As States Make Data Centers Pay More For Power, Developers Prove Willing To Ante Up

Facing an unprecedented flood of data center proposals that require billions of dollars in grid infrastructure projects to power, a growing number of states and utilities are enacting measures to ensure developers — not consumers — will foot the bill. 

Developers and Big Tech tenants are proving willing to pay, as long as it means they get that power quickly. 

This month, regulators in Pennsylvania and Missouri — two of the country's fastest-growing data center markets — have advanced measures allowing utilities to implement special rates for data centers that could add millions of dollars to the facilities' annual power bills.

Such data center-specific utility rate structures, known within the industry as tariffs, didn’t exist just two years ago. Now, more than 10 states, including Ohio, Virginia, Indiana, Texas and Michigan, have some form of data center tariff on the books or in the works. 

The impact of these policies is just now coming into focus.

For the developers and tech giants driving the AI data center boom, they are proving to be a double-edged sword. A report published this week by energy analytics firm Enverus shows some tariffs creating $10M in additional first-year costs for data centers.

But they are also helping data centers get power faster. In an industry where speed to market is everything, it might be worth paying the higher cost of admission. 

“The large developers are more than willing to pay more for their power if they can get it faster,” said Enverus researcher Adam Robinson, an author of the report. 

The data center boom has been a mixed blessing for utilities in emerging hotbeds across the U.S. While data centers represent a significant revenue opportunity, they also represent financial risk for regional power providers and their customers. 

Many utilities have been caught off guard by the sudden surge in the amount of power being requested for planned data center projects. Providers in smaller markets like Columbus, Ohio, and Kansas City, Missouri, have been asked to provide enough additional electricity to power a major city, and meeting this demand requires building billions of dollars’ worth of new transmission infrastructure. 

But there is broad consensus that at least some of the demand utilities are anticipating is a mirage.

Many of these projects are likely redundant or speculative, some will never come to fruition, and even those that do may use just a small fraction of the power requested. If there is no buyer for the electricity this infrastructure is built to deliver, the cost of building that “stranded” grid capacity is spread across the utility’s other ratepayers, driving up retail electricity prices.

The targeted data center tariffs being implemented across the U.S. aim to mitigate this risk by weeding out speculative power requests and ensuring legitimate customers pay for all the power they request, along with needed infrastructure upgrades. 

The tariff Missouri regulators approved Monday is typical of these measures. To separate legitimate projects from speculative power requests, data centers looking to receive more than 75 megawatts from Ameren, the state’s largest utility, will be required to post collateral equal to two years of their minimum projected monthly bills and cover the cost of the infrastructure needed to serve them. This includes paying for their own transmission lines and substations. 

Data center contracts will also ensure utilities recoup their capital expenditures by requiring end users to pay for most of the power they request, regardless of how much they actually consume. Data centers will pay higher rates than existing industrial customers and be required to sign 12-year contracts locking them into substantial minimum payments.

The Pennsylvania proposal would similarly enact significant collateral requirements for data centers power requests over 50 MW, and would lock data centers into payments for 80% of their contracted demand, regardless of whether they actually consume it.

“The main goal of these rates is to cut the interconnection queues, cut the speculative projects out of those queues to really focus on what projects are actually, realistically going to be developed,” Robinson said. “Then, they ensure that they capture the costs of all of the upgrades required for those projects from those developers.”

Data center developers and their Big Tech tenants have pushed back on many of these proposed utility rates, which have dramatically increased their up-front capital requirements and operating costs over the life of these facilities. Industry groups and political commentators have fretted that enacting these tariffs will push data center developers to other markets. 

Yet Robinson said there is no evidence that this is taking place. He said tariffs may mean data centers pay more for power, but they also help developers get power faster. 

Enverus’ analysis of existing data center tariffs suggests they have been effective at filtering out speculative proposals from utilities’ interconnection queues.

The implementation of measures similar to those in Missouri and Pennsylvania by power provider AEP in Ohio resulted in its interconnection queue dropping by more than 50%, according to Robinson. As a result, hyperscalers and other established developers get power faster, as they are no longer waiting for power while the utility performs feasibility studies for projects with little chance of success. 

With power constraints standing between tech giants like Microsoft, Amazon and Google and their AI ambitions, these hyperscalers have shown they are willing to pay significantly more per megawatt if they can get that power quickly. It’s why firms like Meta and xAI have been willing to spend billions codeveloping plants for behind-the-meter power rather than waiting for utilities to deliver the gigawatts of electricity they need.

The cost increases created by the new wave of targeted data center tariffs are chump change by comparison. 

“If these data center or utility tariffs hit the mark, then we'll see data center developers start coming back to the utilities with those faster interconnection timelines instead of behind-the-meter,” Robinson said. “The time to power is really what they're shooting for. That's where the most value is coming from.”