US state utility regulators are ordering customers of proposed electricity-intensive data centers to pay higher rates and make financial commitments aimed at insulating ratepayers from the cost of bringing massive amounts of power generation online.
The orders come as the first sustained increase in US power demand in more than a decade has begun to spike household electric bills. Residential electric bills rose on average by 6.5pc/yr from 2021-24 as the data center build out began, a stark acceleration from the 1.5pc average annual increase from 2008-2021, when US power consumption was mostly flat, according to US Energy Information Administration data. Data centers and growth in cryptocurrency mining could raise average US wholesale power generation costs by another 8pc through 2030, with increases as high as 25pc in concentrated data center markets like those of central and northern Virginia, according to a June whitepaper from Carnegie Mellon University and North Carolina State University.
In response, regulators and policymakers in Ohio, Texas, Indiana and Oregon have passed bills and approved new rules that seek to protect ratepayers from cost increases associated with meeting surging power demand, while similar rules are proposed in California, Virginia and beyond. The governor of Indiana in May signed a bill that requires "large load customers" like data centers to reimburse at least 80pc of the cost of energy infrastructure required for their projects, while the public utilities regulator of Ohio — an emerging hotspot for data centers because of its access to the high-voltage 765kV transmission network — in July ordered utility American Electric Power to order new large data center customers to pay for 85pc of the generation capacity they are subscribed to use, even if they use less. The purpose of the orders is to shield ratepayers from the possibility that a data center customer could request costly new generation infrastructure and upgrades, only to back out after those associated infrastructure projects move forward, leaving the remaining ratepayers to pay for them.
"What is the financial disincentive for the data center to not ask you to overbuild?" asked Tom Falcone, president of the Large Public Power Council, in an interview. "It's a rational decision for them."
Texas Senate Bill 6, passed in June, requires the state's public utilities regulator to ensure "large load customers" — meaning projects with a minimum power demand of 75MW, though the utilities regulator can lower this threshold — are charged for any increase in power costs their projects cause. It also establishes an interconnection "study fee" of $100,000 to weed out data centers shopping around different jurisdictions. This shopping around, which data centers engage in to figure out which utilities can bring electricity online the quickest, creates so-called phantom loads that make utility planning difficult and inflate the actual scale of generation that will be needed for data centers.
The technology firms that constitute the biggest customers for planned data centers running artificial intelligence (AI) software have pushed back against such rules proposed by utilities, warning the moves would deter data center development in their service territory. Amazon Web Services, for instance, in October 2024 testimony argued that the modifications to electricity pricing structure proposed by Indiana utility Indiana Michigan Power had "a negative impact on Amazon's view for future investment actions" within the utility's service territory.
But for the biggest customers of data centers that want to be at the forefront of AI development — some of which, like Meta, Amazon and Alphabet boast market valuations north of $1 trillion — costs are likely to be secondary concerns behind those firms' rapacious desire to secure reliable, mostly grid-connected power supplies as quickly as possible, US consultancy Grid Strategies president Rob Gramlich said. This separates Big Tech firms from smaller data center developers that lack vast access to capital, which could reduce those smaller players' appetite for development in states with steeper financial commitment requirements, he said.
At the same time, a policy environment that fails to assure ratepayers that new data centers will not raise their electric bills could lead voters to push their elected officials to reject data center projects altogether. The city council of Tucson, Arizona, voted earlier this month to reject a large data center known as Project Blue, citing significant public resistance, although developers continue to seek necessary approvals in the region.
"There's huge pushback on data centers coming in," Bud Albright, senior advisor on energy at the National AI Association, said at a virtual press briefing in August. "The public is saying, ‘Don't take our power, it's going to drive our costs up.'"
"We need to be cognizant of the power of the public," he said.
