The growth in data centers is creating significant new demands on power generation in the United States, perhaps accounting for 12% of all electricity demand by 2030. This represents a quintupling of annual demand growth. Utilities are eager to attract this business, which expected to be worth hundreds of billions of dollars.
A new report from the Environmental & Energy Law program at Harvard University warns that utilities may be a little too eager in vying for data center business, even to the point of increasing the burden on other ratepayers. Such shifting may occur through a combination of specialized contracts, regulatory loopholes and private interconnection provisions.
According to the report, the lure of data center projects, where new facilities could demand as much as 2 GW, the output of a large nuclear and consumption of a city, is prompting utilities to compete for big tech tech firms to build them in their service areas. To do so, utilities will offer special–even secret–contracts that offer attractive terms to data center builders and that the cost of new infrastructure is passed onto ratepayers, who do not benefit from the new capacity. Furthermore, a state’s public utilities commission (PUC) is generally quick to approve these contracts with only cursory investigation.
After reviewing 40 state PUC proceedings about special contracts with data centers, the report says that “regulators frequently approve special contracts in short and conclusory orders. While PUC rate case decisions are lengthy documents that engage with the evidence filed by the utilities and other parties, most PUC orders approving special contracts provide only cursory analysis of the utility’s proposal. One challenge for PUCs is that few, if any, parties participate in these proceedings. As a result, the PUC has little or no evidence in the record to compete with the utility’s claim that the contract isolates data center energy costs from other ratepayers’ bills.”
Electricity rates are structured so ratepayers in a certain category pay the same scale. Ideally, private consumers would all be in one category, business in another and data centers would be in another. The report says that utilities can circumvent these government-approved rate structures in the secret contracts for data centers whose provisions remain confidential. The authors do not cite any specific evidence for this other than pointing to “the long history of utilities exploiting their monopolies.”
The building of new infrastructure is another area where the report says ratepayers could be left holding the bag for accommodating new data centers. In this case, the possibility that the data center may end up not needing its projected electricity consumption due to new artificial intelligence processing technologies reducing power requirements. Or perhaps a business just doesn’t pan out. Then ratepayers will see their costs increase for new generating capacity and transmission that isn’t ultimately needed.
Another opportunity for cost shifts from big-tech builders to general ratepayers is in dedicated generation for data centers behind the interconnection link, the Harvard report says. Data center owners are unanimous in their requirements for absolutely reliable 24/7 power. Hence the importance of significant on-site battery storage, especially for those facilities off-taking renewable sources, such as solar and wind. According to the report, provisions for “co-locating” generation sources with data centers plant behind the plant’s point of interconnection to the utility-owned transmission network enables the off-taker to claim it wasn’t using the network and thus shouldn’t be charged for it.
“A single proposed co-location arrangement between a nuclear [power plant] owner and a data center would shift between $58 million and $140 million of transmission and state-regulated distribution charges to other ratepayers,” the report says.
The report said the rapid expansion of data center business with curtailed oversight was causing a number of other opportunities for ratepayers to be saddled with an unfair share of the development burden. To counter these the authors recommend that PUCs establish robust guidelines for reviewing special contacts and to require new data centers to take service under published tariffs.
One interesting suggestion was for states to amend their laws to allow for the establishment of “energy parks,” where the data center builders would foot most of the bill for their energy generation needs. The park would incorporate all of the generating needs of the data center, and could empower owners to pursue low-carbon generation, which is often an aspect of big tech’s corporate philosophy.
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