, and speed, which is exactly where the grid debate is heading.

Texas is going to build a lot of infrastructure in coming years. That brings real benefits, especially to rural communities, but also real impacts.

Micalah framed it simply: this is about balance and fairness. Growth works best when communities understand the trade-offs — and they trust that costs and benefits are being shared responsibly.

Closing Thoughts

Texas is entering a build-fast era where speed itself becomes a grid resource.

That does not mean cutting corners. It means prioritizing the highest-value infrastructure, being honest about who pays for what, and using every available tool to maintain reliability and affordability.

Moving forward, we’ll keep these conversations grounded, curious, and practical. If you have thoughts on what Texas should prioritize next, jump into the comments.

Energy Capital is produced by ClarityForge Studios.

Timestamps:

* 00:06 – Welcome, roundtable kickoff

* 01:49 – Micalah origin story, policy path

* 03:54 – Josh background, technical roots

* 04:08 – Host reactions, early framing

* 13:19 – SB 6, PUC, building infrastructure

* 15:27 – Data centers, speed-to-power reality

* 18:58 – Siting, community benefits and burdens

* 20:37 – Pushback, bad actors, headlines

* 22:03 – AI hype, narratives, who shapes perception

* 24:12 – ADER, DER potential, batteries

Resources:

Guest & Company

* Matt Boms - LinkedIn

* Texas Advanced Energy Business Alliance - LinkedIn

* Joshua Rhodes - LinkedIn

* Webber Energy Group

* IdeaSmiths

* Micalah Spenrath - LinkedIn

Transcript:

Matt Boms (00:05.966)

Hi everybody, welcome to the Energy Capital podcast. I’m Matt Boms and I’m here for our first round table today with Dr. Josh Rhodes and Michaelis Benrath. I’m gonna ask each of you to introduce themselves and then we’ll get started. Josh, you wanna kick us off?

Joshua Rhodes (00:22.894)

Sure, sounds good. Hey everybody, my name is Joshua Rhodes. I wear a bunch of different hats. I’m research scientist at the University of Texas at Austin where I study electricity system, the grid, just energy writ large, CTO of Ideasmus, as well as commissioner for Austin Energy. And yeah, just excited to be here.

Micalah Spenrath (00:40.0)

All right. Hi, everybody. My name is Micalah Spenrath. I also wear lot of hats, but my main and biggest hat is that I am a Deputy Director of Policy and Energy at the Houston Advanced Research Center, where I spearhead our legislative and regulatory engagement, specializing in energy policy. So happy to be here.

Matt Boms (00:56.824)

Well, I’m really excited to be with you both. And we’ve been tasked with this enormous responsibility of co-hosting this podcast. And I’m happy that we all have the chance today to talk. And I want to get into each of your backgrounds and ask each of you to just explain kind of how you got into the energy world, what inspired you to get into this topic and kind of how did it all start? What’s your origin story? Josh, Micalah, whoever wants to kick us off.

Micalah Spenrath (01:21.758)

Mine was actually already previewed on LinkedIn. So I’ll give you the Spark Notes version. I actually did not intend to get into energy policy. It just happened kind of serendipitously. I went to grad school for engineering, dabbled in some law and policy courses and was really inspired. And then I got some guidance from a mentor who said you should really look into getting into policy. He didn’t specify which kind, but

Micalah Spenrath (01:48.888)

Considering I’m very interested in climate action and things like that, I figured energy would be a great place to plug in. So yeah, I got a job with Matt. And then that was years ago now, and I’ve just been getting such positive feedback from the community and the work is so rewarding and intellectually challenging. And yeah, why mess with a good thing? I think I’m going to keep this going for a while.

Joshua Rhodes (02:16.376)

Yeah, so I didn’t start out with the idea of getting into energy. Like I like science, I like STEM. My undergrad and master’s are actually in mathematics. It’s Stephen F. Austin in Texas A And really every time I kept getting out of school was like during an economic recession. And so there was like no jobs to be had. And it was kind of like, well, I’m pretty good at the school thing. So I guess I’ll just keep going. Cause I found that if you keep going to school, you don’t have to pay your loans back. Like they just keep going.

Joshua Rhodes (02:44.332)

And so I just kept going and going and going, but after I got to like the masters in math, was like, well, I just don’t want to do this for like the math stake anymore. So I switched to engineering to try to be a bit more applied when I came to the University of Texas. One of the first classes I took was a thermodynamics course. And it took the math that I had learned and like knew, and it put it in terms of real systems, how systems use energy, like how nothing’s a hundred percent efficient. There are no perpetual motion machines. Just kind of made it all make sense.

Joshua Rhodes (03:13.638)

And from then I started working with Dr. Michael Weber at the University of Texas who does a bunch of energy stuff and first got into like how buildings consume energy. Did my dissertation work, you know, based on that topic from like American recovery and reinvestment funds from ARA funds. And then when I graduated, kind of switched more to the supply side. So I’ve been doing more grid modeling and other types of stuff, but it’s just like, I’ve just always been fascinated with just how

Joshua Rhodes (03:40.898)

we do things and it’s like the energy side of things let me kind of put my interest in kind of how things work and the math side into like doing something good, doing something good for people, for society and all that. Here we are.

Micalah Spenrath (03:54.296)

sounds very similar to my story as well. And actually thermodynamics was one of my favorite classes in college. So I double click on thermodynamics, but we won’t dive too much into that.

Joshua Rhodes (03:56.632)

Yeah, absolutely.

Joshua Rhodes (04:07.608)

would love to actually, but we won’t. Man, that’s a rarity to hear to be honest with you. Matt Renison.

Micalah Spenrath (04:12.238)

All right, pitching it to Matt.

Matt Boms (04:15.534)

Well, it’s fun to hear how everyone kind of gets into energy through the back door. Like a lot of us didn’t necessarily intend to work in this industry, but here we are and we’re kind of neat in energy issues. came into it through economics, like trying to study local economic development and understand how some communities are left behind while others seem to thrive. And I think energy plays a huge role in that. think, you know, working in Texas, we have a first row seat to

Matt Boms (04:44.856)

kind of how the state has undergone this amazing development over the past few decades. And a lot of that is really, you can draw a straight line between that and energy, right? Just the abundance of energy that we have in Texas. So I wanted to ask both of you, in your experience, the way that people think about energy in Texas, what is the most common misperception or how do you think about energy and how is that different from how the average person thinks about energy in Texas?

Micalah Spenrath (05:14.54)

I can start with that because I used to just be an average person not too long ago. And quite frankly, I just didn’t even think about it. Outside of thinking about emissions and cost, of course, because we all paid utility bills, I really did not consider utility regulation. I did not think about reliability. I didn’t think about ERCOT, except when they were asking me to voluntarily conserve multiple times a year, which was fun.

Micalah Spenrath (05:43.64)

Having that frame of reference is completely a 180 to have, think, about energy now. In fact, I think it’s one of the most integral aspects that we can focus on to provide better futures for communities, for individuals, and for the planet if we really wanted to tackle decarbonization. So it’s right up there with transportation, if I recall correctly, in terms of sector emissions.

Micalah Spenrath (06:07.328)

If you really want to plug in to climate, the environment, and community wellbeing, it’s hard not to see how energy isn’t a player in that. So I think about it from a regulatory standpoint now. I think about it in terms of affordability and also legislation. So seeing how, you know, our lawmakers are basically setting the ground rules when it comes to how our energy system works. And that impacts my bill at the end of the day.

Micalah Spenrath (06:36.108)

So it really does behoove us to keep an eye on what’s happening. yeah, that’s pretty much where I’m at now, which never really appeared in my mind prior to getting into energy policy, but it is so important.

Joshua Rhodes (06:50.06)

I think most people used to really only to consider energy like gasoline because it’s the big number that’s kind of on billboards everywhere as you’re driving around. really in Texas, I think since, you know, when winter storm Uri hit, really shoved the electricity sector like front and center. I used to have to explain what ERCOT was, what the grid was. And then, you know, after that didn’t really have to. Sometimes when I said that I’ve worked on that, I’d have to duck afterwards. You know, energy is really kind of in the Texas psyche now.

Joshua Rhodes (07:19.298)

We’ve always been the energy state. mean, we produce and consume pretty much the most of all forms of energy. And we’d be in top 10, you know, if we were a country. But like, it’s so much more to the average Texan than it is to other, other folks. You’re just given, you how many people work in the industry, whether it’s the oil and gas industry or electricity or renewables or all these other kinds of things. Like, I think it’s probably more front and center.

Joshua Rhodes (07:41.28)

nowadays and it has been in the past and now even more so with things like all the data centers and electricity growth and like affordability, like it’s even becoming even more kind of front and center.

Matt Boms (07:51.416)

Yeah, you raised that Josh and I wanted to ask you both about as this year comes to an end and you know, what really was the top story in 2025 when it comes to energy? it, to me at least it feels like a lot has changed from this time last year and we’re in a completely different energy paradigm than we were a year ago. So for you both, what was the big story of 2025?

Micalah Spenrath (08:16.512)

Well, the biggest story for me was certainly the changes to federal policy related to a lot of different energy technologies, particularly wind, solar, but also batteries, looking at some of these large programs like the Solar for All program, which was intended to deploy distributed solar and storage in communities that were really energy burdened. And unfortunately, that has been a very bumpy road.

Micalah Spenrath (08:44.946)

And a lot of changes that aren’t necessarily positive have occurred based on the changes that we saw in the One Big Beautiful Bill Act. So that’s the biggest story for me is that federal policy does actually make a difference. And having an all of the above energy strategy within the state is of course advantageous. But having that mirrored on the federal level, we can achieve so much more.

Micalah Spenrath (09:09.762)

So I think for moving forward over the next few years, I’m really hoping that we can align those two visions between our state and the federal level and really make progress on a diversified energy strategy that brings down cost and enhances reliability and affordability. Cause I think both are important. So that was the biggest story for me. And even though the changes were fairly negative from a lot of the renewable side, I’m optimistic that, you know, markets will continue to work.

Micalah Spenrath (09:39.0)

consumers will continue to be heard and say that we want what we’re paying for essentially and we don’t want to have prices rising for ideological reasons, for example.

Joshua Rhodes (09:52.75)

absolutely. I mean, so much happened in Texas this year around energy. mean, I think one of the big ones for me, for sure, and this has been for everyone else is like, just watching the graph for the number of large loads and data centers just continued to like tick, tick, tick, tick, tick, tick, tick, like up faster and faster and faster. I mean, I didn’t even think the numbers last year were reasonable and now they’ve even just gotten more unreasonable. Right. And so just like how that’s going to impact everything that we are doing. It makes it hard to plan.

Joshua Rhodes (10:21.422)

It makes it hard to figure out where the system needs to grow. Our peak demand is 85 and a half gigawatts, but there’s 225 gigawatts of large load in the cube by 2030. And given the pace at which the utilities move and all this kind of stuff, there’s just no way we can triple the grid in five years. But at the same time, like we’re building stuff, right? Like we approve like these 765 KVA lines, these huge power lines to go out into far west Texas to electrify oil and gas operations.

Joshua Rhodes (10:48.334)

This kind of reminds me of the Cres lines that we built to like go get the wind out in West Texas. I mean, it gets a lot of things up in the air, but it’s a lot of big numbers and like a lot of us pointing towards good stuff, I think.

Micalah Spenrath (11:01.132)

Yeah, I do want to double click on that. Like in Texas, we are still building things and you cannot point to every single state and have that same perspective. So I think even with the uncertainty, even with the changes that we’re seeing, it seems that Texas by design is quite resilient. And I’m really optimistic that we’re going to continue our energy leadership and really show what we can achieve when you are tech neutral, when you are an energy only market, when you allow resources to compete.

Micalah Spenrath (11:31.45)

on cost and showing up and reliability and affordability, not necessarily if you’re a fuel-based resource or if you’re intermittent and things like that. So I think, yeah, I’m a bit optimistic about it.

Matt Boms (11:46.146)

Yeah, I agree with both of you. And I think, you know, when Josh was mentioning Winter Storm URI and you think about how far we’ve come in the last four years, right? Almost five years now. I want to hear if you both agree with me on this, but I think ERCOT deserves a little more credit than it normally gets. And the reason I say that is because a lot of the projections that came out of it was house bill 5066 that was allowing the utilities to essentially inflate the

Matt Boms (12:15.2)

load projections and ERCOT came in and adjusted those projections and took a serious look at how much of this load is legitimate. Like how many of these data centers are really coming to do business in Texas because just from an operations standpoint, they need a number to work off of and that determines how much generation we need to build out. And it also determines how much transmission we need to build out, which again, I think ERCOT and the PUC deserve a lot of credit for a more forward thinking.

Matt Boms (12:42.838)

mindset than we’ve had traditionally in Texas, at least over the past decade or so, trying to work with all this load growth, figure out how much of it is really coming to Texas and then what do we need in order to meet the new demand that’s coming.

Joshua Rhodes (12:55.182)

So you’re sticking with the transmission lines. I think to the state’s credit, these are economic enablers, right? There’s no one individual project or group of projects that would justify this, but you basically make the sandbox bigger for everyone to work. Again, if you build this infrastructure, it is going to benefit all kinds of energy across the state, from oil and gas to renewables and et cetera.

Micalah Spenrath (13:18.794)

Yeah,

Micalah Spenrath (13:19.164)

so my perspective is that we really have started to lay the foundation to integrate large loads in a much more sustainable fashion with Senate Bill 6. And the PUC is doing a lot of great work on that. They have several projects that are dockets that are open and they really are taking it seriously and they’re making progress with the capacity that they have available. So I definitely think the PUC does deserve some kudos, but ERCOT as well, because even before we had

Micalah Spenrath (13:46.048)

a finalized Senate Bill 6. They were already looking at the interconnection process for large loads. I forget the number of the MPRR, but yeah, so they were all really considering this and then getting the legislative direction just added fuel to that fire. And I think we are moving in a very positive way. There are things that we still need to hash out, right? So making sure that data center...

Micalah Spenrath (14:10.25)

load is met with sustainable outcomes, right? So we don’t necessarily want all data centers to just have their own natural gas plant. That would not necessarily be the best thing for air quality and community well-being for the communities that are located near these data centers. We do want them to be good neighbors. I think that there’s a lot of work to be done in terms of making sure the policies at the state and local level align to make sure that that can happen.

Micalah Spenrath (14:38.9)

And yeah, if we can encourage like using solar and storage to meet that load, I think that that would be a real significant movement in the right direction. You’ve seen other states like Oregon, they’ve passed a bill that does actually aim to have sustainable or renewable fuels, I should say, renewable technologies provide the energy for these data centers. And that’s something that Texas can certainly replicate if we wanted to.

Matt Boms (15:09.25)

Yeah. Then they’re the cheapest megawatts out there. And it feels like a lot of these data center companies are because of their own internal corporate goals. They’re going out there and trying to procure renewables and storage as the market is currently structured. Right. I wanted to ask you both. sorry, Josh, go ahead.

Joshua Rhodes (15:27.374)

You know, heard something mentioned the other day, a comment that like, you know, right now with data centers, it’s kind of speed to power. And so it’s kind of like whatever we can do to get the megawatts the fastest, but eventually they’re going to have to compete with each other once they get it. Right. And so like, they’re going to want that, you know, unit costs of energy to go down. Like such that they’re, you know, dollar per token, know, dollar per my students cheating on their homework goes down. Right. So, I mean, I think we’ll get there. is a weird time right now with like how fast things are moving and how, how much they’re willing to throw at it, but.

Joshua Rhodes (15:57.196)

I think long-term equilibrium, yeah, I think we do end up kind of with that lowest cost energy, which yeah, like you said, when solar in storage right now.

Micalah Spenrath (16:05.87)

But to your point, Josh, you mentioned something that was really interesting, which is what’s unique about this particular load is that they do move so fast and they are of such a great magnitude, right? We typically have not seen that before and it creates a lot of challenges when it comes to energy planning to a previous point. So I think that if there’s an opportunity to align how these loads actually materialize on the grid with our planning processes, we’ll be in a much better place. And I think that

Micalah Spenrath (16:35.33)

the acknowledgement that that’s needed is already there.

Joshua Rhodes (16:39.342)

I mean, that’s like where the, crux of like the affordability argument hits. We’re trying to build so much infrastructure so fast right now, but it’s also the fact that that infrastructure is really expensive right now, right? It’s like the top of the market for transformers and for poles and for power plants. Like with my commissioner had on like, know that, you know, natural gas power plants are two and a half times what they cost a few years ago. Transformers are, you know, double what they cost a few years ago. Lines, the wires cost way more than they did. And it’s just like, you buy your house at the top of the market.

Joshua Rhodes (17:07.48)

when the market corrects, like you don’t get to readjust that principle, right? If we buy a bunch of expensive stuff right now, we’re gonna pay for it for a long time. So we’ve got to look into like, how do we cost share this thing or how do we do this differently than we have in the past? It’s a big deal.

Matt Boms (17:23.0)

Yeah, it feels like unprecedented times. I wonder listening to you both, like, I agree with you, Josh, that we’re, building out the sandbox for everyone. However, this stuff has to get built somewhere and communities are already starting to push back against some of the 765 transmission build out. We’ve seen legislation the last three sessions in Texas against renewable siting. So.

Matt Boms (17:50.082)

My question would be for both of you, how much do you worry about that? And I think what can be done to make communities feel like this is the right thing to do for economic development in Texas?

Joshua Rhodes (18:01.646)

That’s a good question. So, I mean, I’ve done quite a bit of work on like the impact of renewables, renewables and storage. Someone, know, a wind farm is built in a certain community. What does that mean for like landowner payments and taxes? And generally it can be, you know, quite large. In fact, if you look at like the sum total of landowner payments and taxes that the existing and soon to be built fleet are looking to pay, it’s like $50 billion. It’s not a small amount of money. It’s a lot of money. A lot of that flows to rural parts of the state, right? And so it’s areas that don’t...

Joshua Rhodes (18:30.934)

normally get economic development and it can be helpful in terms of having longer term sources of energy. But transmission is harder, I will say. Transmission is harder, it’s more diffuse, it’s spread over more areas, it can be more visible. Yeah, I know there were fights during CREZ and I’m not surprised that there are gonna be fights during this one as well. It’s just compensating people for bearing the burden, right? It’s like we do that via the tax.

Joshua Rhodes (18:57.602)

benefits that communities get for like hosting this infrastructure and the landowner payments. and just making sure that those are commiserate.

Micalah Spenrath (19:05.582)

So when it comes to siting, the main thing that I think about is balance. So, and compensation, of course. So it’s very Texan to say, you know, let’s go ahead and do something, but compensate me fairly for it. And I think that that is very fair. Also risk management. So if we’re asking them to host this infrastructure and these projects, we want to make sure that they’re safe and secure. I think that’s absolutely valid as well. For me, it’s also a conversation about

Micalah Spenrath (19:32.692)

sustainable outcomes. So we do need to build a lot of things. And that’s no surprise to many people. But we need to do it in a way that preserves our natural resources to the extent possible. And I actually think a lot of rural stakeholders would agree. I mean, if you’re raised in the country, you know it’s a beautiful place to be. And there’s a relationship to the land that you may want to preserve. And I think that that should be honored and respected as well when we’re having these conversations.

Micalah Spenrath (20:00.268)

So I think that it’s all about balance, it’s all about trade-offs, and it’s all about optimizing emissions reductions with natural resource stewardship and community fairness and compensation.

Matt Boms (20:12.064)

I agree and it’s highlighting the positive stories because I think for every negative story out there, there’s a hundred positive ones that maybe aren’t spoken about as much. So some of this really has to do with communications and I think how some of these projects are interacting with communities, maybe highlighting the good actors as much as those bad actors get highlighted in the news. You know, we can always find out your positive examples for every bad one, but Josh, you were going to say something?

Joshua Rhodes (20:36.642)

Well, Matt, what do you think has been the biggest energy story this year?

Matt Boms (20:40.366)

I mean, this year’s got to be data centers. Like it’s unavoidable. And I think it’s not just a Texas issue. It’s all over the country, right? Like there’s no energy conversation now without talking about data centers. And I think it’s interrelated with everything else we talk about in energy. Like the whole conversation around the 765 lines, it did come from the Permian originally as far as oil and gas and electrifying those operations. But at the same time, you can’t really accommodate all this new load if you don’t have a

Matt Boms (21:09.196)

know, sufficient transmission infrastructure. And Micalah and I have worked on this in the past at the Capitol, at the PUC, at ERCOT, trying to push for transmission build out, but it didn’t quite happen until the load was really clear that this, this is this huge tsunami that’s going to hit us very quickly in Texas. And if we don’t build out transmission quickly enough, then we’re not going to be able to meet that demand. So for me, that was definitely the number one story in 2025. And then all the flexibility around like DERs, demand response, reducing energy waste.

Matt Boms (21:39.116)

All of that is now very much on the table in a way that it wasn’t this time last year. And I think that’s because of the AI data center growth.

Joshua Rhodes (21:48.232)

I’ve got a joke going around that like, can’t talk about energy for more than five minutes in this state without talking about data centers and all my energy newsletters have become AI newsletters. Yeah. I’m sure it’s vice versa on the other side. All the AI newsletters have become energy newsletters, et cetera, et cetera.

Micalah Spenrath (22:03.154)

Yeah. Matt, I have a follow-up question for you. So you work with a lot of advanced energy companies, some of which are solar and storage organizations. So what gives you the most optimism when it comes to renewable growth in the next year?

Matt Boms (22:18.69)

think it’s those private power purchase agreements that are happening. A lot of this stuff is happening in the private sector and doesn’t need the government to interfere. And I think that’s why a lot of these data centers are coming to Texas because they have deep pockets. And like you said, Micalah, the number one issue for them is not how much the energy is going to cost. It’s how quickly they can get their energy, right? So that flips the whole thing on its head. We actually do have cheap, abundant energy in Texas, but the key

Matt Boms (22:47.596)

factor here is the speed. I think they’re seeing that, you know, Google can come in and partner with any number of renewable companies that can get them up and running relatively quickly by building that co-located array of solar and batteries, right? In a way that you can’t really build it as quickly in other states. So that’s what I’m excited about. Like, I feel like we’re best positioned to meet the load quicker than any other state is, but I want to bounce that back to you and Josh and see what you both think about that.

Micalah Spenrath (23:13.086)

just look at our interconnection queue. You’ll get happy real fast. Well, that’s simplifying it, but I certainly find reasons for optimism when looking at our interconnection queue and also just how readily deployable solar and storage and some of these renewable technologies can be to meet load. Because speed is going to matter. Scalability is going to matter. And so I think that those are great assets of these resources and we should really lean into that.

Micalah Spenrath (23:42.158)

That’s my perspective, but you also mentioned DERs and circling back to my comment about balance, not every renewable project has to occur on a greenfield site on undeveloped land. It can actually be a parking garage roof. It can be commercial building roofs. And so I really am excited to see like how much we can do in that landscape when it comes to distributed energy, because I think there’s so much potential there if we could just tap into it. Josh?

Joshua Rhodes (24:12.418)

I think the thing that I’ve been really kind of excited about is like the distributed battery space with, you know, announcements from the ADER program with like the base and Tesla and Bandera that are finally kind of getting these, you know, more dispatchable assets at the grid edge. Like it’s been, there’s been a lot of movement really quickly. I feel like in the past year, year and a half or so, I’m really excited about that too. Cause like, you know, as we run into constraints on getting

Joshua Rhodes (24:40.494)

know, large loads and generation and all this stuff, you know, in greenfield sites, like we do have a lot of points of interconnection that could take small stuff. And finally, it seems like people are starting to get that business case to work out. And that’s really exciting for me.

Matt Boms (24:55.498)

Awesome. Maybe to close this episode, we can give one area of like one item that we’re looking forward to in 2026, whether it’s a policy, just an issue that you’re interested in, but like one thing you’re looking forward to next year.

Joshua Rhodes (25:08.866)

Yeah, so real quick, this year has also been a big year for Texas and critical minerals in the East, the lithium in the smack over to uranium in the panhandle, critical minerals, Brewster County, all these other places like all around the state. I just think that bodes well, bodes good for like Texas and our country as a whole. And so I’m excited to see where that goes kind of in the future.

Micalah Spenrath (25:29.048)

Clean, firm power. I want to see that grow and scale, and there’s a lot of positive indicators for it. So I’m really excited where it’s going to go in 2026.

Matt Boms (25:39.19)

Awesome. And I think I’ll go with backup power because I hope that that program will get off the ground next year. And I’m looking forward to that because that should be really fun to see how these technologies can play a role in backing up our critical facilities. So that’s something I’m looking forward to, but thank you both so much. This has been a really great conversation and I’m really looking forward to seeing the guests that you bring on the podcast next year and listening to those amazing conversations. And we’re definitely going to get together more frequently and do these roundtables next year.

Matt Boms (26:08.558)

And this has been the Energy Capital Podcast. I’m Matt.

Micalah Spenrath (26:12.386)

I’m Mikayla.

Joshua Rhodes (26:13.921)

I’m Josh.

Matt Boms (26:15.246)

See you time.

Matt Boms (26:44.77)

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 Bombs, and I’ll see you next time. Stay curious, stay engaged, and let’s keep building a stronger, smarter, energy future.