By Ari Peskoe and Eliza Martin, Harvard University
In the race to develop artificial intelligence, large technology companies such as Google and Meta are trying to secure massive amounts of electricity to power new data centers. Electric utilities see the prospect of earning large profits by providing electricity to these power-hungry facilities and are competing for their business by offering discounts not available to average consumers.
In our paper Extracting Profits from the Public, we explain how utilities are forcing regular ratepayers to pay for the discounts enjoyed by some of the nation’s largest companies and identify ways policymakers can limit the costs to the public.
Shifting costs
In much of the U.S., utilities are monopolists. Within their service territories, they are the only companies allowed to deliver electricity to consumers. To fund their operations, utilities split the costs of maintaining and expanding their systems among all ratepayers – homeowners, businesses, warehouses, factories and anyone else who uses electricity.
Historically, a utility expanded its system to meet growing demand for electricity from new factories, businesses and homes. To pay for its expansion − new power plants, new transmission lines and other equipment − the utility would propose to raise electricity rates by different amounts for various types of consumers.
Public utility commissions are state agencies charged with ensuring that the public gets a fair deal. These commissions monitor how much money the utility spends to provide electric service and how its costs are shared among various types of ratepayers, including residential, commercial and industrial consumers. Ultimately, the public utility commission is supposed to approve any rate increases based on its assessment of what’s fair to consumers.
Splitting the utility’s costs among all consumers made perfect sense when population growth and economic development across the economy stimulated the need for new infrastructure. But today, in many utility service territories, most of the projected growth in electricity demand is due to new data centers.
Here’s the problem for consumers: To meet data center demand, utilities are building new power plants and power lines that are needed only because of data center growth. If state regulators allow utilities to follow the standard approach of splitting the costs of new infrastructure among all consumers, the public will end up paying to supply data centers with all that power.
A big price tag
One particularly acute example is in Louisiana. A Meta data center under development in the northeastern corner of the state is projected to use, by our calculations, twice as much energy as the city of New Orleans.
Entergy, the regional monopoly utility, is proposing to build more than $3 billion worth of new gas-fired power plants and delivery infrastructure to meet the data center’s energy demand. Rather than billing Meta directly for these costs, Entergy is proposing to include the costs in rates paid by all customers.
Entergy claims its contract with Meta will cover some portion of the $3 billion price tag and that will mitigate any increases in consumers’ bills. But Entergy has asked state regulators to keep key terms of the contract secret, and only a redacted version of its application is available online.
The public has no idea how much it might pay if the commission approves the contract. And if the Meta data center ends up using much less power than the company anticipates, the public does not know whether it would be on the hook to pay higher electricity rates for longer periods to guarantee Entergy a profit.
Secret agreements
Our research, reviewing nearly 50 public utility commission proceedings about data centers’ power needs across 10 states, uncovered dozens of secretive contracts between utilities and data centers. Unlike Louisiana, most states require utilities to submit to the public utility commission their one-off deals with data centers, but they allow utilities to conceal the pricing terms from the public.
In normal rate-review cases, numerous parties advocate for their interests in a public proceeding, including members of the public, industry groups and the utility itself. But as our paper finds, utility commission reviews of data center contracts are based on confidential utility filings that are inaccessible to the general public. Few, if any, outsiders participate, and as a result the commission often hears only the utility’s version of the deal.
Because the pricing terms are secret, it is impossible to know whether the deal that a utility is offering to a data center is too low to cover the utility’s costs of providing power to the data center, which would mean that the public is subsidizing the deal. History shows, however, that utilities have a long history of exploiting their monopolies to shift costs to the public, including through secret contracts.
Other public costs
Our paper also explores other ways that the public pays for data center energy costs. For instance, many high-voltage interstate transmission projects, which connect large power plants to local delivery systems, are developed through regional planning processes run by numerous utilities. These alliances have complex rules for splitting the costs of new transmission lines and equipment among their utility members.
Once a utility is charged its share, it spreads the costs of new transmission projects among its local ratepayers. Because some regions are building new transmission capacity to accommodate data centers, our analysis finds that the public has been forced to pay billions of dollars for data center growth.
Data center energy costs can also be shifted when data centers connect directly to existing power plants. Under what are called “co-location” deals, the power plant stops selling energy to the wider public and just sells to the data center. With less supply in the overall market, prices go up and the public faces higher bills as a result.
Many state legislatures are noticing these problems and working to figure out how to address them. Several recent bills would set new terms and conditions for future data center deals that could help protect the public from data center energy costs.
Ari Peskoe is a lecturer on law at Harvard University and Eliza Martin is a legal fellow in the Environmental and Energy Law Program at Harvard University.
This article is republished from The Conversation under a Creative Commons license. Read the original article. Banner photo: A data center (IMarcoHerrera, CC BY-SA 4.0, via Wikimedia Commons).
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