The last few months have brought more momentum for grid flexibility than the last decade.
All across the country, load growth is pushing policymakers to leverage DERs and other flexibility tech to get more out of the grid we’ve already built. But can utilities count on it?
This week, live from Latitude Media’s Flex Summit, we explore how flexibility is getting integrated in pockets of the country – and what it will take to get buy-in from utilities.
In the first half of the show, Stephen is joined by Jen Downing and Jigar Shah to tackle the latest policy developments for VPPs and other flexible resources in California, Virginia, and the federal permitting bill.
Then, we bring in Todd Conner, senior VP of electric distribution at Xcel Energy, who explains how he thinks about “harvesting” flexibility on one of the biggest networks in the country.
Open Circuit is brought to you by EnergyHub. EnergyHub works with more than 230 utilities to coordinate over 2.6 million DERs and more than 3.6 gigawatts of dispatchable flexibility through a single platform designed to perform when it counts most. See what that looks like at EnergyHub.com.
Open Circuit is brought to you by Giving Green. Giving Green researches the climate nonprofits best positioned for the next big climate win, and sends 100% of every dollar donated to the Giving Green Fund to them. Make your first gift before 2027, and it’s matched up to $500. Go to GivingGreen.earth/Circuit or select Open Circuit at checkout.
Open Circuit is brought to you by Everyday Electric. Everyday Electric simplifies savings at home, helping support a more reliable, affordable grid. Operating the country’s largest residential VPP, it coordinates 6+ GW of capacity across connected products. Learn more at everydayelectric.com.
Transcript
Stephen Lacey: From Latitude Media, this is Open Circuit. For a long time, there was a huge gap between what utilities needed and what DER and flexibility champions wanted. If you’ve been in the power industry for a while, you’ve read your fair share of reports on making the grid more distributed and flexible. And as the joke goes, if we had as much action as we had white papers, we’d be in a much different place. But the last few months have arguably brought more momentum than the last decade. From Texas to Virginia, from Washington to California, load growth is pushing policymakers to do something that they’ve talked about for years, leverage DERs and other flexibility tech to get more out of the grid that we’ve already built.
So this week we’re going to dive into how that’s playing out in pockets of the country. Can we finally get out of the white paper era? And then it’s one thing to champion flexible resources. It’s another thing to count on them. And in the second half of the show, we’re going to be joined by a seasoned utility executive managing one of the biggest distribution networks in the country. And he’ll tell us how he thinks about flexibility and we’ll make him stick around to play a game of would you rather? That’s right here at Flex Summit in Austin, Texas.
I’m Stephen Lacey, the executive editor of Latitude Media. Thanks everyone for being here. Here with me is the yang to my yin, the hot to my cold, Jigar Shah, the co-managing partner of Multiplier. How are you?
Jigar Shah: I’m awesome. Keep it weird, Austin.
Stephen Lacey: How many white papers have you been responsible for?
Jigar Shah: Zero. I’ve got Jen for that. I think she’s probably written like 40.
Jen Downing: I’m guilty. No, no, no, not 40. Just a couple at the Department of Energy.
Stephen Lacey: Yeah. So Jen Downing is in the co-host chair this week. She’s an operating partner at Ara Partners. She is a former senior advisor at the DOE’s Loan Programs Office. And as she said, she’s no stranger to writing reports. She led the agency’s VPP Liftoff reports, which I’m sure a lot of people in the room read. Jen, welcome. How you doing?
Jen Downing: I’m doing fantastic. Thank you.
Stephen Lacey: So you worked with Jigar at DOE. Do you want to spill the tea on anything about his management style inside the agency?
Jen Downing: You have a good sense of it just by listening to the podcast and hanging out with him. It’s a lot of fun. Learn a lot.
Stephen Lacey: He wasn’t hawking his crypto coin or asking someone to pay his hundred thousand dollar credit card bill?
Jen Downing: Thank goodness, no.
Jigar Shah: No. I mean, nobody had to, what is it? Feed my iguana?
Stephen Lacey: No. Was that a Kimberly Guilfoyle thing? Who was the feed my iguana?
Jigar Shah: No, that’s Mary Peltola from Alaska.
Stephen Lacey: Oh, I can’t keep track of it.
Jigar Shah: And then Matt Yglesias put out a Slow Boring thing like feed the iguana, if that’s what it takes for her to win.
Stephen Lacey: So Jen, you’re at Ara Partners. After you left DOE, you went to Ara. It’s a firm that does take a pretty unique approach, a private equity firm that takes a unique approach to investing, largely in industrial decarbonization. What brought you there? What’s the model?
Jen Downing: Yeah, so it’s a very similar mission to the Loan Programs Office or to EDF as it’s now called, which is bringing companies across the chasm of what’s known as the valley of death for energy transition technologies where they have a technology that has been proven at a small scale and the company has been funded by VC dollars, but they need to scale up that technology, build the first of a kind, second of a kind, third of a kind plant to get ready for infrastructure capital or maybe an IPO. And so Ara takes a private equity style approach to investing in those companies. We make majority investments and then we have a team of in-house engineers to make sure that those large capital projects are delivered on time and on budget. And we design once, build many times. So whereas at LPO, we were providing loans to those projects. At Ara, we’re actually investing in the TopCo.
Stephen Lacey: Yeah. I was going to say it sounds a little bit like the Loan Programs Office just with different capital.
Jen Downing: That’s what brought me there.
Jigar Shah: It’s like peanut butter and chocolate.
Stephen Lacey: And what’s Multiplier? The jelly?
Jigar Shah: We’re the bread. We’re the bread. No. No. I mean, Multiplier’s trying really hard to just get people paid. It’s extraordinary to me how many people around here have raised a lot of money and have never sold secondary. It’s time to get off the sidelines and pay off that mortgage.
Stephen Lacey: All right, let’s dive into the news. We’ve got a bunch to talk about. First up, we’ll start in Virginia. The governor unveiled a new energy plan and it models multiple pathways. One around flexibility, 10 gigawatts of distributed resources by 2045, flexible data centers cutting the equivalent of 10% of peak demand. It recommends requiring data centers to be flexible and letting them meet that flexibility requirement through investing in offsite resources like VPPs and distributed batteries. Virginia is still way behind on distributed resources though. So it has a lot to do to catch up. And the question becomes, is this going to be another report that sits on a shelf or is Virginia going to be able to execute? And I know Jigar, you just interviewed Governor Spanberger. What did she tell you and what’s behind this report?
Jigar Shah: Well, I think we need to set the scene in a couple ways. One is that report very distinctly focused on healthcare costs too. And I think it’s important to note that as a governor, what you really care about is not just solving the speed to power problem, but also making sure it resonates with voters. And for those of us who’ve been working with the environmental communities for a long time, reducing asthma, making sure that people don’t have health impacts is a big deal. So that was a big thing. But I think the other piece of it is to recognize that whether it’s data centers, which obviously are prominent in Virginia or it’s EV charging or new manufacturing load or other things, we are going to double the size of the grid in the United States and double the size of the grid in Virginia. And so part of this is we’re no longer trying to split up a pie that is fixed in size.
We’re now saying that there’s enough pie for everybody that it’s going to double. So now do we do it the smart way or do we do it the dumb way? And the dumb way is the N-1 approach that we’ve been doing forever, which is like, “Hey, let’s use our grid even less, but make sure that we meet peak for five hours.” And the smart way is to say to everybody, “Look, we’re changing the entire way in which we provide you approvals. The large load tariff now says that you will be interruptible. It just will be. And that is the default condition and that will trickle down to everybody from EV chargers to everything else, just like PG&E has done for DC Flex. And then you then have a series of technologies that you can deploy to make sure you never turn off your compute, right?
You can have behind the meter gas, you can have batteries, you can have all these things that you can do, but in the end, if none of it works, you’re going to turn down your compute. And I just think that for a long time, people thought, “No, no, demand can do whatever it wants. Supply has to accommodate.” And I think what the governor is doing throwing in the gauntlet and saying every single model shows that that approach leads to above inflation rate increases forever.
Stephen Lacey: All right. So I want to dig into the pathway for this plan, but first, Jen, let’s get your thoughts on what’s in this plan. So the flexibility pathway itself features less local pollution, but is ultimately more carbon intensive. And there’s also less clean, firm resources in that plan. There’s less nuclear, there’s more fuel cells and flexible generators. What are the trade-offs that Virginia needs to make to meet this maximum flexibility plan?
Jen Downing: Well, first I think it’s important just to take a look at the load growth that Virginia is projecting because Jigar mentioned we need to double the grid. If you look at this plan, Virginia has about 30 gigawatts of nameplate capacity installed today, and their forecast that they’re using for these scenarios show adding 60 to 120 gigawatts. So they are at least tripling, if not quadrupling or quintupling the size of their grid. And then they’re looking at these different scenarios saying, okay, if we have different ingredients in the mix, what’s the cost, both in terms of the financial cost of the system and health and social costs? And so the comparison and the trade-off they’re referring to is in the distributed flexibility scenario, they are allowing the model to build up to five gigawatts of distributed gas. So non-combustion gas, things like fuel cells, and they’re comparing that to kind of current policies that would exclude that because Virginia is part of the Regional Greenhouse Gas Initiative.
And in the latter scenario, you’re ending up with more nuclear and offshore wind in the mix, but it’s more expensive. And I think we should just call a spade a spade. Nuclear and offshore wind are costly. One megawatt of nuclear more expensive than one megawatt of distributed gas. That doesn’t mean that we shouldn’t build nuclear, right? The timescales are different. When the megawatt hours show up are really different, but it is important to acknowledge that trade off.
Jigar Shah: One of the thing though, in terms of the governor is I think many of us have read that viral story about how Entergy Arkansas basically screwed their ratepayers with Google’s prepayment and some of that stuff. That same thing occurred in Virginia, right? But the governor’s staff, Josephus and Louise, intervened in the rate case and convinced the SCC to reallocate that transmission cost that the data center companies were paying for to the data centers away from residential. And so they saved everybody $3 a month by doing that. That required an intervention by the governor’s staff on a tiny issue, which they’re going to have to do every week or else they’re going to have something that happens without their knowledge. This is like hand-to-hand combat. And so when you look at the way in which that’s occurring, and to be clear, Google and AWS said, “Fine, we lost that battle. We’re going to move on.”
Microsoft is suing the SCC and saying, “No, we actually don’t want to meet the ratepayer protection pledge. We want all that stuff to be shared with residential ratepayers.” And so that is what governors are faced with every day. It’s not just writing the energy plan, it’s going toe to toe in all of these detailed rate cases with their regulator. And in Virginia, those people don’t even report in a tiny bit to the governor because the regulator is nominated and approved by the legislature. So they are not nominated by the governor.
Stephen Lacey: Well, this brings me to maybe my cynical question, which is this report was released to a lot of fanfare, right? A lot of people were excited about it. You interviewed Governor Spanberger and she said, “Look, we’re fulfilling our required energy plan and now it’s over to the legislature and over to the corporation commission or whoever.” And I don’t know a lot about the makeup of the Virginia legislature, but I have to assume that both in the corporation commission and the legislature, we’re talking about slow progress. Who knows how this is going to play out? And then you’re talking about getting involved in rate cases as well. How much of this plan is going to, again, sit on the shelf and how much of it do you think can get executed?
Jen Downing: Yeah, I can comment there. I think what you would expect to see play out in Virginia is similar across other states where there’s this chain reaction of someone’s got to do the math, run the study, model the grid to see what’s possible. Then that informs smart legislation. Then that trickles down to, or I shouldn’t say trickles down. It forces the hand of the regulators who then create requirements or financial incentives to the utilities who then build out the system in a different way. So there are all of those steps that need to happen in order for something like this to actually be implemented. And so it’s a step in the right direction, but you’re right. I mean, even after the utilities decide to deploy something they might run into permitting issues trying to deploy a DER, thousands of DERs to create that distributed capacity and flexibility.
Jigar Shah: Yeah. I mean, maybe taking that same thing from a different direction, you’ve got the president saying there’s a ratepayer protection pledge, right? There’s no documents or anything else behind it, just a press release, fine. Now you’ve got the governor who is faced with being the chief economic development officer of the state. And Dominion is saying it’s a seven year interconnection queue, not just for data centers, but if you have a warehouse and you suddenly decided that robots were cool and you wanted to put in robots and automation and you need to double your interconnection with Dominion, seven year wait. And so now she’s faced with all these people who want to build in Virginia and the monopoly utility can’t meet economic development requirements of the state. Separately, you’ve got all of these lobbyists who are going into the state legislators and saying, “My natural gas solution will succeed. My this solution will succeed, this will succeed.”
None of them have any expertise by which to evaluate what they’re being told. So when the governor says, “Here is the plan,” we have our own modeling people. Remember, Virginia hired their own modeling people. This is not NREL or other things. They hired their own best of the best modelers to do all this stuff. She is now definitively saying that of these five cases, don’t listen to what the lobbyists are telling you who are self-interested. We’ve done the math and it’s all published in this document. And I think it’s just, look, I mean, there’s always going to be confusion and there’s a lot of people whose job it is to sow confusion, right? But the governor can only do what she can do. And in this case, she’s saying, “We brought the best experts we could find.
This is the best way to balance healthcare costs and the cost of providing electricity while at the same time shrinking the speed to power from seven years down to one year.”
Stephen Lacey: All right, that’s Virginia. We want to move to the federal permitting bill now. So this permitting bill released this month has a section on what it calls dispatchable energy systems. We call them virtual power plants. It would require grid operators to open their markets to aggregations of DERs within 18 months, basically facilitating FERC Order 2222. It bars requirements for utility owned metering equipment. It sets strict rules against double compensation, requires aggregations to publicly report what they deliver. It also offers data centers a discount on transmission service if they accept non-firm service, and it requires utilities to deploy advanced transmission technologies when the benefits exceed the cost. So there’s a lot in here. Jen, what do you think the most consequential pieces of flexibility are in this bill?
Jen Downing: Yeah, I think the measures that are taken to basically knock down the hurdles that distribution utilities can throw up to block DERs from participating in wholesale markets are the most significant. So you named some of them, meaning a distribution utility can’t require a VPP company to add a physical meter onto a device in order to generate data that goes into the wholesale market. That never made sense and now they’re not allowed to do it anymore or they wouldn’t be under this bill. The distribution utilities need to interconnect the DERs. They can’t prevent them from exporting back into the grid, which means the DERs can be compensated for actually providing energy. And those, I think, they go a long way towards allowing better participation, but I’m very hesitant given the track record of Order 2222 that this is going to allow us to declare victory on that.
There are still all kinds of hurdles that could be thrown up such as not giving these DER aggregations sufficient accredited capacity to compensate them sufficiently. There are other things you can do to kind of erode the margin on a business model of VPP participation in wholesale markets. So I do think that these are a lot of very productive measures, but I’m cautiously optimistic after Order 2222 being a bit of a letdown in the last couple of years.
Stephen Lacey: Do you share that mild pessimism?
Jigar Shah: No.
Jen Downing: Of course he doesn’t.
Jigar Shah: I mean, my God, look at all the people in this room. They’re here for the Flex Summit. Why are they here for the Flex Summit? Because this is our moment, right? When you think about this whole thing started with Arnold Schwarzenegger in 2007 with the California Solar Initiative, where we were required to provide real time data to the utility, which they have never read or integrated into their system. Then FERC ruled in 2008, then John Wellinghoff ruled with A41, then Neil Chatterjee ruled with 2222, then Rich Glick did 2222-A. We are now in a place where everything is so messed up that the DOE who are filled with molecules people and the National Energy Dominance Council, bunch of molecules people are like, “Crap, this whole natural gas thing isn’t going to work, is it? We’re going to have to do this damn flexibility thing.” That’s why it’s in there.
It’s not there because they like me. They clearly don’t. They tried to put me in jail in 2025, right? But they’re like, “We love AI. We want it to be online. We want to win. And the only way to do it is to get more out of the system we’ve already paid for.”
Stephen Lacey: What are you talking about? The gas people are licking their chops.
Jigar Shah: The gas people will make a lot of money on the actual sale of equipment, but the pipelines are going to take five to seven years to upgrade. All of this stuff just isn’t getting deployed as fast as it could be. But what is getting deployed fast? Batteries all day. Batteries is what saved the Texas grid and it’s now going to be reluctantly going to have to save the PJM, right? That’s where we are. And that’s why it’s in the bill. It’s not there because everyone’s like, “Well, it’s such a good idea,” whatever else. It’s there because nothing else will work and the White House actually approved it being there.
Jen Downing: Fully agree. And we’re taking two different approaches to our common call to action, I would say. But I think my point is we just can’t let our guard down. The way that DERs are getting greater access to wholesale markets is organizations like Voltus and CPower doing the hard, extremely technical work of picking apart the wholesale market participation rules and making sure that these… Here’s a good example. I was talking to a VPP company that said, “We have to rely on distribution data to measure the impact of our DERs to get paid.” And that data exists, but 65 out of 365 days of the year, the data feed coming from the utility just goes down. So it’s the very tactical measures like that that stand in the way, not the kind of theoretical, “Hey, under this permitting bill, you have 18 months to comply with Order 2222.” The devil’s in the details and we need people kind of fighting at every step of the way on exactly how it gets implemented.
Stephen Lacey: Let’s just finish up with a look at California. Governor Newsom signed two VPP bills recently after rejecting others. One directs regulators and the grid operator to better measure and reward the value of these resources. The other requires utilities to start measuring and reporting how efficiently they use their grids. California has really struggled with getting this market off the ground. We saw the governor sort of reject other pieces of VPP legislation. Is this a good moment for California? Obviously they’re working on their market rules, but they also have a VPP program that’s falling off the cliff in terms of funding. So on balance, what’s going on in California. Jen?
Jen Downing: Yeah. I’m going to express potentially an unpopular opinion on the program that you just mentioned fell off a cliff. So that’s the DSGS program, the Demand Side Grid Support program, which personally I always thought was weird. And the reason why is because California basically said, “We know that distributed energy resources can be used to keep the lights on during periods of grid stress, and we think it’s a good cost-effective resource, but instead of directing our utilities to change how they plan, build out, and operate the grid to incorporate more DERs, we’re just going to let them continue on, charge ratepayers over 30 cents per kilowatt hour, and then we’re going to use taxpayer dollars to create this pool of money to pay DERs to keep the lights on when the grid is too stressed.” And I understand that that was a good way to prove out that hundreds of megawatts of DERs can show up when the grid needs it to keep the lights on, and that was a good proof point from…
Jigar Shah: 1.2 gigawatts, just Tesla alone.
Jen Downing: Amazing. Yeah, exactly. So we know that this can be deployed at scale. And now the measures that California is taking is to say, “Hey, we ran out of money with DSGS. Let’s actually go change the utility business model. Let’s allow them in Senate Bill 913 to count DERs towards the resource adequacy requirement.” And then with Senate Bill 905, the California regulator, the CPUC, is instructed to require utilities to publish data on the grid utilization. And I think don’t underestimate the power of measuring and reporting this data. A good proof point on the value there is look at Massachusetts that requires their utilities to publicize the 10% most constrained nodes on the distribution system. And if you can drop peak on those constrained nodes during peak hours through the Clean Peak program that Massachusetts has, you’ll get paid double. So now if you’re a DER company or VPP company looking, “Hey, where will I get paid the most?” You are now enabled to zero in on the most valuable point in the grid to sign up a customer to participate in these programs. California is taking a step in that direction with Senate Bill 905.
Stephen Lacey: Is this step enough, Jigar, for California to get its act together?
Jigar Shah: I mean, you know I’ve been slaving at getting this done in California, right? We passed these bills last year and got vetoed by Gavin Newsom. Then we wrote the bills with PG&E earlier this year and PG&E undermined the bill through the process and Gavin only signed them because under duress he was like, “I can’t be president unless I have a better reputation.” I don’t think Gavin wanted to sign them, but he was like, “Well, crap, this is going to look bad if I don’t.” So that’s happening, but then separately, PG&E has shown extraordinary leadership with DC Flex and then T-Flex. When you think about how that works, what they’re saying is, “We’ll connect you, but then for the hours that we can’t give you the full allocation of power, we will deny you access to that power.” Now, you have to figure out what to do if you don’t want to be turned down during those hours.
These batteries are already there. They’re already registered into the DSGS program, right? But when you look at the CPUC has eviscerated the value of these programs, when you talk to Elliot Mainzer at California ISO, he’s like, “I don’t set that rule. All I do is implement FERC Order 2222. I don’t set what they’re worth, and the CPUC has deliberately made it worth zero so that nobody wants to participate in my program.” This was a calculated thing that was done on purpose. Even if you wanted to bungle this this badly, you couldn’t figure out how to bungle it this badly. And so it had to be something that they deliberately did because they hated distributed generation so much. And so now we’re on track to fixing it, and I think that’s amazing. We have three gigawatts of already paid for behind the meter batteries alone, let alone Nest thermostats and Ecobees and all that stuff, plus smart water heaters and all these other things.
Carrier is part of the share pilot with their battery. What shocks me in California is that there’s a hundred companies in California that do awesome stuff here. All of them are here at Flex Summit. Thank you for being here. And none of them can do business in the state of California, right? This is now going to change.
Jen Downing: Yeah. I want to just add one thing, which is I mentioned it’s a step in the right direction to change how PG&E, SoCal Edison, they are planning, managing all of the utilities in California, how they’re managing their grids. It does make it more challenging if you are a VPP company where before you’re raising money from investors, you’re making a business case, you could point to that pocket of state budget and say, “That’s my addressable market here. That’s what I’m going after.” Now your fate is in the hands of the distribution utilities and it’s unclear how much they’re going to spend on your grid services.
Stephen Lacey: All right. We’re halfway through the show. That was our quick tour through the news. We just talked a lot about ways that people are trying to shape the power grid. Let’s actually bring in someone who runs one. Let’s welcome to the stage Todd Conner. He’s the senior VP of electric distribution at Xcel Energy. Todd, welcome.
Todd Conner: Thank you. I think I got better cop than you did.
Stephen Lacey: Were you itching in the seat there wanting to respond to Jigar on any points?
Todd Conner: It was a little squirmy.
Stephen Lacey: All right. So you run a team of 4,400 people roughly at Xcel. You oversee enterprise distribution grids. That includes operations, planning, compliance, safety. You’ve been in this business for 35 years. What is different about today’s pressure, today’s load growth pressure from the past, and how are they forcing you to get creative around flexibility?
Todd Conner: There have been a lot of load waves come through the industry, I think, and historically, this one’s different in that a lot of the past ones didn’t actually show up or they showed up real gradual. This one, we knew it was coming and then the AI boom just turned on. And so it’s real and we have these customers that come with an infinite checkbook. But on the flip side, these same customers that are the hyperscalers are consuming the resources that we also need to be able to deliver. So it’s created this tug of war all the way around to just be able to serve. But it’s also, it’s a great time to be in the electric industry. I mean, we’re at this inflection point of how the grid operates, how we design the grid. We’ve run this system for 125 years a given way. It was designed by Edison and Tesla and Westinghouse, and we’re at this place where in 30 or 40 years, the textbooks, they’ll talk about those folks, but they’re going to talk about the Dukes, the NextEras, the Dominions, the Xcels, the PG&Es, about how this generation transformed and built the next future of the grid.
So it’s however many generations, 125 years is. It’s a once in many lifetime opportunity in this industry.
Stephen Lacey: Yeah. When we chatted, you said something that really struck me. You said flexibility is a commodity to be harvested. What do you mean by that from a distribution operations perspective?
Todd Conner: So I don’t really look at flexibility or utilization as a scorecard. It’s not a result. It’s a tool. We’ve built this grid. We’ve always worked to connect load when one load would come and ask, can we connect here, here, here? And we might be peak constrained like you all were talking about. We have always looked for ways to fit it in. How do we push down the peak? How do we add more utilization? It may not have been that language, but we’ve used the tools available to drive up utilization of the grid. It’s not our desire to, contrary to popular belief, to just go spend capital. It’s our desire to connect load and meet our compact. And if we can do that directly, that’s better for everybody. It’s a win for us and it drives customer value. So utilization is a lens through which we can look at the grid at segment by segment, element by element level.
It’s not a score of the whole grid, and we can use that lens to find places where we can encourage load to go to because we can connect them better, faster. We can invest less capital, create less revenue demand. And as a result of doing that, we create customer value. Just connecting things doesn’t always create customer value, but we can find ways to create customer value. But it’s got to be optimized.
There’s an analog out there, an analogy out there going, view the grid as a highway and there’s only two cars on this four lane highway, that’s underutilized. Well, take that same highway at rush hour and you’re moving at five miles an hour, that’s when the grid doesn’t work as well. So it is an optimization problem and it’s a tool. It’s not the answer.
Jigar Shah: Well, I mean, I’ve been working with Xcel since 2004 and I would suggest that they’re one of the utilities that I think has consistently done it right every single time. You had to push them. We had to pass Amendment Four in Colorado with Matt Baker, do this, but then they did it. They were like, “All right, this is the new rule set. We’re going to do it the best way we can.” I think when you think about what both Xcel and Elite are doing in Minnesota, I mean, it’s nothing short of breathtaking and it’s tough. I mean, there were a lot of criticisms of why is Xcel rate basing this stuff? Why aren’t the private sector folks able to buy the batteries and get a contract?
Stephen Lacey: You’re talking about the Capacity*Connect program.
Jigar Shah: The Capacity*Connect program. As far as I’m concerned, my north star has been that flexibility has never been an equal tool in the toolbox, even though FERC has asked for it to be since 2008. And I think what Todd and his team are doing is figuring out how to operationalize making flex an equal tool in the toolbox. And whether that’s rate based or whether that’s a demand signal or whether that’s it or that or whatever, I’m fine with all of it. Each group is going to do something different, but what I’m not fine with is rates going up at double the rate of inflation, a huge percentage of the population being on fixed incomes. Those utility bills are actually eating into their fixed incomes and people are like, “Well, what would you have me do? Change my way of doing things? Yes. I would like for you to change your way of doing things.” And I think Todd’s leading the way.
Todd Conner: There’s elements in there that I completely agree with. I mean, if you look at our total territory, we have the lowest share of household wallet of electric bills in the United States. If I just look at our distribution system, we are the third lowest O&M expense per customer utility anywhere. So we really focused on that. We literally spend agonize over our capital plans to try to push our rate growth at or below the rate of inflation.
Jigar Shah: I can tell you that there’s a lot of other people who are not the third lowest, that they are the third highest, and those are the people I’m criticizing.
Todd Conner: Yeah. So I can’t speak to them.
Jigar Shah: You can speak for them. Go ahead. Teach them exactly how you’re getting it right because you are getting it right. It’s fantastic.
Todd Conner: Yeah. I don’t sit in their offices, but what I would tell you is our focus is on customer value. And even DER, just putting DER on the grid is not an objective for us. It’s not an anti-objective either. It’s what option creates the best value for our customer along the way. And sometimes it’s non-wires and sometimes it is wires.
Jigar Shah: Well, the other thing though that I think you guys have taken very seriously, particularly under Tim Walz, but even before that, is that as this load growth approach to you, first it was the IRA and a bunch of manufacturing, onshoring and reshoring, which Minnesota obviously is a very business friendly state. But then with AI data centers, you also had the same issue where people were starting to see two year interconnection timelines and four year interconnection timelines. And the governor was like, “What the hell, man? You have one job. Help me get economic development done.” And I think what you guys did differently was when Google came to you and said, “Hey, I think we can get this thing done faster if you guys agree to these three changes,” you were open-minded to it in a way that a lot of other utilities weren’t open-minded to it and have resisted heavily.
And so I think it’s important to note that what we’re talking about here is central, in my opinion, to speed to power. And there’s a lot of other utilities that are just not taking speed to power seriously. They talk about it, but then a year goes by and nothing is actually improved in terms of doing business and connecting faster.
Todd Conner: Yeah. I’m really proud of what we did with Pine Island and Google and put forth that large load tariff, one in the way it protects our customers, but also it protects the environment and the communities in the area from a lot of the complaints and issues that exist with data centers. I would also say that when you look at the solutions, many utilities, if you just look at the IOUs, every one of us has a set of solutions that solves this problem or this problem or this problem. Few of us have, we’ve solved all the problems together. So we each have the wonky spot that doesn’t work. And it’s not a lack of desire in most cases. It’s how do we sew all these things together and working together to create, I’ve solved this and you solved this and you solved this. The benchmarking between us and coming with common solutions, that I think is the path forward.
I think it is unfair though to go point at them or them or them and say, they’re bad, they’re evil. They’re solving a lot of problems, just not this problem. And so there’s a balance…
Jigar Shah: The number one GDP growth driver of our country, that’s the problem they’re not solving?
Todd Conner: Say that again.
Jigar Shah: The number one GDP growth problem or growth driver of our country, that’s the one problem they’re not solving?
Todd Conner: DER and interconnect studies is not the number one growth problem. It is a problem.
Jigar Shah: No, no. It is the number one solution. We’re here because it’s the number one solution that people have not taken seriously. I just want to be crystal clear about this because I feel like people want to hedge just because they want to protect. And I don’t call anybody evil, but I do call people stupid. I mean, there’s a lot of people out there who basically are deliberately hurting their governors and hurting their states. And the reason why people hate data centers so much is because their utilities have not used this tool to maximum effect, even though they’ve been told by FERC to get ready for this moment for over 20 years. And so the fact that they haven’t met this moment is their fault and they absolutely should own that.
Todd Conner: Well, there’s a lot of players, but I mean, look at what we’ve been doing.
Jigar Shah: That’s what I’m talking about. And I think you’re impressive.
Todd Conner: I think we’re trying to lead by example. And there’s other utilities that have done really great things in the space as well. And I think we’ve evolved and had a lot of learnings in the domain of data centers as they’ve worked their way from the East Coast and the West Coast towards the central US. And I think we’re getting on a much better pathway here.
Stephen Lacey: Can you just address what Jigar said head on though? He’s saying this is the best pathway forward for accommodating data centers and opening up new capacity. I think a lot of people in this room make that claim, this is the best affordability solution. So when you’re evaluating different types of flexibility on the system, how do you evaluate the right tools and do you have any pushback on the idea that this is the ultimate solution?
Todd Conner: So I’m a big believer that we need to look at each of the individual options and we need to look and score those. I’m also a believer that as we go to this large load demand space that we’re in, these large loads have to pay their own way. We should not be putting the costs on the back of our customers and socializing it across the whole grid. These folks are coming in and they want to consume portions of the socialized grid. And if they don’t pay their way, then those that paid in the past are just creating space for them and the people that are coming in the future don’t have room. And what we’ve done, I think is exactly the right thing that we’ve done in Minnesota. And it’s more than just capacity management and paying your own way. It’s also, you have to meet certain criteria if you want to get in.
If you’re a data center, are you air cooled? We have a big list of hurdles you have to get across to earn the tariff. And I think that’s the right thing. I think that’s the right thing for the company. I think we’re modeling what it’s supposed to look like.
Jen Downing: Can I come at that question from a little bit of a different angle? Coming back to the theme of treating flexibility as a resource to be harvested, my question is how much? And where I’m coming from with that is when Jigar and I were working together at DOE, we looked at how big could VPPs be on the grid? And VPPs, obviously that’s a combination of flexibility and capacity from DERs. But if you look at the nameplate capacity of devices and a reasonable enrollment rate and load growth trends, it was pretty obvious that 10, maybe even 15, 20% of peak could be flexed. And for a utility, that means either it’s savings because you don’t have to build out the grid quite so large or it’s your interconnecting more load in that headroom that you have just created. Do you think about the flexibility resource as a percentage of peak and what do you think is possible for Xcel?
Because we look around at other IOUs across the country and best in class is like 1%, 2% of peak. But you look at some of these smaller co-ops, for example, who are managing 10% of their peak demand down through flexibility. What do you think is possible for Xcel? Do you talk about it in those terms internally and what would your goals be?
Todd Conner: We do, but I hate to measure in terms of how much flex could we add in terms of peak.
Jen Downing: Or harvest.
Todd Conner: Right. Or harvest, right? Yeah. My peak is 19 to 20 gigawatts is what our total system north to south runs. If I look at the distribution system in certain areas, I may have a gigawatt, a gigawatt and a half of headroom if I just use the total area that’s available ignoring the peaks where they consume. If I could eliminate that peak, that’s what I would have as headroom in the grid. That’s not all reachable or it’s not reachable in an economic way. Probably 30 to 40% of that in that jurisdiction is potentially achievable in a meaningful harvestable way.
Jen Downing: That’s pretty big.
Todd Conner: 30…
Jen Downing: To 40% of it.
Todd Conner: But now I’m looking at what? 300, 300 megawatts versus…
Jen Downing: Sounds big to me.
Todd Conner: Well, yeah, but think about it. You just said percent of peak. So 300 megawatts compared to 20 gigawatts is what, one and a quarter percent. So that’s why I said I don’t like that measure. I can avoid wires construction and major capital investment to expand the grid if I can break my way into that. If I’m able to break my way into that and there’s load that gets married to me that is flexible enough to land where I need it to land, I can go deliver that 300 megawatts. And I don’t have a new revenue requirement, but the revenue that does come in now creates downward rate pressure for our customers. That cost of the next incremental megawatt of load actually serves real value to my customers. And that’s the real measure I like to look at is what did we serve to our customers at the end?
What’s the result in terms of value and measure the incremental dollar per next megawatt serve? Did we serve it? Now I know I’m doing something.
Jen Downing: Yeah. And what I’m hearing you say too is it’s all very location dependent.
Todd Conner: Incredibly.
Jen Downing: So. Yes, which is incredibly important to recognize.
Todd Conner: Yeah. PG, the slides that were up in the previous session, there was a slide up that says, how can we use batteries to unload substations? I loved that problem statement. I think DER’s, one of its biggest roles is to push the peaks down and start to make the distribution grid or at least the variations in the distribution grid less demanding on substations. Take it to a hyperbolic limit. How do you make distribution invisible to transmission or to substations? That’s not a real end state, but how do you make the noise go away and have a very clean, stable method that we’re going to operate the grid and not constantly driving all the ups and downs? It’s an idealized outcome to say that, but I think we have tools to move and smooth it as opposed, and it’s not going to go away, but we can smooth it with these tools and it makes a real difference.
Jigar Shah: Yeah. I mean, look, I think that the thing that I think people are having a hard time communicating here is that whatever that number is, and I’ve obviously worked with Xcel for 20 plus years, it’s real dollars. I mean, unlocking 300 megawatts worth of headroom for you guys is a billion dollars in contracts for everybody here. It’s a lot. And I think that when I first started working with Xcel, they were like, “Jigar, if we ever have renewables above 5%, the grid’s going to go down.” Whatever. I was like, “Fine, give me 5%.” And I did it. And then now it’s regularly 90%, but whatever. SPP was the same. They were like, “If we go above 5%, Jigar, the grid’s going to go down. Okay. Now it’s regularly 90%.” But I don’t care where we get started, but I do care that we get started.
And I think the fact that you guys have, I think, been a real leader around getting started, and obviously our friend Arushi’s in the audience and she’s gotten Texas started with the ADR work and we’ve gotten other people started, I think matters, but it’s got to be a billion dollar scale. If it’s at $20 million scales, you’re out. I don’t want to hear about the BS around $20 million scale. It’s got to be a billion dollar scale. And I think that’s the people who are serious and the folks who aren’t serious are giving me $20 million stuff.
Todd Conner: I agree in large extent of what you’re saying, but it’s not how much do I spend on DER. DER is a tool. I have a toolbox. DER is one of my tools to help harvest capacity to drive customer value. And the measure has to be up at the top. And it might not be popular here in the room, but I don’t care if we buy DER, we don’t buy DER. That’s not the objective. The objective is to both serve our compact and drive customer value. We have new DER tools today that we didn’t have before. It lets us look through that lens of utilization and harvest that value in ways we couldn’t. The other cool thing that we have is we have compute capabilities that we never had. So I have the data from AMI meters, so I can see real load flow data. I can see better RTU data.
And then I take that data and I push it through some of these AI tools that can consolidate and consume this data quickly. So it’s not months of study to say, “Hey, what was the utilization on this day?” It could take weeks to calculate the utilization on a subset of feeders for one day. I can do it in minutes now. And so my ability to see it is greatly enhanced. So my toolkit and the lens that I have, we’re in a time where I get to act more efficiently and find things and take better action than we could in the past. And so it’s not about buying DER. It’s not about how do we put a VPP on? Those are just tools. It’s customer value at the end that we have to get to. And I know that sounds like a broken record, but that’s my mission.
I don’t care if I buy transformers from GE or Howard or Hitachi or anybody else. I care about the results of the grid.
Jigar Shah: The thing that you have to though understand here, and I get what your mission is, but the mission of the governor is to get reelected. And what the governor wants is to actually make sure that households are empowered, which is what everybody in this room does for a living. And so the thing is that yes, maybe you can just jam a bunch of low heat rate or high heat rate natural gas units somewhere, which a lot of your brethren and other utilities are doing, but it’s causing an enormous political backlash, right? And I get it. They’re saying the same thing you’re saying. They’re saying, “I got a lot of tools in the toolbox and I’m using this tool that pisses everybody off, but I like using it.” But what I’m saying is that then the governor is saying, “I used to like the utility, but now my poll numbers are saying I’m supposed to hate the utility because otherwise I can’t get reelected.” And so part of…
Todd Conner: But look at the tools I’m using though. I’m using all the tools in my toolbox. And I also had the luxury of being in a place in the United States where the wind blows and the sun shines. My renewable resource base is one of the best in the US and we’re able to leverage that day in and day out and we do. So we’re using all the tools that we can. And so I think the scorecard needs to be not the utility industry or utilities. I think it needs to be the individual company and how are they doing and how are they working? And don’t necessarily lump everybody together and step back and look at the… Somebody has to sit in that chair and make a decision and what do they have to do with day in and day out? I think that’s a fairness we have to give everybody.
Stephen Lacey: Well, we just have a few minutes left. So I want to round this out with a game of would you rather? This is one of my favorite games, although typically it’s played late night at a bar and things can get somewhat raunchy, but we’ll keep it very professional here. It’s very easy. I’ll give you two options. You’ll explain which option you’ll pick and why, and let’s try to get through as many as possible. So would you rather have batteries at half of today’s cost or interconnection in half the time? Jigar or Jen? Jen?
Jen Downing: Half the cost. I think if you look at households who are interested in backup power and they’ve heard of distributed batteries, but maybe a generator is cheaper, if we can have the cost of batteries and add more batteries to the grid behind the meter faster, even in states where they may not have utility programs for those customers to enroll in yet, if we add that capacity, there’s more incentive for utilities to start incorporating them into how they’re managing the grid.
Todd Conner: I think all things being equal in terms of customer value, I’d like to see the interconnect process go faster. I’d like to see us be able to bring on more load, bring on more resources and move through the permitting and the third party review processes that we have with both permitting and interconnect way faster than we do today. It’s probably our biggest headache.
Stephen Lacey: Jigar?
Jigar Shah: I think by this time next year we’re going to eliminate the interconnection process altogether, right? I mean, as long as you’re not back feeding into the grid, we’re going to say it’s an appliance, right? No back feed. I don’t need to talk to anybody about it.
Stephen Lacey: All right. Clean firm or flexibility. Would you rather have one gigawatt of new nuclear in 2035?
Todd Conner: I want what he’s drinking.
Stephen Lacey: Or one gigawatt of flexibility. One gigawatt of nuclear in 2035 or one gigawatt of flexibility in 2028? Todd.
Todd Conner: I think right now I’d want the flexibility. I think there’s a lot to be seen in terms of our ability to deliver nuclear and deliver it on cost and on schedule. I think it’s a very important part of the grid that’s going to come, but I think we need to solve some near term problems today.
Jen Downing: I mean, imagine posing that question to a hyperscaler. Would you rather generate revenue seven years from now or today with a one gigawatt data center? I think the answer is obvious.
Stephen Lacey: Yeah. I think that’s a good answer. Okay. Jigar, would you rather run the grid like Uber with real-time surge pricing for every kilowatt hour or like Netflix with one flat monthly subscription for unlimited power?
Jigar Shah: Well, I mean, I think we are moving to Netflix, right? I mean, that is what the Grid 2.0 task force is, right? And it’s not what you just suggested. What it is, is we’re going to throttle folks, right? It’s net neutrality. So at the time at which the grid’s at peak, everything in your house is digital. It’ll ask for permission to use power. And if there isn’t power right now, it won’t get power. It won’t get permission to use it. That’s where we’re headed.
Stephen Lacey: Anybody else have strong opinions? Netflix or Uber?
Todd Conner: I hate that view.
Stephen Lacey: I kind of thought that reaction.
Jigar Shah: Learn to love it.
Todd Conner: Yeah. I still subscribe to the view that how would you like it if you can only have water for your house during these hours? Or if the whole community is cooking Sunday dinner, you can’t do the dishes. Water and electricity start to become… It’s not just a commodity. It’s an essential thing that we serve with. And I think we need to find ways to serve fully what the demand is along the way.
Jigar Shah: I don’t think you’ve seen Traitors on Peacock. I mean, I need Traitors. I need it. I need it. That is an essential part of my evening.
Stephen Lacey: I have no idea what you’re talking about.
Jigar Shah: I think there’s… It’s a great new show on Peacock.
Todd Conner: My TV’s on one day a week.
Jen Downing: It is productive though as just a thought experiment. If I were paying a capacity payment rather than an energy payment on my utility bill, paying for the kilowatt max rather than the kilowatt hours that I’m using, what are the different business models that will take shape to help me get as much as I need from my appliances and my EV, et cetera, and not think about it because you have all of these sophisticated software programs in the background or these smart devices that people have invented to make my life easier and manage the grid. And it’s companies that are all represented today here thinking about, “Hey, how do we make this a reality from a software and hardware standpoint?”
Stephen Lacey: All right. We’re going to have to close it there. We’ve come to the end of our time. Todd Conner is the SVP of Electric Grid Distribution at Xcel. Thank you so much, Todd. Jen Downing is an operating partner at Ara Partners. Jen, great to see you.
Jen Downing: Good to see you too. Thank you so much.
Stephen Lacey: And Jigar Shah is the co-managing partner of Multiplier and my regular co-host. Thanks, Jigar. Good to see you.
Jigar Shah: Always.
Stephen Lacey: Open Circuit is produced by Latitude Media. The show is produced by me, Anne Bailey, and Sean Marquand. Fine Grain Pictures produced the video for this episode. If you want to see all of our episodes, subscribe to Latitude Media on YouTube, or you can get all our audio episodes on Apple, Spotify, or anywhere you get your podcasts. Thank you so much, Flex Summit. We’ll catch you next time.
