Data centers are a political issue as rapid growth raises questions about affordability, reliability, and whether energy infrastructure is keeping pace with economic development. In states with well-structured regulatory frameworks, data center growth can benefit utility customers by supporting significant investments in the electric grid, strengthening reliability, and helping reduce costs for customers. In other markets, like Texas and Pennsylvania, rapid growth combined with existing supply and infrastructure constraints has contributed to concerns about tightening grid conditions and rising electricity costs.
Unfortunately, the potential benefits of data centers are getting lost in the public debate. It is hard to blame people when the media is running wall-to-wall coverage about the risks and costs related to data center growth and giving far less attention to benefits. Complicating matters, these data centers are also coming at a speed, size and scale that was not anticipated by government authorities accustomed to little or no growth in electricity demand for decades.
Now, voters are angry, and elected leaders and regulators are looking for solutions.
One proposal in Pennsylvania is Consumer-Regulated Energy (CRE) under which a large load user would contract with a power supplier to build out their own closed network independent of their locale’s grid. Proponents argue that these should be allowed to proceed with minimal regulatory burdens, assuming little to no impact on an area’s resources and residents. The scheme would protect these large load users from taxes. Is it really a solution or just a good deal for Big Tech?
CRE is just a new flavor of “behind the meter,” which implies a working interconnection to the grid. If it implies using public right of way, existing, upgraded or new transmission and distribution facilities at any time, then CRE is just another way of saying that they want the benefits of being connected to a robust and resilient electric grid infrastructure in case they need it, but they don’t want to pay for it. In other words, it is a form of deregulation in that they are looking to dodge the rules and regulations that built and maintain the larger grids. CRE backers are really just asking the American public to underwrite the expansion of data centers.
Looking at Pennsylvania
Pennsylvania Governor Josh Shapiro has been at the forefront of trying to fix the PJM debacle as far as his state is concerned. PJM, the grid operator, faces electricity demand that is growing faster than generators can go online. When that happens, under the law of supply and demand, the price goes up. Power bills are increasing. In response, Gov. Shapiro signed an executive order in August, part of which says data center developers must pay for their own energy infrastructure. This way, data centers pay into the broader system, in turn helping lower costs for everyone, instead of letting them be free riders who use the infrastructure without paying for it.
Because of state law, regulated utilities in Pennsylvania cannot work with the public service commission to build new power plants. The Keystone State’s deregulated market allows only independent, merchant generators to build power plants. But the merchant generators are not building new power plants because they make money based on how much customers pay for electricity. These companies have a financial incentive not to build new generation because adding more supply would cut electricity prices and reduce their profits. The result is not enough electricity and higher prices, all because merchant generators will not build, and regulated utilities are not allowed to do so. Doesn’t anyone in Pennsylvania appreciate the irony that its deregulated electricity market has that particular regulation, one that limits competition, in place?
What ties all these forms of deregulation together – CRE, behind the meter, and only allowing merchant generators to build new power plants – is that they are designed to protect the merchant generators as they use the electric grid as a tool for them to reap profits they would not otherwise be earning. It is no coincidence that recent data shows the 15 states with the lowest rates are all regulated, and residential customers living in deregulated states pay 42% more on average for electricity. Pennsylvanians know what to do.
Where does that leave us?
One solution is to construct data centers with their own single user power plants, such as Microsoft and Chevron in West Texas, or ExxonMobil’s proposed data center campuses with natural gas power plants and carbon capture. It is just a matter of money.
If a data center wants to use grid infrastructure, then the data center can and should pay for it. The proposed off-grid data centers that still rely on the grid interconnections only benefit Big Tech companies, not the consumers who deserve transparency and affordable electricity. Elected leaders and regulators must cut through the buzzy jargon and get to work.