HOUSTON — Texas’ top electricity regulator said Wednesday that the state’s power system could see major changes as officials try to navigate tensions between affordability and reliability tied to a wave of new data centers.
Thomas Gleeson, chair of the state Public Utility Commission, told attendees at CERAWeek by S&P Global that conversations about redesigning the state’s main power market have taken a back seat to figuring out how many large users will be able to plug into Texas’ main grid.
But Gleeson said the PUC is preparing to consider specific changes to the market setup — moves that could alter how big users are charged for grid costs. Changes in Texas could influence debates in other U.S. power regions as regulators and grid operators search for ways to make sure sufficient generating capacity and power lines can be built to serve projected demand increases.
“I think it’s incumbent on us at the commission to continue to think about ways to incent the type of generation and the amount of generation we need in this state to serve all this load,” Gleeson said. “That’s the first order issue we’re trying to figure out — what is real — so that we don’t overcharge folks, but also so that we get the right mix of resources on the generation side to serve all that growth.”
Gleeson spoke at CERAWeek as the PUC and the Electric Reliability Council of Texas, or ERCOT, are facing a massive amount of demand from large users such as data centers. Texas is becoming a data center hot spot that may challenge Virginia in the years ahead as states jockey to serve tech companies pursuing artificial intelligence and other applications.
Last year, ERCOT officials said hyperscalers that handle huge amounts of storage and computing were among the users asking if they could pull a combined 226 gigawatts from the grid.
The maximum demand ever logged in ERCOT’s history was 85.5 GW tallied on Aug. 10, 2023. ERCOT serves about 90 percent of electricity demand in Texas, and it is largely separated from the rest of the nation’s grid.
The PUC and ERCOT are working to finalize rules on a new system to suss out which data center projects may come online and which may fizzle out. Rather than evaluate projects one at a time, both entities are looking to a batch system to study large load programs in groups before giving them a green light to interconnect to the grid.
ERCOT is expected to announce the first tranche of projects to be studied as part of so-called Batch Zero by September, and those projects would be the first to be able to interconnect to ERCOT under the new rules.
But Gleeson’s comments Wednesday suggest the PUC could soon consider sweeping changes to how the electricity market works in most of Texas.
He said ERCOT’s competitive market had overly focused on making electricity more affordable since its inception in 1999. That changed after Winter Storm Uri in 2021 caused massive power outages across the state, nearly leading the grid to crash as more than 200 people died in Texas.
That led the state to overly focus on reliability, Gleeson said.
“These are two goods, right? Affordability and reliability, and there has historically been a tension between the two overall goods,” Gleeson said.
After Uri, Gleeson said, the main Texas market has worked to build up its daily power reserves — or the amount of extra generation online — through an ancillary services market.
It’s gotten to a point where the grid has “much more than we need,” Gleeson said. By late Wednesday morning, ERCOT had more than 15 GW of operating reserves online. Before Uri, that number was usually closer to 3 to 5 GW.
“I think that deserves a look as well to try to right-size that,” Gleeson said of the current generation cushion.
At the same time, Gleeson said, ERCOT’s market is not incentivizing as much generation as the state will need to meet growing demand from data centers and other large loads.
ERCOT spokesperson Trudi Webster said in a statement that ERCOT does not take positions on policy discussions or rulemakings under the purview of the PUC.
Gleeson spoke during a Wednesday morning panel on Texas power. J. Arnold Quinn, senior vice president of regulatory policy at Vistra, said tweaking ERCOT’s market structure could help bring more power online.
“There is definitely generation that is in the queue and is being developed, but then you need the market rules to say, ‘Hey, that’s a smart idea, that development activity should continue,’” said Quinn, whose company is a major power producer and retailer in Texas.
Grid costs and generation
A key issue, Gleeson said, is how transmission and distribution costs are spread out among ratepayers.
Electricity prices have remained relatively low in ERCOT’s region, thanks in part to a huge solar and battery build-out on the grid. But the costs residential ratepayers see for power lines and poles on their bills have been climbing at a faster rate since 2021.
State lawmakers ordered the PUC in 2025 to study how large power users are charged for transmission and distribution — and to amend commission rules to “ensure that wholesale transmission charges appropriately assign costs for transmission investment” by the end of this year.
Big power users are now charged for those costs based on how much power they use during the tightest one-hour periods on the grid during the months of June, July, August and September.
Many large industrial loads, from refineries to manufacturing plants, work to shut off as much of their power as possible during those times— dramatically lowering the amount they pay for power lines and poles, leaving those costs to be picked up by other ratepayers.
That system — known as the Four Coincident Peak program, or 4CP — will likely be thrown out the door, Gleeson said.
“We will look to some other methodology to delegate transmission costs, because again, a lot of this build — the majority of it — is for these large industrial data center customers,” Gleeson said. “And we can’t have a system that ends up putting the cost of them on the backs of small commercial, residential ratepayers.”
Margo Weisz, executive director of the Texas Energy Poverty Research Institute, said at the panel that more than 40 percent of Texans are considered low or moderate income, and that rising transmission and distribution costs disproportionately affect them.
“What we’ve seen is that a larger percentage of the residential bill has been made up of transmission and distribution costs over time, and that those continue to rise,” Weisz said. “So there’s some concern there, but we also see that there’s some opportunity.”
Texas Gov. Greg Abbott and Lt. Gov. Dan Patrick, both Republicans, for years have tried to lure more natural-gas power plants to the state to supply a constant, base flow of power to the grid.
Their efforts haven’t driven a surge in new baseload power plants, but there are signs of some additional capacity on the way.
In 2023, Abbott supported a proposed power market mechanism that would have paid generators extra for being online during times that grid conditions were tight. State legislators worried it would cause costs to soar without incentivizing much generation.
Lawmakers ultimately put a $1 billion cap on how much could be spent on the new market structure, and the PUC ultimately shelved the plan in late 2024.
Patrick, meanwhile, spearheaded efforts to create the Texas Energy Fund (TEF) — a $5 billion taxpayer-backed fund that would provide low-cost loans to generators that build natural gas generation on the grid.
In May 2024, the PUC received 125 notices of intent from companies looking to apply for loans through the TEF. Texas officials ultimately announced that 17 energy projects would be eligible for TEF loans, but seven of those applications were withdrawn or ruled ineligible for the program.
Robert Gaudette, the incoming CEO of NRG Energy, told POLITICO this week that the company is building three gas plants with TEF backing. But all of those plants are meant to be online for shorter periods of time — not the constant base power both Abbott and Patrick have sought.
Like Vistra, NRG is a major power producer and retailer in Texas.
“The market dynamics are not here yet” to build a natural gas plant that provides base power to the grid, Gaudette said. “They wouldn’t support a new build without either really good pricing on the equipment — so you’re five years ahead of the development cycle — or a long-term contract.”
Gleeson said it’s hard for the market to react to potential data center demand if it doesn’t know how much demand will come online yet.
“If you look at the wholesale prices in forward markets in ERCOT, they don’t reflect the numbers that are being presented right now” for large load growth, Gleeson said. “That causes a lot of problems because, obviously, if those numbers are even close to being real, we need a lot more generation in this state, and the prices right now just do not support that.”
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