Can You Get Power? Rob Gramlich on the Grid & Industrial Site Selection

Rob Gramlich 00:41

Hey, that's my favorite topic. Good to be with you, Justin.

Rob Gramlich 00:49

Yeah. well today there is a press conference on a permitting reform bill to speed up infrastructure development in this country and that includes transmission, which is of course critical to connect any new loads and I understand you do a lot of work with some of these new large loads that are trying to get connected to the utilities around the country. So hopefully this this legislation will help.

Rob Gramlich 01:31

Yeah, so the first I think thing to know is that this the electric industry relies on infrastructure that lasts for, you know, 60, 80 years. The transmission lines and towers you see on the highway and the generators. but those things take like ten years or more to build, which means that through our hundred plus year history, we have planned ahead of time for those things and we've Never been super accurate on forecast, but the industry kind of needs to you know have a decent idea of future growth in order to plan the right amount.

And what's happened, you know, really starting almost exactly three years ago this fall, so like, you know, fourth quarter of twenty three, the whole industry got surprised with the significant demand growth that the industry hadn't had almost any of for twenty-five years. And so It's the magnitude and the surprise factor that have kind of caught the electric industry off guard. And then that trickles down to the real world where, you know, there might be you know, new data centers or manufacturing trying to connect to the utility system.

some of if they're big, they're connecting at the high voltage transmission facility level. if they're smaller, they're more at the distribution level. but in either case, the utility has to look at its grid capacity and very often it's telling those new customers, hey, I'd love to have you on my system, love to serve you as a great customer for years and years, but I can't connect you for five years, six years, you know, something like that.

So that's kind of what's going on. And then of course, there's also a lot of politics right now as we approach the midterm elections where utility bills are going up in a lot of places. And You know, what's the cause of that? Well, there are a few causes of that, but you know, one contributing factor is all this new demand which causes utilities to have to go out and, you know, purchase expensive equipment and the cost of that equipment's really high.

You know, at the same time that the utilities were already having to, you know, rebuild from the last wire wildfire or, you know, winter storm or hurricane. you know, so they've had a lot of expensive upgrades, you know, and a lot of that equipment you know, is at their end of their useful life, so they've had to be spend money to replace that. So there are all these unrelated drivers all kind of pointing to higher utility rates, but guess what?

The you know, the data centers get blamed in the public mindset and all the of course all the media tensions around AI and data centers. So then it becomes really hard for the utilities to connect it and deal with the cost.

Rob Gramlich 04:23

It's a lot. and the yeah, the electric industry is a very conservative industry. Lowercase C just kind of, you know, likes you know, very insistent on reliability 'cause it's an integrated machine with all these pieces of equipment attaching. So it likes to move very deliberately and there's it's almost a cultural clash with the you know, the tech firms who like to what do they say, move fast and break things, right? And the utilities, you know, move slow and never disrupt our operation.

So it's yeah, it's been that kind of thing going on too.

Rob Gramlich 05:36

Oh sure. It's fun. Look, you know, some people get a big charge out of it and I'm one of those people. I really think you know, public policy is interesting and important and to be able to testify as I did in the House Energy and Commerce Committee not long ago on all these issues and then the Senate Energy and Natural Resources Committee on about the same topic about a year ago as well. I really enjoy that.

We get you know, we get asked by policymakers For expert input. We're not lobbyists, like we're not proactively at Grid Strategies going up and saying, here's a bill, please sign your name and pass this bill. A lot of our clients do that sort of thing, but we're we try to be the experts and you know, we try to be I mean we're a resource obviously for our clients who could be, you know power developers or states or utilities or others.

But also, you know, if a if you know, if the White House wants to know about grid enhancing technologies or something like that, you know, it's you know, it's fun for us to be part of that and it's very satisfying for our grid strategy staff to sort of get that type of input into the policy world.

Rob Gramlich 07:18

Yeah, well, there's been a lot of policy activity and by policy I mostly mean like regulatory policy on like who pays what, who plans for what infrastructure, and things like that. So you mentioned I used to work at the Federal Energy Regulatory Commission, FERC as we call it, and they have a lot of rules about who pays for transmission and wholesale power markets and how the power markets are designed. So there's been a lot of activity there.

the White House organized a ratepayer protection pledge, the Trump White House, you know, to try to make sure other ratepayers Are not being harmed. And you know, that's a broadly accepted principle across the aisle and states and federal. It's actually much easier said than done. It's actually very complicated to figure out, you know, who contributes what to what grid expansion needs and things like that. So there's just a lot of work going on managing that. And then the other area is a lot of states have new charges basically for the new customers.

Where, you know, again, they would contribute more into the system. and that can be helpful partly because nobody really knows what these demand forecasts look like. I mean, everybody, at least I think the mainstream view that I agree with is there's gonna be a lot, a big expansion of the need to compute. You know, computation is going way up. but

Rob Gramlich 08:46

so many applications, right, of AI and just advanced computing. but the question is, you know, we've always gotten much more efficient with every time there's a new generation of chips that come out. They're a lot more electricity, you know, efficient. Uh and the algorithms tend to get much more efficient too. And the you know, the tech companies have every incentive to try to make all that extremely efficient because power is really the most constraining factor on AI right now.

you know, it's a race for power access, and so if they can make their, you know, their operations use less electricity they can put on a lot more capacity and so they're trying, but it's fairly it's always hard to estimate, you know, is the you know, is the base use, in this case computation, gonna outpace the efficiency of it and it nobody really knows. And so there's been a lot of work to try to

Rob Gramlich 09:45

Yeah, I mean it you know, to some yeah, to some extent in that time frame you kinda do know which data centers are actually gonna be complete or manufacturing facilities are gonna be complete. and you know, you can estimate electric vehicle penetration and things like that. it's you know, it's harder a year, two, three, five

Rob Gramlich 10:06

That's another one. Yep, it's another one. And that's a good example to highlight also because the timing of use is really important. Like you know, it used to be that the hot summer hot afternoon when everybody's using air conditioning is the really peak time. And you could add all kinds of demand at other times of day or year, and it didn't matter because we already had the infrastructure built for that peak. but right now with first of all With solar and batteries, we actually have the summer afternoons in pretty good shape.

You know, look at Texas and California, you know, politically very different states, but both have a ton of solar and a ton of batteries that are taking care of summer peak use. so that's not so much of a problem, but there sunshine states, that's right. So you know, but there's other times of day and year where, you know, you do have a different peak. and you have to and you have to meet that. But vehicle charging, like whatever the peak is, you should be able to shift people's incentive to charge, you know, at different times.

I mean, most of us come home and plug it in, but there's software that can just shift that to a different time if you know, if there's more power available at other times and you sh you know, consumers should get a discount or you know, maybe they should get free energy if you charge during these times and things like that. So there are opportunities to use our grid more efficiently like that.

Rob Gramlich 11:57

I'm in yeah, I'll start with Data Center Alley, the center of the global internet is right here in Loudoun County. I'm gonna I'll be there in a few hours driving from Montgomery County, Maryland out to Dulles Airport. and you know, they still have lots of data center development, largely because you know, for transmitting information in almost instantaneous fashion, you like to be close to the fiber network and all the other data centers that you're trading data back and forth with.

so there's this sort of clustering effect. you see that. Well you know about I don't know five or more years ago they were kind of almost saturated. I mean there's only so much that the utility there could could incorporate. And so You know, Georgia Power down in Georgia had like excess power from their new nuclear plant and then Texas is kind of notoriously easy to build in. You can build generation and transmission there and they have an open electricity market which was very attractive.

So that became a big hub. And then Columbus kind of area or like Ohio, Pennsylvania, that has a little bit of like the access to natural gas. play. The Marcellus shale is there. You could put gas plants right near that and power new data centers. as well as a big open PJM market and a one of the biggest 765 kV transmission networks in the world is right there. So you know these sorts of things it basically is gets down to where's the grid capacity?

they're all chasing the grid capacity, any new large load. And it kind of shifts because you know, you go to one place, everybody flocks to one place and then it's used up and you gotta go somewhere else. So that's kind of the dynamic. California has some, not as much as you might think with Silicon Valley there. but they do have some. The PG&E territory has has some data center development.

Rob Gramlich 14:49

Yeah, that makes sense. Yeah.

Rob Gramlich 14:59

That's right. The three Ps. that's one of our taglines. Yeah. So those are the barriers to transmission that I started talking about fifteen years ago. and it's kinda caught on. like this permitting bill that's supposed to be released in five minutes, is the estimate. Well when anybody listens to this I'll be proven wrong 'cause who knows, maybe it won't come out and it You know, a lot of there's many reasons why these things don't get passed.

So it might not pass. But you know, they have the three Ps in there, planning, permitting and paying. Those are all the things you really gotta do to get transmission developed. And there's policies that can stimulate each of those.

Rob Gramlich 15:46

yeah. I mean, you know, again, a lot of policymakers ask our input, like if they want to accomplish X, you know, what policies would work and we'll give 'em ideas. and yeah, as you said, we have a lot of research type papers on our website at gridstrategieslc dot com, if you'll forgive the commercial. but you know, it it's kind of like think tech style reports on you know, industry developments and trends, including policy.

Rob Gramlich 16:30

Yeah, there's a couple categories of using our existing grid more efficiently. I mentioned before like shifting electric vehicle charging. So that's kind of like the end use category of like shifting around how we use electricity. And then the other category is sort of like technologies on the transmission system that can kind of redirect power flow or expand what gets what's allowed to be delivered, like if the wind is blowing and cooling a transmission line down, then it actually can deliver more power.

So why not take advantage of that by monitoring the weather and the wind? so those sorts of things are I think, you know, a great sources of capacity that really should be exploited. The it's challenging. As I said, the you know the utility industry's not the most innovative in the world and they do have incredible responsibility to keep the lights on at all times through all scenarios and so they are necessarily conservative. and they also don't necessarily make money from some of these things.

They have a particular business model because they're regulated monopolies. So there are sort of particular incentives that they have that don't necessarily lead them towards sometimes the most cost effective solution all the time.

Rob Gramlich 18:03

Yeah, I mean there's been plenty of capital available generally. Obviously the cost of capital's going up. Debt is, you know, much higher cost than it was just a couple years ago, and equity goes according you know similarly up. So it's not cheap access to capital, but you know, utilities and developers are able to access it. The problem is who pays how much because it's a shared grid. Like we all use the same grid.

it's connected across many states. People don't realize that, but you know, if you build a new transmission line, you're probably providing benefits to people across eight states. And who pay and maybe they don't all benefit the same amount. and estimating exactly who benefits by how much is actually very complicated. So then and everybody's incentive is to say, no, the other guy benefits a lot more than I do, so they should pay more, right? So then it's you know, that phenomenon has employed many engineering firms and consultants and lawyers for many years.

I think a lot of us would love to have a magic wand we could just say, just pay for the thing that that's needed, let's stop arguing about it. But it's never quite so easy.

Rob Gramlich 19:20

um yeah, I mean almost always ratepayers. So in your utility bill, you're paying for a lot of things in that utility bill, some of which is specified in there, but a lot of it isn't really. It's you know, I mean people in your you're you said you're in California. Like people in California are actually paying a share of transmission lines that go all the way to you know, the Pacific Northwest and New Mexico to get power. at different times, which is actually I think a great investment because you get different power at different times than you have in state supply.

But it just goes to show how broad and extensive this network is and how, you know, ultimately ratepayers have to pay a share and you have to figure out which ratepayers how pay how much.

Rob Gramlich 20:18

Right. And find me the elected official, the politician who is happy about that, or, you know, willing to support that or make that happen when they the last thing they want to be tagged with is higher utility bills.

Rob Gramlich 20:59

Yeah, well I mean, yes, I mean the many of the large users want to do that and want to you know, avoid impacts on other ratepayers. Like Google has a capacity commitment framework they've had in place for years and again it's sort of easier said than done. Like they would love to just go pay for the thing and be certified that yes, they paid their fair share and everybody else is not harmed. and you know We all wish it would be easy, that easy to do.

In fact, they often go to the utility and say, please let me pay up front, and the utility says, No, that's not how we operate. And it's like, ugh, that's so frustrating when there's like money in these companies that wants to go invest in the grid and hold everybody else harmless. But sorting it out is something that the, you know, the industry's working on and policy makers are trying to, you know, make sure that happens.

Rob Gramlich 22:02

Yep, there's a ton of work in this area. if you're looking for a new career, if your listeners are looking to get into something interesting, electric power is interesting and will be for, you know, ten, twenty years at least, 'cause there's just so many needs and uses for electricity and you know, once you learn a little about it then you're in high demand.

Rob Gramlich 22:37

You know, I mean

Rob Gramlich 22:40

Yeah. Well, I mean, some of 'em are you know, transmission developers who are trying to work with local communities and get buy in and so they have a lot of new innovative approaches to do that and provide benefits to the landowner and the community. You know, some of it is things like that. Other things are more related to policies, like, you know, interconnecting new generation and ideas like just kind of having a fixed rate so that you can go and connect for a defined fee rather than having to argue about your impact.

That's been a problem. that's a particular one. and then yeah, a lot of it is the policies on the how do you like what's the best way to do kind of a proactive holistic transmission plan for a region where you take into account the all the new demand and where it is on the grid and then all the new supply and where that is and how you put together kind of an analysis of what the right transmission plan looks like.

So yeah, we get involved in a lot of things like that.

Rob Gramlich 23:50

it's hard to imagine in the near term overbuilding transmission lines and nobody has yet found a transmission line that isn't being used, that somebody built and isn't being used. So I think it is a a good time to err on the side of, you know, proactively building out the transmission system. But, you know, that said, I mean, this whole industry does go in cycles and, you know, sometimes we thought we would have the five to seven percent growth we had in the eighties continue into the nineties and early two thousands and we did not.

Like we built out a lot of infrastructure that then arguably was overbuilt. I mean it turned out to just be like needed a little bit later than we thought. It ended up being needed, but we didn't need it quite soon.

Rob Gramlich 24:47

Yeah, this so this is one it's worth distinguishing. We have regions where they really rely on markets, like for all the new generation, like much of the Northeast and Texas and California, and other regions where it's a vertically integrated utility. and so it's different. Like if you overinvest in generation in a market region, that cost, that we call it stranded cost, that call cost falls on the shareholders, not the consumers. But in the vertically integrated utility region, if you do that, it's the consumers who are on the hook.

They're obligated to pay for that generation that you didn't need. So, you know, that's why in the late 90s we had a whole wave of electric industry restructuring to try to establish markets for generation. But it only kind of got halfway across the country. And so some regions have that and other regions don't.

Rob Gramlich 25:51

Well, I mean, that's a complicated question. I think everybody has thoughts that they probably shouldn't share publicly about Elon Musk.

Rob Gramlich 25:59

the yeah. Well look, I'll just pick on one. I mean, the large scale battery in fact, large and small scale batteries are hugely beneficial to the grid. Like it's a buffer, you know, shock absorber for all parts of the grid. And we have needs for that, both like, you know, right on your, you know, neighborhood. network and all the way up to the bulk power system where we could be installing very large batteries to you know be ready they can turn on and you know instantly and ramp up to full output very uniquely in terms of that controllability and so they can store energy and be ready for on any number of system contingencies we call it like any kind of things that happen on the grid.

And that's a really efficient way to operate compared to always having to build a new transmission line. So, that's one thing that, you know, Elon Musk's companies, one of his companies has been very involved with. They're the obviously they do a lot of other things. and I think the Tesla cars are pretty like programmable in terms of their usage. I'm not quite sure like how all the E V companies compare on that, but that's That's an opportunity again to do charging and charging stations, you know, run them more efficiently with the with kind of the grid in mind.

Rob Gramlich 27:36

Yeah, I mean if you need a lot of power, you're gonna have to take the grid capacity into account. There are you know, consultants out there that like have like grid models so they can be as part of a site selection team. I understand some, you know, this grid power might be like fourth priority for some, but might be higher for others. but you know, to the extent that's an issue, that you know, there are firms out there that can kinda help contribute to a site selection process in terms of you know Power availability.

Rob Gramlich 28:26

Happy to be with you. Good questions, good conversation.

Rob Gramlich 28:30

All right. Thanks all. See ya.