A Texas Power Promise with Senator Nathan Johnson

Before you listen: I will be hosting a mailbag episode in the next couple of weeks and am asking listeners to submit questions. Please send an email to douglewin@substack.com or leave your questions in the comments for this episode. 

Following Winter Storm Uri, the Texas legislature worked to identify proposals that can increase the reliability of the ERCOT grid. In this week’s episode, State Senator Nathan Johnson, representing Senate District 16 in Dallas and a member of the Business and Commerce Committee overseeing ERCOT and the PUC, shares insights into the proposals that are reshaping Texas energy policy.

Central to Senator Johnson's efforts is the establishment of a fund aimed at creating microgrids at crucial facilities such as hospitals and police stations. This initiative, now part of the Texas Energy Fund via Senate Bill 2627, secured nearly $2 billion to bolster microgrid infrastructure after receiving approval from Texas voters in a constitutional amendment. Moreover, Senate Bill 1699, spearheaded by Senator Johnson, formalizes the collaboration between the Public Utility Commission and various stakeholders to implement virtual power plants and aggregated distributed energy resources programs, while also mandating the commission to enact measures for reducing residential energy consumption.

Beyond legislative achievements, the conversation delves into pressing topics such as transmission policy, the evolving dynamics between fossil fuels and renewables, the imperative for innovative regulatory frameworks and incentives for utilities, and the pivotal role of energy efficiency in shaping Texas' energy landscape.

I hope you enjoy this conversation as much as I did. If you like the episode, please don’t forget to recommend, like, and share on Substack, Apple Podcasts, Spotify, or wherever you listen.

I look forward to hearing your thoughts; don’t hesitate to share them with me and fellow listeners in the comments. Thank you for listening and for being a subscriber! Transcript, show notes, and timestamps are below.

Timestamps

03:33 - Short and medium term predictions for the TX grid

7:45 - Texas Power Promise, microgrids, and load management to avoid prolonged outages

10:29 - Circuit segmentation

15:36 - Distributed Energy Resources, Senate Bill 1699, Virtual Power Plant pilot

18:20 - Conservation

29:07 - Texas’s explosive load growth and importance of load management

32:26 - Emerging technologies

34:04 - Relationship between oil and gas and renewables

36:53 - Transmission

44:33 - Interconnecting ERCOT  and FERC jurisdiction in Texas

48:31 - Geothermal

50:17 - Incentivizing TDU’s to spend on energy efficiency, not just steel in the ground

59:39 - Markets

1:05:15 - Scapegoating renewables

1:08:47 - Texas Energy Fund and natural gas investment

Show Notes

"The Name of the Game is Flexibility," a Conversation with ERCOT's Pablo Vegas

Text establishing the Texas Energy Fund - SJR93 / Proposition 7

Text of SB 1699 - “An Act relating to the Participation of Aggregated Distributed Energy Resources in the ERCOT Market” 

Text of HB 1500 - includes language for the Circuit Segmentation Study

Text of SB 415 - “An Act relating to use of electric energy storage facilities in the ERCOT power region”

Transcript

Doug Lewin 

Senator Nathan Johnson, thanks so much for being with us on the Energy Capital Podcast.

Nathan Johnson

Thank you for having me on. I'm excited to have this conversation.

Doug Lewin

All right, well, I wanna start from a high level. I did this with ERCOT CEO, Pablo Vegas, and I kinda like the way it kinda sets the tone for the conversation. I'm gonna ask you the same question. Where do you think the grid is gonna be? Can you kinda describe your vision for what the electric grid in Texas, specifically the ERCOT grid, will look like in a five to 10 year timeframe? And I'm not, we're not talking 20 years where it's super futuristic and sci-fi and not you know, next legislative session.

Nathan Johnson

Which is fun, which is more fun.

Doug Lewin

And we can do that. I'm looking forward to talking some of the sci-fi stuff too. I know you're a big thinker and a visionary, but let's keep to that kind of five to 10 years. What's your vision? Where do you think all this is headed?

Nathan Johnson

The first thing I'd like to say out the gate is I am very optimistic about the five to ten year timeline. It's the one to five that we're going to spend some time talking about today that I think is much more dicey. As to what it looks like, it's partly contingent on what we do in these next one to five years. It's going to be partly intentional, and there's going to be an unintentional factor. 

What we do know is that we are having, we are experiencing explosive load growth. And that is, I believe, going to continue. And I don't know anyone who disagrees, who has a different expectation. We have an aging infrastructure, and we have an infrastructure that at the moment can work okay for today. A lot of the stuff we did in response to Uri, I think, has stabilized things. What our current infrastructure definitely won't do is accommodate the load growth, the complexity of our grid, which is far more complex than it once was, and it's going to get more complex.

And it will not meet the specific resiliency demands that we need of our grid. So it was gonna have to change. I expect we will see additional, traditional gas-fired generation, hopefully well regulated, that's putting out steam, not methane. And I think we can do that. 

But we're also gonna see a whole array of alternative, alternative forms of managing our load and our generation and our usage. The way we're going to meet the gap in the next one to five years is not by suddenly having enough quote steel in the ground, although that is a long term goal. There's no way in five years we're going to build our way out of the gap we are going to experience between load and generation. We're going to have to approach it three different ways. We're going to have to have other forms of generation coming online at the same time. We're going to have to manage the load.

And we're going to have to manage transmission. And that breaks down into categories. Our generation is going to be making sure that our existing plants are up and operating. It's going to be making sure that we do get some new steel in the ground. We're probably talking about peaker plants in specific points of congestion, you know, strategically deployed. We are talking about very small sources like distributed energy resources. Those are forms of generation that we're going to talk about in this podcast.

But there is a generation component, and it will not be all giant 1 gigawatt plants. We are going to see a much more diffused form of generation. That by itself in the one to five years will not get it done. Big Gen can't get it done because we don't have enough steel. We don't have enough transformers. We can't build it fast enough. There's no way we're going to Big Gen our way out of it in one to five years. That's why we're going to be looking at smaller resources.

Load management is sort of the inverse of that. And I know your other guests know more about this than I do, but I think it's important to anyone who is listening to understand that a kilowatt saved is a kilowatt generated, right? And so when we look at demand response programs at the consumer level that might mirror what we've done at the industrial level, we can see gigawatts of power that's suddenly made available. So if we can pull two gigawatts down from the grid, that's two gigawatts we don't have to generate.

If we can manage our transmission such that when you have, say, a microgrid backing up a particular region that experiences transmission congestion a few times a year, instead of having to deploy half a billion dollars building a new line, we put in a microgrid and then we can devote our resources somewhere else. So that's the transmission management, load management as demand response and virtual power plants, aggregated distributed energy resources on the generation side.

It's a much more complex, much more granular grid. And then the two remaining components aren't physical. They're financial models. What market signals do we send in order to accommodate all of this one to five year change, as well as setting us up for that five to 10 year change? I think once we get all that in place, to answer your first question, I think we're going to see new steel on the ground at the large generation level, at the base load level. But I also think we're gonna see a huge proportion of our load growth be absorbed by solar and wind and other renewable forms that are paired with reliability mechanisms like batteries and other forms of energy storage. I think we're going to see very flexible relationships between load and generation, all managed by retail electric providers, TDUs, and the ISO ERCOT. So all these moving parts are going to create, I think, a much more, stable, resilient, adequate, affordable, efficient, and cleaner energy future in five to 10 years.

Doug Lewin

It's quite a vision. As my grandmother used to say, from your mouth to God's ears, right? Let's make it so. 

Nathan Johnson

We all have something to aim for.

Doug Lewin

No, it's a great vision. I do think it is one that is realistic and frankly, probably necessary because as you talked about at the beginning of that answer, there is a lot of rising load growth. If we want to be able to meet that growth, we’re gonna need all these different resources. There's going to need to be some new gas peekers, a lot of storage, a lot of renewables, and a lot of, as you talked about, transmission, managing the transmission better, and the load side stuff, the demand side stuff, which, as you well put it, if there's two gigawatts less of demand, that's two gigawatts less of generation you need. 

You were instrumental in two pieces of legislation passing during the 2023 session, the last regular session.One of those established a fund for microgrids. I believe it's often referred to now as the Texas Backup Power Package or something along those lines. And this, it was a standalone bill you had, but then it was folded into Senate Bill 2627, I believe by Chairman Schwartner, and then became Proposition 7 that everyone voted on. And now has, I believe the number, something like $1.8 billion for microgrids.

So I want to ask you about that. I also want to ask you about, and we'll take these in turn, the bill that you passed with your name on it, Senate Bill 1699, that was about distributed energy resources and had a requirement for the commission. And I'm reading the bill language, just one sentence. Don't worry, audience. The commission by rule shall establish goals in the ERCOT power region to reduce the average total residential load. This is a recognition that there hasn't been as much residential demand response. We have a lot of commercial and industrial.

So I'd love for you to talk about these two different pieces of legislation. You could take them in whatever order you want, but the, the funds, the incentives that are there for microgrids and what its importance to this, to the grid will be both in the, in the short term and in this 5 to 10 year vision we were just talking about. And then also the energy efficiency and DER piece and Senate Bill 1699.

Nathan Johnson

Love talking about the Backup Power Package, which is also known as the Texas Power Promise. And the promise that motivated the whole thing was that people aren't gonna be without power for long periods of time, hopefully ever again. And that's through load shed management. 

One of the problems during Uri is that the feeders in our existing structure, their legacy, they're old. And they overload and they're so big that if you cut one and turn one off and then cut that one and turn another on, we're moving such huge chunks of power, we're not sure that load and generation are gonna be sufficiently in sync to not blow the grid up. So it kind of left, it left our TDUs in the position of really not being able to take a chance. And so some people were without power for long periods of time. Other people had. That bothered me. So how do we manage that? 

One of the problems is that, if you've got a critical feeder with a critical facility on it, like a water treatment plant or a hospital or a fire station or an assisted living center, other things that are essential to the community, you can't cut it. And if you can't cut it, you can manipulate load shed a lot less. But if you put some backup power there, suddenly that feeder becomes rotatable and you can manage load shed a lot better. That was kind of the initial concept behind it, but it grew into something that I think is gonna have much broader influence on microgrids and distributed energy. And that is we are through all of the money that has been deployed at a very important thing for our state. You know, we've got almost $2 billion recognizing that we don't ever want water treatment facilities to lose power. And if they're too small to afford it, we want it to be there anyway. 

We are going to be kind of jumpstarting or catalyzing the market for developing microgrid technology by putting out there for bids, actually bringing to market and selling with state subsidies microgrid technology around the state. That is going to create ripple effects because the scale of this is huge and we've got all kinds of energy providers at the microgrid level very interested in participating in this program.

So we think it's going to help with loadship management. We think it's going to help assure that critical facilities don't get knocked off. And we think it's going to accelerate the development of a very active and responsive microgrid market. At the same time, as we see other market forces pulling microgrids along with us.

Doug Lewin

Yeah. And let me just, so I just want to unpack a couple things there before we move on to 1699. So in that, within the funding for the microgrids, so in what you just said, you said there were the TDUs and I just want to make sure for our general audience, that's the Transmission Distribution Utilities, the poles and wires that are the regulated utilities. They are the ones that get the order, right? During Winter Storm Uri, they're told you have to implement this load shedding.

So the change that you saw, that if we could put microgrids at these places, that would allow that rotation to happen, which of course, a lot of people listening to this would have experienced that during Uri. They either never lost power or like you said, we're without power for three, four, five days. The funding is, if memory serves, it's up to 2.5 megawatts per site.

Nathan Johnson

That’s right.

Doug Lewin

So that's a pretty good, I mean, that's gonna be like the size of a medium-sized hospital, or that would be the load of several big box stores to put that in perspective. And the bill also requires a mix of solar storage and gas, which I think is a really interesting way to do it, because I think a lot of times in these discussions, there's a lot of purity tests, right? It should be only gas, or it should be no gas.

And I think this is a very pragmatic approach because if you only do gas, you have to get a very, very big turbine to meet that need where solar and storage are gonna help lower that. The same is true on the other side. If you had to have enough storage to last as the bill requires a 48 hour requirement, you'd have to have so many batteries, the costs start to become prohibitive. This is a mix that should utilize the best of each of those resources, right?

Nathan Johnson

Yeah, and it was really a good political moment because, as you just said, people get hung up on, this is only going to be gas or this is only going to be renewables. And the point of the things is to keep working for 48 hours. And requiring the mix is the thing that we thought was most likely to achieve that, not only for durability, but stuff goes wrong. And one of the components is not working well, the other one is. And that is the point. These are supposed to be rock solid backups.

Doug Lewin

Yeah.

Nathan Johnson

The other thing I wanted to mention, I don't want to suggest that these microgrids is suddenly going to alleviate all the load set problems. It's still a complex equation that the transmission and distribution, the poles and wires, people have to figure out how to, which feeder to cut. But not only that, there's something called segmentation. The feeders get divided into pieces so that you have smaller rotatable chunks. And there's no map for that today. 

So the other part of the bill in the form that we passed it out of the Senate was to require the transmission and distribution utilities to study how they can improve their load set management and to give us a report on that. In the legislative process, the two elements came out of the Senate combined in my bill. In the House, they were split into two and packaged into two other bills. But the whole thing did pass, and we are hoping that it works together, and it has the market effect that we want it to, the technological and innovation effect that we want it to, as well as the resiliency that we really all want.

Doug Lewin

Absolutely, and that circuit segmentation study, I believe the utilities need to turn those in by September, if I'm not mistaken. We could put a link to that in the show notes so people can see where that is in the bill and what the requirements are. But some of this stuff gets wonky and nerdy and detailed, but this is the stuff that really makes a big, big difference. God forbid there's ever some outage again. The utilities have to do a better job at rotating that because you know being without power for an hour or two is dangerous and difficult. Being without power for days is deadly, as we saw during Uri, and that just can't happen again.

Nathan Johnson

It's deadly, which is a huge moral problem for all of our consciences, and it's expensive. I mean, we had $200 billion in insurance claims. And so that's an ability we want the TDUs to have. 

Doug Lewin

Absolutely, absolutely.

Nathan Johnson

So in a small way, we hope this contributes to that.

Doug Lewin

Yeah, the other thing I was going to say about the Backup Power Package or the Texas Power Promise, is that what it is? I always get these, I can never remember these names. I think I'd remember it by now. 

Nathan Johnson

Mm-hmm. They're both in there.

Doug Lewin

There it is. So it's up to $500,000 per megawatt. So it's a nice incentive. And I do think, as you suggested a minute ago, will move a market. That'll really create, you'll have companies putting together those packages. And then even once the incentives are gone, there should be some learning curves around putting in those kinds of systems that hopefully we'll see these things scale. There's enough money there to fund gigawatts of that, but I think we'll see much more beyond that. So I'm really excited about that. 

Nathan Johnson

Yeah, I'm hopeful once you put all these products up, once you put all these products on the shelf, they can be purchased by anybody, right? This is just out there. The state is going to be facilitating the development, the deployment and the purchase of these things on critical facilities. But once the technology is rolling and economies of scale are rolling, we really think it's going to be helpful. We hope so.

Doug Lewin

Totally agree. And then, so let's talk about Senate Bill 1699. This is the one that does require the commission by rule to reduce residential load. Also had a lot in there about distributed energy resources. 

You know, I mentioned earlier the podcast with Pablo Vegas, and when I asked him about his five to ten year vision, the first thing he said was, I think we're going to see a lot of small resources out there on the grid. And what you did with that bill was helped to create, if I'm not getting it mixed up, I think this is the right one, right? That helped create in statute the ability for that, the pilot program, the virtual power plant pilot to continue going, but then also puts in place this requirement to do more on energy efficiency and demand response. Can you talk a little bit about your thinking behind wanting to work on that legislation and what you hope to see that evolve into?

Nathan Johnson

Absolutely. The distributed energy resources market is one that holds great promise. We talked about that five to ten year timeframe, maybe another, we're at 120 gigawatts or so of load on our grid. We could be at 250 in 10 years, maybe 300, maybe less, but those are the projections. And I don't think we're going to have enough distributed energy, small scale resources to add 100 or 200 gigawatts. 

But in the meantime, in the next one to five years in particular, they can meet local demands for resiliency and even environmental concerns when a microgrid is replacing a diesel array. And so my thought was we need a regulatory framework for this emerging market of emerging innovation and technology. Because when there's a regulatory certainty around a product, that's when people are willing to invest and really surge forward.

And I think it's kind of a good lesson too in being hyper-prescriptive versus not doing enough because I think I had a version of a DER bill the prior session, I had a DER bill last session that did not pass, but the one that did pass is the aggregated DER bill. And that is, as you said, it clarifies. I mean, sometimes you just need a statute in place so that nobody's wondering whether or not the PUC has the authority to conduct this pilot program.

Nobody's wondering whether the PUC has the authority to start directing markets to develop this kind of technology. And that's really what we did is remove any doubt. The PUC should do this. The PUC can do this. And sure enough, we have a pilot virtual power plant that makes use of these distributed energy resources. And for those listening, we're talking about rooftop solar. We're talking about the ability of consumers to participate in the energy market.

We may be talking about microgrids. We're talking about other small points of generation. And now we can look at them in the aggregate as a single generation resource. And then when you're talking about a virtual power plant, you've got these aggregated distributed energy resources that are part of a virtual power plant. And then we have these demand response programs that at the same time can drop demand. And so we have this virtual power plant that's looking at dropping demand and rising energy that is able to also in real time respond to market signals using perhaps AI, which is going to be another issue in our discussion today, to optimize systems. And it's a whole new conception of available energy in our market. 

I knew we needed some sort of regulatory framework. Doug, I think we're probably going to need further legislative action on this. But the market is still young and being too prescriptive too early can kind of put up roadblocks to innovation and new ideas and participants. Not saying enough is inertia, nothing happens. So I think there's a ways to go but we are still learning in real time right now. 

The demand response component, I do want to mention that the initial demand response bill was filed by my colleague Senator Jose Menendez and it just didn't survive the legislative process. As with bills I've filed in the past, there were those who felt that it was too prescriptive and it got snagged. But there was general consensus, I think, that it's high time Texas has consumer demand response or small commercial demand response folded into its energy policy. So the opportunity came up to pick that bill up and put it onto my aggregated distributed energy resources bill 1699. And we took advantage of that and shepherded it through the process. 

So now while it's pretty modest, and there's people who are underwhelmed by the demand response program we've put into place, it's the first one. And things are already happening. And in fact, I think people are taking the development of demand response more seriously than was expected.

Doug Lewin

Yeah, yeah. And we're seeing this. So at the time we're recording, we're just after the utilities, the poles and wires companies, CenterPoint, Oncor, AP, etcetera, have filed their annual energy efficiency plans. And I haven't looked through all of them yet, but one, the utility for the area you represent, Oncor in the North Texas, Dallas, Fort Worth area, and out into of West Texas. They have filed for a new smart thermostat pilot that they put in their filing was partially in response to 1699. 

So we are seeing already, and then actually retail electric providers is one of the few cases where, cause a lot of times, not few I shouldn’t say that, there's a lot of times that the retail electric providers, I don't think this is a secret. Anybody who's in the industry listening to this will know this, the retail electric providers and the utilities don't always see eye to eye on things. On this they are in agreement that we need to have more smart thermostats in there, it's a potential way to reduce the risk of outages. Only for consumers that volunteer and wanna participate. 

So you were talking about aggregated DERs and you've got solar and you've got storage, but as you were talking about earlier, yes, you can inject power, but you can also reduce it and you start adding those up and you can get to some really big numbers. So we are starting to see that, it's already starting to come into the market from 1699.

And I think the next step will hopefully be the PUC potentially even opening up a rule because to tie this all back to Winter Storm Uri, Senator, I mean, we had several problems during Winter Storm Uri and I want to dive into these, but you had gas supply was disrupted. You didn't have enough gas supply in the system. You had power plants that froze that caused major problems and you had demand that was extremely high.

And all of those were problems. And if you only deal with one of those problems and don't deal with all of them, you're by definition only have a partial solution. So dealing with that demand side is just absolutely critical.

Nathan Johnson

And there's a couple of things in there that made me wish I'd included them in my overly long first answer. But one of them was when you're talking about the multiplicity of factors and solutions, you know, what's your grid strategy? What's your grid vision for five to 10 years from now? It is the trite phrase, all of the above. But there's a reason that it's so many different things. It's because the complexity of our grid is beyond anything that anybody would have imagined 20 years ago even. And it's going to require a number of different approaches to overcome all of the different kinds of obstacles, to meet all the different challenges, to meet all of the different ways in which we get enough electricity at the right times to serve our basic needs. 

Oh something else I failed to mention, the things we're talking about with demand response and energy efficiency that you just mentioned. This is a word that people are sometimes afraid to use that covers both of those. It's conservation. Conservation will play a major role in the grid in the next one to five years, because it's quicker, easier, and cheaper. It will play a major role in the grid in five to 10 years. 

Conservation can be either active or passive. And I was talking with ERCOT CEO Pablo Vegas about this subject. And I think it's a very good way to think about conservation. It can be active in the form of smart meters, telling your heat pump to scale down, cooling your home early. You actively respond to a forecasted scarcity event, right? Or it can be passive where you have better insulated homes, more efficient appliances, which, you know, all the time are using fewer resources. And it can be cuts in consumption, but that again can be an active demand response program. 

And the reason people didn't like conservation calls is they weren't getting paid for it, right? Whereas at the industrial level, we wisely have a program that pays people to shut down when we need the electricity. Can consumers get that same thing? But conservation is part of this big complex package of solutions to our grid feature.

Doug Lewin

Yeah, for sure. I do think the language around this is so tough because conservation is now so caught up in the conservation calls that, as you mentioned, people really don't like. And I see this on Twitter and Facebook every time there's one of those. 

But I think even energy efficiency has a not great connotation, right? Like people are like, efficiency, whose, you know, efficiency isn't like a worm and a fuzzy word. People think of it as like, oh, you're going to lay somebody off at my company because there's efficiencies, right? It's like these words, though, that I sometimes wonder if we should be talking about, you know, energy waste reduction, even demand response. You know, I've heard people say, you know, when I'm talking to people that aren't like in the industry and talk about there's like, who's going to demand that I respond again? Right. Like I get questions like that. I'm like, oh, no, no. It's all it's all voluntary. You're getting paid for it. Oh, OK.

So I do think the language around this stuff is pretty difficult and we have to probably come up with different words, but I obviously totally agree that somehow this active demand side, because really, if you look at all these different imperatives, Senator, you've got reliability, we can't have a Winter Storm Uri, resiliency, you've got storms and heat waves and droughts and all of this that's getting worse and worse. We gotta be resilient to all these shocks, I mean, wildfires, right? I mean, you might have to start, we had a horrific wildfire in the Panhandle earlier this year that was likely, we don't know yet, but likely caused by transmission lines. So you might have to start having shutoffs ahead of time. Affordability problems and sustainability. We need to reduce emissions. And you look at like, what are the things that can check all four of those boxes or even three of those boxes? And an active demand side does that increases reliability, increases resiliency, lowers costs, lowers emissions. There's very few things you can put into that category. Right? 

Nathan Johnson

Oh, it's tremendous. It's tremendous. And it's still not enough to meet the projected load growth. 

Doug Lewin

Yes. That's right.

Nathan Johnson

So then we get into the longer-term, larger scale generation. But even there, with this big load growth, we're still going to be talking about, in a sense, conservation in the sense of load management, where you require certain very, we're seeing big blocks of load. We're talking about data centers crypto and particularly what we call these AI data brain centers or however many words want to throw at it. Many of them are going to be co-located with generation resources, but they all have transmission requirements. They all have generation requirements. And it's unrealistic that we're going to be able to build infrastructure as fast as that stuff is going to be coming here. And so we're going to have to look at when are they running. Crypto itself is very price sensitive. When the price gets really high, they're going to drop out, whether we tell them to or not. That's part of their arbitrage, right? 

When you look at data centers, they need a continuous steady power supply. AI Brain Centers, I mean, I don't know how flexible that is, but we're going to have to build into our model the dispatch of energy and the consumption of energy in proportion to its availability at the time. It's going to have to be managed.

Doug Lewin

Yep. So, yeah, let's talk a little bit more about rising load growth. I do think it is, I was at CERAWeek, which is the big, mostly oil and gas conference, but they now are trying to call it energy conference to get much more into electricity. And we're seeing huge connections between the oil and gas industry and the grid, right? So you're talking about rising load growth. Yes, there's AI data centers. This was a big theme at CERAWeek and at any energy conference these days.

But the oil and gas industry itself is rapidly electrifying, trying to connect to the grid as quickly as they possibly can, because it's much cheaper to connect to the grid than to have a diesel generation, like some mobile genset they bring out to a frac site and try to power it off diesel. That can be 10 to 20 times more expensive, is what I'm told. 

But then you get into, there's a lot of other large loads as well. Everybody in the energy industry is talking about hydrogen, whether or not that pans out or not, we don't know yet. But there's obviously a lot of investment towards it. Water desalination for a state that's going to 40, 45 million people the next 20 years, where are we gonna get the water from? That's a power hungry. Then you've got direct air capture machines, Oxy's completing a direct air capture machine set up west of Odessa, which they said at CERAWeek, they're about 70% done with, and they wanna do a hundred of these. All of those are major energy hogs. 

So when you said earlier, we might go to, what did you say somewhere around like 200 gigawatts? Like I think the people in the industry, they look at an 85 gigawatt max load this last summer. 200's unthinkable, but I actually don't think it's unthinkable at all. Who knows, right? It could be 200, it could be 100, it could be 300. Who knows? But the point is there's likely gonna be a lot of large loads coming. So we're gonna need all the power we can get in a very active demand side. 

I know you look at this stuff. I know you like to think about this stuff. Are there other large loads you're looking at? Or, you know, I said at the beginning, I wasn't going to ask you right away about the sci-fi stuff, but we could, we could talk about some of that too. Are there any new energy technologies on the horizon you're interested in that might help us meet some of that rising?

Nathan Johnson

A couple of things. Let's start about that and then talk about the old energy. You know, we're talking about the relationship between the oil and gas industry and electricity. On the new frontier, I'm glad you mentioned the old frontier is something that is important and is going to be around for a long time. It's a massive explosion in growth. 

New technologies to meet, whether it's AI or air capture or traditional oil and gas. I am very interested as the Department of Defense in geothermal. I'm interested in small modular nuclear reactors, although as I understand it, they're not quite as rampable as say a peaker plant. They're kind of more of base load distributed, which require generation and planning and intelligence. So I think intelligent software maybe is one of the new technologies that we haven't discussed so far, because all of this optimization that is necessary for virtual power plants, for all of the smaller resources to come into play for the pricing signals, the demand response, all of this has to be managed in real time. And that software is coming onto market right now, but it's in a rapid phase of development, just like everything else. So it also comes back to the uncertainty of the five to 10 year, what will happen with any of these technologies? Will we have space based solar? I mean, right now, I don't know, it costs 80 times what it would cost to do it on land, which is prohibitive, right? And geothermal might be, I'm making up numbers 60 times. I don't know, it's all still prohibitively expensive. But we have pretty good track record of putting our heads to problems and figuring out ways to do it cheaper. I'm pretty excited about what the future holds. 

But I do wanna go back and visit the relationship between oil and gas, which power the globe, empower the state to a very large degree. And then we'll talk about the mass rise, the very positive mass rise of solar and wind and other renewable sources. But the electrification of the oil and gas industry, I think is one of the great ironies of Texas, particularly in the dialogue the last four years. You've had this punching back and forth between renewable energy advocates and oil and gas advocates. And the secret is that subsidized renewable energy generation has greatly benefited our traditional thermal generation and oil and gas markets as they electrify. It's this cheap, subsidized wind energy that is powering refineries. It's powering upstream, midstream, and downstream oil and gas operations. And when you recognize that, I think maybe it strips away a little of the silly demagogic arguments we've been having. And let's just figure out how to make this stuff work, which is where we need to go.

Doug Lewin

Yeah, absolutely. Yeah. There was a group of six, uh, oil and gas producers, six of the largest ones in the Permian. They hired S&P Platts to do a study for them of what their grid needs were. And they're right now it's something like four gigawatts or so of demand from oil and gas operations, which to put that in perspective is Austin's about three and a half gigawatt peak load. So about an Austin worth of load out in the Permian.

But there's another like four or five, maybe even six gigawatts, something like that, that they're powering off of mostly diesel generation, which is mind boggling to think about, right? Almost like two Austin's worth. They wanna connect all that to the grid, and they think they're gonna continue to grow. So by the early 2030s, they expect, so we were talking about five to 10 years, right in that five to 10 years, they expect oil and gas demand to go from four gigawatts to somewhere close to 15.

So I mean like a tripling in a very short period of time. And you're absolutely right. I wrote about this in a recent article on the newsletter that at CERAWeek Diamondback Energy, one of the largest producers in the Permian, their COO said, it's low cost renewables on the grid that we're connecting to. It's much cheaper than using… So I do think a lot of times in the popular thinking and in some of the conversations and some of the press articles, but certainly don't want to paint with too broad a brush because I think a lot of folks in the press do understand this. It's not oil and gas versus renewables. That's sometimes the way it plays out in the narrative, but in the real world, they're kind of dependent upon each other and leaning on each other.

Nathan Johnson

Yeah, and to the extent we want a reliable grid, we're going to be dependent on both.

Doug Lewin

Yep. I think that's right. I think that's right. And so, so let's from there, let's, there's a lot of different directions we could go, but I think let's talk about transmission a little bit because that is something that the oil and gas industry actually pushed for hard during the last session was House Bill 5066, which requires a study of transmission by the PUC. They're doing that study now. The PUC has approved new transmission lines. We're obviously going to need more transmission. 

You talked earlier also about better utilization of the transmission we have right now. We're experiencing a lot of congestion and curtailment. You obviously serve at Business and Commerce and have heard some of these discussions over the last few years. What is your thought both about all those things, utilizing the lines we have better, building new lines? And of course, you can't ask a question about transmission without you know, what are your thoughts about connecting ERCOT to other grids? 

Nathan Johnson

Oh my gosh. 

Doug Lewin

I don't want that to be the only thing….

Nathan Johnson

…No, it's good. I want to try to keep these four pieces in mind. When we're talking about transmission, we're talking about utilization of lines. We're talking about building new lines. We're talking about possibly integration into the federal grid. But I think we're also talking about our microgrid technology, right? Um, in, in the near term, if you're setting up remote load, as many oil and gas operations will be, we may see investment. And there's some promising technology being deployed. We may see investment in microgrids that are cited out there that obviate the need for a new transmission line at that point at this time. Who knows where we're going? So I do think the microgrid is part of the transmission question because they will allow us to focus on different things. So that's one of the other answers. 

Better utilization. Once again, I think we're seeing software technology that will help us better utilize our existing lines. The way, as I understand it, they are often hooked up in parallel with kind of a backup line, and we rate the lines according to how much they can move. But we do that on a static basis, not in a real-time basis. And so we're not able to fully avail of transmission capacity of existing lines as we better utilize existing stuff, the necessity to build new lines, some of the pressure will come off of it. Still plenty of pressure to build. 

And so that brings us to, I think, another big promising technology. It's not brand new, but it would be new to Texas, and that is high voltage transmission lines. We have them for some certain DC connections out of the state, foreshadowing what we're going to talk about in a minute on the national grid. We have a few lines here and there.

But generally, we do not have high voltage transmission throughout the state. We're talking about 765 kilovolts transmission instead of our existing network of 345 kilovolts transmission. And it's not merely a multiple of two point, whatever that is, it's about four times the carrying capacity. They're expensive, they're hard to build, it requires raw materials. But many people I've spoken to from different sectors are envisioning kind of a spine around the state of Texas of high voltage transmission, where we're able to move huge swaths of electricity very quickly from the generation source. You know West Texas might be going and blowing, but the Gulf Coast is not, or vice versa. The sun is shining here, but not there. We have a nuclear plant offline here, but we've got gas plants working there. To be able to move massive amounts of electricity around this state, I think, is going to be very important. It's going to require cooperation of a scale that we've not seen, really, I think in this sector between legislators, regulators, generators, transmission utilities, and everyone else. It's an exciting, difficult challenge that I think is going to be part of our, again, part of our future. Is it five to 10 years? Maybe. 

Doug Lewin

It needs to be. And I think, you know, that's their, they're building the line that PUC approved a billion dollars to better connect South Texas. You were talking about South Texas wind and solar and, and there's a gas plant down there that used to serve Mexico. It has now been brought into ERCOT. There's a lot of storage happening down there. So that's happening, but we're also seeing, we've had one energy emergency since Uri that luckily did not result in rolling outages, but it was September 6th of last year. And on that day, it was mostly a problem of transmission. There was a lot of congestion on the layer. There was a lot of wind and probably gas or might've been coal caught behind that line. I'm not sure, but a lot of energy resources, particularly wind caught behind a congested part of the transmission line. And they made the decision to shut that down and that near not shut it down, but to reduce it significantly. And that nearly led to rolling outages. 

So there was some testimony recently where Woody Rickerson from ERCOT said, like in 2018 when we're planning, we undershot it. We didn't, we didn't think as much load was coming. Well, now we're sitting here in 2024, you and I are having this conversation. There's conversations going on all over the place about all this load that's coming. We can see it. We've got to build more transmission.

Nathan Johnson

We can absolutely see it. And we can, again, alleviate some of this with microgrids and batteries. But when we're talking about this scale, when we're talking about 100 gigawatts to 200 gigawatts of new load, we're going to need real high capacity transmission and additional generation. And fortunately, as people like to point to with either optimism or pessimism, I'm more of the optimism side on the, we have a huge queue of renewable energy, particularly solar. How are we going to move it around?

Doug Lewin

Yep.

Nathan Johnson

How are we going to make sure that it's available when it's needed? And that's through a combination of energy storage, thermal generation, and other forms of less intermittent controllable generation sources, maybe geothermal, but also increased transmission and demand response and load management and all those things. And then

Doug Lewin

And I do want to, before we get to the interconnection thing, I just want to just really just put a finer point on, I totally agree with what you said. I think this is lost on a lot of people a lot of times, on the microgrid piece. Sometimes people talk about microgrid and macrogrid. And if you do them both well, they support each other, right? You start to think of all these, the microgrids that contain storage, right? So when there's not as much renewables, you're storing up that power. When, if you do get, if you're able to site storage behind where there's congestion, you could soak up some of that renewables for when there's less. And it's not just about renewables. You're also storing it for times when the gas supply system’s struggling. Say when the temperatures get down to 10 degrees and not as much gas is flowing out of the gas fields in the Eagle Ford or in the Permian. You're, you know, storage is just a huge part of the equation. And so these microgrid sites sort of support the macro grid, if that makes sense. They support each other, right? So I think that's a really astute point.

Nathan Johnson

Even on the pricing side of things, right? These batteries are buying power when no one else is. So they're pulling off excess supply. And then when things get really, really scarce, either because of a lack of power or because prices are just go stratospheric, they're able to deploy, which has a depressive effect on the overall prices as well as meeting the energy needs. So we have higher troughs and lower peaks.

Doug Lewin

Yep. That's exactly right. I want to come back to geothermal in a minute, but do you want to talk about interconnections?

Nathan Johnson

Yeah, I mean, just briefly, you know, we do have a federal bill proposing to mandate Texas interconnect with national grid systems. And I think it's a conversation starter is what I think. And the conversation has been going on. I think it's a conversation pusher. And I think that's important. And I think it's an important long-term goal. 

I do want people to understand that we cannot, there's not an outlet sitting over there in Louisiana or any of our other bordering states bordering Texas that we just plug into and say, okay, now we're interconnected, we can export our excess energy and import when we get a cold snap. It's not that simple. It's many billions of dollars invested at the state and federal level. It's going to require all sorts of cooperation, which is not, cooperation with the federal government, which the state doesn't have a particularly good history of lately. 

I think out of necessity, we will. And it's going to require raw materials and expertise and new transmission lines and new, all sorts of things that are going to take years, not just to do, but to figure out. So while I think it is not achievable in the short term, I think it's a good long-term plan to be able to export the energy that we generate and to be able to import energy when we need it, either because of emergency supply shortages or just pricing factors.

But I think it’s also important to emphasize that there are benefits to kind of running our own shop here. And it is, you can drop the left-right ideology on this point. We have avid environmentalists and ardent proponents of thermal generation and everything in between that recognize the benefits of working within the ERCOT system where we're pretty nimble. You know, there's a reason we lead the country in wind and solar.

It's because we're able to plan and move more quickly than you can at the federal level. So can we preserve the advantages we have of being an island? It's a pretty big island, but also avail of the economic and resiliency benefits of integrating in the federal grid and cooperate with the federal government. Great conversation to have, but we can't just plug in this week. So we need to keep doing all the other stuff we're doing right now.

Doug Lewin

Yeah, and as I like to point out in these conversations that I frequently do, but you know, there are two projects right now that are proposed. One already has a FERC jurisdictional waiver of the Southern Spirit that connects from the Panhandle into somewhere around like Mississippi, Alabama, something like that. And it's like three gigawatts. We only have one point, I think it's 1.2 gigawatts of interconnections right now total. So just that one project would quadruple the total load that’s connected. And it has a FERC jurisdictional waiver. 

And then there's another one that would connect. It's called Pecos West and it would connect from West Texas into El Paso. So it's an interesting project because it's intrastate, but then would connect to the Western Interconnect. And that one's like a gig and a half. 

So we have these projects that are there right now, it seems to me like we should have the conversations about full interconnection, but we should be moving these smaller but still quite large projects to be done, hopefully, day or to dream in that five to 10 year window.

Nathan Johnson

And they've been going for a long time, particularly the Southern Spirit, was it 15 years?

Doug Lewin

Yep, yep, that's right. I think 2009 they filed their, yeah, so, yeah, just about, no, that is 15 years now. We're in 2024, it's 15 years, yeah, it's crazy.

Nathan Johnson

Which might tell us something about the difficulty of interconnecting at the FERC level. I'm very interested to see how those projects go and they're great projects to be undertaking. But our solutions, there's a much bigger set that we have to be working on.

Doug Lewin

I think that's exactly right. With all of this stuff, it goes for all of it, whether it's new gas plants or new storage or energy efficiency or interconnection or any of it, there is no one thing that's gonna solve the problem. It's gonna take a lot. 

Just one quick note on geothermal. You mentioned that, and I'm really glad you did. I'm gonna have a podcast coming up soon on geothermal. It is actually coming down the cost curve pretty rapidly. And I do think we will start to see some geothermal projects. We're already seeing some that are just like pilot demonstration proving out two, three megawatts here, there. But I think we'll start to see on the scale of the hundreds of megawatts pretty soon. Starting to see this in the western part of the United States where the heat isn't as deep. And you do have to go down to like 12 or 13,000 feet in Texas to get to the kind of heat you need. But if there's something Texas finance people, workers, engineers are good at, it's drilling, right? 

Nathan Johnson

Drilling.

Doug Lewin 

We should be able to figure this out in Texas, right? 

Nathan Johnson

Yeah. And it's dispatchable.

Doug Lewin

Yes. Yes, it is. Yes, it is. Well, look, this whole, this whole notion of dispatchable, I think for some folks when they talk about dispatchable, there's one synonym and one synonym only, and that's a gas plant. And I think that that's, that's wrong. There's a lot of things that are dispatchable. Geothermal is dispatchable. Storage, battery storage is dispatchable. Long duration energy storage is dispatchable. And demand can be dispatchable too. Highly dispatchable, right? So there, there's a lot of things that sort of meet that category.

Nathan Johnson

Right. Yeah, I guess that's one of the things we didn't even highlight about our demand response discussion. It's real time. Now, we can have longer. If we give them more notice, it can be even more effective. But yeah, these are very powerful tools that meet our grid management necessities as distinct from our overall load growth adequacy concerns. Geothermal could possibly address both.

I hope I'm not digressing. It's when we were talking about the TDUs in 1699 and the action that they're already taking from an optimistic time frame, and I believe you've had this conversation with Jason Ryan, and I've talked with some other people. The way we are incentivizing energy efficiency as a form of conservation, and demand response as a form of conservation. I don't think adequately matches up to the technologies and the methods that we have available to us. And the TDUs have shareholders, and they're incentivized under statute to meet certain energy efficiency goals, and they're meeting them and exceeding them and being rewarded for it, and that's terrific, but they're pretty modest. 

And a blunt tool we have attempted to deploy, and I think well-intentioned is just increase the energy efficiency standards. But I think we can sort of be a little bit more precise in how we incentivize performance on the standpoint of the TDUs, because under the traditional model, they get paid for building stuff. They make more money if they build more stuff, right? How can we incentivize them to, instead of building more stuff or in conjunction with building more stuff increase energy efficiency or incentivize demand response? How do they get paid for participating in that? And they have to be participating in that because they're in that vertical stream that dictates consumer behavior or incentivizes consumer behavior, I should say. So I think we have more regulatory and possibly legislative work to do in engaging the TDUs and the power that they have to drive the results that we want from a policy standpoint.

Doug Lewin

Yeah, and if you think about the things that they do, right, they're generally called T&D utilities, transmission and distribution, right? We've been talking a lot about transmission and we need more of that. You start to think about the distribution side, costs have been rising much higher on the distribution side, a much higher rate. Actually, we've seen the cost of generation dropping as the cost of gas generally, 2022, notwithstanding the price of gas has been low. Price of renewables obviously is very low. So generation we've seen this compression, transmission spending's gone up, but distribution spending's gone up a lot, right? And so if you think of these distribution utilities looking at their system and going, oh, if there is a microgrid going in here because of the Texas Power Package, what is, I always mess it up, the Texas Backup Power Package is going in here. 

So we're getting all of these, microgrids here and we're getting batteries here and energy efficiency happening, they can kind of see that on their distribution grid, where these different assets are going. And you're absolutely right. How do we give them some incentive to manage that in a way that the default isn't just always build a new substation, get new transformers. You can't get transformers for a period of years right now because the supply chain and prices are very high.

So how do we give them an incentive to manage that in a way that lowers costs? And this is something that I love talking about because I don't actually know the answer and I don't think anybody does. I don't think there's like, for so many things you talk about, it's like, oh, there's a ready-made answer to this one. I know this one is tough. It's really, you know, this is not, we're talking about changing a business model has been around for a hundred years or not maybe using the same business model, but somehow having that distribution planning mechanism, not just lead to, here's more infrastructure, here's more spending, but in some cases, the customers are bringing their own money into this picture and how do we optimize that in our system? Do you have any thoughts about how to do that?.

Nathan Johnson

And well, no, I don't know how to do it

Doug Lewin

Yeah, I don't either.

Nathan Johnson

Except that this is one of those instances where markets have to be structured and managed in order to produce the results that we want. That's why we have markets because we deploy the power of private capital and private minds. And I think in this case, the way our markets are structured are not incentivizing the TDUs to solve this problem that we don't know the answer to or the retail electric providers.  And we need to have a structure that will incentivize a good relationship between those two levels of the system and causes people to think up ways to alter consumer behavior in a way that benefits consumers, involves a profit motive for each of these entities. And I think we can do that. And you said our system's been around for 100 years and it works pretty well.

But it's a new game. It's a whole new game out there. And the rules have to be updated to go along with it so that I want to, it sounds so trite, but I want to unleash market forces to help figure out how to solve this problem.

Doug Lewin

You know, I think, you know, when you look at ERCOT, ERCOT is what we call a TSO, a transmission system operator. They handle things at the bulk level, right? And I talked with Vegas about this, that, you know, they generally don't deal with the very small things, but somebody has to, right? We have to get to some point where there is, you talk about markets, we have a very active, very competitive market at the large scale, right? 

So if you're a generator, you exist in a very complex competitive market. But at the distribution level, there's just kind of nothing. There's no, if I'm an aggregator, I mean, this is why the pilot that was put into statute in 1699 is so important, but why it needs to move beyond pilot fairly quickly, right? Is that if I'm an aggregator and I'm doing that work of signing up a bunch of small customers and creating something that equals a power plant, now what? 

I can try to fit that into ERCOT, but I'm competing against folks that are operating at a different scale. It's almost like we need some kind of a distribution level market. So you could even, as a distribution utility could say, we're gonna spend $10 million to make the substation twice as big and buy a bunch of new transformers, or is there an aggregator or group of aggregators that could come together and meet that same requirement for $8 million, $6 million, $2 million, right? And thus save everybody money, put some money back in the pockets of consumers that raise their hand to participate. So it might mean creating new markets. I mean, maybe that's part of the next frontier within Texas is what's the next level of competition.

Nathan Johnson

I think it is, and I think it's going to involve the retail electric providers as well as the transmission and distribution utilities, as well as the PUC and ERCOT and the legislature.

Doug Lewin

Yep.Yeah, yeah. There was, by the way, there was a bill that I still don't think has been implemented. I wanna say it passed in, I think it was 2019. We'll put this in the show notes too, but it was Senate Bill 415, which allowed for what are called non-wires alternatives. So if a utility wanted to put in place, I think this was a bill by Hancock, if I'm not mistaken, that would have allowed the utilities, if they did these non-wires alternatives, sort of aggregations of DERs, and it obviated the need for infrastructure, they could treat that as rate-based. They could earn their 10% rate of return on something that wasn't actually a substation or a pole and wire or whatever, so that they wouldn't be sort of, you know, and I say biased against that. It sounds negative, but just from a logic point of view of your utility, you have shareholders, you're trying to maximize returns. It's trying to level the playing field and say, hey, you can earn returns from these other activities as well. And I wonder if maybe that's where we need to go with energy efficiency.

Nathan Johnson

I think so, I think particularly in the load growth environment that we have that is going to require a huge build out by the TDUs, there's going to be, they're going to be building no matter what. For them to take a moment and also look at controlling demand and energy efficiency through active and passive forms of conservation. 

I think we need to, from a market structure level give them a reason to pay attention to that. And we currently do, we have these energy efficiency goals, but as I said, they're very small and there's no real incentive. I guess I shouldn't say none, there's very little incentive for the TDUs to try to exceed their goal. They don't get anything more for it. So if they could stand to benefit, similar to the benefit they get from building, as they do from encouraging conservation, I think they would be able to do that. I think we'll see the market serving our purpose better, which isn't to say there shouldn't be building. There's a lot of work to do. But conservation doesn't require new steel in the ground. It doesn't require new poles and new wires, right? It's just new modeling. I shouldn’t say just, it’s a big deal.

Doug Lewin

Yeah, it's a really big deal. And, you know, I think a lot of times in these conversations, Senator, people say, well, you know, if this stuff is so great, why aren't people just doing it? There's nothing to stop them. I really think it comes down to, you know, the markets that exist weren't created by nature, right? They don't exist like, yeah, they exist because people set them up. And so those markets then either they do certain things really well, and then there's other things they don't do as well. 

So one of the good examples that I think is a good reason why the energy efficiency programs exist and need to even be expanded. You mentioned the retail electric providers. They do a lot of demand response. They try to do more. They want to do more, but they generally can't sign customers up for more than two years. And that's just kind of a function of the market. Generally people don't want to sign up for a five year deal with their electric provider. So they want to get people smart thermostats, but they cost 200, 250 bucks. They can't necessarily recoup that cost on a two-year contract. So if you have an energy efficiency program, it helps drive down that price, but then allow the retailers to work with that customer to reduce their load. So these are the kinds of questions, is like, how can we find where the market failures are and try to create that structure where you're not... You're not… like you're not mandating it, you're not saying it has to happen, you're basically just saying, here's the structure under which this could work and how you could make money. Now go compete, right? And I think that can happen.

Nathan Johnson

That is, I think, what's missing from a lot of conversations about markets. There's people who say, you know, markets fail and we need this centralized control. That doesn't work. It wastes all of us as resources. But there are people who think that, you know, hands off, it's all going to take care of itself. No, all markets are a construct. And we look for ways. And we've been doing it with the ERCOT system, you know, all the way forever, but particularly since dereg in 1999. And the way we shape this market affects everything. And it's worked pretty well until the world changed and the world has changed and it's time for our constructs of the market to change too. So again, we have private market forces operating to produce the results that we need. And people make money in the process and people get reliable power in the process. But sitting back idly won't get it done.

Doug Lewin

Yep, that's right. And I think when you think of markets, take that one step further, if you think of the demand side, you say, if you even think of yourself and think of what kind of loads you have in your house, I don't have a pool. But let's say I had a pool, it'd be nice in these hot Texas summers. For a retail electric provider or a utility or whatever, if they said to me, would you take five bucks for me to control your pool pump? Your pool's gonna stay clean, the pump's still gonna operate, but it's just not gonna operate at 7pm as the sun's going down and we're in an energy emergency. We'd like to cycle it. Oh, that's, yeah, five bucks is probably plenty because I don't care. Why do I care when my pool pump operates, right? But if you want to touch my air conditioner, you're gonna have to pay me more for my air conditioner. Now, if they say, well, pre-cool your house and we'll never get above your set point, the point is people have different prices for different things. And this is what markets are great at. This is how you, this is how markets work is what's the cost? What's somebody willing to pay or be paid?

Nathan Johnson

And then we get into a whole other layer, another word people are very afraid of, which is equities, right? But I think equity sometimes is the flip side of efficiency, where you have inequities, you usually have inefficiencies as well. So when we talk about smart meters and being able to control thermostats and pre-cool homes, that works really well on a really well insulated home. That's somebody who could afford insulation or has a newer home. Do we need the energy efficiency? We already have energy efficiency programs that make it possible for people to avail of new efficient technologies. We have some new affordable housing communities being built with new energy efficiency technologies. That's all great. But again, I think in constructing the market, you got to look at where's the leak in this thing? Where's the inefficient? Well, heck, only a small subset of the population can avail of this preheating and pre-cooling. So what could we do to make other homes able to participate? And that's not command and control, that's honing the market.

Doug Lewin

And it's something that the market's not going to take care of on its own. You're not going to make homes more, you know, better insulated unless there's something done to kind of push that along. And I would argue it is, it is an equity issue. And we do need to help people that are struggling, you know, 45% of Texans self-reported in 2022, choosing between paying their power bill, paying for food, paying for medicine. 

And that's not, that's an all of Texas issue. It's rural and urban, and even in many cases, suburban and ex-urban. So addressing that helps the people that most need it, but I would argue it actually helps all of us because that's then reducing the load on these days when the system's really taxed and we're in scarcity conditions, and we all might experience rolling outages actually like helping people that are struggling with their bills to get more insulation helps them year round and helps all of us.

Anything else you want to add? So let me, I do want to ask you, I want to ask you one other thing before I, before we start to wrap up here. You had said, I believe it was in a New York Times article that a lot of times in Texas in these arguments about the electric grid renewables are scapegoated. I believe that was the quote you had. Can you talk a little bit about that? I mean, we're talking about rising load growth. I think we're going to need, we're going to need renewables. We're going to need every megawatt we can get at this point. But there is this attempt to kind of scapegoat renewables in Winter Storm Uri and other contexts. Can you talk a little bit about that, why you think it's happening and what's your response?

Nathan Johnson

Yeah, I think it's a real unfortunate notion that many people have accepted. And I think we need to dispense with it, dispel that notion that renewables destroyed the Texas grid. I think what made the grid less reliable and less stable is the imbalance between load and dispatchable energy. Now that's not to say – let's say we're at a – a 100 gigawatt grid and we add 10 gigawatts of renewable energy, did we get less reliable? No, we have 10 gigawatts more energy in the same amount of dispatchability that we had. It didn't get less reliable. What makes it less reliable is when we have this huge load demand and the energy we have to meet it might be intermittent. But again, that's not the fault of building more renewable. That was just built in response to economic incentives.

Where I think there is some truth is that you have less incentive to build the old, more less intermittent, and I say less intermittent, thermal generation, because it's more expensive to build than the heavily subsidized renewables. That again creates, I think creates this false sense of blame on renewables. That renewable energy is going to be there to meet the the coming load growth, it has been there to power the oil and gas industry. It has been there to power high tech in this state. It has been a tremendous benefit to this state. 

But it did slow the growth of investment in traditional thermal generation. And so a lot of what we're doing right now is figuring out how do we make renewable energy more reliable, more dispatchable at the same time as how do we incentivize the construction of new thermal generation on which we are going to rely, which can be very well managed if it's well regulated in terms of environmental effects. That's a conversation. No, it's a problem that we have to address. It's a challenge we have to meet. It's not going to be met by demonizing a source of energy that has been a tremendous economic and social benefit to the state.

Doug Lewin

Yeah, and I think if we come back to that example of the Backup Power Program, I think I got it right at that time, that you have this mix of solar storage and gas. You're not overly reliant on any one thing. And if we could just, dare to dream, get to a point in the state of Texas where different energy sources, the proponents of different energy sources aren't demonizing the other ones and trying to say this one has caused all of the problems or that one, all of the problems. It's a system. All of these resources have their attributes, they all have their detriments. Let's use what's best out of each of them. And yeah, I think that's the approach you've taken and it has been noticed and appreciated. 

I want to before we end, is there anything I should have asked you about, anything else you want to talk about that we didn't get to?

Nathan Johnson

There is the lingering question of will we have sufficient investment in new gas fire generation? And the legislature created the Texas Energy Fund. And of course, $1.8 billion of the $10 billion in that concept is for that backup power package, another billion for the non-ERCOT regions to make seriously important investments in their grid structures. But $7.2 billion is set aside through various financing mechanisms to invest in incentivizing the construction of new thermal generation. Will it be enough? As to the big 100, 200 gigawatt, 10 gigawatts more generation is not enough, but it gets things moving. So that's good. 

Some people wonder whether or not it's oversubscribed. What if everybody does sign up for this thing and $7 billion is not enough? And I think it's important to recognize that oversubscription is not really a danger. Just like when we look at how much solar or wind is in the queue and people say, oh my gosh, there's going to be so much more. A small percentage of what's in the queue actually gets built. So oversubscription is not the same as completion. And that's why the Texas Energy Fund bill contained a completion bonus so that if you sign up, you get your real money if you actually build the thing.

And I know a lot of people had misgivings about that bill, and there's reasons to have misgivings. But it did make a commitment, and it is in recognition of the fact that we really do need this thermal generation in conjunction with all the other things we're doing. The lingering question is whether or not our long-term market signals are going to be sufficient for generators to make that investment irrespective of the financing available. And that's an open question.

Doug Lewin

Yeah, it's going to be really interesting to me, Senator, to see kind of what... I'm less interested in if it's oversubscribed. That's an interesting question too. And I'm more interested in what kinds of technologies are applying. And what I mean by that is like, I think what we're going to see, and I think we already see this in the interconnection queue, is very flexible, more peaker plants that'll likely be low capacity factor.

And thus, for those that, and I think this is a very large number of people and growing all the time, folks that are worried about emissions, you probably have a fairly low emissions impact from those kinds of gas plants. But potentially, if fuel is available, which is a huge question, a potentially high benefit for reliability if that's the kind of plant that comes into the system. 

And so that's what, like in all these market design discussions I worry about is like, I don't think you really want a signal that is for combined cycle, like six, you know, intended to operate 60 or 70% of the hours out of the year. You want to bring the stuff that's going to operate 10%, 15% of the hours out of the year, cause that's really all you need them, because you'll have cleaner and cheaper sources other times of the year.

So I don't know, it'll be interesting to see kind of what comes in as far as these applications.

Nathan Johnson

It is. It's exciting to watch the movie as it plays out. 

Doug Lewin

It is. 

Nathan Johnson

But my guess is it will be these smaller, more versatile peaker plants that are strategically deployed at points of congestion. We'll see. And then as far as the investment in the bigger operations, that's a longer term play that they're going to have to gauge. What is the cost return on these and whether or not we want to incentivize it? I think we need a little more information.

Sometimes people talk about conservative as a virtue or as some sort of, the word is problematic, right, as is liberal. So I want to use it in a different sense than it's usually used. I want to use conservative in this sense of there's so many uncertain factors right now. There's so much happening in technological innovation and market design that moving conservatively, which is not taking big leaps before we really know what's going on, I think is a good idea. You know, we want to incentivize the market, we want to construct the market to go places, but we don't want to overstep. And I think right now there's a lot of things coming into alignment that a prudent approach of actively being involved but not arrogantly prescribing the future of the grid will serve us well.

Doug Lewin

Yeah, totally. I think it kind of comes back to markets, right? It's how do you get the right market signal out there to, because that way you're not, it's impossible for any of us to centrally plan this. We just, none of us are smart enough. We all like to think we're very smart, but we don't know what's going to, we don't know what technologies are out there. We don't know what loads are coming. So it really does, you know, I just fundamentally believe markets can solve these problems better. You do have to have the right structure around that. And that's really what we’re talking about here.

Nathan Johnson 

That's right. And our job is to structure it so that many minds can contribute to the problem solving.

Doug Lewin

Totally. Well, it's something I've always appreciated about your leadership. You obviously take in all the different perspectives, talk to a wide variety of people, and I really appreciate your perspective, your thoughtfulness in policymaking and your approach to all this. So thanks for all you do and thanks for taking the time to be on the podcast. Really appreciate it.

Nathan Johnson

I'm honored to be in the conversation.

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