Across the United States, utilities are increasingly turning to large-load tariffs and special service agreements as they prepare for an unprecedented wave of data center development. In recent weeks, utility after utility has announced billions of dollars in projected ratepayer savings attributed to these arrangements. But how are utilities generating such substantial sums from data center customers—and will those payments ultimately protect households and small businesses from rising energy costs? Probably not.
Large-Load Tariffs
Recent modeling from the Rocky Mountain Institute (RMI) offers a clearer picture. Conducted at the request of Colorado’s Utility Consumer Advocate during Xcel Energy’s large-load tariff proceeding, the analysis estimated the annual revenue that utilities could collect from a hypothetical 300-megawatt data center.
The model examined demand and energy charges, as well as tariff-specific riders, across several utilities, including Dominion Energy, Florida Power & Light, Portland General Electric and Kentucky Power. Portland General Electric ranked highest, with estimated annual revenue of approximately $300 million. Dominion followed at $241 million, while Kentucky Power was projected to collect about $226 million.
Image courtesy EnergyCentral.com.
A 300-MW data center, however, is increasingly becoming a relatively modest project. As developers propose facilities measured in gigawatts rather than hundreds of megawatts, and payments from future projects could make even these figures appear small.
Large-load tariffs can require data center developers to contribute to generation, transmission and distribution investments. They can also establish minimum demand commitments, exit fees and other protections designed to prevent ordinary customers from absorbing the cost of infrastructure built primarily for a large industrial customer.
Yet these tariffs may not protect consumers from all costs associated with the data center boom.
Behind-the-Meter Generation Shifts the Risk
Utility Dive has reported that developers are planning as much as 100 GW of on-site natural gas generation to serve data centers across the country. At first glance, behind-the-meter generation appears to reduce pressure on electric grids. In practice, it could create a new source of cost pressure for households and small businesses.
When data centers procure natural gas directly from suppliers, they compete for the same fuel used to heat homes and operate utility power plants. If demand rises sharply, gas prices could increase across the market—even when the data center is not drawing electricity from the grid. Because these private contracts may fall outside traditional utility regulation, regulators would have little to no ability to protect consumers from the resulting gas and electric bill increases.
Developers have traded an electric-grid bottleneck for a natural-gas bottleneck. The most efficient gas turbines are reportedly back-ordered for five to seven years, encouraging some projects to deploy less-efficient equipment that consumes more fuel, produces more emissions, and costs more to operate.
On-Grid Projects With Large-Load Tariffs Still Carry Risks
Large-load tariffs also cannot eliminate the risks associated with massive on-grid projects. Georgia Power and OpenAI are collaborating on a proposed $30 billion, 3.2-GW data center near the Georgia coast. Georgia Power has said OpenAI will pay infrastructure and electric-service costs under state Public Service Commission rules, and the utility estimates nearly $3 billion in ratepayer savings from large-load customers between 2029 and 2031.
Nevertheless, Georgia Public Service Commissioner Peter Hubbard has raised concerns about the contract. If OpenAI exits before the agreement expires, ratepayers could potentially be left paying for substantial infrastructure costs. Community members have also argued that they were excluded from the decision-making process.
Large-load tariffs may improve the economics of data center expansion for utilities and consumers, but they are not a shield protecting consumers from rising natural gas prices or data center that shut down, shifting infrastructure costs to all other ratepayers. The costs of fuel competition, excess infrastructure, and contractual risk deserve close regulatory scrutiny.
Top image courtesy of NuEnergy Solutions.
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