In this episode of the Energy Capital Podcast, I had the opportunity to speak with Pablo Vegas, the President and CEO of ERCOT.
There was a time when very few Texans knew what ERCOT was or what it did. Those days are long gone. Texans pay close attention to the grid following Winter Storm Uri and the ensuing outages. And the 13 conservation calls over the last nine months or so have kept ERCOT very top of mind.
Vegas joined ERCOT in October 2022. Previously, he worked with NiSource, an electric and gas utility in Ohio, before returning back to Texas. From 2008 to 2010, Vegas headed AEP Texas, a regulated poles and wires utility serving Corpus Christi, Laredo, and large swaths of South and West Texas.
There are likely few jobs as complex and as difficult as leading ERCOT. The problems facing ERCOT are enormous and incredibly complicated. We dived into many of them. Without a doubt, Pablo is thoughtful and open-minded, two of the most important qualities in any leader. He shared his thoughts on a wide range of topics, the need for more flexible resources, the need for more transmission, the challenges and the benefits of renewable energy, and the role of storage, which he called one of the most innovative changes to energy since the invention of the electric grid.
Vegas sees a lot of distributed resources — sources of power located at homes and buildings — as one of the defining features of the grid of the future. He was particularly engaged and animated on the issue of the demand side, the need for energy efficiency and demand response, as well as distributed solar and storage. Vegas talked about the need to address inefficient heat and also the potential of what he calls “active energy efficiency,” the ability to “flex up and flex down” to use more power when there's an abundance and less when there's scarcity.
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If you like the episode, please don’t forget to like, share, and leave a review. Time stamps and a transcript are below. I look forward to hearing your thoughts on the episode in the comments section.
Timestamps
03:12 – How Vegas thinks distributed energy resources (DERs) will define and transform the grid of the future
7:46 – What will ERCOT’s role be in managing DERs?
10:48 – The role of a Distribution System Operator (DSO)
14:02 – Energy efficiency: tackling traditional the “low-hanging fruit” in Texas
15:03 – Expanding from passive energy efficiency to active energy efficiency
21:28 – Conservation calls vs demand response
26:46 – Ways to align retail market incentives with grid needs, including time-of-use rates
30:44 – The potential need to change four coincident peak (4CP) pricing
34:07 – How the environment, market, and economy determines energy supply and demand
41:20 – The need for more transmission, including discussion of the transmission issues on September 6, 2023?
46:45 – What are the solutions to transmission issues and how does system planning need to change given massive new loads like data centers?
52:11 – Is the Performance Credit Mechanism (PCM) necessary?
59:26 – The value of flexibility; achieving emissions reductions while maintaining reliability
1:02:44 – Would “firming” requirements potentially backfire by pulling resources out of the market and raise consumer costs?
1:06:55 – Should Texas interconnect ERCOT with other grids?
Show Notes
Texas Grid Roundup, February 16, 2024
Why is the Smart Grid So Dumb? by Travis Kavulla
Transcript
Doug Lewin
Pablo Vegas, thank you so much for being on the Energy Capital Podcast. Really appreciate it.
Pablo Vegas
Great to be here with you, Doug.
Doug Lewin
Why don't we start with something just kind of high level here? I'd like to just ask you, what is your vision for the grid? Not like in one year, two years, but a little long and then not, you know, a generation out, but let's say like a five to ten year window. And how do we increase both reliability and affordability kind of in that timeframe.
Pablo Vegas
Yeah, I love that question because it's really where I try to spend as much time as I can keeping my horizon view on that five to ten year outlook. And I think most CEOs and companies are trying to make sure that while the business of the day is in hand, that they're guiding the business in a direction that makes sense for the organization and for the grid. And I think ERCOT, and you know, I don't know, ERCOT is very different from a lot of grids in the United States, but I think a lot of grid operators are seeing kind of similar opportunities on that five, ten year horizon. And it's a much more interactive electric grid than I think what people have been used to before.
I think that there's a couple of characteristics of that grid of the future. One is I think that there's a lot more participants in the day-to-day operations of it.
And what I mean by that is not only do I think, of course, traditional resources, generators and customers will continue to grow and expand, but I think the role of what a customer does and how a resource, a generation resource performs is going to continue to change and get more and more granular over time.
And what I mean by, so to be specific, I see a future where there are distributed generation resources scattered throughout every community that we live in. And those resources will be electric vehicles. They will be the HVAC systems in your house that are connected to a smart internet connected grid thermostat that's connected to the internet. It could be the rooftop solar. It could be a Bloom Energy Bloom Box that's part of a community commercial development.
All of these assets are going to play a role in terms of distributing and utilizing electricity. But what's going to be different about the grid of the future is that the grid operator is going to be interacting with them too. Today, they're all present, but we don't interact with those resources very much today. It's typically kind of behind that distribution substation. And we don't see a lot of that on a day-to-day basis at the grid level. Most of what we can see sits up at that wholesale power, wholesale transmission level, that bulk electric system. And I think the grid of the future is going to get down to that premise level where these resources will be acting and participating in grid activities to the benefit of everybody. I think that's where we start to see improved resiliency and potentially improved reliability because of how we can leverage these resources. I think these resources start to change the economic thresholds or frontiers and the decision making around whether it makes more sense to build a large station kind of sized power plant versus leveraging a lot of distributed resources, those questions start to be analyzed a little bit more seriously. And so you start to get to different economic trajectories because of that.
So to me, that's what the grid of five to ten years down the road looks like. It's more participative, it's more granular. It engages consumers and businesses in ways that they're not fully engaged today. And because of all of that, I see the opportunity for reliability, resiliency, and for the economics to get better over time.
Doug Lewin
So in that future, and I share that vision with you, I do think we're gonna see a lot more distributed resources. We're seeing them already, right? I mean, it's not like this is solely in the future. It's already starting to happen. In fact, I wrote one of my articles at the Texas Energy and Power Newsletter, I called “The Future is Distributed”, it's happening. The future is starting to be here now.
The question I have for you on that, Pablo, what… So like you said, you guys work at the wholesale level. You're a transmission system operator. You're talking about very small devices. You're talking about thermostats or a sensor on an electric hot water heater or a pool pump or an electric vehicle, smart charging system in somebody's garage. Do you think that ERCOT will have, and none of us really know, but we're talking about vision, right? A little ways out. Do you see ERCOT actually having a role sort of connecting there or is there some other entity in between, whether the transmission distribution utility or something else altogether?
Pablo Vegas
Well, that's what's really, I think that's what's really cool about ERCOT is that that's probably the answer to that question is probably more of a market driven answer than necessarily a regulatory or policy driven answer. Now, not to say that it's not going to be important. There's not a lot of policy and regulatory considerations in this transition, but what we've seen in ERCOT develop and develop faster than in other grids in the US are competitive and innovative solutions to electric market problems. And that happens because we do have a very open market where virtually, you know, anybody who believes they can offer a great retail alternative or a great supply alternative has an opportunity to prove that and to put their money where their mouth is, invest in the, you know, in the assets and bring it to the market and where they're right, they succeed and they grow. Where they are wrong, they, you know, they pay the economic consequences.
So I think it'll be largely an economically answered question. If I were to prognosticate today, is ERCOT best positioned to build the technology and the interfaces to get to that level of granularity? I'm not sure that we're wired and structured that way today to do that. And there could be, that could be a whole segmentation that develops in the ERCOT market around how to leverage these very distributed assets in such a way that it becomes simpler for the transmission operator, the distribution operator, and the grid operator to leverage and analyze and model and forecast and plan all of these assets without necessarily it having to be developed by ERCOT. And so I'm not saying that I'm not willing to invest and build the capability if that's the way that it makes the most sense to get there. But because we have such a competitive market I would be surprised if a market competitive player didn't come up with a better widget on how to do this and figure out how to plug it into our ERCOT market and be successful.
Doug Lewin
Yeah, that is really interesting. So yeah, I think ultimately the question there is: who is that distribution system operator? Maybe what I hear you saying is you guys might have a sort of a layer of ERCOT that is interacting with that without actually operating the asset. But there still needs to be, in my view, and a lot of people disagree with this, but I still think there needs to be something, some entity deploying, dispatching these tiny little sources, because otherwise you could get some really negative results, right? Where, like, too many batteries are charging all at once, or too many are deploying all at once. And I'm a big believer in markets. I think there should be some market function there, but there is a policy question as to who is that distribution system operator and what are their roles and responsibilities? So a lot to work out there.
Pablo Vegas
Yeah, I agree with you, Doug. And I think, frankly, I do see it being important for ERCOT to get to a capability where they can see distribution level electric information. So load demand changes at a level below where we are today. I do think that's going to be important. And I think the question is, does that go all the way to the water heater in your house? Do I need to have that as a node on my grid, kind of on my control system where I'm taking direct signals from that? That's a different question, I think. But I do believe you're right. I believe you're right. There's a level of orchestration that happens at the distribution level. That's gonna become really important, especially as we start to get to the same, I'd say, circumstances, and we'll probably talk about this in this conversation, where when a grid starts to get tight, you start to see the seams of that grid in different ways, right? You start to see issues emerge that are challenges that you have to overcome and you have to plan through. And at the distribution level, that's absolutely going to happen as we see more proliferation of distributed resources, right? You're going to, as you start to see electric vehicles filling up garages in residential communities and rooftop solar, the distribution wires and transformers and substations and all of that, are gonna have to expand and grow to accommodate. And where they don't, there's gonna be stresses that are going to emerge and challenges are gonna have to be worked through.
So I think it's really important to have a holistic view of a grid at the distribution level and the transmission level to try to get ahead of that and to try to be able to anticipate where those problems are going to emerge and then plan in advance so that you don't trip over them.
Doug Lewin
So very related to that because one of the distributed, if you think of it in terms of resources, a resource that can really benefit the grid, both from reliability, resiliency, and even affordability perspective is energy efficiency. And energy efficiency, I think, you've been talking about it a lot lately, which I have noticed and really appreciate. I obviously think it's very important, but I also think the definition of energy efficiency is kind of changing. In a world where there's a lot of hours, where there's a lot of abundant and cheap power, you start to get these curves. I don't think Texas is quite a duck curve, but you've got some kind of curve in the middle of the day where there's a lot of solar. And you want to charge, you want to electrify, right? It's a good thing to bring these cars onto the electric grid. It is more energy efficient to do that. There's not waste from burning gas in internal combustion engines. So all that's good, but how you charge it matters.
Can you talk a little bit about energy efficiency, both as it's traditionally thought about heating and cooling on the residential side, being a big, big driver of a lot of the system stress, but then also kind of, you know, this next evolution of energy efficiency, where it's really kind of, you could think of it as like demand flexibility, where we need to use more at certain times and then less at certain times.
Pablo Vegas
Yeah, yeah, I'd be happy to. And you're right, I am talking about it a lot more because, you know, there's always been, I'd say, you know, kind of three core elements to kind of the traditional grid construct. You've got your supply, you've got your interconnected transmission and distribution system, and then you've got your consumers. And those consumers are, you know, wide and varied, you know, in terms of what they, who they represent. And in order to plan a grid really fully, you have to anticipate and understand the needs of each of those segments over time and as things change. And so as resource mixes change on the supply side, what does that mean to the T&D system? As consumers have more sophistication and start to develop decentralized tools and products, what does that mean?
And so starting with the kind of the traditional. There's a lot of low hanging fruit out there, Doug. I really believe that there's low hanging fruit in the energy efficiency space that I think we need to be just plucking. And that gets to, you know, resistance heat, resistance heat in there are areas throughout the United States, you know, in the southern hemisphere of the southern portion of the US that there's a massive energy efficiency opportunity around replacing resistance heat with more efficient air sourced type heat pumps. And that's something that I think we need to go after hard.
I believe that to capitalize on the investments around that, which I think will happen because effectively it's going to be more cost efficient and cost effective to replace all of these types of heating units when they fail with something much more efficient.
But to harness that value, you've got to step into the other traditional part of energy efficiency, which is home insulation. If you don't have a well insulated home, you are still just throwing the dollars out the window, even if you have very efficient appliances. And so you have to couple those two together. They really are two sides of a coin. And I think we've got to invest on both sides of that to maximize the traditional efficiency opportunities at the commercial and at the residential level. And I think that's a big opportunity in Texas. Texas certainly is, they started out strong early on with energy efficiency programs and have recently lagged. And I think there's an opportunity to get back into a leadership position there and there's good value to be obtained in doing so. So that's something that I would look forward to doing.
Go ahead Doug, this is a good place for you to jump in. I was gonna talk a little bit about the next evolution, but please interject here.
Doug Lewin
No, and I do want you to talk about that. I was just going to say, though, I think it just ties in, I think, perfectly to that next evolution. There's sort of a virtuous circle here, right, where you were just talking about insulation and air source heat pumps and these newer heat pumps that are all-climate… a lot of people are calling them cold-climate. They can heat your home down to zero or even below zero. But they're also, and this is very hard for people to understand because it's called a heat pump, it actually will make your house cool too, right? So it has benefits in the summertime too.
But with a well-insulated home with a high efficiency heat pump, most of those at this point, the high efficiency heat pumps have inverter compressors, right? So they have an inverter that can actually respond to a signal. So now you've not only brought down the overall use, you have the ability to say, oh, wow, it really looks like, for instance, does this sound familiar to you? 7:30 tonight's gonna look really dicey. Let's go ahead and make that house cooler at three, four, five o 'clock. A lot of solar power available. Power is generally pretty cheap. Let's go ahead and use more. That only works if you've got the insulation. It only works if you've got the HVAC that can take a signal.
Pablo Vegas
And the way I think about it is it's kind of, it's going from passive energy efficiency to active energy efficiency. So it's the same. It's all energy efficiency, but there's one that's more active because it's actually utilizing real time information in order to help optimize the efficiency of whatever it is we're talking about: the building, the home. And so that's where the active opportunity is coming in because we now have access to data like we know it's going to be tight at seven o 'clock tonight because it's a very hot day and we're not going to have the availability of solar resources. So we know we'll have a scarcity period. So we can start to make decisions early on and it's about, you know, flexible demand. So I can flex up my demand in the hours leading up to that point in time to make sure that I'll be comfortable and then flex down significantly during a peak period, which both makes economic sense because when there's abundant solar in the middle of the day, power should cost less. And then when there's scarce power later when it's tight, power will cost more. And so there's natural economic incentives and we can work our way through that without really having to do a whole lot of things to make somebody uncomfortable. And that's the opportunity with active energy efficiency. And I think that's really exciting.
And it applies to, like you said, vehicle charging. It can apply to hot water heaters. When does a hot water heater cycle and when does it run? There's all different kinds of applications to this that I think are really exciting. And we're just at the point where we can do this today, right? This is available today. Part of that five to ten year vision is these appliances and components will come with software embedded in them that will do it automatically. And that won't even need to be set up or have a person say, okay, I need to work and time this with my utility company or have my retailer, you know, do this on my behalf. It will do it by itself. That's where we're headed. And it's really just about integrating all of these pieces and parts in such a way where you look at what the objective is, which is leveraging the resources we have cost effectively and leveraging where there's abundance, you know, flex up. And when there's scarcity, you flex down. And those principles can be coded so simply into appliances.
Doug Lewin
It's so fascinating and I think hopeful for the future of the grid. I mean, one of the things I'm hopeful for, Pablo, and I'm sure you are too, is that in the future, you know, conservation calls, they're not actually like what they are today. A conservation call is basically, you're basically calling for people to use more. Like, I say this all the time to people. I'm like, if I said to you, would you be a little colder inside your home in a Texas summer and get paid for it, right? So that you could use less during that net peak, right? At the time the sun's going down where the, just like we saw this last summer in August and September, that's when the conservation calls were going out, right? It was a 6 to 9 period and it was like 7:30. So a conservation call isn't really a conservation call anymore. It's people have already raised their hand and said, for this amount of money, I'll be colder inside my home earlier. I'll let it ride up to that set point, the highest I'm willing to let it go, it's my choice. Won't go any more than that. And there's a lot of Texans that won't want any part of that. And that's fine. As long as some people opt in, we all have a more reliable system and less of a chance of having conservation calls.
Pablo Vegas
Yeah, you're absolutely right. And that's something that, you know, today there are retailers and some of the non-opt-in entities, like the municipal power authorities and such that offer a lot of really flexible demand response type of offerings for their consumers, where, you know, some of them are, it's basic thermostat, you know, adjustments and they offer an incentive to allow that to happen and others, it's, you know, they just, you know, they just communicate directly with customers and say, Hey, this is how, you know, we're in a conservation period. Can you respond?
What I'm thinking about is how can we put a framework around all of that? Maybe an umbrella service around all of it that allows consumers through whatever, whatever provider that they have to participate and be part of that economic incentive. To me, that's kind of the next frontier for Texas on the demand response. Because today, you're right, we are asking for a favor. We're asking people to change their behavior and to do something that they perceive today as a discomfort step in order to help alleviate a risk, a risk on the electric system for the good of the system. And to be perfectly honest, it's not something that we ever want to do. We recognize that it is perceived as an inconvenience for people. But I have to say, people have been responsive. It's really been incredible, the amount of response we have gotten when we do ask for it. And so there's wonderful people that really do help out.
That being said, this is one of the most competitive electric markets in the world. We can come up with a way to incentivize this that reflects the actual economic cost of these demand response opportunities and let everybody participate in that. And we do it today on a macro level for larger industrial customers. There is no reason we couldn't do that on a more granular level with residential consumers. And so that's something we have to spend some time on this year figuring out how to move in that direction.
Doug Lewin
And I'm wondering if you have any thoughts yet, and it sounds like you're in that kind of ideation phase of trying to figure it out, and that's fair. There's a lot of details to work out here, and it's certainly not simple. It's incredibly complicated.
You know, I was actually reading recently and highly recommend to you and to all listeners, a great paper that Travis Kavula of NRG wrote for ESIG, the Energy Systems Integration Group, did a great series on aligning retail incentives with system needs. And his paper, I thought the title was great. “Why is the Smart Grid So Dumb,” he called it. And as great as the title is, I think the paper's even better. And one of the things he talks about is, a lot of times we try to use demand, as if it were supply. We compensated for the energy or for the ancillary services. And this is where I think we're going with the Virtual Power Plant pilot. And that's a good thing that it can work as supply, but he's making the point in this paper that we also need to let demand be demand. Almost every other market has two sides of it. There's supply and demand and people can decide, hey, the price for that is too high. I'm not willing to pay it. And so it's not just about putting into the ERCOT market, though I do think that is very important to be clear, but there's other value streams and other ways that demand can respond.
So a couple of things that he recommended in there, one is there, you could have time varying T&D rates, transmission/distribution rates, right? That would be one way to send an additional signal to demand. Another one is, and you were referring to the municipals like Austin Energy and CPS Energy and co -ops, they to ERCOT look like one meter. So they have the 4CP, the Four Coincident Pricing on the transmission side. So what that means in effect, for those that are listening, I do try to make this, I think most people listening to this are kind of into energy policy, but I do want this to be accessible to the general public. So just really quickly, Four Coincident Peak is a large customer, a manufacturer or a big box store or something, or a municipal utility. Their transmission is gonna be set by how much they use during these four, 15 minute increments, June, July, August, September that coincide with the system peak.
What Travis recommends in this paper is why not give that to all the load serving entities? He understands and he talks about this in the paper that like, you know, it doesn't make sense to expose small customers to those kinds of swings, but a load serving entity is already responsible with managing the use, right? To make sure that they're shielded, they're hedged against high prices, right? So how do we also then have that transmission signal and that value? So what do you think of those ideas and do you have others that not necessarily saying this is the way we're gonna go, but things that could be considered at this point?
Pablo Vegas
Yeah, I think the T&D time-of-use type of rates based on the actual economic cost of the supply at that time, I think is really smart. I think especially today with such granular variability in the supply base, there are very significant swings. From a given day, you can have wholesale pricing go from $0 to $5,000 literally in the same day based on what's happening and who's supplying the power. And so I think it's very smart to think about that. And I think like what we talked about, there's now a lot more software and smart appliances that could easily leverage that information so that it wouldn't be a large burden on a consumer to take advantage of that. That they could essentially, their house could help manage that for them. And that's something that I think is really not that far -fetched of a concept even today.
So I like that. With the concept of 4CP, so I actually have been thinking a lot about how, is 4CP the right measure today given where the stresses on the grid are? And is it the coincident peak that really is the appropriate measure of how we wanna try to manage that? Or is it really the coincident net peak that we're really trying to think about at this point in time because of the change in nature of the resources providing power. And are the four months of the summer the only times that we're really going to be experiencing the stress and the need to invest?
I think we're getting to a place where our peaking is going to start to, our winters and our summers are going to challenge each other for the most challenging times of the grid. So maybe we need seven or eight periods throughout the year to better reflect the changing nature of how the grid needs to be invested in and the overall supply chain around it. And we could start thinking about ways that match the true economic impact of utilization to the circumstances that it's realizing. So I think that's maybe some things we should start to think about.
And I think you could, sorry, I meant to say, and yes, beyond industrial, beyond large consumers, there's, I think, the load serving entity concept. I think it's an interesting one because they are sophisticated participants in the grid and are already having to manage a portfolio of how to best serve their end-use consumers. So, no reason for them not to potentially be a part of that.
Doug Lewin
I mean, if they're not doing it already, they're probably not going to be in business very long anyway, right? So I mean, I think most of them, yeah, most of them are doing that anyway. And I literally had on my list of questions to ask you about 4CP versus 4NCP. So you anticipated that question. We're thinking alike there. I did not have on my list to ask about like going to an eight. So, and again, for listeners that may not be as in the weeds on this, and you correct me if I get this wrong, but what I understand, Pablo, what would mean by that is that you would go to a four net coincident peak. So that's load minus wind and solar, although there could be different definitions. You could say minus wind and solar minus thermal outages or something. Beause even if you add those in,it's a little harder for entities to predict that you can see wind and solar a little better than you can anticipate a thermal outage. So there's a definitional question there that would be important.
But the way it works right now with 4CP, you could have, and I don't know that this is happening. I don't know if you've seen evidence that this is happening, but you could have a situation where you're getting a lot of load reduced at 4:45/5 PM, which looks like the coincident peak. And then it comes back at 6:30 or 7:00 or 7:30, which is really the tighter timeframe. That was the time we were in emergency conditions on September 6th, for instance. Yeah.
Pablo Vegas
Yeah, you're right. And we actually have seen that happen because if a customer is not a price responsive customer, think of an industrial customer that is not price responsive, they have no incentive to curtail during that net peak when the grid is the tightest, when the load minus the wind and solar is at its highest point. But they have every economic incentive to curtail at the gross peak, which is at four or five in the afternoon when we have potentially plenty of solar and plenty of capacity. And so the grid isn't really at its tightest point.
So the way the economic incentives are set up today, it may be misaligned with what we're trying to accomplish in terms of where investment will be needed in order to manage reliability. Because right now, the investment is already coming in the way that deals with the gross peak in the summer. We're getting strong, strong renewable development in solar facilities. We're seeing really strong partnerships with batteries in both standalone and with solar facilities that are coming online. And I believe that those are going to be very influential in helping the traditional peak periods in the summer. And eventually with enough batteries, also the net peaks, I think. But for now, it's the gross peak period is becoming less worrisome in many ways than the net peak is.
And then the winter, the gross peak and the net peak are almost the same because when we hit our highest demand in the winter, it's typically when we don't have solar and it's coldest in the early, early morning before we do have those additional renewable resources. And so the true peak then is still the true peak in the winter. And so it's a little bit different for that.
And that's where I think the idea of expanding the 4CP into the winter period is because we're stressing the grid and the investments necessary to support reliability during those periods should be aligned with where those economic incentives are. And right now we don't measure that. It's only in the summer.
Doug Lewin
It’s only June, July, August, September. Yeah. So, and just to anticipate what I'll, I'm sure I'll get some comments to this podcast, people saying, you know, it's, just to be clear, I mean, this summer was the last one where, and I know you haven't been at ERCOT for that long, but you obviously study this stuff and talk to people and you've been in the industry, so you know this anyway. That as recently as 2019 when we had a really hot summer and things were tight, everybody was worried about four or five. So it's not a bad thing that we have the solar. It's just, it's a different challenge. It has moved the hours. But luckily, the demand is lower at seven or seven to eight. It's just still very high in a growing state with all this industrial load and all that.
So I just want to be clear. It's not like and this is and this is part of this, but part of what I want to talk about as well. Right. I mean, I think the communication around all this, there's just been so much over the last few years from people on all different sides of this stuff about this thing's to blame, that thing's to blame. It's a system. We've all, we just got to make it work together. And this isn't like solar's causing problems. No, like the sun goes down. That just happens every night.
Pablo Vegas
You're absolutely right. And it's become a highly politicized topic on, through so many different lenses. And it doesn't need to be. I mean, there's a role and a need for the politics of it because of the policy side. So I don't want to, you know, I don't want to minimize the importance of that.
But from a physical operation and to really say, look, we want to… The name of almost any business game is optimization. Optimize your resources to the benefit of consumers. If you have shareholders for shareholders, you're trying to optimize. And it's no different than the grid operation game. We want to optimize the resources that we have. What we don't have, like in Texas, we don't have a lot of control over what supply resources show up. So it's a truly open market. The economics of the market determine what supply resources show up.
On the demand side, same thing. We don't get to pick the type of load that comes to Texas. It's really the environment and the economy in Texas that dictates who comes here and then does what. And right now, that's a lot of people coming. The economy is doing great. The policies in the state are very conducive to growth across almost every facet.
So, what we're seeing is, that the market side, and this is what I've been trying to be clear on, I can point out a reality without it being a political statement. At least I intend to. That may be a very naive perspective to have, but that is my intention. To say that subsidies for certain resources help them economically, and because of that, their investment in those resources reflect whatever the economic circumstances they have. So if you have a benefit that one resource has and another one doesn't, well, you may see more of the one that gets the benefit. That's not a political statement. That's just a fact.
And so I'm not saying whether that's right or wrong. I don't really have an opinion on that because that's not a policy issue that I can really do anything with. All I can do is explain why it's happening. So to say that because we're seeing more development of solar, more development of batteries, more development of wind than we are of traditional thermal generation. That some would say that that is a reflection of a failure in planning or policy. It's really just the result of an economic construct is all it is. And that's why it happens the way it happens in Texas. And so then, well, what's the implication of that? Well, the implication of that is we need to think about how to manage all the variables of the different resources that are showing up. And that's our challenge is to help to explain how to best manage and optimize that. And that's where I've been trying to be very consistent to say, look, we benefit tremendously from the renewables, the solar and the wind. We are benefiting hugely from the batteries. They are bringing something to the table that is so different and unique than any other resource. It's probably one of the most complex and innovative things that has happened to the electric grid since the invention of the electric grid. And then, you know, and so we leverage and value those resources, but they don't bring certain facets, certain characteristics. In the case of batteries, today they don't bring a lot of duration. In the case of renewables, they don't bring consistency. And so what we have to do is offset that then. We have to offset the duration. We have to offset the consistency. And there are other resources that do do that. And so that's been the story in terms of the supply side discussion, the same, everything brings its own set of characteristics. We're getting a little out of balance on some of them. And because of that, it's getting harder to manage the grid in certain circumstances. So that's why we advocate for bringing more balance back so that we have more resources on the supply side to manage some of those circumstances.
And I know you're thinking this, so I'm going to say it. And we get lost in these supply discussions, right? It's kind of so we get, it becomes the whole conversation and we forget that, hey, there's also energy efficiency and smart demand response and flexible demand considerations. There absolutely is. We got to keep that in the conversation. And then there's transmission. You can do amazing things with transmission to alleviate some of the issues around kind of where generation shows up and where load shows up. So we have to keep all of those three legs of the stool always in the conversation and not get lost in any one of them.
Doug Lewin
Let's talk a little bit more about transmission. I mean, there's a lot on the transmission side, right? We've had over the last two years, I think somewhere on the order of $5 to $6 billion worth of transmission congestion. There is more transmission being built at the South Texas project, more in the Permian. So I guess, let me ask a couple of questions here. One, how big a problem is that and what is being done to deal with it? And then I do also want to ask you about, I mean, September 6th was a really, so there's this sort of two-part question. You got the general, like, you know, do we need more transmission? How are we going to get it? Can we build it fast enough? Then there's a specific question around September 6th, right? So on September 6th, there was a manual curtailment, right, of a line that came from South Texas and up into sort of the populations, the main population centers
Pablo Vegas
The San Antonio area, yep.
Doug Lewin
Right, okay. And on that one, it's a double line, right? You got a tower, you got two lines strung, but you're operating it as a single contingency, as if there's not two lines. And I heard Dan Woodfin say to the ERCOT Board when he was asked, should you have been doing that? He said, there's risks on both sides. And I want to explore that a little bit, because if you don't operate it that way, there's a risk there potentially overloading the line but if you do operate it that way, you're not getting as much. And on that particular day, which is the only day we've had emergency conditions since Uri, there was additional generation behind that wind, yes. But I think there might've been some thermal plants or batteries behind there too.
So I think my question here is heading into the next summer where there's at least a decent chance we'll see another day like September 6th. Are you looking at that and how you might operate it differently? Are there any? And I don't ask this, Pablo, I hope… we don't know each other super well, but I hope you know me well enough. I don't mean it as any kind of a gotcha question. This stuff is super, super important. And I feel like particularly September 6th isn't talked about enough because frequency dropped… we got down to like 59.77. So I'm not saying ERCOT's to blame. ERCOT did things wrong. I'm saying, that was a really interesting event. We really ought to make sure we're learning from it. And it just seems to me like everybody just kind of moved on like it didn't happen. And hopefully internally there's a lot, but I'm wondering if there's a different operating posture as you're heading into the next summer.
Pablo Vegas
Yeah, so let's talk about it in the sequence. And so I'll start with your first question, because I think it's a relatively simple answer. So we need a lot more transmission, and we have to come up with, I'd say, a different way to plan, because the speed at which both load and supply can come onto the grid has fundamentally changed the name of the game. We're seeing data centers that can be built that are 500, 700 megawatt data centers in a year. That's unheard of in terms of grid planning time scales. And historically, you've always been able to have years to contemplate a massive manufacturing facility coming online and the potential supply then being able to be built to support that and then the transmission to support it. Today, it's a whole different paradigm.
So we need to be able to plan and invest in transmission based on reasonable and prudent forecasts of where load is going to grow. And it doesn't take a rocket scientist to see that we've got very rapidly growing load centers in Texas that are continuing to grow. And we need to just, we need to get in front of that. We need to get in front of that with more transmission. So the answer is yes. But we do have to adjust our planning cycle in order to reflect the different pace at which supply and demand is coming onto the grid. Does that make sense? So I think, and it's a key part of the answer, a key part of the answer.
The line between San Antonio and South Texas. So, that line was pretty overloaded on that day that it operated on September 6th. And you're absolutely correct. There was generation that was available in the South Texas area that, because we had reached an overloading status, that it forced us to curtail some of that generation, which then got us to a place where the frequency ended up dropping. We had to jump to EEA2 immediately to leverage some of the load side ancillary services we have available, the rapid response load service, in order to alleviate some of that pressure on the system. And the control room, just to be perfectly blunt, did an amazing job anticipating and recognizing what was going to happen because of this transmission constraint that started to become an issue.
So then the debate as to whether or not it should have been operated double or single, you know, it's a, I think we can debate that all day long. I think in the end, the control room did what they felt was the best thing to do given all of the circumstances available to them and the other tools they knew they had in the toolbox, like demand response, rapid response, available to be able to deal if they got to a place where they saw us getting into a frequency and a scarcity issue. And that's what they did. They felt that it would have been better to use those resources than potentially compromise losing a line, that if we lost that line, it could have had catastrophic effects and a separation of the grid if something had gone really wrong with the loss of that line.
Going forward, you know, we just published a market notice that talks about that line becoming a new GTC in the system. And effectively, we're going to have to operate it as an IROL, which is an Interregional Operating Limit, has an operating limit on it. And the reason is because it's such a critical line that carries load across the system. And if one of those lines fails, then what the risk is and what the team was dealing with back in September, and has been working through to today is if that line fails, it could cause a cascading effect of outages.
Doug Lewin
Thus the risks on both sides, as Dan put it. So there's both. You could curtail it and cause a problem, but if you don't curtail it, it could cause a problem as well. So…
Pablo Vegas
A bigger problem.
Doug Lewin
A bigger problem. So can you also, you said GTC, that's a generic transmission constraint. Can you describe if it's possible in plain language what that is?
Pablo Vegas
It's basically when there's a stability risk if you on one side of a on one side or another of a transmission connection that's based on the … essentially the flow of electricity and the and the potential imbalance that gets created because of either having too much, an example could be there's a ton of Wind coming out of the West. There's not enough demand in the West to consume all of that and so it's trying to push its way through the transmission system to where the demand is. And you get to places where you have, you reach limits on what the transmission system can do in a stable way and maintain a stable grid. And so that's called a… and so you have to limit the flow that can go in order to not create a stability risk on the transmission system. That's the simplest way I can think of describing it.
Doug Lewin
Are there, you know, there's a lot more talk these days of grid enhancing technologies, right? There's a whole bucket of these. Can those solve some of these problems? And also storage sometimes gets talked about as a solution to some of the transmission problems, because you might put storage there, soak up some of that extra generation when it's there, and then deploy it on the other side. Are those solutions to that, or is it really just we need more transmission or all of those things. What are the solutions to those problems?
Pablo Vegas
Yeah, I think it's a little bit of all of those things, Doug. I think, you know, certainly some of the smart, smart bulk electric system grid components that are being developed can certainly help with optimizing. What they really help to do in a lot of cases is help to optimize the flow of power in real time. So rather than, you know, having to kind of manage that at a grid level, it actually gets managed at a component level. And so that can certainly be part of the solution.
But it gets back to what I was saying earlier when we started this conversation. We're getting to a place where we're reaching scarcity points on a regular basis. And, you know, in multiple seasons, we're getting it, you know, in the summer, we're seeing it in the winter, where when you get to scarcity points, potential weaknesses in the grid will get exposed. And that's what we're starting to see, that there are potentially weakness areas that when you're at a very tight, tight, level of operation that those weaknesses end up getting exposed and you have to then manage and deal with that and mitigate those risks. And so I think we're going to see more of this happen over time. And what the solution is, getting in front of it with, you know, transmission planning, getting transmission developed, anticipating where load is going to go.
And frankly, I think we should start talking about, you know, a broader kind of system planning. What I mean by that is, you know, we don't really plan where generation goes in the grid. We don't really plan where load goes in the grid. And there's only so much control you can have on both sides of that. But what if we could have a little bit more influence on where we like if we economically incentivized supply to go into certain areas of the grid differently than in other areas because of the benefit that it offered the grid, because it alleviated congestion, because it optimized the transmission system that was already there better. If there were ways we could use economics to help guide the planning and the build out of the grid, we might get to better outcomes than at least more efficient outcomes than what we have today. And so I think we need to start thinking about our planning a little bit differently because of the fact that we're kind of reaching a lot of the limits of what the grid can support without a lot more investment. And so we need to be as prudent as we can with every dollar that goes into it.
Doug Lewin
Yeah, and it does kind of bring us back to where we started because when we were talking about that five to ten year vision at the beginning and you talked about a lot more interactive grid and distributed resources, those distributed resources can help a lot with these problems, right? Because on the other side of that line, you had a lot of load up in Dallas-Fort Worth. On other lines, you have a lot of problems with Houston needing 60% of its power imported at peak. So having those generating resources and batteries and all of that that are within and demand response, the demand flexibility and all of that within there, can actually help balance that out. So we did just kind of come full circle there, didn't we?
Pablo Vegas
And I really believe, and I want to state, I mean, when I talk about the fact that, you know, we're reaching these scarcity events more frequently, I don't want to alarm anybody. I'm not trying to be an alarmist. I'm not trying to say that, you know, we're at a precipitous, you know, point here where we're on the edge. But what I think what everybody can see, is where we are reaching peaks, new peaks on a regular basis. And it's not just because of weather. Weather is certainly part of it, but the economy is growing and when the economy grows, you have to invest in the infrastructure to support that. And that's, it's not just electric, it's everything, right? We have to be building roads and schools and hospitals and everything else, housing stock. And so this is not a unique circumstance. It's just we've just been so successful in Texas these last 10 years and growing the economy. We need to continue that trajectory on the infrastructure side. And that's what I'm talking about. And we are. And policymakers recognize that, regulators recognize that. We're starting to see the market respond to some of the things that have changed recently. So I think we're going to be able to work our way through this. It's just a pressing need and we have to be urgent and purposeful around it.
Doug Lewin
So you talked a lot about planning. There's planning for sure. You got to look out and you got to have the right signals there to get transmission because it takes six or seven years to build it. But then you've also got markets and market signals. And we've talked about that some with time varying pricing and distribution. But let's also talk about the wholesale market, right? Because there are changes. There was just a filing from ERCOT just the other day on the performance credit mechanism.
So I don't want to have just a general conversation about the PCM. I'm wondering if you think it's changing and in what ways it's changing. And I'm also curious, because people smarter than me keep telling me that what happened during the legislature with a $1 billion cap and with renewables not able to earn, with $1 billion cap and renewables not able to earn performance credits, there's a little bit of a logjam there because if you exclude renewables, the price is probably going to be high without any additional reliability benefit. Is that a circle that can be squared? Is it going to take more legislative changes? We just don't know yet? I mean, what's going on with the PCM?
Pablo Vegas
Yeah, so basically, I believe the PCM is still a very relevant and important part of the conversation because it gets back to the very simple equation that we talked about a little bit earlier, which is how do you bring balance into the supply growth at ERCOT? So we're really just talking supply here really largely. Although you can, I mean, certainly demand response could potentially be part of this as well. So let's not ignore that.
But let's just, for simplicity, this is a supply conversation about something that can on and off switch and be responsive. So I think there's a rationale for renewables not participating in the PCM because the purpose of the PCM was to efficiently, at the lowest cost possible, funnel revenue into creating a little bit more balance on the supply side. If the revenues go towards renewables, which we've already all agreed, they've got an advantage today. They've got an advantage in that they already get subsidies in order to perform and to be economically viable. So I don't think that the intent was to give them more help. The intent was to help bring some of the balance in to fill out that supply portfolio appropriately. And that's not being anti-solar or anti-wind. It's just saying, hey, wind and solar, have got a lot of wind at their back, we need to get a little wind at the back of some of the duration thermal dispatchable generators in order to bring balance. And that's what the PCM construct was intended to do.
So with the billion dollar cap, does it fundamentally change the value of it? It definitely changes the value of it. And I think we're going to have to assess whether it changes it to a degree that it can't support reliability that we need or if it's still an important part of the conversation. And that's still to be determined ahead of us. So right now, what we've filed is essentially here are the key design decisions that have to be determined around PCM. And then once we kind of get a strawman design in place, which we believe we should be able to do by the middle of this year, then we got to do an evaluation of does that design deliver reliability benefits at a value that makes sense.
That's going to be the question to be answered. That's what the legislation requires us to answer. And if the answer is, you know, it really doesn't, then it may not be the mechanism, the right mechanism to continue to pursue. If it does, then it's hopefully one more piece of the puzzle that we introduce into the market that helps to fill out the, you know, the broad reliability story that we're trying to, that we're trying to write.
Doug Lewin
So I mean the fundamental thing here is really how do you get the price signals to those periods of scarcity? And I just wonder if those price signals aren't coming through pretty strong in the energy only market right now. It's a price signal that excludes certain kinds of resources, particularly on the demand side. So you could argue that the PCM actually would do more for the demand side. But it sure does seem like with the Operating Reserve Demand Curve, which again, for our like non in the weeds folks, basically a price adder at times of scarcity, there's a lot of money flowing into generation. I know we're in this sort of a ‘how do you get the longer term signals’? And I wonder there, if like, ‘26, ‘27, though the state is going to put a lot of subsidy towards, right, five billion dollars in taxpayer money is going towards the plants there, too. So that has to somehow you got to put that on the scale and weigh it, too. Right?
Pablo Vegas
You do, you absolutely, that's an absolutely fair point. And you're right. And it's the energy only market is creating, you know, true strong price signals on a more frequent basis, just as we've been talking about, you know, we've had more periods of scarcity, which correlates with periods of high pricing. So… but what is lacking though is predictability to it. And that's been the challenge I think so far.
But I want to point out that we're seeing data in the last year or two that is starting to show that, kind of that feast or famine construct is getting a little more stark, where there are more periods of time, like during the day, middle of the day, where we have zero or negative pricing in the wholesale power market than we've ever seen before. And the reason being is what you would expect. We're seeing more zero variable cost solar, you know, showing up on the grid. And we saw periods, we've seen that in the evenings, historically, because of wind, a lot of wind blowing at night, not a lot of demand. So you have very low or negative pricing. But we're starting to see that during daylight hours and we're seeing the preponderance of them growing rapidly. So it exacerbates this feast or famine phenomenon. And we have to think about, I mean, this market is complex, Doug.
Doug Lewin
It is, it is, it is.
Pablo Vegas
It really is. And so we have to think about, how do we have the right signals that incentivize the right outcomes without being too heavy handed on the, on leaning on any one aspect of the scale. It's not an easy thing to do. It's not for the weak of heart.
Doug Lewin
Yeah, for sure, for sure. I know we're almost out of time, but I'll just... On this point, and then I just want to ask one more thing before we end here, if it's all right.
Pablo Vegas
Yeah, and if I could ask you too, I'd love to get the opportunity to maybe clarify a point of view on,
Doug Lewin
Sure.
Pablo Vegas
I don't know if you heard some conversation that I had at the Board meeting this week around connecting the ERCOT grid to other grids and how that was heard versus maybe what was intended, but I'd love to spend just a minute on that if you've got a minute.
Doug Lewin
Let's absolutely do that. Let me go just to close the loop on this other point. So you guys on the first of the month, you put out your generator interconnection status. It's fresh out just an hour or two ago. And I looked at it, you've got 16,000 megawatts of natural gas in the queue at this point. Of course, not all that's gonna get built, but some of it will. And out of that 16,000 megawatts, somewhere around 13, 14,000, over 85%, are basically peaker plants. There's only two or three thousand of combined-cycle. I don't know though, given that whole conversation we just had about an interactive grid and these times of scarcity, but even as many times of scarcity as there are out of 8,760 or in the leap year, 8,784 hours in a year, you've only got a few hundred. Even in a year with like a Uri, right, there's only a few hundred where you're really at scarcity.
So I wonder, though, like, again, if the market isn't sending the signal to the kinds of resources we need, there's in addition to the 13 gigawatts of peaker thermal plants, there's what, 130, I think, gigawatts of storage in the queue. But those, you know, those peakers and the batteries, I mean, there are whole businesses that are built around a few hours out of the year, right? The NFL doesn't try to play a game every single day of the year. And as far as I know, the NFL is very, very, very profitable, right? I mean, like you can build a business around just running on a certain number of days out of the year. So if these thermals or the dispatchable storage can make a mint on a few days a year, maybe that's really what the system needs.
Pablo Vegas
No, I think you're absolutely right, Doug. And the name of the game right now is flexibility. And that's what batteries are. They're flexible. That's what peakers are. They're flexible. The grid is valuing flexibility right now. And that's something that I think also aligns with kind of our long-term discussion about wanting to be able to flex into whichever resource gives you the best value for what's needed at the point in time, and whether that's a car charger disconnecting or if it's a, you know, aero-derivative peaker, you know firing up. It's those kinds of real-time decisions that are going to become the grid of the future. So having very flexible assets is what's going to be the name of the game.
But there's also a more fundamental issue I think at the core here too, which is as we talk about the whole gas/electric coordination challenges, which we could do another whole podcast just on that topic. But we're headed towards a future where we are seeing less, there's a desire to have less carbon dioxide emitted through the process of generating electricity. We want to have cleaner energy. And so there's a future where there's going to be fewer and fewer periods of time where gas molecules are going to be wanted in order to create electricity. But at the peak, we're going to need more of it than we've ever had before. Right during those peaks, we need not only what's available today, but we actually probably need to invest in that infrastructure in order to meet some of those peaks potentially down the road. So how do you invest in 30, 40 year assets that are critical for peaks when you expect to use them much less frequently? And it gets back to your core question like the NFL. And so the challenge goes all the way to the wellhead and flows all the way to the gas, to the gas peaker, or to the combined-cycle. You know, those decisions and investment questions are needing to be answered up-and-down the supply chain. And it's a really complicated issue that we're going to have to work through because as we go through this energy transition, that's going to be, I think one of the bumpiest parts of it is how do we make sure that we maintain that reliability and think about the role of the gas system throughout that.
Doug Lewin
I definitely am going to invite you back because there's at least I've got a, I got a list here of like 10 things we didn't get to, but I'm going to ask you one more if it's okay. And then we'll talk about the interconnection question.
I do just want to ask you about, um, firming. This is something that gets talked about a lot. When you were in front of the legislature last spring you said that if we had some kind of a firming requirement we could “lose energy resources in the short-term… Resources that cannot be economic under the new cost burden put in place by firming would pull out of the market.” We could have “an energy deficit.” And you also said “eventually consumers will pay for that, generators will pass it down to customers.”
It doesn't seem to me, I talked to a lot of different people involved in the market, you talk to more than I do. I haven't found anybody who's like in the market that's like, hey, this is the thing we need. Could you just talk a little bit about what firming would do and why that would potentially pull some resources out of the market and raise costs for consumers?
Pablo Vegas
Yes, I mean, it's, if you could almost… in the most absurd example I'll use, which is not what is being proposed anywhere, but I'll use it just to illustrate the point. You could say a solar facility isn't producing its rated power at night. So it needs to resolve that issue and have to deliver. So if let's say the, I'll give you an example, with every different resource type, there is what's called an Expected Load Carrying Capability, an ELCC or capacity. And so that is determined based on the type of a resource it is. So for a wind farm, it's based on the average wind in the area where it's developed. And for a solar facility, it's based on the average intensity of solar in that area. So then that ELCC is often being used as kind of the benchmark or the ruler to say, OK, if you are building a resource, a building a facility, whether it's gas, solar, wind, anything. That ruler says you should deliver on average this much megawatts based on your type of resource you are. And if you don't, you're going to have to make up the difference yourself. And that will be a cost that you'll have to incur either by building a backup capability, getting into a contract with somebody that will fill it in for you, having some kind of a met way to do that and incur a cost to do that and putting that burden on the supplier, the supplier resource.
I think it's an inefficient way to solve what they're trying to solve, which is an intermittency problem. So what we have is an intermittency problem. The sun sets at night, the wind doesn't blow all the time. Rather than trying to put that on the resource, value the resources that can fill in those gaps in such a way that they come into the market and deliver that service. And that also then opens the door for demand to participate in that. Because demand might say, hey, I might use less during a period of time if because of my flexibility, I am offsetting the intermittency of the supply side. And so now you can have a lot different costs of different participants coming in. And you can say, let's take the lowest cost option on how to deal with this intermittency versus assuming we just want to fill in to get the power up to that ruler level at this one source, at this one location.
And so that's where I think it's just an inefficient way to do it. There's more cost-effective ways to do it. And so the reason why it might push somebody out, because if you have a, let's say you've got an older facility that doesn't have the ability to deliver at their ELCC at every hour of the day, and they have to take on a cost to do so and don't have market options for recovering that cost, they might choose to say, well, I'm going to have to retire because I become unprofitable with this new cost burden. And so I think it's smarter to say, let's incentivize new resources to come to the table, fill in those intermittency gaps, and solve the problem that we're trying to solve.
Doug Lewin
Yeah, and really ancillary services kind of work that way on a system wide basis, right? And you also have, I mean, there's, you get into some absurd results. At the ERCOT Market Summit some folks were talking about, I think it was, it might've been Caitlin Smith of Jupiter was talking about, and I think Bob Helton was talking about this too, of Engie, that you end up with like 500 mini-ERCOTs. Like every generator has to be their own ERCOT procuring their own reserves. And so you get this massive economic efficiency, which would add billions and billions and billions of dollars of cost to a system, which I can't imagine is anybody's actual goal.
Pablo Vegas
Yeah, I understand the intent and if the intent is let's deal with the characteristics of the resource mix we have, I think there's just more efficient ways to do it.
Doug Lewin
That makes a lot of sense. You've been very gracious and stayed longer than I originally asked you to, but let's address the point you wanted to address there, clarify whatever you'd like about interconnecting ERCOT to other grids or not interconnecting ERCOT to other grids. Yeah, what is your point of view on this?
Pablo Vegas
My point of view is that it needs to be studied through every decision point around it. And the problem is we generally, what I hear and what I read, is it's talked through in a very limited way. So the question is, should we interconnect ERCOT to other parts of the US grid? And you can do it for DC connections or even all the way to full alternating current real-time synchronous connections.
But however, whatever the strategy, what I typically only hear discussed is: it would solve all the reliability problems. If we had been interconnected during Uri, we would have been able to have a much better outcome. We wouldn't have gone into emergency conditions if we had connections to other parts of the grid. And my answer to that is, I don't dispute that there is likely reliability and resiliency benefits to having interconnections. But, there is a cost to do it. And so is that the best cost to get the reliability and resiliency you want? It's kind of like your firming question. Does firming solve the intermittency issue? Yeah, it does. But does it do it at a good cost? That's a good question. That's the right question. So does connecting the ERCOT grid to other parts of the system, does it improve reliability? It does in many cases. I'm sure it does. But it might do it at a cost that's unreasonable compared to other alternatives.
And so that's really the core point I wanted to bring up is to say, let's just evaluate it. Let's evaluate it. And it's not a simple one because you have to look at the market economic impacts. You have to look at what happens when prices are lower in ERCOT and higher in other regions and when the inverse is true. What happens when significant weather events are affecting Oklahoma and Louisiana in addition to Texas? And do we get the reliability value for this big investment? And if we don't, then what is it serving? You have to ask all these questions and you have to kind of go through a pretty intense analysis that frankly, we don't even have models developed to do it today. They don't exist. And I think we need to develop those. We need to ask those questions and answer them. And that was my point. I'm not against doing it and I'm not for doing it. I'm saying, let's see if it's the right answer to the problem that's trying to be solved. And if that problem is, improve reliability, improve resiliency, and perhaps optimize the economics of the ERCOT market, well then let's really explore that through all the different facets that are necessary. And that was what I said at the Board. I don't have any ideological perspective on it one way or the other. I just think that it hasn't been fully analyzed yet and we need to do that before we make any recommendations.
Doug Lewin
So there are some models that are running on this. When you said that, I got on Twitter and hit like Chris Klack and Michael Webber and some of these people and they're like, yeah, there's models, we're running them. So once I get that from them, I'll send it back to you. There are some models.
But I think the bigger point, I agree with you in the sense that like, this is not a small decision. There needs to be a lot of modeling and analysis and there needs to be a full understanding of what the economic consequences are, what the regulatory consequences are as well. One of the things I try to say to people too is like, there's probably a middle way here. If you look at their status quo, there's full asynchronous connection of both grids. In between, we do have a proposal on the table from Southern Spirit that's been in process for 15 years with a jurisdictional waiver already from FERC to get three gigawatts from West Texas over to like Mississippi, Alabama, exporting, but then importing into reliability. And then you've got the Grid United proposal too, which is another gigawatt and a half. So there's ways to get more interconnection that aren't full. Can I ask you one more question about this? I know I've now said that like four times. But in your view, what are the biggest downsides of FERC jurisdiction over Texas?
Pablo Vegas
I think probably one of the most significant is the agility that we have in being responsive to market changes and market needs. So we are able to make adjustments to the wholesale power market. And we are also able to site transmission and approve transmission at a speed that's, I mean, it's vastly faster than what other grids experience in the US. To me, that's one of the most significant benefits that we have. And I would hate to lose that. And I think that would become, that could be at risk if we had full FERC jurisdiction over the Texas market.
Doug Lewin
Yeah. And I think there's a real potential to have more interconnections. This is hopefully a place where, dare to dream, some political compromise and people working together we can figure out how to get more interconnections while keeping that independence. I think all of that is possible.
Like I said, I literally have 10 more just written down, not including all the questions that came in my head while we were talking. So I hope you'll come back in the future, but Pablo, I really appreciate you taking time to be on the Energy Capital Podcast. Thank you.
Pablo Vegas
Thank you, Doug. I really enjoyed the conversation and I look forward to continuing to work with you and the other deeply invested stakeholders in this market to help chart that path forward and get to that optimal cost-effective, reliable grid that's going to serve all the needs that Texas has. So thanks for the opportunity to talk about this.
Doug Lewin
Thank you, Pablo, appreciate it.
"The Name of the Game is Flexibility," a Conversation with ERCOT's Pablo Vegas