Many major tech companies have pledged to pay their fair share of the costs associated with generating and transmitting more electricity to serve large data centers. But ratepayers across the United States are worried about the potential costs they might have to bear. That’s because it’s not immediately clear how the cost of data centers’ energy will be calculated. The effects of price increases are likely just beginning, and their full effects may not be felt for years.
Prices are set by state utility commissions, who determine which customers’ rates will increase by how much to pay for new investments in electricity infrastructure. Setting a price is straightforward in principle, but complicated in execution.
Regulators identify the costs that a utility company incurs to provide service. They look at the value of the assets the utility company invests in, such as power plants, transmission lines and substations, as well as its day-to-day operating expenses, such as salaries, fuel, replacement parts and electricity it purchases from other sources.
Ideally, costs are allocated to the customers who cause them, but imagine a data center is built in an area that lacks existing power lines and is located 50 yards from a nearby electric substation. It’s clear that the data center should pay to run a 50-yard power line from the substation to the data center. But what if the power company needs to upgrade the substation to handle the increased needs of the data center? Or secure additional sources of electricity? In these cases, the investments are part of the electricity grid that everyone uses, and the costs are shared among all customers.
One common criterion for figuring out how much a customer should pay is based on what is called “coincident peak demand” ― the amount a customer group uses at the moment when all customers are collectively using the largest amount of electricity. Costs associated with peak usage are typically split proportionally, but this opens an opportunity for data centers to exploit the system.
Data centers often are able to fine-tune their electricity consumption, using more one minute and less another. Computerized systems can automatically adjust the amount of work a data center is doing, while a homeowner would either have to race around shutting off appliances to meaningfully reduce the amount of power their home was using or invest in a device that does. That flexibility means data centers may be able to learn to predict when system loads will peak and consume little to no power in just the right period to avoid contributing to peak loads. So when regulators look at their usage to determine prices, data centers may be able to avoid paying any costs allocated through coincident peak demand, even if they use large amounts of electricity at other times.
Do utility regulators speak for you? Outlook doubtful.
When utility regulators decide how costs should be allocated to each customer group, they solicit input.
The utility company initially submits its own proposal for how it thinks costs should be allocated across its system. Large industrial customer groups representing customers, such as factories, will also submit their own proposals for how to allocate costs and set rates. Retail customer groups representing large and small stores will submit theirs. And large data centers, with the resources to hire experts in cost allocation, will submit theirs as well.
Regulators don’t always get a good sense of residential customers’ voices, though. While most states have an office of the consumer advocate that represents customer interests in proceedings before the state utility regulator, they are often charged with representing all customers in the state without bias, meaning they cannot advocate for outcomes that would impose costs on one group of customers in favor of another.
So, while every state’s consumer advocate is concerned with keeping the utility’s costs as low as possible, they may be barred by law from adopting a position on how those costs should be allocated. This lack of representation in this aspect of rate-setting for average households may lead to situations where the data centers’ advocates argue for minimal costs, but nobody advocates on behalf of residents to examine or refute a data center’s argument.
There are other risks for residential customers, too. Utilities’ investments in electricity infrastructure last for many years. But not every proposed data center will get built, and some may use less energy than projected. Technology may even change, making some data centers obsolete after a year or two of operations. If those events happen, then any costs the utility incurred to provide enough electricity will be spread among all the other customers.
The allocation process may be even more complicated for municipal utilities. These groups may not have full-time staff who are utility or regulatory experts, yet they face the same decision-making challenges as trained professionals and might have to retain outside experts to aid in the process.
Consumers need to be aware of the importance of cost allocation and how it affects their electricity rates. I believe they should provide public comments to the regulators and speak during open hearings, as there may not be anyone else effectively advocating for their interests.
Theodore J. Kury is director of Energy Studies at the University of Florida. He wrote this piece for The Conversation, an independent news organization dedicated to unlocking the knowledge of experts for the public good.
This article originally appeared on Palm Beach Post: Outlook on who pays data center electric bills still unclear | Opinion
Reporting by Theodore J. Kury, Opinion Contributor / Palm Beach Post
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By Theodore J. Kury, Opinion Contributor | USA TODAY Network
