ERCOT made a choice years ago that most of the country is now reconsidering. Texas runs an energy-only market with no capacity payment, connects generation through connect-and-manage and sorts out delivery in dispatch, and pushes interconnection risk onto developers. That design is a big part of why Texas has added generation faster than any other grid.

PJM, the operator across much of the eastern US, is now weighing whether to move in that direction. A white paper from the operator describes a shift from managing surplus to managing scarcity as data center demand outruns new supply, and lays out three pathways: long-term bilateral contracts, differential reliability standards for new loads, or an ERCOT-style tilt toward an energy and ancillary services market with a smaller capacity role. The scale is real in both regions. ERCOT is now studying roughly 445 gigawatts of large-load interconnection requests against an 85-gigawatt system, while one Dominion territory projects 70 gigawatts of new demand against a 24-gigawatt peak.

On this episode of the Energy Capital Podcast, Joshua Rhodes talks with Josephus Allmond, Virginia’s Chief Energy Officer, about what separates the two grids and what PJM can take from the Texas model. Allmond points to ERCOT’s interconnection speed as the clearest lesson, against PJM’s projected 700 days from queue to agreement before construction even starts.

He also names the wall the borrowed fixes hit at the state line. Virginia’s State Corporation Commission requires large customers to pay 60 percent of a minimum generation charge for 14 years, even when a data center builds its own power. A load that sources its own generation, Allmond says, ends up “paying their own way and then turning around and paying Dominion.” The conversation works through:

* ERCOT versus PJM structure, energy-only and connect-and-manage against PJM’s capacity market and consensus-driven stakeholder process, and why one moves faster.

* PJM’s three pathways, and how Path C, the energy-market tilt, is the one Allmond reads as closest to ERCOT.

* The large-load tools, controllable load resources and behind-the-meter generation in Texas, and the Virginia charge that makes the same moves uneconomic.

* Interconnection speed, ERCOT’s developer-risk model against PJM’s roughly 700-day queue.

What PJM borrows from ERCOT, and what it refuses to give up, will shape how fast either grid can serve the load now lining up.

Timestamps

* 00:00 - Introduction and Guest Background

* 01:52 - Virginia’s Chief Energy Officer Role

* 04:15 - Data Center Alley and Virginia’s Hub Status

* 06:29 - ERCOT vs. PJM: Governance and Transmission

* 10:53 - PJM’s Shift from Surplus to Scarcity

* 19:29 - PJM’s Three Reform Paths

* 24:19 - Virginia’s Minimum Demand Charge Problem

* 29:36 - The Data Center Tax Exemption Fight

* 31:50 - Path C and the ERCOT Parallel

* 35:17 - What Has to Give: Allmond’s Closing Answer

Resources

People & Organizations

* Joshua Rhodes (LinkedIn)

* Webber Energy Group (Website - LinkedIn)

* IdeaSmiths (Website - LinkedIn)

* Micalah Spenrath (LinkedIn)

* Matt Boms (LinkedIn)

* Texas Advanced Energy Business Alliance (Website)

* Energy Capital (Website - LinkedIn - YouTube)

* Texas Energy & Power (Substack)

* Josephus Allmond (LinkedIn)

* Office of the Virginia Chief Energy Officer (Website)

* Southern Environmental Law Center (Website)

* PJM (Website)

* Monitoring Analytics — PJM Independent Market Monitor (Website)

* ERCOT (Website)

* FERC (Website)

* Dominion Energy (Website)

* Virginia State Corporation Commission (Website)

* Virginia Department of Energy (Website)

Books & Articles Discussed

* Powering Reliability Through Market Design — PJM White Paper (PDF)

* How Will Data Centers Pay for Power? — Travis Kavulla, American Affairs (Website)

Company & Industry News

* PJM floats options for capacity market overhaul (Utility Dive)

* Spanberger creates new cabinet position, appoints Allmond chief energy officer (Virginia Mercury)

Related Podcasts by Energy Capital

* How Texas Plans to Serve Infinite Demand, with Eric Goff (Texas Energy & Power)

* NRG’s Gigawatt VPP in Texas, with Travis Kavulla (Texas Energy & Power)

* Who Pays for Texas Grid Growth? — Roundtable Discussion (Texas Energy & Power)

* Who Pays for the New Grid, with Pablo Vegas (Texas Energy & Power)

Transcript

Joshua Rhodes: Hey everyone and welcome to another episode of the Energy Capital Podcast. I’m really excited to have Josephus Almonds on today to get us out of our comfort zone a little bit here in Texas and ERCOT and talk a little bit about PJM, kind of some of the things that are happening in other grids. PJM is one of the other grids that is experiencing large amounts of load growth, particularly from things like data centers. Texas is no stranger to that. And so it might be useful to figure out kind of how other regions are doing it, approaching it, and maybe we can

Cross-collaborate on some of those. So Josephus got his JD from Duke, where he did a couple of stints at BakerBots and Kirkland and Ellis. And then he was an attorney with the Southern Environmental Law Center, where I should say that we worked together on Dominion’s IRP a couple years ago, intervening in that. But recently was named CEO, should say Chief Energy Officer, although this may be one of the few podcasts where Chief Energy Officer might get you more kudos than Chief Executive Officer for sub.

But Josephus was recently named Chief Energy Officer from Governor Spanberger. Josephus Alman. Welcome to the Energy Capital Podcast.

Josephus Allmond: Yeah. Thank you so much for having me, Josh. It’s good to see you.

Joshua Rhodes: Yeah, it’s good to see you too. So first I gotta ask, how’s dad life treating ya?

Josephus Allmond: It’s great. We actually just had his first birthday party this past Saturday. So awesome. We went all out with a clues theme, had paw prints all over the house, a bunch of decorations. We had my in laws were in town from California and some of her aunts from Texas. So full house, lots of friends and family over and a blue smash cake that Josephus really loved.

Joshua Rhodes: Nice. That’s awesome. You know, Aiden’s only just about a month ahead there. I remember when I when we were working together when you were at SELC and I was like, hey, I’m not gonna be able to make this like super important meeting that I said I’d be at because it’s literally on the day of my son’s birth. I think you told me that y’all were also expecting. So that’s awesome. We’re right in there together. Neither of us are probably getting any sleep at all. So we’ll see where this goes.

Let’s start out with the job title. So Virginia now has a chief energy officer. So what was the problem that the Commonwealth was trying to solve with creating that role? And what does success look like for you there?

Josephus Allmond: Yeah. So historically we’ve got a Virginia Department of Energy, used to be known as the Department of Mines Minerals and Energy. And so they do all of the permitting for mines for oil and gas, mostly out in Southwest Virginia, and recently started to do more of the state energy office stuff as Virginia created the RPS and started its clean energy journey six years ago with the Clean Economy Act. So that’s sort of one agency within the Secretary of Commerce and Trade, but

We all know that energy sort of touches everything. And so the governor really wanted to create a more nimble cabinet level position that could work with the different secretariats on energy issues as they pop up and as they’re impacting the different secretariats. And so the Virginia Department of Energy is still under the Secretariat of Commerce and Trade and we’re working really closely together. They’re doing some modeling to inform an energy plan that we gotta put out later this year.

But I’ve really got sort of the ability to work not only with them, but with the Secretary of Labor when it comes to apprenticeship requirements or the Secretary of Education when it comes to apprenticeship programs in K twelve or energy savings performance contracting, as we’re looking at trying to get more efficient government buildings to even working with our Secretary of Public Safety and thinking about

Can we develop some distributed solar facilities at our jails and prisons and incorporate some training there? So really trying to bring energy to the forefront in sort of everything that we’re doing. And in today’s world where affordability is sort of dominating the conversation, having that position at a cabinet level, I think really just elevates the importance of it and puts more of a high profile on it, just given how much it sort of seeps into everything that we’re doing.

Joshua Rhodes: Yeah, totally. I mean, particularly on the affordability front with all the load growth and with electricity and data centers. I mean, Virginia’s no no stranger to data centers. You’re kind of the original area. Can you talk about data center alley? Where is that located and what’s the importance of that region and the energy that it consumes?

Josephus Allmond: Yeah, so we are sort of the data center capital of the world. Loudoun County is home to Data Center Alley up in Northern Virginia. And there are a number of reasons why I think that emerged as a hub. We’ve got a great fiber network already built out, the proximity to DC for the three letter agencies and their needs. And then our tax exemption is something that we’ve had on the books for a really long time and gives an exemption for

Basically all of the equipment that you purchase for your data center facility, that’s going back, you know, fifteen years at this point. And the way that that exemption has played out over time is that once a data center sort of obtains that exemption in a specific county, everything else that they do in that county is rolled up into that same memorandum of understanding. And so even if, you know, the subsequent facilities don’t hit the original investment and jobs numbers to get you that initial exemption.

you can still sort of roll new facilities into that. And so that’s why we’ve sort of seen that clustering effect in Northern Virginia, but even now in some other counties where they’ve started to develop.

Joshua Rhodes: Okay, I’d never heard that part. That makes a lot of sense. I mean, on Texas has some economic development tax codes and things like that for abatements and things. Well, we won’t get down into the weeds of those necessarily. I remember hearing something like seventy percent of the world’s energy traffic goes through Northern Virginia and data center alley. I think Texas is trying to give Virginia a run for its money when it comes to data center capital of the world. I think we’ve, you know, got hundreds of gigawatts of data centers that are trying to connect. I haven’t I haven’t believed these numbers in a long time.

Around here. I don’t know that anyone believes load forecasts right now. But I mean a lot of the focus of this podcast is really around electricity and we’re deeply steeped in ERCOT. Can you explain for an audience like what the biggest structural differences as you see in between like ERCOT and PJM are?

Josephus Allmond: Yeah. So I think the the biggest one that comes up to me is sort of the governance. And so PGA app has a stakeholder consensus process that can really slow things down. And so they’ve got to reach a certain threshold of votes to get to consensus on any given issue before that even goes to the board for consideration. And then more often than not, you also need FERC approval after that. Whereas less FERC oversight with ERCOT.

And then for transmission planning, Texas had the competitive renewable energy zones a long time ago that really laid the foundation for transmission. PJM does transmission, I say more of an incremental fashion through the RTEP process, regional transmission expansion process that sort of looks to build out infrastructure over the next several years, but not quite as comprehensive as sort of that competitive renewable energy zone process from Texas.

Joshua Rhodes: Yeah, we’ve built a lot of transmission down there. You mentioned the Kres lines. We’ve got another tranche of lines coming, the Permian Reliability Project or the STEP lines, as it were, building some really big 765 transmission lines, some really even higher even higher voltage ones. They’re working their way through the siding process right now, which, you know, is a whole another regulatory kind of firms. Whenever you’re, you know, moving that linear infrastructure. You mentioned like a pretty

detailed like consensus. I talked to a consultant named Eric Goff on a couple of podcasts ago and ERCOT used to have a stronger consensus. He said ERCOT used to have a stronger consensus mechanism and then post URI it became more of kind of an advisory body. It became less consensus or less binding. If the consensus is slowing things down, is there any look in how that might change in PJM or anything like that?

Josephus Allmond: Yeah, I think that’s one of the big issues is sort of how slow things are moving and also how fast they need to be moving going forward with the supply-demand gap that PJM is projecting, these sort of long, drawn out stakeholder processes might be good in an environment with no load growth where careful planning can sort of take its time. But when we need to be making really significant overhauls of the capacity market generally.

It’s good to see how that stakeholder process can sort of lead to that result in any amount of time that sort of solves the problem that we’re we’re needing to solve.

Joshua Rhodes: One of the biggest differences also between like ERCOD and other regions like PJM is, you know, this kind of multi-state governance situation you got going on. There’s a lot more people in the room when it comes to making decisions, a lot more people maybe represented in the room. There were some recent statements out of FERC saying that maybe BJM was a little bit ungovernable when it comes to that. Is that that’s all I’ve heard really of that? But I mean, is that making any waves around in your part of the world?

Josephus Allmond: It’s something that I’ve heard more and more. I was at an energy conference last week and heard someone talk about maybe it makes sense to have some of the regulated states, you know, Virginia, West Virginia, North Carolina sort of form a PJM South. Not say I’m endorsing that idea, but that’s something that’s coming to the forefront as I’ve grown into this role sort of appreciating the difference between regulated and unregulated states within PJM.

and sort of the different positions they take and how that affects, you know, how they view the actions that P J M’s taking, because certain things that P J M’s thinking about has a much larger impact on a state like Pennsylvania than it does on a regulated state like Virginia.

Joshua Rhodes: Can you pull that thread a little bit? Like when you’ve got all these folks in the room, are disagreements like falling along those lines, the regulated versus the unbundled or kind of deregulated states? What’s the tension there?

Josephus Allmond: Yeah. So I’ll I’ll just give an example and we’ve actually hopped into the PGM Governors Collaborative, which is my counterparts in other PGM states that have been thinking about this problem for over a year now. And this goes back to sort of Governor Shapiro driving for the cost cap a while back and their continued engagement. But I think this comes up a lot when we’re talking about how we’re doing resource adequacy versus how we’re doing bilateral contracts to sort of hedge long term.

And especially with some recent decisions that have come out of our State Corporation Commission that make that bilateral contracting a little bit more difficult for large load customers.

Joshua Rhodes: Got it. I want to get to some of the Virginia specific pieces in a a little bit later. But one of the things, like when we were going back and forth about this, trying to get you on the podcast, is you sent me a white paper that PJM had just put out, I think just a couple days before when we were having that conversation. The white paper basically, you know, says you’re moving from managing a surplus to managing scarcity. I remember back in the early days of Energy Twitter making charts showing how big PJM’s reserve margins were compared to everybody else’s.

And being like, isn’t that silly? So for moving from, you know, managing surplus to managing scarcity, do you think the core is of the issue is that PJM’s market design is broken or is it just demand is moving too fast? What caused them to want to write this white paper?

Josephus Allmond: Yeah, I think the problem sort of inherently is that new demand is just coming faster than new capacity can beat it in PJM. And the markets were designed to reach lowest cost units in an era of declining load, and they’re now unable to incentivize sort of high capital investment that we need, the growing demand. But I want to put a caveat on that and sort of going back to something you mentioned about the Texas load, it’s like I think before we even start.

This discussion, we’ve got to get a much more informed view on the load forecast and the confidence that we have in that load forecast. The numbers coming out of, you know, just Dominions, DOM LC alone is 70 gigawatts of new capacity from large loads coming online in the next couple of decades. Our system peak right now is 24 gigawatts. And so the idea that we’re gonna triple our capacity over the next couple of decades.

The independent market monitor was on a panel at a conference I was at last week and called the numbers fantasy. And I largely agree. I mean, if we sort of rewind to Virginia back in 2018 when Mark Christie was still on the State Corporation Commission here, he basically ordered Dominion to stop using their own loop forecasts and to start using PJMs because for years and years they had consistently over forecasted demand at about a five percent annual clip.

And so now they’ve shifted to using the PJM load forecast, but the wrinkle there is that the only thing that’s driving up the PJM forecast are the sort of supplemental forecasts that they get from individual utilities that then they do not vet. So the utilities who have a history over forecasting demand have been feeding these supplemental forecasts to PJM that indicate really serious growth without sort of

Any check on the back end by PJM to see if there’s duplication across those loads. Something that I know we talked about going back to that IRP proceedings, this I idea of phantom load where you’ve got developers putting in bits in a number of jurisdictions trying to see where they can get the best deal. And if you don’t really have a process to suss that out, then you’ve got really overstated loads.

Josephus Allmond: Coming at you from a number of utility jurisdictions. And I think that’s exactly what PJM is dealing with right now. And so if you’re thinking about hitting that aggregate demand number that really has never been investigated, then I think that’s partially driving the because we’re trying to solve a problem that is really unsolvable. There’s no way we’re going to build an additional 45 gigawatt of moon generation in the DOM zone here. So

I think that’s step one is like really investigating, interrogating the forecasts and trying to figure out what’s real there.

Joshua Rhodes: Yeah, sounds like Dom’s trying to add a basically a Texas word about eighty five gigawatts, but getting kind of close there. Yeah, I mean, I think this is a conversation that’s being had across the country. And I’ve had a couple discussions with folks around, you know, ERCOT is setting up this dispatch zero process where they’re gonna try to figure out of all this load, which is like four hundred and forty-five gigawatts of like large load right now, again on an eighty-five and a half gigawatt system, they’re trying to figure out

We’re gonna try to shove all this into a study, but we’re gonna have some inclusion criteria of who makes it into the study. And you gotta get in the big study if you’re gonna get, you know, any megawatts out of the other end. It’s one thing they’re trying to figure out, okay, do you have like land controlled? Do you already order equipment? They’re trying to figure out what’s real, kind of what’s not. And Texas is working from SB6, which also forces these developers to say if they’ve got the same project in multiple different areas.

I recently talked to Travis Cavula who had a piece in American affairs where he was talking about, well, we should just like set this up to the highest bidder. It’s basically as like whoever can all the transmission folks get out there and say, Okay, we’ll build this much and then you start bidding that out to the highest bidder, and then you’d really find like you’d only get as much as you can support and then you’d find what it was worth. Is there any movement over there in terms of any of those two approaches or kind of what’s the current thinking?

Josephus Allmond: Yeah, it’s sort of the open season contract that he was discussing at.

Joshua Rhodes: Yeah. Well there’s a couple and there’s like four open season, fronting capital, transmission service agreements and then like BYOG. There’s a few things, but his main one was that open season. Yeah.

Josephus Allmond: Yeah, I’ve talked to Travis quite a bit. He was someone I reached out to first to try and get a handle on some of these PJM issues and just talk to some really smart folks. In Virginia, and I would I haven’t looked at the orders from other states that have like gone down the line of establishing large load tariffs. There’s sort of a structural problem that really is preventing these large loads from going out and doing something like that and bidding, trying to build out their own generation. Because with sort of the take of

or pay requirements that the SEC established. Basically you’ve got to pay 60% of your minimum generation for 14 years. That applies even if you go out as a large load customer and acquire your own capacity to match what you’re bringing online. And so you’ve got a situation where if data centers wanted to go out and provide for their own needs, like we’re seeing from the White House Protection Pledge or calls across the country really for data centers paying their fair share.

they would sort of be paying their own way and then turning around and paying Dominion sixty percent of that minimum generation charge over those fourteen years. And so not quite a double payment, but about a hundred and sixty percent for the energy that you would need normally.

Joshua Rhodes: Yeah. And my understanding is that like if you were doing that and like the utility went out and bought generation to cover that, or, you know, built generation to cover that. And then something happened to the data center, the risk there would be on the remaining ratepayers, right? That’s the big issue, right? Is like these data centers, they’re going out and we’re getting our own stuff, but we’re having to make this other side payment to get more capacity. But that risk is on the rate payer, not the shareholder from like the first round. Is that right?

Josephus Allmond: Yeah. So they’re really insulated from the utility is really insulated from risk there because they’ve got these sacred pay arrangements. And so that’s sort of the worst case scenario, right? Data center show up and that’s sort of put back on the rest of the rate base. The commission did do some things about allowing for sort of transfer capacity and so if that were to happen, maybe they could line up another

you know, large load customer that was in line for them to sort of assume that as opposed to it being socialized. And so I think they’ve done some things to mitigate against that. But yeah, that’s sort of the overall structure here.

Joshua Rhodes: Got it. I mean, that was definitely one of the things Travis was suggesting in that kind of open season that it would be a transferable thing. It’s like, you know, if you get it and then you decide, I don’t want to build my data center or whatever, you can sell that right, which then makes it easier to go out and get the right from the get-go and maybe even drives the cost up because there’s, you know, not as much risk of, you know, if you don’t end up getting what you want and dropping out and losing everything, which is the current way it’s happening in ERCOT, really. It’s like

You know, if you make it into the process and you make it to the third out of five step and decide to drop out, it’s kind of use it or lose it. But anyways, we’ll see kind of where we go from there. So I mentioned the PJM white paper. It kind of laid out three different pathways for PJM, you know, path A, path B, path C. Would you be able to give like a high level overview? Like these potentially could be some pretty major changes for PJM. Like what are they suggesting are some pathways forward here?

Josephus Allmond: Yeah. So path A is really looking to lean more on long term bilateral contracts to secure most of the supply and then the capacity market would sort of be a residual, not as much of an emphasis on it. Path B is what they’re calling sort of differential reliability, and so differing standards of reliability for new loads that are coming to town. Path C is what I’ve thought of as more of the ERCOT.

approach, which is moving more to an energy and ancillary services market with a a really small role for the capacity market to play in the background. So at a high level, those are sort of the three routes that they’ve laid out. They don’t really pick one that they think is the preferred way forward. It’s just sort of a menu of options.

Joshua Rhodes: Got it. Yeah. So Path A is kind of like a cum hedged model. It’s like, if I understand it, it’s like load is procuring that capacity, right? It’s not going necessarily through or as much going through like the centralized, but you’re, you know, the bilateral part there. It’s funny, is like Texas actually considered something like this post winter storm Uri. We called it the man, there were so many acronyms at that point. It was like the load side energy reliability obligation. I I think I butchered that.

I always called it LASO, even though that’s not the acronym. L S E R O or something like that. This is when we were flirting with all kinds of capacity mechanisms, we decided to go with none of Do you think path A would be a practical fix, or is it just shifting risk around from investors to consumers?

Josephus Allmond: Yeah, I think it’s more of the latter and also an issue, especially in Virginia, because of that minimum generation demand charge. And so because you’re asking sort of the loads to come edge, you’d be putting the loads in a position where they would be going out and doing this bilateral contracting, but then still have that requirement back to the utility. And so I imagine the the large loads, especially in Virginia, where a lot of them are located.

aren’t fans of sort of path A, especially with that minimum demand charge hanging over them.

Joshua Rhodes: Yeah, got it. And so path B gets kind of this like this differential path B is this differential reliability. I mean, essentially utilities that kind of had this obligation to serve at the highest levels, say three nines or five nines, you know, nine nine point nine nine nine percent reliability. Is how would path B work out in terms of like when would the reliability suffer here if it needed to be?

Josephus Allmond: Yeah. I think it would be sort of to the extent that they didn’t bring the capacity that they needed. And so they would be curtailed in those sort of peak hours where capacity wasn’t sufficient to serve them. This also I think has a problem, especially in Virginia, because, you know, if you put large loads in Virginia in that position, not many of them are gonna go out and hedge. And so they’re gonna be exposed to this sort of differential.

reliability where they would be curtailed, I would think, more than large loads elsewhere in PJM where they would be more free to contract and secure their own capacity.

Joshua Rhodes: Are you saying path B would be applied differently in different states, just based on kind of what the state level regulatory structure is like?

Josephus Allmond: Yeah. And you see sort of PJM encouraging states to get their cost allocation in order. And I think this applies more to like the deregulated states who haven’t really done this, but sort of in anticipation of this trying to figure out how they’re going to allocate those costs.

Joshua Rhodes: There’s a couple ERCOP parallels in here. One of the things we’re doing in the batch zero process is like we’re potentially only giving large loads like a set amount of offtake. Like say a large load wants to be 300 megawatts, and we say, well, we’ll only give you a hundred megawatts. But if you sign up to be this controllable load resource, it’s a PCLR, during times when the grid’s got capacity, we’ll let you go above that. But like if we ever need to, we might shut you back down to that one hundred.

Or there’s a second pathway, which is kind of a BYOG like pathway where it’s like you can only withdraw or inject a certain amount, like say a hundred megawatts. But if you have a three hundred megawatt data center, then you can bring your own two hundred megawatts of generation and that’s going to be fully kind of behind the system. So I mean, I guess it kind of depends on where you define like that level of reliability. I guess in Texas we’re trying to define it at that point of interconnection where we’re saying we’ll only give you this, but you can do

what you want with your own generation. Is there discussions around that? Like how is behind the meter gener is there behind the meter generation allowed and kind of how is that working out for large loads in the region?

Josephus Allmond: Yeah. So I think it depends on which state you’re in. And so behind the meter gen is allowed. And I think Dominions had sort of a self generation tariff on the books for thirty, forty years that some old manufacturers have used to do their own coal or gas on site. So it is an option at just again, frustrated by that minimum demand charge because even with that on site generation.

Powering your own needs, you’re still on the hook to Dominion, basically for 60% of that generation cost. So at least in Virginia, a lot of these PJM proposals sort of run into roadblocks that weren’t designed as such by our state corporation commission, but just as the way they’re functioning, I don’t think is going to allow large loads in Virginia to participate in these PJM options in the way that they’re envisioning them, which which seems to be more

Tailored towards the deregulated states.

Joshua Rhodes: Okay. So that sounds like a policy issue. I mean o obviously the policy issue. Electricity’s physically the the physics are the same everywhere. Is that something that has any room to wiggle or would that be a pretty tough mountain to climb?

Josephus Allmond: You know, so the SCC established that in their most recent order in the rate case. I don’t think they’re gonna sort of be upsetting that decision. And so there is always the option to affect change through legislation, which would also be difficult just politically speaking, because utilities also have lobbyists at the General Assembly and also trying to protect their interests. And so they see that minimum demand charge as something that protects

the rest of their customers in the event that data centers don’t show up. And so I think there’s some room, but also some discussion I think needed to be had about, okay, if we are going to allow large loads to go and shop, what’s the standard that we’re subjecting them to in the event that they have to come back to the utility? Cause I think that’s a concern that has merit from the utilities. They don’t want to end up in a situation where half of the data center load in their territory goes and

you know, shops and then a big chunk of that all of a sudden decides that they want to come back to utility service, that puts the utility in a tough spot where they’ve got to come up with a bunch of generation or capacity, very short amount of time. We just shortened the notice return window. It used to be five years that you had to give the utility heads up that you were coming back from being a shopper. Now it’s just 18 months. And so

What happens if that large load decides to shop and then wants to come back? Are they sort of subjected to some sort of curtailable schedule like PJM’s considering here? I think that’s something fair to think about. But I think there’s gotta be some trade offs if we’re thinking about sort of unraveling that minimum demand charge, making it easier for large loads to shop. How are we protecting customers in the event that a lot of them come back to the system after a excursion in retail shopping?

Joshua Rhodes: Got it. And if you don’t want to opine on other states in the general vicinity, I think West Virginia is setting up something or like some micro gridding. It’s funny to call them micro grid. These things are massive hundreds of megawatts. But setting aside these kind of special tariffs and things like that for some of these large loads, I think to make it easier is just right across the border. Is that do you think that might pull some data centers over that away or some large loads, I should say?

Josephus Allmond: They’re certainly trying their hardest to pull data centers over there. Yeah, I think there’s a lot of reasons why Virginia has become the pub that it is. And so a lot of that’s the fiber that’s been built out. I question whether West Virginia has some of that infrastructure ready to serve these data centers in a sort of to the extent that they need it, right? That’s something a concern that I hear when we’re, you know, looking to diversify geographically where these data centers are located, even within Virginia.

Once you get out to sort of the southwest corner of the state, your broadband is more sparse, there’s less fiber, even though there’s excess capacity in the APCO system down there, those other factors sort of lead data centers to deciding, maybe this isn’t the right place for me.

Joshua Rhodes: Yeah, totally. I mean, I I think one of the biggest aha moments or whatever I had recently was looking at okay, where is fiber located? And everyone said, Okay, well fiber’s located along we built the fiber optic network in the nineteen seventies around kind of where we had existing rights of ways. And that was where the interstate highways were, which was determined from where we’d be originally built the railroads. You gotta go like, so why are there so many data centers, you know, in Northern Virginia or in Texas, it’s in Dallas.

There’s this huge convergence of all of these much older rights of ways that we had the ability to build this infrastructure and so we did. Which really fascinating. We touched a little bit on like, okay, some policy change, things like that. I mean, I guess you don’t have to opine on this one if you don’t want to either, but I mean, it seems like data centers don’t have that many political friends right now or don’t have that much popular support, I should say. Like there’s a lot of groundswell like kind of opposition. So

As I was asking that question, I’m like, Maybe no one wants to even try to spend any political capital there right now. We’re starting to see that in Texas, but I’m sure that’s happening around the rest of the country too.

Josephus Allmond: Yeah, it’s sort of central to the budget fight that we’ve got here in Virginia. Typically the General Assembly sends the governor a budget and that’s finalized by the end of the General Assembly session. We’re still waiting to get a budget deal done in part because of a difference on what to do about the data center tax exemption. And so Democrats in the Senate here have proposed just eliminating it entirely. I think that comes out to about one point six billion dollars, just eliminating that.

exemption entirely. The governor is not there. And so it’s not just a tax exemption that these data centers have. It’s a tax exemption and then a subsequent memorandum of understanding that they’ve entered into with the state of the Commonwealth of Virginia. And so there’s two sort of categories of this. The sort of lower investment in jobs level gets you an exemption out to twenty thirty five. And then there’s a much higher investment threshold this year.

If you’re bringing $70 billion of investment to Virginia and a higher jobs threshold, you get the exemption out to twenty fifty. To date, Amazon is the only one that has entered into an MOU pursuant to that higher investment threshold, but that was really recently. And so the Commonwealth entered into a contract with Amazon to get them to expend that capital here in Virginia. The governor is really worried about the signal that sends to business if the Commonwealth just decides

one legislative session that we’re going to get rid of tax exemptions that have been long fought and negotiated for. And so as opposed to that sort of more rash approach of just ripping the rug out from under the data center industry, we sort of see an opportunity here to really affect some change in the way that data centers are operating by potentially attaching some conditions to that tax exemption and saying that

Hey, on energy, on water, on backup generators. You’ve got to do some things differently to be able to be in a position to keep that exemption. So that’s actually a big wedge issue that’s sort of holding up the budget here in Virginia. And I’m hoping we can get to a good place with colleagues in the Senate and the House of Delegates here.

Joshua Rhodes: That makes sense. Quickly get to pass C, so there’s a third option or a third pathway in this white paper. It shifts more revenue recovery into energy and ancillary services, but I think it it still kind of keeps the capacity market kind of in there. Is that PJM inching towards like an ERCOP structure or would it be a fundamentally different kind of hybrid model there?

Josephus Allmond: I think it’s a little bit of both. So it’s kind of getting trying to get more like ERCOT is, but keeping a capacity market in a way that ERCOT, as you mentioned earlier, has sort of explicitly decided against. So maybe that’s just a little bit of the organizational inertia and wanting to cling to the capacity market. But, you know, I think energy is already sort of the largest component of the wholesale cost of electricity here. And so moving to this energy only framework probably provides greater

benefit to intermittent resources and limited duration resources, which wouldn’t be bad from our perspective. Getting more solar and storage online. That was a big focus of the governors in the most recent legislative session is really expanding the amount of storage that our law calls for. And so now Dominion is tasked with getting 16 gigawatts of short duration storage over the next 20 years, four gigawatts of long duration storage. And so I think these

more of an energy only approach actually benefits those resources in a way that the current system just doesn’t.

Joshua Rhodes: Yeah, I mean one of the things that like absent the capacity market, if you’re not necessarily chasing a capacity payment or have to show deliverability during time, you can get closer to the thing we do in Texas called connect and manage, where we’re like, we’ll connect a lot of generation and we’ll just like manage it through the dispatch. Generation is mostly a competitive, you know, aspect in ERCOT. And so that shifts that risk to the developer, but it’s one of the things that has allowed us to move much quicker. And so as we’re having these conversations around flexibility, ERCOT has some

institutional inertia on that. Like we’ve got some institutional inertia on be like, okay, we’ll flex you because we’ll have to. And we’re trying to figure out if we can do that with load. I do see that as one of the issues in terms of if you’ve got that capacity kind of payment or that capacity market issue that makes it quite a bit harder. I don’t know, it’s always been weird to me like how you can give like solar in the region like a six percent effective load carrying capacity, but then require full deliverability in the studies. To me that makes no sense. Like that’s something that could be easily done.

very quickly because they don’t even care about capacity, not getting paid for capacity. Am I getting that wrong?

Josephus Allmond: No, I mean like at six percent ELCC, I don’t know, put the question to developers. Like, do you want full deliverability at the six percent capacity value? Are you willing to take the risk of being curtailed at certain times? PJM has this energy resource interconnection service option that they say is sort of similar to connect and manage, but I think when you dig into it, they’re still treating that E risk more akin to how you

traditionally study generators. And so there’s a lot more contingencies in place. And it ends up being almost as much of a headache as sort of going through the full study process. And so streamlining that process and really simplifying it to something that resembles ERCOT’s process more closely, I think would really allow the developers to make that choice. Because right now they look at the E-Ris option in PJM and they say, that’s almost as much work as doing the full study.

Why don’t I just do the full study and I’ll get the six percent, right?

Joshua Rhodes: Yeah, no, totally. I know we’ve talked about that before in different roles. So kinda last question. So if Virginia wants affordable power, data center growth, reliability, clean energy at the same time, like is there anything here that’s gotta give, like speed of load connection, who pays for transmission, tolerance for curtailment, or you know, the old assumption that every customer gets the same, you know, reliability product? Is anything gonna have to give to move quickly as you said, like the Commonwealth needs to move?

Josephus Allmond: Yeah, I think the thing to me that could make the biggest dent is really simplifying that ERIS process and making it something more akin to what you see in ERCOT. Because even with the sort of updates to the interconnection process, PGM’s still projecting almost seven hundred days from getting in line to getting your interconnection agreement. You’ve got another several years for construction after that. And so if we’re really trying to solve this near term

capacity shortfall, we should be trying to get as many resources online as quickly as we can. And so borrowing some of the things that have led to record deployments in Texas, I think is a really smart idea. And so, you know, maybe that involves looking at past C and looking at that option more seriously going forward. But that to me sticks out as one of the sort of biggest things that we could do to really get at this problem in a concrete way.

Joshua Rhodes: Yeah, absolutely. I mean, we’re not perfect and you know, we’re not doing it perfect, but we’re down here trying to figure it out. So like ask us anything, we’ll we’ll try to help out as as as much as we can. Josephus Salman, thanks for coming on the Energy Capital Podcast.

Josephus Allmond: Yeah. Thanks so much for having me, Josh. Good to see you. Absolutely.

Joshua Rhodes: Thanks for listening to the Energy Capital Podcast. If today’s conversation helped you make better sense of how the energy system actually works, share the episode with a colleague and hit follow on your podcast app. You can find us on Apple Podcasts, Spotify, and all the usual platforms. For deeper analysis and context each week, subscribe to the Texas Energy Empower at Texas Energy Empower.com. That’s where you’ll find every episode, every article, and our latest updates. We’re also on LinkedIn, X, and YouTube.

where we share clips, insights, and ongoing commentary on energy policy, markets, and the grid. Before we go, a quick note. The views expressed on this podcast are my own and do not represent the official positions of the University of Texas, Idea Smith, Austin Energy, or Columbia University. A big thanks to Nate PV, our producer. I’m Joshua Rhodes. Thanks for listening, and we’ll see you next time.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.texasenergyandpower.com/subscribe

Why PJM is looking at the Texas grid

Energy Capital Podcast (private feed for [email protected])

Why PJM is looking at the Texas grid