Logos of Amazon, Google and Microsoft were seemingly everywhere for several days in November at a conference at the Marriott in Anaheim, California: on signs, booths, promotional videos and the lanyards around people’s necks.
But this wasn’t a tech industry trade show. It was an annual meeting of utility regulators.
Big Tech’s presence at the meeting of the National Association of Regulatory Utility Commissioners is the latest sign of the billions of dollars pouring into energy-intensive data centers for artificial intelligence. For several days, representatives of so-called hyperscalers joined the usual gaggle of utility lobbyists jockeying for face time with regulators — gatekeepers of an electricity system powering the U.S. race to advance AI technology.
At the nexus of utilities and tech are tough issues around who bears the risks of building new infrastructure to power warehouses of computers with electricity needs equivalent to some U.S. cities. They are questions for the largely unknown state officials who set utility rates, and the answers will shape how and where tech giants move forward.
No company has been as visible at events such as the NARUC meeting as Google, the brand behind Gmail and YouTube, which operates more than a dozen U.S. data centers with more to come.
Caroline Golin, global head of energy market development and innovation, said Google’s conspicuousness is intentional.
“Google spends a lot of time deeply understanding the business model of our partners, of our utilities,” Golin said in an interview. “We’re not coming in there to break or destroy things.”
The company’s pitch to regulators, policymakers and the public at large is essentially this: Google’s financial might (parent company Alphabet brings in about $1 billion a day in revenue) can help address, not exacerbate, concerns around data center expansion, including the climate impact of massive electricity requirements.
The company and its competitors have continued to staff up with some of the brightest minds in clean energy, energy markets and regulation. At NARUC and in other meetings with utility regulators, Google’s public face has been Tyler Huebner, a former Wisconsin regulator who joined the company’s energy market development team last year and knows the intricacies of how utility tariffs work.
Golin, who herself previously served as an expert witness in utility cases, said the company’s expansion across various states has required it to keep pace in terms of staffing given to the unique nature of each jurisdiction. All of it is targeted at helping Google to meet its goal unveiled in 2020 — to power its operations with carbon-free energy around the clock.
“We want to see the clean energy revolution happen,” she said. “We have a ton of capital. We have a ton of demand, and we have a ton of ambition. Usually you get one of the three, maybe two. We’ve got all three.”
Companies such as Google are raising new data centers at a pace and scale previously unseen. Utility industry officials said individual data centers being discussed can require as much as 2,500 megawatts of electricity — roughly the demand of a city the size of Indianapolis.
Nationally, power demand from data centers is expected to nearly triple by the end of the decade from the current 3.5 percent, according to multiple estimates. The growth is being encouraged by states dangling incentives, hungry for what limited jobs and revenue accompany the projects.
The utility industry, not far removed from talk of an industry “death spiral,” is collectively staring at as much as $60 billion of investment in power plants, poles and wires by the end of the decade, according to an estimate by Deloitte Consulting.
Christian Grant, a principal in Deloitte’s power, utilities and renewables practice, said large data centers are different from manufacturers and other big power users when it comes to how they shop for energy. That is, cost isn’t at the top of their screening criteria.
“It’s the access to it, not the cost of it, that’s the limiting factor,” Grant said. “If they can find power, the price for it appears to be secondary.”
Optimism and concern
If cost isn’t a primary concern for tech companies, it is for regulators, some of whom have already seen applications for massive new grid investments to serve data centers.
In Louisiana, for instance, Entergy Louisiana is asking the Public Service Commission for approval to build three new natural gas-fired plants at a cost of $3.2 billion to power what will be the largest U.S. data center for Meta, the parent of Facebook and Instagram.
The project is planned for a site marketed by Entergy’s economic development affiliate.
The Meta announcement in December came mere months after Republican Gov. Jeff Landry signed legislation creating tax breaks on data center development and equipment.
In fact, a growing list of states, blue and red, are rolling out tax breaks to lure multibillion-dollar data center projects. Among them is Michigan, which in December adopted a suite of tax exemptions for companies that locate large data centers in the state. But unlike gas-rich Louisiana, Michigan also has a law requiring electricity to be carbon-free by 2040.
In a call with investors before the Michigan Legislature passed the tech industry incentives, the CEO of DTE Energy, the state’s biggest utility, talked up its aim to reel in hyperscalers and said the utility was seeing potential demand in the “thousands of megawatts.”
By comparison, Michigan’s single-largest existing power user requires about 400 megawatts, said Dan Scripps, chair of the state’s Public Service Commission.
Even before massive new sources of power demand came on the state’s radar, Michigan faced dwindling capacity reserve margins. And its major utilities face increasing public pressure to improve reliability and service interruptions while keeping a lid on rising electric rates.
Can Michigan handle the new sources of demand while addressing reliability and affordability issues and building new infrastructure for zero-carbon energy?
“There’s a lot of concern around, can we do this within this framework?” Scripps said in an interview. “I think there are reasons to be both optimistic and concerned.”
He said rising demand growth has the potential to help suppress electric rates by spreading utility fixed costs across a larger number of customers.
Scripps and other regulators at the Anaheim conference agree that key questions surround data center expansion: Who pays for needed system upgrades? And who bears the risk?
“The challenge is we’ve never seen this much [demand growth] this fast,” he said. “Some of those core regulatory principles, like customers should pay the costs that they incur on the system, are really important.”
In fact, everyone involved with the electric industry is having the same discussions.
They include David Springe, executive director of the National Association of State Utility Consumer Advocates, whose members represent the interests of individual consumers and small businesses across the country.
Springe said decisions made in coming months and years will reverberate for decades. He said regulators will have to have a vision for how to keep costs from spiraling and ultimately landing on utility customers.
Consumer groups worry not just that promised demand won’t materialize, but also that short-term energy supply agreements won’t pay for billions of dollars of new assets that will be embedded in utility rates for many decades.
“How is that financial risk going to be handled,” Springe said. “And then what are the rules and parameters around system reliability? When push comes to shove, can we turn that data center off if we need to protect system integrity for the customers that are actually human beings?”
The debate over financial risk is one playing out in real time right now. Georgia’s Public Service Commission last week adopted a new rule aimed at protecting consumers from financial risks associated with the build-out of infrastructure to serve data centers. Regulators in Ohio are in the middle of a dispute right now over competing proposals.
There, American Electric Power Co., PUC staff and consumer groups are trying to persuade regulators to sign off on new tariffs for new data centers and cryptocurrency mining operations.
Under the tariff, large new data centers would be required to pay for 85 percent of the electricity they expect to need each month even if actual usage is less for a period of up to 12 years with more “flexible” requirements for small and midsize facilities.
Operators would have to show proof that they’re financially capable of meeting the requirement and pay an exit fee if their project is canceled or they can’t meet terms in the energy supply contract with AEP.
The proposal drew pushback from tech companies including AWS, Google, Microsoft and Meta, which had earlier jointly proposed their own set of terms.
In testimony last fall, the tech companies said the tariff proposal was discriminatory because it singles out data centers among large energy consumers. As a consequence, they said, it would chill data center development, and economic growth for Ohio.
AWS, for instance, said it has already spent more than $10 billion in the state since 2015 and plans a further $7.8 billion investment in Ohio this decade.
‘Historic mistrust’
However the case plays out in Ohio and other states where similar data center-related utility tariffs have been proposed, state utility commissions might not be the final word, observers said.
Data centers to be a hot topic at statehouses as legislatures begin to ramp up. Just last week, bills related to data center development were introduced in states including California and Indiana.
Grant, the Deloitte principal, expects tech companies to come with their own asks of lawmakers, potentially as a way to get in front of contentious fights at the state utility commissions.
“A regulatory opinion is nice,” he said, “but legislative certainty is better. Let’s not underestimate the abilities of these companies to seek legislative certainties.”
Another central question for regulators and a persistent theme at their conference in Anaheim: How much of the estimated demand will actually materialize? And how can utilities plan for it?
“There’s a real concern about what’s speculative and what’s real,” Jeff Riles, Microsoft’s director of energy markets for the Americas, said during a panel discussion in Anaheim. “There’s been some historic mistrust that we’re trying to overcome.”
Riles said it’s part of the reason that companies such as Microsoft are becoming more involved in the utility planning process — an exercise they previously left exclusively to the utilities themselves.
“Utilities used to say: ‘Please don’t talk to my regulator,’” Riles said. “Now they’re like, please go talk to my regulator. So there’s a whole paradigm shift that I think is taking place.”
Regulators are also being asked to rule on new electricity procurement proposals being put forward by hyperscalers in search of round-the-clock carbon-free power to meet sustainability goals.
The Federal Energy Regulatory Commission recently rejected an application for an Amazon data center to connect directly to Talen Energy’s Susquehanna nuclear power plant in Pennsylvania.
In Nevada, Google and utility NV Energy are seeking approval of a very different arrangement.
NV Energy, a unit of Warren Buffet’s Berkshire Hathaway, in June sought approval for a long-term agreement with Google for carbon-free power to supply a data center outside Reno, Nevada.
The agreement seeks authority to utilize a so-called Clean Transition Tariff — a proposal under consideration by the Nevada Public Utilities Commission in a separate case.
Golin said the proposal, which the company hopes to see replicated elsewhere, was born out of necessity; specifically the company’s 2020 pledge to power its operations with carbon-free electricity around-the-clock by the end of the decade.
For Google to meet its goal, it needs so-called firm capacity — carbon-free energy that can be available on demand. In the case of the Nevada proposal, it’s advanced geothermal energy from a project developed by Houston-based Fervo Energy.
In the future, similar arrangements could involve small modular nuclear reactors (SMRs) or long-duration battery storage.
While the proposal aims to meet Google’s immediate needs for clean generating, Golin said it has broader societal value by helping catalyze development of new technologies that don’t fit in the existing utility planning rubric.
For critics who view data center growth as a threat to the electric affordability and reliability, Golin said the company is focused on solutions to the challenge of addressing demand growth with carbon-free power because “the digital industry is not going away. The economy is going to continue to digitize.”
What’s more, growing demand for electricity — or load, as it’s referred to in the utility industry — shouldn’t be panned, it should be welcomed as a sign of progress.
“Load growth is good,” she said. “Load growth means the economy is growing.”
