Protect Ratepayers from Subsidizing the Costs of Data Centers

Utilities must ensure that the costs of energy infrastructure to serve data centers are not unfairly passed on to ordinary customers. Special consideration should be paid to ensure that all costs associated with the development of data centers—including construction and energy generation—are paid for by data centers, not taxpayers.

Require Data Centers to Pay Separately for 100 Percent of the Necessary Costs to Service Them

Data centers must be required to pay separately for 100 percent of the costs necessary to service them, including transmission, energy generation, capacity, and financing costs.¹

Transmission lines are the network of high-voltage power lines that carry energy from power generation stations (power plants) to local distribution systems (the local wires that enter our homes and schools). The cost-causation principle, which guides ratemaking, says that customer prices should align with the costs necessary to provide service to that customer—meaning that customers can and should pay proportionally for the transmission lines that service them. However, recently, ratepayers have disproportionately paid for regional transmission costs tied to data center growth. States must pass legislation that directly allocates costs to data center customers that use or are able to use more than 20 megawatts (MW). For recommendations on defining data centers and setting rate classes, see Develop Separate Rate Classes for Large-Load Customers below.

Institute an Equitable Tariff Schedule

A tariff schedule, the official pricing structure set by utility companies, includes rates per unit of energy and other charges (such as service fees). Large-load customers must be subject to a tariff schedule that is equal or proportional to the costs of serving them, mitigating the risk that other classes of retail consumers are paying unwarranted costs. This may include instituting a new tariff schedule or amending an existing tariff schedule.

Investigate or Revise Cost Allocation Methodology and Formulas

To assign costs to various ratepayer classes, utilities use a wide variety of methods, all of which lead to varying results.² Some utilities use methods that assign more costs to customers with peaking energy demand, like residential customers, and fewer costs to data center customers. Regulators must investigate whether existing cost-allocation methodologies are fair, and enact provisions to revise methodologies that unfairly burden ordinary ratepayers for the costs associated with data centers.

Directly Allocate Additional Fees to Data Centers Where Applicable

Utilities are authorized to directly allocate costs in certain situations. These include fees for capacity studies, tracking cost allocation, revenue tracking, or purchased-power adjustments.

Require Data Centers to Fund Independent Cost Studies

Require data centers to fund third-party, independent studies investigating whether additional costs are passed on to consumers throughout the data center generation process, including:

• Whether higher costs get passed on to all customers, as data centers are raising capacity costs
• Whether data center-created supply constraints are going to make energy projects more expensive
• Whether customers are paying for financing or early construction costs for new infrastructure before the large-load customers come online