Indiana creates nation’s first utility to provide electricity only to data centers; reaction is mixed among stakeholders

   

Power grids across rural America are facing the challenge
of serving data centers. (Andrew Metelev via Unsplash)

Rural Northwest Indiana has given the nod to what some think may be a solution to the power generation problem associated with data centers — a dedicated utility provider. Circle of Blue reports via RuralNewsNetwork.org that the idea is to “simultaneously protect ratepayers while continuing to embrace the industry’s growth.”

Christian Thorsberg writes about the boom of data centers in the region, “where nearly a dozen hyperscale data centers are planned, under construction or already operating.” Reaction to the first-of-its-kind utility has been mixed.

The region’s largest power producer, and the one with the highest rates, announced two years ago that because of inquiries from data center projects its power load was likely to quadruple over the next decade. That led to the company’s idea of creating a subsidiary to serve only data centers. Thorsberg explains that the proposal “was drawn up to shield regular ratepayers from extra costs of adding mega-users … to [the] network.” The subsidiary “would generate and sell electricity” wholesale to the parent company, “its only customer,” which would then sell it to data centers. “The buffer for resident’s rates would come from the mathematical accounting of these transactions, which in theory would remain separate from household bills.”

The plan received unanimous regulatory commission approval last fall, and it included exemptions for the subsidiary that speeds up the process. For example, the regulatory commission “does not need to approve all aspects of financing for projects,” and the subsidiary can “pick and choose” its customers.

The region appears to be bracing itself for the impact of this plan. Critics and experts are expressing concern about the effect on the environment, the grid’s efficiency, and whether the network can support the volume of electricity expected. “I’m not against the business model,” Jaoa Ferreira, acting director of the Center for Economic and Policy Studies at the University of Virginia, told Thorsberg. “One important thing for me is that this actually results in adding production to the grid, and not just splitting electricity from everyone else to just satisfy data centers.”

 

Why can't states simply share energy to avoid blackouts? Bolstering U.S. grids requires multi-faceted plans.

As power grids across the U.S. face more challenges, including dramatic increases in national energy needs, such as electricity-sapping data centers and extreme weather fluctuations across entire regions, some Americans may be wondering why a regional grid under strain can't just borrow from a neighboring state's grid that has plenty.

There are few links between the U.S. Eastern, Western and ERCOT interconnections. (ERCOT map)

The answer is to that question is simple and complex, energy experts Sufan Jiang and Fangxing Fran Li write for The Conversation. "The U.S. bulk power system is not one seamless national grid, but three major grid regions known as interconnections — the Eastern, Western and ERCOT (Electric Reliability Council of Texas) systems. There are very few transmission lines between them, so if one has too little power, the others may not be able to help much."

In February 2021, Texas was clobbered by a series of brutal winter storms that dumped snow and ice across the state while simultaneously keeping temperatures below zero for days. Because Texas owns its own grid and shares few transmission lines with other states, ERCOT was "forced into the largest deliberate electricity shutoff in U.S. history. Operators cut power to millions of customers to avoid a total grid collapse," Jiang and Li explain. ERCOT's blackout left more than 4.5 million homes and businesses without power.

The Southern Spirit Transmission line will connect Texas to 
the Southeastern grids for power sharing. (Pattern Energy map)

In an effort to give ERCOT more options during another energy crisis, the "Southern Spirit Transmission project was announced by the Department of Energy in 2024," Jiang and Li explain. That addition "would include a 320-mile transmission line connecting Texas with Louisiana and Mississippi."

In its simplest form, a transmission line connects energy providers so they can share power. But when it comes to natural disasters and extreme weather, power lines have to withstand the storm or event. Jiang and Li write, "The answer to bolstering power grids is not just to build more high-voltage transmission lines. It is also important to harden the transmission corridors that already exist so they can withstand extreme weather and be restored more quickly after a disaster."

The federal government also regulates the sharing of grid energy between operators. "Federal standards require transmission providers to have enough electricity available in reserve to serve their own local homes and businesses safely," Jiang and Li explain. "Only excess electricity above that safety threshold can realistically be treated as power available to help neighboring grids during an outage."

Wisconsin utility regulators review plans for how to pay for data center energy needs

Microsoft’s new AI data center campus in Mount Pleasant, Wis.
(Microsoft graphic via Canary Media)

Utility regulators in Wisconsin are scrutinizing the state's first energy plan to power AI campuses. Meanwhile, consumer and environmental groups dispute the need and consumer benefits for supporting data center developments.

The biggest debate right now is how much of their energy infrastructure costs data centers will be required to pay. Kari Lydersen of Canary Media reports, "Wisconsin’s largest utility, We Energies, has offered its first major proposal before state regulators on the issue."

The proposal, which is open for public comment, contains two options for data centers to choose from, both of which outline that "data centers would pay most or all of the price to construct new power plants or renewables needed to serve them," Lydersen explains. The first option, defined as "full benenfits" requires data centers to fund 100% of their needs. The second option, called "capacity only," requires data centers to pay 75% of their costs. "Other customers would pick up the tab for the remaining 25%."

The We Energies decision is also likely to set a precedent for other Wisconsin utilities managing data center energy plans. Bryan Rogers, the environmental justice director for the Milwaukee community organization Walnut Way Conservation Corp, told Lyderson, "As goes We Energies, so goes the rest of the state.”

Consumer and environmental groups are speaking out against the capacity-only option, arguing that "it is unfair to make regular customers pay a quarter of the price for building new generation that might not have been necessary without data centers in the picture," Lyderson writes.

We Energies says "everyone will benefit from building more power sources," Lyderson reports. Jeffry Pollock, a Wisconsin Industrial Energy Group trade adviser, told regulators that "the utility’s own modeling of the capacity-only approach showed scenarios in which the costs borne by customers outweigh the benefits to them."

Although Wisconsin has seven big data centers under construction, the state "has no laws governing how the computing facilities get their power," Lyderson writes. Wisconsin lawmakers are debating two bills that define data center energy division, but "until a measure is passed, individual decisions by the state Public Service Commission will determine how utilities supply energy to data centers."

As residential electricity costs climb, big users pay less

Between 2022 and 2024 residential electricity costs 
increased by 10%. (Photo by J. Maculan, Unsplash)

After years of wallet-draining food inflation, many Americans must now contend with soaring home electric bills. "Since February 2020, electricity prices have increased by an average of 40% across the country," reports Shannon Osaka of The Washington Post. Overall, the brunt of the increased costs is being paid by residential customers even when they aren't the biggest users.

Many utilities have increased rates to fund needed infrastructure builds, but residential customers are paying more than commercial users. Osaka writes, "Residential electricity costs rose by 10% between 2022 and 2024. Commercial users, spanning everything from small corner stores to giant, energy-sucking data centers, have seen rates increase just 3%."

Building and repairing the poles, wires and transformers required for residential electricity delivery is costly and isn't generally needed by large commercial users, which is one reason many residential customers pay higher rates. Oska notes, "The average electricity price at the end of 2024 was 16 cents per kilowatt-hour for homes and apartments, and just 13 cents for commercial customers."

While infrastructure costs explain some of the difference in electrical prices, a complex system of lobbying goes on behind the scenes to determine how much a business will pay for electricity. Osaka reports. "In theory, each group is supposed to pay an amount that aligns with the cost to bring them power — but in practice, different groups can lobby for lower prices."

Charles Hua, executive director of PowerLines, a group that works to lower electricity costs for consumers across the country, told Osaka, "Residential consumers feel like they don’t have a voice in our utility regulatory system." Osaka adds, "Utilities often sign special contracts with data center customers that place them outside standard pricing agreements."

Some states are working to prevent data centers from shifting their expansion costs onto residential customers. Osaka reports, "Virginia recently established a new class for data centers and other huge users of electricity, with agreements in place to make sure the data centers pay for more of the grid upgrades required."