Data center developers love Texas. Speed to power is the name of the game. Consequently, many developers focus on available acreage, proximity to gas pipelines, access to water, transmission grid availability, and nearby fiber. Location matters for all those things. But for an islanded generation + large load combination, another location-specific consideration matters—one that many don’t think about when they’re buying developable acres: Who is the certificated local utility?
Why does that matter? In Texas, competitive service is lawful in some locations, but not others. What makes the difference? The identity of the certificated utility for that specific piece of land.
Developers would be wise to put this question on the list of things to ask their real estate broker or landman: Who is the certificated utility?
There are three primary types of utilities in Texas:
- Investor-owned companies.
- Electric cooperatives.
- Municipally owned utilities.
Location matters because Texas law authorizes competitive retail sale of electricity only in the territory certificated to one of those three types: investor-owned utilities. And that is true even for “islanded” (i.e., non-grid-connected) or “behind-the-meter” projects.
Islanded projects rely on the direct delivery of power from on-site generation to the on-site load. Thus, these projects can win the speed-to-power game if the generation owner has equipment (including turbines) and contractors ready to go. Because of the time-consuming large load interconnection process and the frequent need to construct transmission system upgrades to handle new large loads, dedicated on-site generation can sometimes be built faster than slogging through that large-load-interconnection morass. So, if the developer has access to the generation-building option, an islanded arrangement can often be the speediest path to power.
But sometimes the prime acreage for massive generation + load projects is in rural areas served only by an electric cooperative. Or it might be in the territory of one of Texas’s municipally owned utilities, like Austin or San Antonio.
If the sole utility certificated by the Public Utility Commission of Texas to serve the project location is an electric cooperative or a municipally owned utility, the developer’s dream of an expeditious path to power and complete developer control of the project vanishes. Why? Because only the electric cooperative utility can lawfully furnish or provide retail electricity to the consuming load if the project site is singly-certificated to a “co-op.” Similarly, only the municipally owned utility can lawfully furnish or provide retail electricity to the consuming load if the project site is singly-certificated to a “muni.” And, yes, that’s true even for non-grid-connected load.
What does that mean for an islanded project? It means that the electric cooperative or municipally owned utility must be involved in the retail provision of electricity. Often, that means the generation owner sells to the cooperative or municipal utility, which then immediately resells the electricity to the load, in a back-to-back or “sleeving” arrangement. Because that’s the only lawful way to accomplish the retail sale of electricity to the large load component of the project (assuming the load owner is not the generation owner), the electric cooperative or municipal utility becomes an essential participant in the project—perhaps one the project developer never even envisioned playing any role at all.
By contrast, if a project site is certificated, singly or multiply, to an investor-owned utility, then under Texas law a competitive retail electric provider can lawfully sell electricity to the load. Thus, the competitive generation owner can sell to a competitive retail electric provider who then sells the electricity at retail to the large load owner. And there are dozens of licensed retail electric providers operating in Texas, so no single entity is a necessary participant in the project.
No matter the location, under precedent in Texas known as the Flint Hills case, the large load customer can own the transmission and distribution facilities that connect the on-site generation to the on-site, islanded load. But the options for who can lawfully make the retail sale depend entirely on the specific location of the project.
Location matters because utilities are allocated (“certificated” for) specific territories by the Public Utility Commission, in sometimes-haphazard patterns dating back to 1975 that create a jigsaw-puzzle-like pattern across the state. Knowing exactly which puzzle piece your project site occupies determines which type of utility can serve it. And that determines who can sell the retail electricity to the islanded load.
Developers: Add a question to your property-evaluation list, and ask it early: Who is the certificated utility?
