If state public utility commissions (PUCs) follow conventional ratemaking approaches, they will shift the costs for data centers to all ratepayers, according to a new paper by Harvard’s Environmental & Energy Law Center.
But utilities may be shifting costs in even more opaque ways, according to the paper, Extracting Profits from the Public: How Utility Ratepayers Are Paying for Big Tech’s Power.
“Detecting wealth transfers from ratepayers to utility shareholders and Big Tech companies is particularly challenging because utilities ask PUCs for confidential treatment of their contracts with data centers, which limits scrutiny of utilities’ proposed deals and narrows the scope of regulators’ options when they consider utilities’ prices and terms,” says the paper.
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Lead author Ari Peskoe, director of the Electricity Law Initiative at Harvard Law School, examined 50 regulatory proceedings and identified three main ways state regulators may allow cost shifts:
- Approving special contracts in “short and conclusory orders” with little analysis.
Few parties choose to participate in the proceeding, which leaves regulators with little to consider other than evidence provided by the utility. Challenging the utility analysis is costly and time-consuming.
- Shifting costs through the gap between federal and state regulation.
Data centers may trigger a need for transmission upgrades. PUCs determine how they will divide FERC-allocated transmission costs among ratepayers. When they do so, data center energy costs can creep into other consumers’ bills. Further, if the data center demand never materializes, ratepayers are left paying the bill for the unneeded transmission infrastructure. Last, by managing their energy use to reduce demand charges, data centers may inadvertently leave other ratepayers paying for peak demand.
- Shifting costs by colocating data centers and existing power plants
The definition of colocation is unclear, and the influence of taking large power plants, like nuclear facilities, off-grid for billing purposes could profoundly influence capacity markets, which will, in turn, affect all ratepayers.
The paper also offers recommendations for state regulators to protect ratepayers from assuming costs created by data centers.
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