Teri Viswanath: A Washington Post headline tells us: There’s a reason electricity prices have been rising. And it’s not data centers. Admittedly, large load growth customers such as data centers might make the problem worse in the short-term but can aid in solving the problem for the rest of us by allowing utilities to spread their fixed costs over a higher sales volume and increase utility revenue that can be re-invested into the system. But there’s definitely a “balancing act” required.
Tamra Reynolds: For this special podcast episode, Teri and I had the opportunity to record at this year’s GridLiance Symposium, where we looked at what it takes to attract and serve large loads without cost-shifting to other members. We invite you to listen to that discussion.
Viswanath: Hello, I’m Teri Viswanath. I’m the co-host of Power Plays, and today we’re going to be talking a little bit about the energy balancing act. Joining me is my co-host, Tamra Reynolds. She’s a managing director at CoBank.
Reynolds: Hey, Teri.
I think it’s important to note that data centers and C&I customers, generally speaking, really bring a lot of benefits to the communities, but that comes at a cost sometimes, too, that has to be balanced and weighed.
On this panel today, we’ve got the CEO and president from Umatilla Electric, Robert Echenrode. We’ve got John Hewa, president and CEO of Rappahannock Electric. We’ve got Duane Highley, CEO of Tri-State Generation and Transmission, that covers four states, not three?
Duane Highley: Yes.
Reynolds: Last, we have Petter Skantze from the GridLiance and NextEra team. To start it off, Petter, Teri mentioned running short on power, really, predates this conversation around data centers, right? We came across a nice chart that highlights what we’ve seen from an annual utility-scale generation additions look for almost the last century, not quite a hundred years.
Maybe you could unpack this and tell us, what’s going on, and where are we right now when you think about generation capacity additions?
Petter Skantze: You look at the ‘60s and the ‘70s. We were adding coal plants. We were adding nuclear. We were adding gas plants, all to actually satisfy that growth. And then we get into two very different cycles following that.
So the next one coming in the late ‘90s and early 2000s, that giant spike right in gas plants, that was not a period of large load growth. Load growth in the U.S. was somewhere between maybe 1% and 2%. So what was happening? Well, we had deregulation happening, and we had the technology and combined-cycle plant that was very efficient. We had really low gas, natural gas, prices in the country, and this was a replacement cycle. We were building gas, and it was going to displace a lot of the coal-fired generation and other expensive generation.
With deregulation, we had a lot of enthusiasm in putting capital to place around it, and we had a massive addition of capacity.
Of course, then the spike in natural gas prices actually quickly tapered that off. It was a giant boom. There were some challenges around it, and then we moved gradually into the next cycle, and that cycle was another replacement cycle. Now we’re getting into the renewable replacement cycle.
At first, it was driven by a lot of mandates and requirements, but increasingly, the renewables started to become the cheapest form of energy on the system. Again, if you look from 2000 or 2010 to today, that load growth was sub 1% as a country. This was not new energy. It was cheaper, cleaner electrons that were displacing costlier electrons on the system, so a massive amount of megawatts being added to the system, but again, a replacement cycle.
Maybe starting about two years ago, we started really hearing these rumblings all across the country, across all utilities, saying, “Wow, there’s a massive amount of new loads coming into our queues.”
Everywhere, we saw doubling, tripling, quadrupling, off the projected growth rates, and the type of load was really different. We started talking about loads in terms of gigawatts, kind of medium to large cities being dropped in a single location on the grid. Very quickly, the industry started coalescing and responding to them, saying, “What do we need to serve this?”
We’re going to need capacity and energy in that location. We need to go and add, in addition to this, a significant amount of gas-fired generation to just electrically be able to solve it.
Well, there were three really interesting challenges with that at this point in time, right? The first one was, we were at a time when, already from the growth we had, our interconnection queues were jammed.
The second one was, it had been quite a while since we developed gas at that scale in the country.
They’re really going back to that 2000 spike, so the supply chain wasn’t built out. We didn’t have the turbine and still don’t have the turbine manufacturing capacity to go supply all this new load. Even more so, we didn’t have the people. We didn’t have the EPC capacity to go develop this. Those two things really challenged how quickly we can respond as an industry.
Then the third one was, we were already at that point in the midst of a really large inflationary cycle across all industries. Costs were going up. Well, now you add scarcity of supply of equipment and scarcity of labor. We’ve all observed new gas plant prices doubling or even tripling in a lot of areas, all from these pressures.
The new load is coming, and that needs to be served at a cost that’s significantly higher than the base that we had. How do we do that? How do we be responsive while at the same time looking out for existing customers, keeping the reliability up, keeping the bills low? That really is the energy-balancing act where we find ourselves today, where all of us and the folks on the stage are trying to address it.
Viswanath: Petter, that’s really helpful. Each of these CEOs is involved in really solving this problem, in aggregate, but with very different approaches. I think, Robert, I want to start with you. When we think about Umatilla’s story, it looks, on paper, 1 gigawatt in 10 years, right? As you and I have talked about, there’s a really interesting story. You came into Umatilla—remind me, which year?
Robert Echenrode: 2013.
Viswanath: 2013. Okay. It’s interesting. When you come into a work in progress, something that’s already down the line, it can be challenging. Tell me, when you came in, what was happening? Walk us through this story.
Echenrode: It was an interesting story. I sit here on stage with a cooperative 10 times my size and a G&T. We had 60 employees at about 200 megawatts. We were a very small organization. We were open for business. We were trying to get loads and grow, like many utilities. We entered into a business arrangement with a server farm. They were just servers. They weren’t hyper-scalers.
We developed the first one in 2008. It closed during the recession. It was mothballed. Tumbleweeds were blowing through the structure. About 2011, it started back up again. They started to build. Well, keep in mind, in 2007 is when the iPhone was brought to market. In 2008, some of us still had a flip phone. All this technology, all this use of data, went from private data centers for banks and credit card industries out onto the cloud. This was a new business. We didn’t know anything about them. They didn’t know anything about us. We started to build.
Well, the first substations were built by the data center. We didn’t have the staff. We didn’t have the team. We let them build it, but then we integrated that substation and that growth into our mix. We were able to successfully partner with them, doing business how they want to do business.
We were able to find out what they truly needed and scale this over a period of time. We have well over 50 data centers today. We continue to grow. We expect to see growth that you will see from these others on the panel. We’re unregulated. We’re in a bilateral market. We have some PUC regulations for transmission. But otherwise, we have an unstructured way to be flexible and accommodating. It was very helpful to spur this growth opportunity. We, like many of you, are getting inundated with inquiries. You do have to vet them. But we have a good model of what works for us. It’s something that we can easily share with everyone else.
Viswanath: I also know, Robert, when we are talking about this, I think part of it is understanding is, you’re being brought in, “Get the job done.” But fundamentally, the community made this choice. It fundamentally changed the organization. Umatilla, as we know it today, is probably a very different organization than what you walked into.
Echenrode: Well, the community wanted it. The board of directors wanted it. The employees were sometimes drug along with the process because it was a cooperative that served the membership, but we were looking at things differently. The accounting department has grown exponentially. The engineering department has. There’s a few extra zeros at the end of the balance sheet. You have to look at things a little differently. But it’s been very positive for the community. It’s been very positive with the cooperative. We look forward to being able to deliver more for the community.
Reynolds: That’s a great story, Robert. John, let’s talk a little bit about Rappahannock’s story. Your team sat down with Teri a few weeks ago. She mentioned that, like Robert, you all have talked about a similar theme, where when the industry changes, the business needs also need to evolve, and maybe the business structure needs to evolve.
The slide we are showing up here talks a little bit about what that organizational change looks like. Maybe let’s talk about that some more, John. How has Rappahannock’s business evolved to meet this new era of large load growth?
John Hewa: It’s very clear that our business has changed, and the business of delivering energy in Virginia has changed. Velocity and scale are now at the centerpiece of how we’re managing risk and sizing up opportunity.
We’ve seen a 99% increase in our transmission cost over the last 10 years. If you go back to last May and you go forward to next June, we’ll have seen an 1,100% increase in the capacity price in Virginia. If you look at the first 6 months of last year and the first 6 months of this year, we’ve seen LMP energy go up by over 40%.
As Robert mentioned, each co-op in each region is different. Our business model is really tuned for we’re a fully regulated utility in a structured market, and I think that that’s paramount. There are some value takeaways of our model in non-structured markets, but it’s really tuned to this structured market environment.
What I want to make clear is that in Virginia, we have an obligation to serve. We believe that means providing the infrastructure and the electrons. So how we’ve structured our business really denotes the opportunities. It takes caution with respect to the risks. We put velocity and scale in there as relevant factors in our ERM model. Rappahannock is owning and installing the infrastructure, albeit at a very fast pace, just as we would for any other project, any other member across our grid.
What we’ve done, I think, that’s most dramatic is the way we worked with our G&T for Rappahannock to self-serve and have the obligation to fully self-serve its large loads, including data centers, and how we’ve taken those into an affiliate structure, Hyperscale Energy Services, which is a wholly owned, for-profit subsidiary of REC, that takes the energy supply, the actual electrons, and takes that to these large load customers, members, in a different way, a different strategy.
Hewa: We have a lot of growth in our traditional service territory already. All of that, including all of our residential build, is all being handled through our traditional approach with our G&T, and we’ve even extended that long-term relationship as far out as we can. Those assets, that balanced portfolio, it’s working. As the PJM market sees inflation, those assets are helping hold that inflation down for our traditional member owners.
Reynolds: I understand that you guys also had to create a new approach to rate design, which I think is really illustrative of finding a way to strike the right balance of meeting the needs of these new types of customers, right?
Hewa: First and foremost, around the infrastructure side, the more traditional co-op-owned infrastructure, we came in with a rate design that acknowledged the possibility of a bubble. It acknowledged the possibility that conditions will change out into the future, and it acknowledged that ongoing obligation and cost causation. What we basically said was we’re going to charge our large loads on the delivery side on the notion of installed capacity, not necessarily actual billing demands.
If you’ve asked for a 300-megawatt substation, we’re going to bill you at 300 MVA. And of course, that data center is going to prepay, and we’re going to securitize that project. Over the long haul, our proposal in front of our state commission was and continues to be that REC will bill a predictable, stable, installed capacity rate. I think, a fundamental difference in how you might envision serving these types of large loads. We want to make sure that the revenue and the obligations are persistent and consistent out into the future, and that actual consumption doesn’t change that outlook for the co-op infrastructure.
Viswanath: John, I’m going to paraphrase this. I’m not going to get you down correctly, I think. You sort of said, “Listen, I can’t control power supply costs, okay? I’m going to make sure I have a structure to manage that risk, but I certainly am going to work hard in controlling the costs I can.”
Hewa: Right. We cannot control all the elements or most of the elements of the PJM, 13-state, 68 million consumer wholesale market, but what we can control is how we look out for our members, how we isolate certain costs and opportunities, and how we use the best of a co-op model.
This is, again, fully approved and regulated by the State Corporation Commission in Virginia to set up for-profit affiliates underneath it to work with the opportunity to provide some risk management and bring some benefits back to our members as the larger forces at play in the market—capacity, transmission, and LMP energy—as those continue to climb rapidly.
Viswanath: That’s really helpful. I love this slide, which is, “Hey, incremental loads. Incremental loads are like goldfish.”
When you add that to a bathtub, well, you’re going to see them, but they’re small, and we can manage them. I was up in Alaska. You start adding in those salmon, the big salmon. They’re notable. Can be absorbed, but they’re notable, and now we get to a moment in time, the cycle that, Petter, you talked about. We’re at the whale-chasing moment, right? Duane, I want you in on this conversation.
You have a challenging prospect that you’ve got a bunch of players on the field, and you’ve got to build that now. You’re taking a coordinated response. One, tell me about the importance of that coordinated response with regard to your membership and having a game plan for the whale.
Highley: Yes. Thank you. First of all, I think it’s really fascinating you chose whale as the representative for the large loads. At Tri-State, we’re about a 2.5-gigawatt system, poorly named cooperative, serve across four states: Nebraska, Wyoming, Colorado, New Mexico. 40 utility members, FERC-regulated. Now we look at this landscape where we have 2.5 gigawatts of load and 4 gigawatts of data center requests. That’s the whale.
How do we meet that in a way that keeps it reliable and affordable without a cross-subsidy? Say one member gets the gigawatt, the others don’t. The other 39 don’t want to pay for the structure for the one. We are a vertically coordinated system. We’re not vertically integrated, right? The members own us. We’ve worked really hard with our stakeholders to make sure our mission is met. Our mission is reliable, affordable, responsible, and flexible.
By adding contract flexibility, first of all, members can self-supply under a board policy or under what we call Bring Your Own Resource, BYOR, a very creatively named option for our members. We have an outstanding FERC tariff that allows that to be implemented but really work together with our members in a way to make sure we can implement a tariff that will enable us to build load for these whales. I like that. I’m starting to like it a lot and yet not have the cross-subsidy and protect them from those, what could be very large increases, one to another.
Viswanath: I had an opportunity to catch up with Lisa Tiffin, an amazing member of your staff.
Highley: Absolutely.
Viswanath: This has been a big year for Tri-State. You guys started out, but we have a filed high-impact load tariff. Lisa came back to the importance reliability and affordability. Understanding why you are committing, back to what we know, which is “This is what we do.” Talk a little bit about that.
Highley: We want the world to know the co-ops are open for business. One of the challenges that recently arose was data centers that wanted to come in and got the attention of the Wyoming legislators, and actually proposed a bill that would eliminate the territorial protection for utilities and company utilities in Wyoming and allow data center developers to not only come in and serve their load, but also other loads in the neighborhood, because doesn’t that work for economies of scale?
The same exact reason it works for utilities, right? We knew we have to act. Our members want this, and our states want this for economic development. We have to have a path forward that works and is fair and repeatable. Hence, the high-impact load tariff. We can partner it up with our previously approved FERC tariff on Bring Your Own Resource. This looks like, if you add into that, SPPs proposed what we call MCCHILL, which is the Modified Combined High-Impact Load.
I’m not sure what the acronym stands for, but MCCHILL, it’s kind of a happy meal, right? You’ve got the MCCHILL, which is the milkshake, and then you’ve got the Bring Your Own Resource, which is, I guess, the burger, and the high-impact load tariff can be the fries. A data center developer can come in and get a happy meal and get interconnected very quickly with the MCCHILL process.
If they can get to the front of the line and buy their way to the front of the line on resources, which sometimes they can, then bring it on Bring Your Own Resource, and get started building right now. Get your interconnection. We’ve got a very fair way if you will maintain a minimum term and a minimum take for 15 years, we’re ready.
Viswanath: I’m hearing this, building for scale, scalability, so that we don’t repeat a new process each time we do this, right? We don’t have to relearn the process. You’re hearing that story of scalability.
Reynolds: Petter, I think it’s time to bring this conversation full circle. We’ve heard a couple of folks mention “open for business, ready to go.” Let’s talk a little bit about what that looks like as a developer. What are you and your team doing to enable this for cooperatives?
Skantze: Before we go there, I just wanted to acknowledge, it’s just amazing to see from Robert, John, and Duane, leaning into this problem. They’re not saying, “We can’t serve this.” We’re finding creative solutions on structure. It’s awesome to see the co-op community being at the forefront and innovating around this.
Look, we, as NextEra Energy, we’re the largest electric energy infrastructure provider in the country. We’ve deployed $100 billion over the last 10 years. We’re going to deploy it at an accelerated pace going forward.
We’re also a utility. We understand the obligation to serve, the obligation to protect our customers. The question for us is, how do we do this in a way that’s most helpful to the folks on the stage, to actually support the things that you’re looking to do? That means really, I think, interacting in a little bit of a different way than we have in the past. In the past, in that smooth growth with the goldfish trickling in, the utilities and the co-ops could plan, find a project they liked. They could run an RFP process. They could go out, and we and others would bid in, and we’d pick the cheapest project and go deploy it.
Now with this growth, it’s not only complicated; it needs multiple projects to serve it, and it’s also moving really fast. These queues are filling up, and the data centers are moving around. That process, maybe, doesn’t serve as well as it did. And we need to be a lot more nimble. We’re really looking for that much closer partnership process or structure with our customers. That starts at that planning level.
We want to be a force multiplier for our customers. At the planning level, what we bring in is these new tools. We have a tool we call NextEra 360 that helps us take out of a monthly planning cycle, but starting with a whole digital twin of the transmission system, being able to look at every type of resource, whether that is gas generation, whether it’s storage, whether it’s new transmission being built, co-solve for them in the territories, look at the existing assets you have. How can we run them differently? Can we alleviate congestion with storage to enable you to run an existing gas plant more efficiently? Every piece that can help us move and do it in a way that takes months down to minutes.
Then, of course, whatever plan you come up with, in the end, we need to execute. We need to sit across from that trillion-dollar hyperscaler company and say, “Great, you’re going to build a large data center. We’re going to put the electric infrastructure in place. We know all the uncertainties that are around. We know we have to deliver on time and on budget. And so letting our customers go in and leverage our large supply chain, our global supply chain, whether it’s turbines or it’s breakers or it’s transformers, to give some comfort into that so you can go and say, “Yes, we really are comfortable, even with tariffs coming through, even with other changes, that we can go deliver on time.”
The same thing on the labor and EPCs, folding projects into a really large programmatic approach, dozens of projects, tens of billions of dollars of capital, where those projects are now part of, for that EPC, what’s a really, really strategic large customer base, where they will focus on it, where you get priority into building it, and it’ll stay on time and on budget. Really, again, that notion of us helping to be a force multiplier.
Viswanath: I like that collaboration. You’re hearing stories and voices of community power, and it is very powerful and impactful. There’s not one solution if we come away from this, not one solution but maybe multiple voices in the story.
Reynolds: Yes, I think that’s right, Teri. I think it was interesting timing because now we’ve seen everyone talking about it. It’s not a Northern Virginia problem, right? It’s everywhere. It’s not a problem, it’s a challenge but it’s an opportunity as well. I think we’ve got great partners, great folks here leading these organizations, doing the right things, trying to figure out how best to keep their members whole, but keep those communities thriving in rural America. That’s what it’s really all about.
Viswanath: I hope all of you have enjoyed this discussion and will listen in next month as we outline a tactical guide for battery energy storage deployment. Join us then.
Reynolds: And goodbye for now!
