Large load growth is one of the most urgent challenges and opportunities for the grid.

From data centers to factories to electrified oil and gas operations, demand on the ERCOT grid is expected to soar. If we don’t load forecasting and planning right, we risk higher costs, more outages, and a weaker grid. If we do it right, we can build a more resilient, affordable, and flexible system for decades to come.

On this episode of the Energy Capital Podcast, I’m joined by Arushi Sharma Frank, energy policy expert, consultant, and Substack writer, for a wide-ranging discussion about how Texas and other states can rise to meet this moment.

Arushi breaks down the four pillars of large load flexibility that can help avoid overbuilding, protect reliability, and strengthen the grid:

* Defensive Flexibility: Making sure large loads can ramp up and down smoothly without destabilizing the grid.

* Planning and Interconnection Flexibility: Allowing partial firm interconnections so that utilities can overbook capacity more efficiently, just like we already do with generation.

* Emergency Flexibility: Enabling operators to call on large loads for grid support during emergencies through dispatchable programs like Controllable Load Resources (CLR).

* Self-Limiting Interconnection Rights: Contractually capping how much a load can pull from the grid, with the load providing its own on-site generation or storage to fill the gap.

We also talk about why large load forecasting is critical and why the lack of accurate forecasting could compress maintenance windows, strain natural gas plants, and create reliability risks year-round.

Another major theme: cost allocation and fairness. Today, large industrial loads have far more tools to lower their transmission costs than residential customers do. As Arushi explains, unless we reform policies like Four Coincident Peak (4CP) rules, residential ratepayers will continue shouldering a disproportionate share of grid costs.

We also dive into:

* How House Bill 3970 and Senate Bill 6 at the Texas Legislature aim to manage large load interconnections. Plus, how combining the best parts of both bills could create a smarter, faster, fairer system.

* Why Texas’s "connect and manage" approach for generation could be adapted to load, allowing faster connections without unnecessary overbuild.

* How large data center loads could potentially fund demand-side reductions, like HVAC upgrades and home weatherization, that make the grid stronger and bills lower for everyone.

The stakes could not be higher. As we discuss, this isn’t just about transmission lines or interconnection queues. It’s about how we operate the entire system (generation, transmission, distribution, and demand side) as a coherent whole.

I wrote more about this systemic view in How Load Flexibility Could Unlock Energy Abundance.

If we get it right, we can build an energy system that supports economic growth, national security, and affordability for all Texans. If we get it wrong, we risk bottlenecks, blackouts, and runaway costs.

This conversation is one of the most technical we’ve done on the podcast, but it’s also one of the most important. Let me know in the comments if there are any concepts here that need additional explanation.

Timestamps

* 00:00 – Introduction

* 04:00 – Electric grids are vastly underutilized

* 08:00 – Managing the peak is crucial, with load flexibility we could have higher capacity factors and lower peaks

* 14:00 – Compressed maintenance windows for large outage periods for thermal plants, getting load forecasting right is absolutely necessary

* 18:00 – Challenges to transmission & distribution utilities in the high load growth environment

* 25:00 – The four pillars of large load flexibility, including grid forming capabilities and frequency support from large loads (very timely post-Spanish blackout)

* 32:00 – Connect and manage approach for generators could apply to loads

* 34:00 – continuation of four pillars: emergency flexibility, again includes discussion of instantaneous control to restore frequency

* 40:00 – SB 6 vs. HB 3970: Legislative proposals currently under consideration

* 42:00 – Prioritizing projects based on the shared benefits those projects bring

* 47:00 – Speculators “squatting” on prime spots on the grid

* 50:00 – Lack of policy structure is holding back signals to data center investors to bring shared benefits to the grid; HB 3970 checks most of the boxes

* 54:00 – Reasons why residential and small commercial bills are going higher

* 1:01:00 – Data centers without flexibility could purchase demand reductions from residential customers: reduce peak and help affordability

* 1:06:00 – Final thoughts & where to find Arushi

Show Notes

Resources

Arushi Sharma Frank

* Teach What I Know (Substack) — Arushi’s writing on energy policy, flexibility, and grid modernization.

* Article: Flexibility Compact

* Article: How Texas Wins the AI Race

* Article: Four Pillars of Flexibility

* Article: What’s Actually in the Data Center Flexibility Toolbox?

* Article: Cost of Service Ratemaking Explained

* Arushi Sharma Frank on LinkedIn, Twitter

* CSIS Profile: Senior Associate, Energy Security and Climate Change Program

* LinkedIn: Bill Scorecard - Two Bills in Texas for Data Center Speed to Power

* LinkedIn: Breaking Down the Barriers to Flex IX Study

* Twitter: Stuff Utilities are Saying

Large Load Growth, Flexibility, and Planning

* How Load Flexibility Could Unlock Energy Abundance, Energy Capital Podcast with Tyler Norris – A deeper dive into how flexible loads like data centers can help integrate more renewables and improve reliability.

* The Name of the Game is Flexibility: Energy Capital Podcast with ERCOT's Pablo Vegas

* Large Load Task Force / Large Load Working Group (ERCOT) – The ERCOT group tracking the interconnection of large loads like data centers, and providing updates on projects in development.

* AI Compute Workload Orchestration (ERCOT)

* Report: DOE SEAB

* Report: Flexibility DC-Gen Colocation in FERC Markets (Enchanted Rock)

* Report: Understanding Non-Firm Connection Dynamics

* Slide Deck: Scale, Speed, and Supply Chain - Success Factors for Sustainable Electrical Energy Delivery (Quanta)

Flexible Interconnection Concepts

* Connect and Manage Framework for Generators (ERCOT) – How ERCOT allows generation to interconnect faster by accepting curtailment risk, a model that could be applied to large loads.

* House Bill 3970 (Texas Legislature) – Proposed legislation to enable faster interconnection for large flexible loads.

* Senate Bill 6 (Texas Legislature) – Proposed legislation focused on cost allocation, ratepayer protections, and emergency interconnection requirements for large loads.

* EPRI DC-FLEX Initiative – Research initiative working with utilities to pilot flexible load integration at large data center campuses.

* Press Release of Initiative

* ERCOT Guide to the Interconnection Process

* ERCOT Four Coincident Peak Calculations

Transcript

Doug Lewin (00:03.682)

Welcome to the Energy Capital Podcast. I'm your host, Doug Lewin. My guest today is Arushi Sharma Frank, the first returning guest of the pod. I interviewed her last year. We mostly talked about distributed energy resources. I highly encourage you to listen to that episode. It's one of the most listened episodes of the show ever, and it's a great one. On this one, we're talking about something a little different. We're going to talk about how we manage massive new load growth, especially from AI and data centers, while still improving reliability and affordability. This one builds really nicely on the episode with Tyler Norris I did just a couple weeks ago. So if you haven't heard that one, you could listen to that either before or after, probably before this one is probably a little better.

This one really kind of builds on that. Arushi explains here four pillars of large load flexibility and how they can be incorporated into grid planning. We also talked about legislation at the Texas Legislature as it enters its final month, especially House Bill 3970 and Senate Bill 6, two bills specifically dealing with the challenges of integrating large load. And we talked about how combining the best ideas in both of those bills could create a really good blueprint for Texas and ERCOT to successfully integrate large loads into the grid. Toward the end, we explore sort of a new and big idea. Could large data centers help fund efficiency upgrades for Texans, including low-income Texans, which would have the dual benefit of reducing peak demand and thus freeing up more headroom on the grid and reducing energy poverty in a state where 30 to 40% of folks struggle to pay their energy bills.

Arushi really brings clarity to some of these most complex debates in Texas energy policy. She has a wealth of experience having worked for the Energy Power Supply Association or EPSA, the American Gas Association, which is AGA, Tesla, and Exelon. She now runs Luminary Strategies, her own consulting firm, and writes a Substack under the title, "Teach What I Know." You can find that in the show notes and on my Substack recommendations page. As always, please like, share, leave a quick review, particularly a five-star review that really helps us keep this pod growing in the community of people growing who are trying to get energy policy right. Thanks so much for listening. Here's Arushi Sharma Frank.

Arushi Sharma Frank, welcome back to the Energy Capital Podcast.

Arushi Sharma Frank (02:29.474)

Thank you, Doug. I'm happy to be back.

Doug Lewin (02:31.842)

The last time we talked, I think there were at least five or six times in the last 10 minutes of that conversation when I said I need to have you back on the pod. So it's taken a while, but here we are. Thanks for coming back. I do encourage folks to listen to that first one. We talked a whole lot about distributed energy resources, distributed generation, that sort of thing. Today we're going to have a little bit of a different discussion. So Arushi, if you kind of want to start by filling people in on some of what you're doing, and I'll tee this up for our listeners. We're really going to get into talking about large loads and large load flexibility and large load interconnection. This is to me, Arushi, I think if we weren't arguing with all of these, I don't know how else to say it, let's be generous. With all these bills that I think are misdirected and creating a whole lot of distractions, people that are trying to punch down at renewables, which is taking a whole lot of effort and causing a lot of distraction.

If we weren't doing all that, this would probably be the biggest issue because we've got this load growth coming. It is challenging, sort of like integrating variable renewables. It's challenging, no doubt about it. It also gives you opportunity to make your system stronger if you do it right. So excited to get into that with you, but give everybody a little bit of an update. What are you working on? And then let's jump into talking about large loads.

Arushi Sharma Frank (03:51.448)

So since I left Tesla, I've been working a lot with clients and in the academic space on figuring out a number of different ways to utilize the grid we already have. So our last pod, we talked a lot about grid edge. And the reason we talked about it is frankly the reason we're talking about data centers today in the same vein. It's about figuring out who is going to motivate capital, which funds innovation, and where is it going to go to solve a problem that exists today. For us to be energy dominant, AI dominant, tech dominant, innovation dominant in this country. And once it's there, how are we going to deploy it to utilize the grid we have efficiently, smartly and better?

I was at Northwestern last week and a senior official from Commonwealth Edison in Illinois was delivering a keynote and reminded us that up in Illinois, the ComEd grid is utilized around a 55% load factor or capacity factor. And from Tyler Norris' pod with you, Doug, people know what that is now.

Doug Lewin (05:00.266)

And it's even less in the ERCOT grid, right? We're at like 53%.

Arushi Sharma Frank (05:03.922)

And remember, like every grid in the country, and not necessarily by grid, occasionally by state, has a peak that's designed for a different winter or summer weather condition and a certain duration. Really interesting example of this that I think resonates a lot with folks to really understand the scale of the issue with underutilized grid capacity is comparing states that are right next to each other. So Wyoming and Utah, two Rocky Mountain Power Berkshire Hathaway utility families. They're grids next to each other. They shape power across those two states, but their peaks are different. One's a winter peak state and the other is a June, July state. And when you look at ERCOT or you look at any other kind of single state grid, you do remember that at least in these regions, you're solving for a singularity.

So that's why I think ERCOT ultimately, much like New York, to a degree much like California. I think our single state grids, because they're designed for a net peak that is motivated by power sharing across that specific one grid, is really ripe for distributed energy solutions. It's ripe for what we're going to talk about today in terms of maximizing the efficiency of how we build data center load, now we're talking like high power GPU compute load, in a way that serves all of these objectives together. And it all starts with where are you going to put the capital? And then who's going to tell you to put it there, right? Are you going to do it yourself? Or is a regulatory program or a piece of legislation going to provide the signal to do that? Or is it going to be a URI type scenario, which for me, the UPP AIDR project was, which is it was catalyzed by the loss of money and people in Texas. And obviously now on the other side of that, doing this work in private practice and doing it as an academic who gets to talk with regulators who are trying to design tariffs and policies all around the country. It's almost like this has to be the one place I want to work. Where my work is not utilizing a crisis that's already here, it's getting there ahead of time and building the correct price signal to be in a state where we're motivating progress, not crisis.

Doug Lewin (07:25.902)

I love it. Yeah. I mean, that really is a good encapsulation of what we're working on. Like we could be in a paradigm where we're just managing crises and that is not necessary. There is a different way. So let's kind of start with, why are we having this conversation? Why is this important? In one of your blogs and your writing, both on LinkedIn and on Substack, I can't remember which one I pulled this quote from, but you quoted the CEO of Constellation, if I got this right off your website, hopefully I did, Joe Dominguez. Who said, I'm going to just read this quote, it's a short one, but "data centers are integral to our daily lives, economy, and national security. Our energy system is built to handle the extreme demands of our hottest summer days and coldest winter nights, but is often underutilized. The real challenge isn't a lack of energy for data centers, but managing the peak demand hours. The ability of data centers to flex during these critical periods is crucial." So obviously this is something like you just mentioned.

I talked a lot with Tyler Norris, but honestly, I don't think we can talk about it enough. We have plenty of capacity, 98, maybe 99, maybe 99.5% of the hours out of the year. And really one of the things I don't think we talk enough about, Arushi, is the difference between megawatts and megawatt hours. People say in Texas we're going have a 75% increase in power in the next five years, or there's going to be a tripling in the next 10 to 15 years. Are we talking about peak or are we talking about energy consumption? Because those are different things. And we could double or triple our energy consumption and have our peak not rise by nearly that much. That's good for all the generators on the system and would allow us to integrate these loads, which as Mr. Dominguez says are integral to our economy and our national security. To me, that's the why. Would you build on that? Why is this question so important for legislators, regulators, grid operators, stakeholders, and the general public?

Arushi Sharma Frank (09:28.758)

No. So first of all, have to give a nod to Joe. Former constellation, myself before the spinoff. And I worked in the compliance group out in Baltimore on power plant compliance in multiple markets. So what that enables is the sort of depth that frankly, no policymaker has the time for. So it's really important to elevate that. It's really important that people like Joe Dominguez go out there and say the one sentence. Because even that itself is a revelation for a lot of people. And if you're in the space of being in the seat of making policy, and you already have 38 other problems to solve for, you kind of get to a point where you're sort of impatient and need to solve a big problem. Like, what is this? So it helps.

Doug Lewin (10:17.612)

If I may, right? Yes, there's 30 issues. There's probably more like 130 issues. And in Texas, they got 140 days every two years to work through all of those issues. It's insane. It's no way to run a state, but that's the way we do it, which means their time is very, very short. So it is important that, and of course, Constellation's a big player in the state of Texas. Yeah, go on.

Arushi Sharma Frank (10:40.482)

Yeah. Right. So spokespeople matter. Studies matter. The next piece of this, which I work on, and that's what we're going to talk about, and that's how I'm going to answer your question, is to truly understand the binding constraints for the power grid, the people who operate and run and study that grid, and the binding constraints on the entities that want the power. And following that statement that data centers can and should flex, we're going to get into what those constraints are and feel free to challenge me on them or help me help you understand it better so our audience gets these better.

But I want to start with this idea of why it's important to get this right. The criticality of it. Conventionally, when we build in a conventional vertically integrated monopoly area, when we build a new pole, a new wire or a new power plant, this is before the world of deregulation. We kind of have this cost plus model, the cost of building it plus some regulated return on top of it. You have the thing, it's there. And the reason you get that money to build it, the reason you can raise to build it and then recover the plus on top of the cost of the asset is this idea that you are building for the moment in time when everybody is using the seventh lane on an eight lane highway at the exact same time, right?

Doug Lewin (12:06.422)

Or the eighth lane, right? Or that. And maybe pushing into the ninth lane.

Arushi Sharma Frank (12:10.062)

Yeah, were there to be an eighth lane. The reason I'm not using the eighth lane is that I think grid edge EV CHP for CP congestion management all of the conventional tools we already have for grid flex that are baked into both economic and reliability programs, they're all living in another of the eighth lane, right? They're there. That's why I'm saying number seven.

Doug Lewin (12:35.308)

That makes sense. If we take the analogy further, and perhaps we shouldn't, but there's almost like a shoulder, right? Which is really like the reserve margin that's built in. I get what you're saying. You're not going to go into that eighth lane because that's your reserve margin. You have to keep some. That makes sense.

Arushi Sharma Frank (12:50.008)

So going back into why it's so important, there was testimony from ERCOT CEO, Pablo Vegas, a couple of weeks ago at a house hearing. And I don't really follow politics much, but I saw this clip and it was describing the fundamentals of the forecast. And there is right now disagreement between a utility forecast and an ERCOT forecast, right? And for me, the issue to bring out the importance of getting data center interconnection, load growth forecasting right comes down to this one thing is that we will have to force ourselves into the eighth lane which is our headroom, our reserve margin, the period of time in which we put all of our natural gas plants on outage or maintenance, those shoulders, we make the shoulders smaller and smaller and smaller.

The simplest way I have explained this in some of my writing too is that not getting the load forecast right for these large loads means that ERCOT has to plan for the N plus one or the redundancy system such that they have to assume a enormously constrained reliability metric for the grid all the time.

And that means every shoulder season, right? So the shoulder season, like the non-peak seasons, like before the summer starts, before the winter starts gets compressed. And the windows that ERCOT has to give permission to our generators, our seal in the ground, right? Our base load to take their outages and be ready to run for the next storm Elliott or Uri gets smaller and smaller and smaller. So hear that again. Not getting load growth planning, forecasting and flexibility right is a material risk to the daily seasonal and emergency operation capacity of the Texas natural gas fleet period.

Doug Lewin (14:48.01)

Yep.

Arushi Sharma Frank (14:50.42)

This is it. This is it. And then, of course, when you look at planning in the context outside of just Texas, the way that we've done interregional planning, the other big theme here is that transmission planning is a proactive thought process. It is the result of fairly sophisticated generator interconnection rules, regulation, transparency, and design. In the generation space, as much as there is noise around the cues are slow and all these dates and there's lots of clustering problems with restudying and there's squatting and we're trying to fix all these problems with generators. The reality is that the sophistication we have in planning for this redundancy and keeping shoulders open so other stuff can happen and we're not overpanicked about a reliability event because we understand the actual load that's coming or the actual generation set that's coming. It's dependent on having a very accurate planning picture for a generator.

So that doesn't exist anywhere in the country today for load. You don't have to take my word for it, but you could take DOE's word for it, or you could talk to the utility executives that are supporting every DCFlex initiative that we'll get into little more detail. And we all know collectively as an industry, as a power industry, that load connection to local power grids has always been a more bespoke process. It is non-transparent in design. It is a first-come, first-served process from the perspective of connecting sites when you know they're basically ready. And we've always had a lot more certainty with this type of load connection because typically we're not connecting 200 shopping campuses and OXIE facilities at the same time. So when people think, you know, they say like, well, load forecasting has always been a thing we've done. Like, yes, it is, but we never had the occasion anywhere in the country to be approached by, you know, say Tesla and Tesla saying we're building about 18 gigafactories at one go at this spot. It's one. And so these anchor tenants, if you will, that help a utility area plan a load forecast, there's been discrete tenants that kind of like set the full picture and provide them the wiggle room to understand how to connect incremental load and then work their brain as planner towards the outcome they know they need for a redundant and reliable transmission system. So EPRI...

Doug Lewin (17:28.138)

All that thought on EPRI, I do want to hear about DCFlex and what they're doing. I just want to put a finer point on this to your point of like what grid planners have been dealing with is sure there's large loads, but it's one here, two there. In the large load update given to the technical advisory committee at ERCOT TAC, the group that is one level below the ERCOT board, the large load task force, which is now becoming the large load working group. LLWG, I believe is the new acronym because we don't have enough acronyms. They gave a presentation just yesterday. We're recording on Thursday, April 24th. It was on April 23rd. They have a new slide. I'll put it in the show notes so people can see it. It is the Large Load Project Distribution. They are, and not all these will get built. There are 50 projects of a thousand megawatts or more looking to connect to the ERCOT grid. 50, 5.0, that are a thousand megawatts, to put that in perspective for folks that don't do this kind of work, or I do try to make this, I always like to make this accessible to folks that aren't in the industry.

Let's put that in perspective. The city of Waco, the city of Lubbock are around seven or 800 megawatts. There are 50 different loads looking to interconnect that are larger than Waco. So you start to get a sense of the enormity of the challenge that the grid operators in the utilities are facing and why what you're talking about is so critical. In the exchange, I believe you're talking about that it was state affairs where Ocasio Pablo Vegas was talking with representative Charlie Garan and Garan is saying, we need to build a grid that is for all these projects. I'm paraphrasing him as basically in Pablo kind of looked at him like, if we did that, the cost would be enormous because not all of these loads are going to come in. The ones that do come, if we know, and this is where I know the conversation is heading.

So you bring us back to EPRI DCFLEX or whatever you're going to say, but this is, I think, where I know this is where we're headed, is if the grid operator in the utility know that these loads have certain attributes, potential for flexibility. Whether that's because of the nature of the load behind that meter and its own flexibility, whether that's because they have storage or gas generation or whatever it is on site that they can reduce from maybe that thousand, those 50, 1000 megawatt loads, say 20 of them get built and each of them could get down to 500, right? They could be at 50% of their capacity. This is critical that we don't overbuild the system, spend way too much rate payer money on the transmission distribution side and on the generation side, to your point, that we're giving the gas generators, the coal, nuclear, the ability to go offline during those maintenance seasons, take the maintenance they desperately need to be ready for the winter and the summer peak seasons.

Arushi Sharma Frank (20:22.478)

You know, and this is not a fun and games for our poles and wires utilities either, right? Wherever you are in the country as a utility, whether or not you own generation or you contract it, procure it, whether or not you serve load. Poles and wires companies also do maintenance and they also plan OPEX. There's another Substack we'll drop explaining the essentials of cost of service rate making. And the theme there to be very, very sensitive to, which is why this is also important, is that whether you like it or not, and I mean, you, generically, not you, Doug, because I know what your answer will be, we have predominantly a cost plus or a cost of service business model for poles and wires in the US, right? So that means that every time you go to go raise capital, if you're a utility, you raise debt to fund your capital planning project, and your capital planning project has the super HV transformer times 35,000 because your load forecast says that. A, the cost of debt for you as a utility is atrocious. It makes no sense. Anytime your rating agency sees that they're going to question whether or not your utility commission would ever approve such a thing. When the answer is no, of course the rating agency will downgrade you, which will raise the cost of your debt.

Then you look silly in front of your regulator and then you generate everything else that comes next, which is consumer ire, rate payer pressure, and just sheer confusion around where is really the best place to spend a marginal dollar that has a rate of return tied to it. To add to that, this sort of forecast then also creates another pressure on utilities, which is the OPEX problem. Trucks, people, maintenance, sensors, software, all this stuff is not part of the CapEx book that has a rate of return tied to it. It's part of just operating the darn enterprise. And if you look at any private sector competitive enterprise, the way that you would set it up is to not run things to failure and order lots of things and hope that you'll use them, is to use what you have well and efficiently and sensibly in light of the actual demand on your equipment and your capex. And you'll put your optics budget in the right spot in that framework so you're maintaining this stuff that you already have. So you don't need to go get more of it. So for utilities too, this is a huge issue inherently and how they actually hang on to a business model that conventionally has a lot of safety on the cost recovery side.

Maybe utilities might disagree with me on that, but obviously they're not a competitive business. But on the other side, it's like their entire way of procuring assets, right? The planning side is like, when am going to order the next 23 large transformers? This problem massively discombobulates the CFOs. A great resource we'll drop in the chat on this is a plenary session presentation done by Quantas Services, which does a lot of contracting work with and for utilities. They presented at ECIG in Austin just a few weeks ago and mentioned that even utility procurement practices are going to have to change dramatically, which puts them as procurement entities in the spot of making speculative buys for this equipment, which is this crazy thing no CFO in their right mind, private or public sector, wants to do.

Doug Lewin (24:04.314)

So I want to come back to the to the eight lane highway and how really what we're trying to do is make sure that you know if we have to add a ninth, make sure we really need that ninth and not add a tenth and 11th. But also make sure that the fourth and fifth and sixth lanes are getting used more in order to meet that goal to keep that peak in megawatts down while we bring up the megawatt hours, the actual energy consumption. I want to ask you this, and I know you've written about this a lot. What are the kinds of flexibility that would actually help grid operators? I want get into the nitty gritty here, not the, right, I know that's what you do. This is what your blog is so good for. There's a lot of general discussion around this, but specifically, what are the kinds of flexibility that would help grid operators?

Arushi Sharma Frank (24:57.784)

Sure. So I've categorized it into four pillars in my taxonomy. And I think you'll start to see more reports come out that have similar ways of describing this work and these concepts. The first is defensive flexibility. Defensive flexibility means that your site, whether it's just a colo, so like some kind of power producer, and the load together, a consumer, together, if it's a colo or whether it's just a load, you have the ability as that connected site.

Doug Lewin (25:28.462)

So, co-lo is short for...

Arushi Sharma Frank (25:31.502) Co-located generator and data center.

Doug Lewin (25:34.19) Okay, I have not heard anybody say co-lo yet. I like it. Okay, we can start using.

Arushi Sharma Frank (25:40.582) I

t's very much a substation, EPC, planning, construction vocabulary term. I like it. So yeah, you'll learn new...

Doug Lewin (25:49.518)

I've been saying it the long clunky way. I just keep saying co-location. All right, I gotta change my, update my lingo. Co-lo, go on.

Arushi Sharma Frank (25:58.136)

So all right, so what is this? What is this? This is all the stuff you hear about the most in terms of instantaneous reliability issues, right through ungraceful behavior by the data centers and whatever is paired with them. So that's defensive flexibility, right? So whether or not there's legislation, a grid operator needs to make sure that if you're going to get up from the grid and go take a bath and come back later, that you don't take the entire bathtub with you, right, the entire electric grid. So if we can't solve for this type of flexibility, you can't have data centers period. So this is not one of those flexibilities that is riding on the idea that data centers have to be 99.99% firm and they need their big full power. That's not the issue. This is a different type of flexibility. It is you have to design these sites to be able to gracefully connect, disconnect, ramp, turn up, turn down from a grid without destroying everything, including your own gensets. So that's number one.

Doug Lewin (26:54.038)

And so on that, what we're talking about there is especially the larger the load is, the more this matters. If you are one of those 51,000 megawatt projects that are looking to locate on the Texas grid, if a 1000 megawatt load drops off, that is similar to if a 1000 megawatt generator drops off. If we lose one of our nuclear units, that causes frequency deviations, which can be very damaging.

So you have to make sure that they are capable behind that meter of if something happens, they don't just drop from 1,000 down to zero. There's some sort of, as you put it, a graceful ramp, I believe is how you describe that in your writing. Yeah. OK, cool. What's the next one? That's number one.

Arushi Sharma Frank (27:37.678)

So that's defensive, right? So you're defending the grid against a catastrophe and you're also defending your site against the mirrored impact of that kind of catastrophe. I want to mention one thing really quick here. NPRR 1100, which is the second NPRR I worked on before I worked on VPP. A piece of that that's very important to understand is that we have been working for a very long time in complex manufacturing and industrial process industries on achieving this kind of graceful ramp. The way we do it is UPS, uninterruptible power supply. The reason you need that is it's not just about the grid staying whole as large loads leave. It's also about the finnickiness that the load itself. If you've got stamping machines and aluminum robots, and my favorite at the Gigafactory and Tesla was Bumblebee, I didn't get to name them, but I contribute to the theme. There's things to be able to also ramp down slowly if there's an outage or a loss of power.

Doug Lewin (28:39.628)

Yeah. What is Bumblebee?

Arushi Sharma Frank (28:41.496)

Bumblebee, it's one of our robots at Gigafactory Texas.

Doug Lewin (28:44.554)

Got it. OK, sorry. Go on. OK, keep going. Yeah.

Arushi Sharma Frank (28:47.468)

Right? So data centers are not that different in their need for stable power from the kind of complex engineered load processes at machine and industrial campuses that do things like have robots make cars. Right? So the reason I mentioned the NPRR, it's important to understand that we've been trying to create mechanisms for uninterruptible power supply, flexibility, grid forming behavior for quite some time. the data center boom, I hope, will push that innovation to the next level, because now we're trying to solve the problem for quality of the grid and quality of continuing production or continuing computer, whatever it is simultaneously. Does that make sense? So then the second kind of flexibility is planning and interconnection.

Doug Lewin (29:36.536)

It does.

Arushi Sharma Frank (29:45.386)

What this means is enabling the utility company, the wires company, and the grid operator. And I separated them, Doug, because in some cases around the country, they are the same entity. And in others, they are different, right? Like the competitive areas of Texas, there's differentiation there. Enabling them to study only a portion of a large load as firm, and thereby enabling overbooking of the system. That is planning and interconnection flexibility.

So before you question like, the heck would you ever do that? That's how we connect generators in Texas, right? The connect and manage framework for generators in Texas is essentially overbooking transmission farm rights relative to the size of the generator. I had a great conversation with colleagues at EPRI earlier today actually, and put the thesis out that the vision of flexible load interconnection and some of the markets where EPRI will be doing these demo sites with partner utilities is to effectively achieve the same thing for loads, connect and manage. What does that mean? It means that there will be hours of the day of the month of the year where the load cannot do its full draw. And in those hours, the load can figure out whatever it wants to do, self-supply, back down, shift, turn off, but there will be hours where you will not get your firm load rights. The reason this is so revolutionary is that you take the connect and manage regime and apply it in a space where historically we have always had, we as in utility planners and grid power people had this idea when load comes, you just connect it, whatever, they pay the charges and you just do your thing. Like there's never been the need to have connect and manage as a regime for load. You just connect load.

And if you're a utility, you can decide if that load has a unique impact on your system and add, you know, an access charge of some kind. If it's really a problem to connect it that, you know, it has an outsized impact on the general rate base. So that is planning and interconnection together. And I have been talking about it with the connect and manage logic at the back of my head because it resonates so well with folks in Texas and outside of Texas as well. As you know, Texas connects generators the fastest because we have enabled the price signals to generators to do two things. Either be ready to curtail in exchange for getting connected faster or put your own stuff on your site. Invest in a demand response, invest in CHP, establish a pun, whatever it is. We've created the price signal for them to figure out that they can't get it all from the grid all the time in terms of giving themselves the highway to sell constantly to ERCOT. So enabling that on the load side is this type of flexibility.

Doug Lewin (32:39.224)

So, Arushi, this was actually one of the most revelatory things in your writings that I learned a lot from reading your stuff. But this one really stuck out to me because it seems so obvious in retrospect, right, we do have this connect and manage. This is something that Texas is pretty proud of. This is like the third time we're mentioning Tyler Norris, but Tyler had this really great exchange when he was in Congress. He was making a presentation and Congressman Randy Weber Republican from Houston was asking about Connect and Manage and he was saying ERCOT does it better. It's this point of pride that we have that we're bringing these generation resources on quicker. takes a year or two in Texas and five years in PJM or other places. And you're right, there's a framework for how that happens and it does include some curtailment. And now as these loads come on, we're going to be curtailing generation resources less, particularly if we cite the loads in the right place.

But it makes sense that you could potentially apply that principle. And so you're still going through the, are you calling them pillars or principles? You're still going through those. But I do want to bring up that there are active policy discussions going on at the legislature around this, particularly with House Bill 3970, which if I'm reading it right, is really kind of doing that. It's kind of putting a connect and manage to the loads, like, hey, here's a speed to interconnect, a speed to power if you're willing to have a few conditions and that could be reducing your demand, could be switching to standby power. Can you talk a little bit about, and if you want to go through the others and then come back to 3970 and Senate Bill 6 and what's going on at the ledge, that's fine too.

Arushi Sharma Frank (34:20.661)

Yeah, well the last two I think are easy, so I'll quickly run through them. Perfect. The next one is emergency flexibility. So that is the ability to simply drop load under operator discretion with verifiable control. The way that we did that in Texas today is CLRs, but CLRs, Controllable Load Resources, is a voluntary framework in which a load can register. It will appear as a dispatchable asset in ERCOT SCED, which is their engine for five minute dispatch. And CLR control is so refined that even if ERCOT gives a CLR a five minute instruction to behave a certain way and signal that it's time for you to start ramping. If ERCOT finds an instantaneous frequency problem, they can stop the ramp. So it really is total control. Really quickly, cause I know people who are listening to this pod less listen to the other one for the most part, maybe there'll be new audience this time. AIDR. The whole point of AIDR, the DPP program, is to do the same thing. It has become other things over time. It has become those things after I have left the leadership of the task force. But the point of AIDR was to turn power walls, end phase batteries, pick your favorite residential DER and turn it into an asset dispatchable in sketch.

So you can imagine for thinking about why these solutions have mirrors, it's not about looking at data centers as VPPs and all that like that. It's there are the peripheries of what's remotely possible and necessary. But the thing that you do need this emergency management, any grid operator that wants to manage an emergency is only going to rely on resources that it actually has some capacity to signal a control signal to. That doesn't mean that they show up and run the data center down for you, nor did they ramp a single power wall down. But because you're in sked, there's a tool for that. Whether you're in ERCOT or you're in outside of ERCOT and say, you know, salt river project or dominion or wherever there's going to need to be talking, right? Between a site controller, cloud, the operator of that utility system and its communication tools so that the site can respect the emergency signals that it gets and so that the site has advanced notice to be in a state to be able to deliver during an emergency. This is another one of those dogs that's like, it's like a non-negotiable flexibility issue. It really is. And if you don't want to deal with that as a load of any kind, you got to build it yourself. And when you build it yourself, you're also going to build your redundancy and that's really hard.

The last one type of flexibility is simply self-limiting interconnection right. That means you're going to contractually enforce at the point of interconnection a limit on what you can draw from the grid and you'll work with your utility partner or your grid operator or both to just fundamentally flatline what you're going to ask the grid for and everything else you're going to do to augment base load at your campus, you're going to do it a different way.

Doug Lewin (37:35.118)

Arushi would this be, so this would be a situation where maybe I'm a large data center. I'm 500 megawatts and the utility or ERCOT or the combination of them says, uh, this site, you really can't do more than like 350. And you say, but I need speed to power, can't wait for you to do years of upgrades. So I'll take the 350 you've got and I'll put enough power on-site combination of power sources that I'll always be able to cover 150. that what we're talking about or is it something different?

Arushi Sharma Frank (38:06.286)

Mm-hmm, exactly right.

Doug Lewin (38:24.738)

Got it. four things are, is it something like you don't need, I'm just trying to think through this question even makes sense or if it's just so obvious I shouldn't ask, but no, I don't think it is. So the four things are, it's not necessary that a data center have all of them or is it? Is it like you could have two or three out of four or do you need all four of those things to really sort of strengthen the grid as you enter it?

Arushi Sharma Frank (38:34.382)

You need the defensive one and then you need the emergency one because there's not going to be too many utility operators that are excited to put you on their system if you can't deliver on those. You're going need those, right? There are basic, basic operational capabilities. The others, which is planning and interconnection and then self-limiting at the bus. Those are the ones where it allows the campus developer and is contracted partners and vendors. And if it's tenant focused in the tenant to work together to invest in technology solutions that enable the sort of reliability studying that is needed to make a confident determination that once you're alive, you'll actually behave that way on a day-to-day basis.

Doug Lewin (39:19.598)

Yeah. So what I'm wondering, because I think there were some questions in the hearing on House Bill 3970 about this. How are you determining the ... because what we're talking about here is speed to power. What we're talking about here is if you bring certain attributes, you can connect faster. And that implies that there's a prioritization. That means that somebody else is not being chosen or allowed to connect, would be a better way to say it, I think as quickly. would you be saying if you brought all four of these, you are then prioritized in the queue?

Arushi Sharma Frank (39:59.404)

Yeah, it's not really about, okay, so this is why I don't engage in politics. Because you can't put me up there. All right.

Doug Lewin (40:07.434)

If you're a human being, you engage in politics. It's a part of the human condition.

Arushi Sharma Frank (40:13.71)

No, I don't. This is why I really like, I limit how much of this I end up engaging in, in such a short context because the reframe itself, it takes so long that it's very hard for me to deliver it, but I'm going to do it for you. The issue is not flexibility to put you ahead of another entity. The issue is flexibility to be studied as an N minus one asset faster and connect faster as your project. Okay? Most of the work that goes into deciding how long it will take to give you speed to power is solving for two things. One is a steady state, n minus one redundancy constraint and deciding how many different ways there are that your site could screw up my grid, but for me building these certain upgrades of various kinds. Right? And the other one is what are all the conditions under which you need to be able to show that on a dynamic basis, your site can actually be a part of my grid without me having to do a lot of other work to maintain stability elsewhere.

So between these two anchors, the flexibility approaches are designed to help this project get from this point A to point B and then just to access to power faster by solving for these constraints with flexibility tools instead ofother more costly rate payer born instruments that we conventionally have in transmission upgrades for load. That's it. Okay, maybe I should go up there.

Doug Lewin (41:51.394)

Okay. No, that was really good. That was really good. I don't know if I entirely agree though. Let me very gently push back and you're almost certainly right. And I'm almost certainly wrong, but just tell me how I'm wrong. So let's say I am, I'm going to take a very extreme example, but let's say I'm a data center, 500 megawatts. I am going to put a mix of resources on site. I'm going to put solar, gas and storage that will add up to more than 500 megawatts. And I'm a fully flexible load. I'm a large language model and I can for two or 3% of the hours of the year just shut down and I will let my power go back onto the grid. Right? So if there's some winter thing going on or it's really hot and sun's going down at seven o'clock, like September 6th, 2023, we're getting an energy emergency. I will allow that power to flow back to the grid.

I would argue we should prioritize that load getting on the grid ahead of others because that load strengthens the grid. That makes it less likely that me, a homeowner in South Austin and the homeowner in Dallas or in Houston or in Abilene or Waco or Brownsville or wherever on the ERCOT grid is then less likely to experience an outage. So that kind of customer, so much of life is about prioritization. Like we should prioritize those kinds of loads. Am I wrong?

Arushi Sharma Frank (43:25.288)

So I don't disagree with the idea. The outcome though is what I just said. You've solved for constraints with the assets and the behavioral profile the utility is studying or ERCOT is studying such that you've solved for the constraint faster than somebody else that doesn't have that equipment or that capacity on their site. So you are going to get studied faster.

There's no reason to keep you slowed down. So if you get studied faster, you're likely to interconnect faster. The thing that is a nuance to what you and I are both saying that is very important to understand though, is that this process you're talking about where we could reach a world where we prioritize, rather we speed up our stability and dynamic assessments too, so that particular project will run a lot faster than other similarly situated projects is also influenced by how much other transmission upgrades are happening in the area already.

So data centers with the strategy you described that are getting connected in a load pocket area where the utility has already justified other transmission upgrades or could justify them because there will be other users for the system who will benefit from the upgrade are definitely in a differentiated situation than those operating out in a space where there are no other users. And so the dynamics of prioritization are also remember, like when you're prioritizing these projects, one way that I would be very interested to see as implement this policy, and I think that it's like a natural engineering outcome too. I'm not sure if it's something you need a law for, is that it makes sense for a utility to move along a project that the utility knows will enable shared benefits of the upgrade that is intended or triggered by the project.

Doug Lewin (45:14.957)

Yes.

Arushi Sharma Frank (45:16.259)

I really like that. And I like that we could come up with ways to formalize it.

Doug Lewin (45:21.046)

Yeah, and they would share in the cost of that, right? So especially if there's areas of the grid that we already know need investment. And as part of that exchange for speed to power and speed interconnect, some of those loads are like, I will pay for that. I'm happy to help pay for that as long as I can get onto the grid. This is really, really useful and helpful to me. And I think I actually heard, I think it was during the 3970 testimony, I can try before we get this podcast out to find it and put a link in the show notes so people can go watch this. There was a gentleman I think he was with Encore that was talking to the committee and saying part of the problem we're having, I think he's talking about talking to the policymakers, but I even have this idea in my head, because we keep saying Q, we keep saying interconnection Q, so people are envisioning in their head people standing in line.

And so a lot of people don't like the idea of cutting in line. And I'm actually saying I don't like the idea of cutting in line. I'm just saying give somebody, it's like the fast pass at Disney or something, like if you're gonna pay a ton of money to get onto our grid and make things cheaper and more reliable for everybody, we should allow you to the front of line. But what you're saying, and I think the gentleman from Encore, his name I'm forgetting was, it wasn't Brian Lloyd, it was somebody else. I'll look it up and I'll put the thing in, but I think what he's saying is it doesn't actually work that way. Like you put your project into the queue, quote unquote, you're not like behind the other thousand projects, you're being studied on your own track and depending on where you're interconnecting and to your point, what you're bringing with you, that's how fast you're gonna get there.

So maybe we're saying the same things as we can prioritize those loads coming on. It doesn't have to do with moving them somehow physically or even metaphysically within a queue. It's really just about how quick, it's almost like a swimmer, my kids are getting ready to start swim season again. It's like, sure, you're competing against the person in the next lane, but you're trying to beat your personal best, right? So this is like data centers, like you think it's gonna be two years to get on. If you'll bring all this stuff with you, we can get you on in 12 months, right? And it's not that you're jumping the line or getting ahead of somebody else, it's just your own speed to interconnect.

Arushi Sharma Frank (47:31.7)

Exactly. Now with the squatting thing, it's so great that we're talking about this. And now I really want everyone to hear this podcast. The squatting thing is different in the load queue. It's not about the interconnection queue. It's about this issue where developers are responding to RFPs from hyperscalers or anybody else that's trying to develop these big campuses. And they're all speculatively buying land and then putting in interconnection requests when they haven't actually won a project yet.

The same has always been true as a problem on the interconnection side for generators. That's a totally separate problem that you have to solve for. There are already great metrics from quality control on the generation side that we absolutely need to have on the load side. It could be something as simple as, you have to pay us now a deposit for an engineering study. So if you're a developer that doesn't really have a project, like you're not going to cough out those millions. And in that sense, utility policy can also be an excellent price signal to demotivate overbuild and rate payer burden.

So I want to make sure I say that because I think there's this also this misnomer that all of the problems in Texas are around the fact that utilities just keep building. It's not just, this is not a singular problem. It's also the fact that utilities have to entertain interconnection requests from the folks that put them in. And if they don't have tools to say, you're not real, then we're not helping anybody.

Doug Lewin (49:07.5)

Well, and there's the whole concept that has been around from the beginning of the utility industry, which is obligation to serve, right? And it's kind of in the DNA of the utilities is like, well, if somebody puts an interconnection in, we want to serve them. But here's what I want to ask here. I want to come back to SB6 and HB3970. I'm going to keep pulling you into politics or issue, whether you like it or not.

Arushi Sharma Frank (49:29.774)

I know. I mean, I wrote an article about this, right? I already scorecarded both bills together side by side.

Doug Lewin (49:35.726)

There you go. So let's say something nice about SB6. That is something that's in there is this attempt to sort of weed out, maybe separate the wheat from the chaff a little bit to put a fee in there that is a study fee to make sure that folks aren't squatting or whatever the terminology is. That's in there. There's like a 24 hour emergency that's like your, I think checks the box of your emergency flexibility, but then it doesn't have some of the things that are in 3970. So can you talk about the merits and demerits of both of those bills and what you hope would come out of the final product from the legislature?

Arushi Sharma Frank (50:14.062)

So I hope that they can smash them both together. And when I say they, I mean any entity designing a framework. So whether it is 3970 and SB6 together, or it's a utility tariff being developed in Virginia or Wisconsin, or it's a bilateral agreement that is unique to a specific new class that gets formalized in a tariff, we want all four pillars together. So SB6 has the emergency stuff in it, then it deals with some of this rate payer protection stuff.

But we don't have anything in there for the defensive flexibility, the planning flexibility stuff, or the self-limiting rights, right? So there's nothing in there that enables a process for an investor to pick up the phone, call a hypersix scaler vendor and say, let's do this because there's a path for us to be successful on speed to power that is tied to a regulatory incentive, right?

And I think it's really insane and unfair to all parties at the table that the scenario we find ourselves in is that there's a ton of market activity. There aren't any clear rules. And then we expect everybody to just show up and make flexible interconnection real overnight because that's what the grid needs. It's like, well, there are no constructs in place that motivate me to go and put my money and my time in making this real because I don't know if there's a reward on the other side for doing it.

And I have another article that's called How to Get Texas to Win the AI Race, and to me it's you have to have those incentives. Whether it's two sentences and the bill and the PUC has to handle the rest, or it's more articulate than that, you have to motivate it in language. And frankly, if we can get that from our political class, that's enough for the private sector to jump on ship and work very, very productively with utilities on designing these solutions and making them work. And I've already talked about how this helps everybody's pie.

Doug Lewin (52:18.158)

Yeah, no, that's great. So I want to make sure we give credit where it's due here on your scorecard. And this is on your LinkedIn post. Again, we'll link to this, but I don't know if you did a sub stack on this too, but you have the scorecard and HB 3970 on your scorecard checks all four of those boxes. So the things you ran through the defensive flexibility, planning flexibility, emergency flexibility, and self-limiting rights, all four of those elements are in 3970 as you read it.

Arushi Sharma Frank (52:44.492)

They are, yes, all four of them.

Doug Lewin (52:46.862)

All right, cool. Way to go, Chairman Darby. That's good work.

Arushi Sharma Frank (52:49.666)

Now my scorecard doesn't have the stuff about rate payer and cost allocation, so that we have to add that as another thing that I think we really need from SB6.

Doug Lewin (52:58.4)

Okay. Well, and that is in SB 6, right? It's not a requirement, right? If I remember right, the way the language came out of the Senate, it's something about the PUC needs to study it and then make a determination or something like that. As you well know, the commission staff, the independent market monitor have both said like, 4CP needs to change. I think it is time for the way we allocate transmission costs to change to make sure that residential rate payers are not getting a raw deal, which at least in my view they are right now. That's a whole other issue we don't have to get into right now, but that's a big one. Do you want to get into it now or we could?

Arushi Sharma Frank (53:35.754)

If we'd guide to 4CP, think my biggest problem with that is the thing anybody who's ever worked on DERs has a problem with, which is that residential consumers in Texas cannot benefit from 4CP avoidance. Therefore, when we have built a transmission grid that is entirely paid for by load, load ratio share charges and credits are allocated to pro rata shares of the consumers of our grid. And we gave all the rich guys and the factories and everybody else who's not you and me in our homes, the ability to mitigate those costs. Guess who takes the bag home? That to me is an ultimate horse EP problem.

Doug Lewin (54:19.19)

Well, and it's so frustrating to me, Arushi, because we're dealing with this on an almost daily basis, all these folks that are falsely, and I can't say it more clearly, falsely claiming that costs on the system are going up because of renewables. It's absurd. There's zero marginal fuel cost. For those that are listening to the podcast and can't see it, Arushi, she's laughing. It is a laughable thing for somebody to suggest that that is what is happening.There are reasons why bills are going higher. The Russian invasion of Ukraine and gas prices in 2022. We could go into a lot of them, but one of them is over the last three years, industrial rates in Texas have stayed flat. Now think of all the inflation over the last three years, and industrial rates have gone up literally less than 2% over three years. Residential rates have gone up more than 20%.

And I believe it's because of exactly what you're describing, residential customers do not have a way to opt in to a demand response program, pricing program, anything like that, except in little pockets, right? Where a utility decides they're gonna offer it, maybe somebody can opt in, but as a general principle, cannot opt in. And even if I'm a retail electric provider serving a customer, and I want that 4CP exposure, you can't have it. You're not allowed under the system. So you're absolutely right. That needs to change. I think it will in the next couple of years. I think the PUC gets this at this point, whether it's in legislation or not.

Arushi Sharma Frank (55:53.454)

There are a couple of things you said there that I want to spend just a second on. Right here at WoodMac yesterday, David Carroll, who heads up Angie's Renewable Division, was talking about how they had to withdraw their project from the Texas Energy Fund. And this is all public record from yesterday. I'm sure I even have notes on it. But in his discussion of this issue, he talks about the cost of gas turbines and the long lead time to get them.

And it just occurs to you that we look at the costs of the system, like the whole grid, there is just so much going on that is meaningfully putting pressure on all sides for every class, every asset class of power. It's just insane. And the tariff issue just on turbines, I'm looking at his notes now. Their research on G shows that the costs for gas are $2,200 per kilowatt. It's like insanely expensive. Natural gas also uses steel and concrete for getting fuel.

Doug Lewin (57:03.79)

That's actually low for what I'm hearing right now. I think like 2,500, 2,600 is usually what I'm hearing now. I've heard it's high as 3,000. I think there was actually a filing, I want to say it was Indiana where one of the utilities there filed, I think it was like 2,400 there. I mean, 2,200 would probably be cheap for a turbine. And that is to put that in perspective for folks that don't follow this close, like two, three years ago, we were talking about a thousand dollars. So that is a massive increase in a very short period of time.

Arushi Sharma Frank (57:31.496)

Well, the fact that you can have companies that are invested on both sides, Renewables and Gas, and André Ustri, GDF Suez, for those of you who don't know, we're listening. The picture is so integrated around what we need to do to get cost management right for the system. It almost goes right back to the first thing I said about why the heck we have to get this right. It is not about transmission building and data centers in a vacuum. It is literally about how the heck you operate your existing gas fleet, going to motivate new gas into the market, what are the price signals that actually get it there?

And frankly, there's just too much else going on for anyone who had got any financial sense to look at this as a renewables only problem, or even as an isolated renewables problem. Like this is a different problem. I have an issue with things like the production tax credit and the incentives that it has created for negative pricing of renewables. But that issue for me is also combined with this other issue I have, which is batteries not getting their due credit in the market fast enough so that they can serve as a mitigation tool and a transmission congestion avoidance tool. And again, this is a whole different pod series, but we have some legacy structural issues in market design.

Doug Lewin (58:47.842)

We're teeing up the next one, Arushi, when you'll come back for a third time. We'll tee up the next one.

Arushi Sharma Frank (58:52.844)

I was going to plug that for anybody that you're talking to Doug that needs to figure out why batteries are cool, but they don't like renewables, just show them the portfolio for Middle River Power. So that's actually a buy side transaction I advised on. I work with private equity if I advise them on this acquisition. Middle River is natural gas plants with batteries and the batteries extend the service life of the plant. They ramp in and provide the support that gas plants need and they fulfill existing solar PPA obligations. So we need batteries for gas too.

Doug Lewin (59:26.518) Look, I think a way to condense all of that down is it's a system, right? The costs occur as a system. We've got to have a system that works together. I just feel like too often, at the legislature, some folks just put on one jersey. This is the jersey I wear and it's me against the world. It's like, guys, that's not the way the real world works. This is not a cage match of fossil fuels against renewables. This is an energy system. It's got to work together. Can we all like be mature adults and stop treating it like a goddamn cage match? Because it's not what it is.

Anyway, okay, I'm off my soapbox. No, I'm not. I'm still on the soapbox. Okay, so here's the question I want to ask you. This is like...

Arushi Sharma Frank (1:00:07.094)

This play. I feel like you can't cut anything in this podcast.

Doug Lewin (1:00:10.252)

So, speaking of that, well, we're going to go into another little small section here, which will either be great. We'll leave it in or it won't, and we'll cut it out. You, the listener, will only know if it's in the podcast. So here's what I want to ask you about. This is a little bit of my outside the box idea, but I actually think it could be very impactful. I've talked with a few people about it and I'm getting good feedback on it. And I value your view on this, particularly because of the work you did, you mentioned earlier that AI DR worked the aggregated distributed energy resources.

Here is something I'm thinking about. So let's say that there's going to be data centers and other kinds of large loads that do not have as much flexibility. Some data centers, particularly if they're doing inference, right? They may just need to have uptime all the time. Now, of course, they could put batteries on site. There's different things they can do still to move demand around, but some loads are going to be more flexible than others. For those that are less flexible, could we create a fund to actually get reductions on the residential and small commercial side?

Because to the point of it's a system, and some of this wouldn't work because you may be in a load pocket where you've got a constraint or something and it needs to be very close to there. But for other places where that's not as much a concern, if you can get reductions on the system and you could have a shift factor, you could pay more for reductions that are nearest to a transmission constraint. There's all kinds of different ways you could do this, but I'm picturing a fund that some of the large data centers could set up to get verified measurable reductions.

And I think that there's the push a button kind, which is really valuable to the grid. The whole kind of, like you were talking about, CLRs and NCLRs and all that stuff. That's all really valuable. That could be batteries in people's garages. It could be thermostat programs. There's also the permanent demand response, right? The permanent demand reductions, energy efficiency, reducing energy waste, because the hours that we're talking about to bring it back to, you know, what Joe Dominguez from Constellation CEO said, right? That it's the hottest summer days and the coldest winter nights, right? That we're trying to handle the extreme demands.

What are the technologies that help us on the hottest summer days and the coldest winter nights? And of course, for us in Texas, it's not the hottest summer days. Thanks to the abundance of solar power we have, it's the evening ramp period after the sun is going down, but it's still hot. What are the technologies that address that? It's mostly HVAC and insulation. And if you could replace old HVAC that is wasting a ton of energy, particularly on the cold winter mornings, resistance heat, the outdated heat pumps that only work down to 32 degrees and then resistance heat kicks in and an apartment starts using as much as a 3000 square foot house.

You create a fund, you're then helping the people that are in the apartment. 30 to 40% of Texans struggle to pay their energy bills, choose between medicine, food and power. So you're helping the affordability problem and your strengthening grid reliability if you have that demand reduction. Does that make sense? Could we make something like that work?

Arushi Sharma Frank (01:03:30.094)

So the thesis is that instead of the data center interconnecting customer, putting its capital into on-site mitigation of its interconnection cost or its cost is putting the money into a fund that goes to demand reduction improvements and upgrades for residential customers.

Doug Lewin (1:03:52.454)

And it could be a both and, right? It could be like you said, like you have those four different boxes you check. This could be a fifth box. Like if you have all five, it's going to be even speedier because you're really helping out the grid. Now, you're doing all four of the things we wanted and you're helping us reduce residential net peak demand. You see what I mean?

Arushi Sharma Frank (1:04:10.2)

Yes. So one of the ways that this has worked in other contexts is of course, economic planning and development incentives have included in some cases, governments conditioning new industry or businesses to show up and provide something to the community in return for whatever it is that the business is looking for. A good example of that was actually the South Australia Housing Authority's efforts to fund a program to install power walls on low-income customers' in exchange for enrollment of said customers by Tesla via the energy retailer, Energy Locals. And there were other non-Tesla participants in it. But what it did is that it enabled the validation of VPP as a solution that helped the whole grid and brought down the default cost of power for everybody in South Australia.

There are, and I believe you're onto something there. I have deep conviction that before we get to a world where every state has functional DER programs that are driven only by market incentives and utility incentives, we're probably going to be in a world in 10 years where Governor's offices just say, we can't be economically resilient anymore unless we put the state's money, like again, the state has which powers? Policing, health, welfare, safety. And so if we're not putting cash into resiliency as an asset, then we aren't actually fulfilling our job as the guardians of our state. I think that that's where this kind of policy originates from and that's also where it heads.

The piece of it that I think is really important in Texas to get right is the same thing that I know frustrates you with DER policy and draft DER legislation that you're constantly writing about, which I read, right? So, I read your stuff just as much as you read mine. This morning at Woodmark on a panel that involved one of the gentlemen from EPRI who's looking at BPP as a policy or utility, we covered the essential problem. And I think it's a good thing for our listeners to end on thinking about.

If we have a system in which poles and wires utilities are only motivated to recover and stay profitable for delivering electrons one way across a meter and not for anything else, then we do not get to a world where DERs as their value stack actually achieve that social benefit and value. And the same is true for HVAC and energy efficiency. And then it's not just a problem for the utilities, it's also a problem for retailers, which are actually the entities that make money on the volumetric cost of electrons delivered from this way to this way.

Retailers like Tesla Electric, which is a company, of course, that I helped start for Tesla, benefit from something that is slightly differentiated, which is that power walls or any kind of localized management behind the meter is a natural hedge that reduces the exposure of the retailer to the commodity cost of power and reduces the risk that the retailer needs to pay through the nose on a bad day in ERCOT to make sure their customer has their full serve load.

So I think if you can solve your next part of your thesis in the paper you're going to write now, if you can solve for the incentive structure so that retailers and utilities both are a part of the equation and can be made whole. I think that your paper might be the salve for DER saving lives in every state in this country in 10 years.

Doug Lewin (1:08:05.26)

Well, as my grandmother used to say, from your mouth to God's ears, let's make it happen. All right. So, Arushi, thank you very much. Where can people find you? Tell people about your substack and anywhere else you want them to find you.

Arushi Sharma Frank (1:08:17.486)

So we'll drop in our show notes. My sub stack, Teach What I Know, has been designed for my students. My students, just to rewind for a moment, I don't engage in the political lobbying world, but I absolutely love working with and teaching policymakers and policymaker staff some of these complex comments. I work a lot with Powerhouse Texas, Doug, and I know you know them very well. You're involved yourself on the governance side.

Doug Lewin (1:08:44.046)

Great organization.

Arushi Sharma Frank (1:08:45.162)

And so I work with them and others on providing educational tools. So I have a teaching sub stack where I write about whatever people need me to write about. And then I also have newsletter series on LinkedIn that are more related to my consulting firm itself. And in the next few weeks, hopefully I'll begin my series on AI data centers and flexibility that I'm writing in my role at CSIS, which is a Washington DC think tank. So hopefully lots to read and lots to help you do good things for the world.

Doug Lewin (1:09:15.638)

Amazing. Arushi, thank you so much.

Arushi Sharma Frank (1:09:18.094)

Of course, I love being here and I think we talked over each other more than we usually do, but it just reminds me how important it is for us to connect with our friends and talk about these critical issues. I love coming on your show. Thank you so much, Doug, for having me.

Doug Lewin (1:09:33.41)

Looking forward to part three already and hopefully we won't have any latency issues on the next one. See, this is why we need the data centers need good connections. We got to have, you know, low latency and maybe we'll record one in person and then we just will have no lag problems.

Arushi Sharma Frank (1:09:49.248)

If we talk over each other, think whoever's recording the pod needs to just start charging us cash. That will really help.

Doug Lewin (1:09:57.67)

We'd be poor. All right. Thank you for listening to the Energy Capital Podcast. I hope you enjoyed the episode. If you did, please like, rate, and review wherever you listen to your podcasts. Until next time, have a great day.

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