The data center capital of the world is shifting more transmission costs onto the energy-hungry sector.
Virginia regulators have ordered Dominion Energy, the commonwealth’s largest utility, to create a process for assigning to data centers the direct costs of their electric service, such as substations built to meet their power demand. Those costs are currently spread across all ratepayers.
Regulators also opened the door for data centers to pay more of the grid’s transmission costs further upstream, such as regional projects that are harder to tie to any specific demand source.
The move by Virginia’s State Corporation Commission came during the annual adjustment of Dominion’s transmission rate rider — a usually routine proceeding that turned into a blockbuster utility case. The decision is expected to shift hundreds of millions of dollars in transmission costs away from the public, with details to be finalized during future regulatory proceedings.
The outcome marks a victory for environmentalists, consumer advocates and Virginia Democrats who had argued Big Tech needs to shoulder more data center costs. With energy affordability dominating voters’ concerns in the run-up to November’s midterms, Virginia’s decision offers both a model and a talking point as officials nationwide grapple with the data center boom.
Democratic Gov. Abigail Spanberger — whose administration made the uncommon move of publicly pushing regulators to act — hailed the decision as one of her “real steps to address rising energy costs for Virginians.”
It’s hard to overstate the importance of this decision, said Josephus Allmond, Spanberger’s chief energy officer.
“Instead of spreading transmission costs caused directly by data centers across all ratepayers,” he said in a statement, “now data centers will pay for those costs directly.”
Hyperscalers, who have pledged to cover the cost of their power, had sought alternative, voluntary approaches. Amazon, for instance, argued that developers should have the right to pay for their own infrastructure in exchange for a faster path to grid interconnection.
Along with Dominion, Big Tech also argued that Virginia’s other steps to shift costs toward data centers, like a new large-load rate class, should be given time to mature before making more changes.
The Data Center Coalition — a trade group that represents Amazon, Microsoft and other data center developers who participated in the case — said the industry is committed to paying the full cost of the energy it uses. The group was not involved in the proceedings itself.
“This order will continue and likely accelerate the recent trend of large users like data centers picking up more of the cost for transmission infrastructure while the share of costs borne by residential ratepayers continues to decline,” Nicole Riley, the group’s director of Virginia government affairs, said in a statement.
She added that the order reinforces the State Corporation Commission’s role as the “proper entity to allocate costs in a fair manner.” Virginia lawmakers this year undertook a bruising fight over data center tax incentives, eventually agreeing to impose a temporary energy tax while preserving sales tax exemptions. Members of both parties have said they intend to keep pressuring the sector.
In this case, regulators said they were trying to protect the public from costs created by a small segment of businesses. Virginia’s State Corporation Commission “remains committed to ensuring a fair and reasonable — but not excessive — allocation of appropriate costs to large-load customers,” the three-member regulatory body wrote Friday in its order.
The order envisions requiring data centers to pay what’s known as a contribution in aid of construction, or CIAC (pronounced “kayak”), which amounts to an up-front payment for part of a project’s cost.
Regulators ordered Dominion to amend its line-extension policy so the utility could charge data center developers a CIAC for “direct connect” transmission facilities, such as the substations and power lines that connect a data center to the bulk transmission system. The CIAC would cover the costs of a project that aren’t otherwise captured by a facility’s transmission charges.
Further changes are on the table too. Only charging data centers for their “direct connect” projects, regulators said, might still leave the public on the hook for infrastructure needed further upstream in the transmission system.
As they review Dominion’s new line-extension policy, regulators said they might also consider whether to add those higher-order costs to data centers’ CIAC or spread them across the entire GS-5 large-load rate class. Those changes, commissioners said, would require “a more deliberate approach.”
That means that big fights are still ahead, even as progressives take a victory lap over the latest order.
“It’s an important first step, but more work remains,” said Chris Miller, president of the Piedmont Environmental Council, which participated in the rate case.
“The ruling appears to apply only to substations and the other transmission infrastructure that connect data centers to the bulk power system,” he said in a statement. “It does not resolve who should pay for the billions of dollars in other supplemental and regional transmission projects driven by unprecedented data center growth in Virginia. The ruling also does not address the substantial new generation resources — including multiple natural gas-fired power plants — that Dominion has proposed to build to meet this rapidly growing demand.”
Virginia’s move comes as states, federal regulators and grid operators struggle to shield the public from data center-driven costs across an electrical system where decision-making authority is fractured among several actors.
For instance, PJM Interconnection, the 13-state grid operator that includes Virginia, says its plans for protecting the public from data center costs rely on state action. Meanwhile, Virginia regulators said their power to review utility profits from transmission projects is limited by the Federal Energy Regulatory Commission. And FERC, for its part, is warning PJM that it must reform itself to bring new power online more quickly to meet data center demand and avoid even higher power costs, or else face federal intervention.
Virginia’s order gives Dominion 90 days to propose a new line-extension policy with a CIAC framework for the State Corporation Commission to review.
