Negotiations between IT companies and an Ohio power company are on the eyes of U.S. IT companies as more and more communities grapple with the energy demands of proliferating data centers. The regulatory debate could help answer one of the thorniest questions hanging over the nation’s power grid: Who will pay for the massive upgrades needed to meet the growing energy demands of data centers powering the modern Internet and artificial intelligence revolution?
Google, Amazon, Microsoft and Meta are fighting an Ohio power company’s plan to significantly raise the energy costs their data centers pay. The companies are jointly opposed, calling the proposal “unfair” and “discriminatory” in documents filed with the Public Utilities Commission of Ohio last month. American Electric Power Ohio has argued in filings that the rate hike is needed to keep infrastructure construction costs from being passed on to other customers, such as households and businesses.
The case could set a national precedent that will help determine whether and how state utilities can force tech companies to take responsibility for the cost of their growing energy use. Central Ohio has become the Rust Belt due to the exodus of manufacturing, but has recently become a data center stronghold in the US. However, the process is so fast that the power company had to stop approving new data centers last year because of the expected energy demand while they figure out how to finance the new transmission lines and the additional infrastructure they need.
Data center energy demand is causing similar concerns in other hotspots such as Northern Virginia, Atlanta and Arizona’s Maricopa County, leading experts to worry that the U.S. power grid will not be able to cope with the computing boom caused by the shift to green energy and artificial intelligence companies. with their combined needs. It doesn’t help that the White House recently announced measures to speed up the construction of data centers for AI projects, including speeding up licensing.
Energy consumers have to pay a certain percentage of the maximum amount of electricity they predict each month to the utility provider. In Ohio, data center companies have taken on 60 percent of the projected volume. But in May, the power utility proposed a new 10-year rate structure that would raise rates to 90 percent of expected load, even if that amount is not ultimately used. The big tech companies – all of which are increasing spending on data center infrastructure to keep up with AI developments – strongly opposed the proposed contract in documents filed last month.
“While we recognize the challenges AEP Ohio faces due to significant increases in data center load demands, it is critical that any solution adopted by the Commission provides a just and equitable solution,” energy consultant Brendon Baatz wrote on behalf of Google in a filing with the Ohio regulator. In its testimony, “By discriminatingly focusing on data centers, AEP Ohio is asking the Commission to pick winners and losers for the local economy by imposing unfavorable terms on essential electric service for a single industry.”
Michael Fradette, an energy expert at Amazon Web Services, said in his own testimony that it is “unreasonable” to ask companies to predict with great accuracy how much electricity their data centers will need over a 10-year period, because actual consumption depends on factors such as future technological development, customer demand and “weather variability”. Severin Borenstein, an economics professor at the University of California, Berkeley, said tech companies have good reasons to fight Ohio’s proposal beyond local cost increases. He said the country’s other utilities, which are also concerned about the proliferation of data centers, will be watching this case closely, and such fights “could become much more common.”
The first hearing in the case was scheduled for September 30. A spokesperson for AEP Ohio said the company “hopes to reach a resolution that will advance economic development in our service area.”
Google data center under construction in Ohio
Central Ohio’s data center boom over the past five years has been helped by abundant water supplies, fiber-optic Internet and, according to Meta’s comments on the proposed rate hike, “reliable and affordable electric service provided by AEP Ohio.” However, data centers are known to require a lot of electricity to run the high-powered computers inside them and the cooling systems that prevent them from overheating. Lisa Kelso, vice president of AEP Ohio, testified that there are 50 pending requests from its data center customers who require electrical service at more than 90 sites. This represents a potential additional load of 30,000 megawatts – enough to power more than 20 million households. This additional demand would more than triple the utility provider’s previous peak load in 2023, he said.
Between 2020 and 2024, the power load of data centers in central Ohio increased sixfold, from 100 megawatts to 600 megawatts, according to his testimony. According to the agreements signed by the public utility, this amount will reach 5,000 megawatts by 2030, he testified. “Central Ohio’s total load will more than double in a decade, from about 4,000 MW to 9,000 MW,” he continues, “and AEP Ohio’s Top 5 customers will all be data center customers by 2030.” To meet this demand, AEP Ohio will need to build new transmission lines, a costly and time-consuming process. AEP Vice President Kamran Ali testified that building the infrastructure is a “major undertaking and a major construction project” that could take between seven and 10 years.
According to the documents, the power utility’s main concern is what will happen if it invests billions of dollars in new grid infrastructure and data centers move elsewhere, or if the AI bubble bursts and facilities need far less energy than originally designed. If the power utility spends large sums on new infrastructure, but the electricity demand it was built to serve does not materialize, other customers, including business and residential customers, will have to foot the bill, the utility said.
AEP Ohio’s proposed rate increase is an attempt to “require data centers to make long-term financial commitments — to make the stakes higher,” said Matthew S. McKenzie, AEP vice president. Melissa Lott, a professor at Columbia University, says it’s reasonable for utilities to worry about data centers not staying put. Compared to more traditional energy-intensive facilities, such as car factories, data centers are more mobile, he said. “It’s much easier to relocate these services than a manufacturing plant that needs cooling water from a local river or a workforce of hundreds of thousands.”
AEP Ohio’s testimony in the case also questions whether data centers bring as much to local communities as factories or other energy-intensive businesses. Kelso testified that since 2019, non-data center businesses have created about 25 jobs for every megawatt of energy they demand, while data centers require less than one job per megawatt.
Tech companies have rejected that criticism, saying the number of jobs they create is irrelevant to how much energy they are entitled to buy, and have highlighted their other contributions to local economies. Google said it created more than 1,000 jobs in Ohio last year and has invested $6.7 billion since 2019. Amazon said its cloud computing division has invested $10.3 billion in eight years to create more than 4,500 jobs in the state and plans to spend another $7.8 billion in the coming years. Meta, meanwhile, said it spent $1.5 billion on data center projects in the state. Microsoft, which recently created a fund for workforce improvements near its data centers, said in testimony that the utility should treat all its customers “equally” and “not discriminate based on factors that are not relevant.”
Central Ohio isn’t the only place in the U.S. where utilities are reevaluating how to charge their largest customers. In Virginia this year, the power company proposed a rule that would allow it to negotiate individual contracts with any business that uses more than 200 megawatts of power, not just data centers. And in July, Indiana proposed a tariff aimed at funding new infrastructure: It would extend contracts, introduce backlog fees and raise the minimum payment for customers using more than 150 megawatts.
South Carolina is considering rules that would prohibit utilities from offering lower rates to data centers, while in May another power company, Duke Energy, entered into a rate agreement with some data centers aimed at paying for renewable energy generation. But Google argues that Ohio’s proposal stands out by “highlighting a specific industry.” In its filings, Amazon says it pays fees as high as 75 percent of projected demand in some states, but Ohio’s proposal to bill 90 percent goes too far.
Michael Wara, director of Stanford’s climate and energy policy program, said AEP Ohio’s move to treat data centers differently than other customers is “highly unusual” and could set a national precedent. “If Ohio does this and this idea takes off, other state actors can copy it,” he said. But Lott said some states may still feel the need to attract data center developments that bring new revenue to utilities that help pay for routine power grid upgrades. “We’re going to get some idea of where the trade-off is between the long time frames of electric utilities and the short time frames of technology companies,” he said.
Both Microsoft and Google have threatened to leave Ohio if the Ohio tariff is approved. “If AEP Ohio’s proposal is accepted,” Baatz wrote on Google’s behalf, “it would create an unfavorable environment for data center development in the state, potentially causing companies to rethink their investment plans.” But while tech companies could technically move their power-hungry data centers elsewhere, the pressure on the power grid is growing across the country, and many communities are already scrambling to adapt. So it’s up to big tech companies to find ways to work with utilities in Ohio and elsewhere. After all, as Amazon expert Fradette wrote, “Without a reliable power source, our business would not exist.”
Source: sg.hu
