Texas must balance speedy data center buildout with risk of stranded costs: stakeholders

“Texas is open for business like never before,” Lt. Gov. Dan Patrick said in a March statement, celebrating the passage of legislation designed to facilitate the interconnection of data centers and other large loads to the state’s electric grid.

The Electric Reliability Council of Texas, the state’s grid operator, is expecting load growth of up to 150 GW by 2030, he said — while the system’s 2024 peak was about 86 GW. The rapid growth projections have led to concerns about maintaining grid reliability, and the need for costs to be fairly allocated.

Gov. Greg Abbott signed the law, SB 6, in June, requiring non-critical loads over 75 MW to curtail demand during firm load shed events. The new law also sets up interconnection disclosure and cost-sharing rules, mandatory interconnection study fees and protocols for colocating large loads with existing generators.

All of this aims to keep the grid reliable, in part by ensuring ERCOT and local utilities can accurately forecast load growth and avoid overbuilding the system. Some experts say speculative interconnection requests are five to 10 times more than the number of actual data centers that will be built, making load forecasting difficult.

On Monday, the Public Utility Commission of Texas held a workshop on SB 6 implementation, and asked ERCOT stakeholders what additional rules might be necessary to minimize the potential for stranded infrastructure costs while still supporting business development.

Patrick's “open for business” line was often quoted, as utilities told PUCT staff that a “balance” must be struck.

The financial standards described in SB 6, including an interconnection study fee, construction cost contributions and the dollar-per-megawatt upfront security requirement, “will incentivize accountability in developers that are submitting requests and will go a long ways towards minimizing stranded infrastructure,” said Blake Holt, director of ERCOT regulatory policy at Lower Colorado River Authority, a public power utility.

"However, as we all know, wasted time is wasted money, and accountability can be equally motivated by triggering a restart of the interconnection process for those requests that were not delivered in nature,” Holt said.

Any changes to a project’s load commissioning plan, equipment requested or technical standards of a project “should require a re-initiation of the interconnection study,” Holt said. “Ensuring that interconnecting large load entities are motivated financially and temporally, will encourage thoughtfulness in the requests that are submitted, and will go one step further in minimizing stranded infrastructure.”

Michele Richmond, executive director of the Texas Competitive Power Advocates, said the group wants regulators to “balance the need for transmission with ensuring that customers are not paying for transmission that ultimately isn't needed.” The group represents power generators and wholesale power marketers in ERCOT.

A fair transmission cost allocation “is going to ensure that we don't have underutilization of transmission, and hopefully no need for any type of make-whole arrangement,” Richmond said. “Underutilization would indicate that the load forecasts are inaccurate. ... We would like to make sure that you balance the desire for Texas to be open for business with that fiscal discipline.”

SB 6 already went through “a pretty substantial process debate at the Texas legislature,” said Ned Bonskowski, Vistra’s vice president of regulatory policy in the state. “Just wanted to implore the commission, as you move forward, to leverage all of that existing work that's been done and really minimize the creation of new process and requirements where not needed.”

Customers should be empowered “to utilize on-site generation to meet the demand,” said Monica Batra-Shrader, policy manager at Enchanted Rock, a microgrid developer. “We also recommend including any necessary changes to interconnection and planning processes to model the flexible operational attributes of new co-located, dispatchable generation serving as base load and or backup power.”

Bill Barnes, senior director of regulatory affairs for NRG Energy, said accurate load forecasting can help minimize stranded costs and was addressed in the legislation. There is some ambiguity around refunds for canceled interconnection requests, he said, and that if a customer withdraws an interconnection request "we would caution the commission to make sure that the financial security posted covers at least the cost of the interconnection, and that is not refunded, that is used to then help offset the cost of that construction for other consumers.”

Barnes also said the benefits of co-location needed to be considered in ERCOT system studies. “I think we're struggling with that,” he said.

Clif Lange, general manager of South Texas Electric Cooperative, said the from a co-op perspective “stranded costs are obviously a huge driver of excess expenditures for member consumers. ... And so we think that it’s very important that all loads pay for a portion of transmission, regardless of whether they're co-located or have behind the meter generation, or not.”