• Developers await regulatory ruling on how much deposit is refundable if projects are terminated
• The impact extends to all large-load projects over 75 MW

Developers who submitted projects into the Batch Zero process are stuck in limbo, unsure of what will happen to the USD 50,000 per MW deposit they submitted alongside each project after ERCOT temporarily halted the Batch Zero process earlier this week.

On August 3, Governor Greg Abbott directed the Public Utility Commission of Texas (PUCT) and ERCOT to conduct an audit of all data center projects advancing through ERCOT’s interconnection process.

In response, ERCOT issued a directive halting the Batch Zero process, which includes any large load submission over 75 MW.

Lawyers at Bracewell LLP said that the halt could impact the number of projects ultimately approved in the Batch Zero process, as developers determine if it’s worth it to stay in.

One of the biggest factors that is impacting developers’ decision is refutability of the Batch Zero deposit, said Bracewell LLP partner Bryan Clark.

Developers have been waiting for the PUCT to issue a final ruling on what percentage of the deposit would be refunded if projects are terminated. The current draft rule says that developers will only receive 20% of their deposit back if the project is terminated.

However, there is an understanding that developers may receive their full deposit back before the final ruling is enacted.

Clark said that developers are worried the pause of the Batch Zero process may overlap when the PUCT decides to issue a final ruling on refutability. If this is the case, developers will be forced to decide whether they want to terminate their projects before the PUCT ruling is enacted, or risk losing a percentage of their deposits if their projects are not approved by the process.

“You’re asking these developers to say, ‘We don’t know what Batch Zero is going to look like, but if you want to stay in this, we’re going to have to put part of our deposit at risk for a yet unknown process,’” said Clark.

This issue is not just limited to data centers projects submitted as part of Batch Zero, but other large load projects over 75 MW as well.

“This does not just affect data centers,” said Jared Berg, another Bracewell partner. “It affects all large loads. If you want to build a gas processing plant in the state of Texas or build an LNG facility and you need more than 75 MWs of power for that facility, you are stuck in the same quagmire as all the data centers.”

The PUCT is expected to issue a ruling towards the end of the summer, and if they do, the final ruling would go into effect 20 days after the ruling is issued. Clark said that if the ruling is issued then, it should be expected to go into effect by mid-October.

There is currently no indication on when the PUCT and ERCOT will be issuing an audit for data centers. The next open scheduled PUCT meeting is slated for August 20, though the posted agenda does not indicate whether the commission will discuss or vote on an audit framework.

“The main takeaway is nobody really knows what’s going to happen or where this is going to go yet,” Clark said. “There is definitely a decision point for many of these large load developers that is coming up in the short and immediate term.”

Private capital-backed projects

Clark and Berg noted that majority of the projects submitted to the Batch Zero process were backed by private capital or private equity lenders, who were able to fulfill the large USD 50,000 per MW deposit requirement.

Most of these lenders either took equity in the projects or developers or provided debt for the financing. Even if debt was issued, Berg noted that it was common to see structures where the lender took a non-controlling interest in the developer or project.

This could give lenders more of a say in what happens to the projects, said Berg, and they could ultimately decide whether staying in the Batch Zero process with the current level of uncertainty is worth it or not.