More States Implement Special Power Rates For Data Centers

As the data center building boom fuels record electricity demand, state leaders are aiming to prevent the industry’s skyrocketing power consumption from creating higher power bills for households and businesses. 

In recent weeks, a series of states have created special utility rates for data centers and advanced other measures intended to protect consumers. 

Many states experiencing a flood of large-scale data center development are grappling with the potential for these projects to raise energy prices for other customers. Power demand is already pushing up retail electricity prices in the country’s largest regional grid and threatens to do the same in other markets. 

This phenomenon is due in large part to a supply-demand imbalance as developers request far more energy than utilities can provide. 

At the same time, regulators and consumer advocates worry that utilities could build billions of dollars of new generation and transmission infrastructure just to serve data center projects while spreading those costs across all their ratepayers. In a worst-case scenario, some of those proposed data centers may never be built, leaving residential and commercial consumers on the hook for infrastructure intended to serve hyperscale customers that never materialized. 

These fears have emerged as a priority for regulators and lawmakers at the federal level. The nation's top energy regulator took steps last month to force reforms within regional grids to avoid rising electricity bills. In March, the White House unveiled what it called the Ratepayer Protection Pledge, under which major tech companies committed to paying for the infrastructure upgrades needed to supply them with power. Legislation introduced last month in Congress would make such measures mandatory. 

Now, states are increasingly becoming the primary venue for efforts to protect power consumers from costs driven by the artificial intelligence data center boom. 

Within the past month, lawmakers and public utility regulators in Oregon, New Jersey, Alabama and Delaware have approved or taken steps toward requiring special utility rates and contract terms for data centers. The measures are intended to ensure individual ratepayers don’t bear the cost of utility upgrades needed to serve data centers.

They join other states like Ohio, Florida and Arizona that have already passed or are considering similar measures as they try to prevent data center demand from driving an energy affordability crisis.  

Oregon Approves 30% Data Center Rate Hike

This week, the Oregon Public Utility Commission approved a plan by power provider Portland General Electric to raise electricity rates for data centers by close to 30%. 

PGE’s targeted data center rates were developed to conform with the Protecting Oregonians With Energy Responsibility, or POWER, Act, a 2025 law that aims to have data centers and other large industrial power consumers bear the costs of the grid upgrades needed to provide them with electricity. This new framework is already producing its intended effect, according to PGE: While rates are going up for data centers, they will go down by 1.3% for residential customers and 2.1% for commercial customers.

“These changes ensure that costs created by data centers in PGE’s territory are more accurately reflected in their rates,” PUC Chair Letha Tawney said in a statement. “By putting this structure in place now, we are getting ahead of a bigger issue, enabling responsible data centers to pay their own way, and protecting customers from higher costs in the future.”

New Jersey Mandates Targeted Data Center Tariffs

New Jersey Gov. Mikie Sherrill signed three bills this week intended to prevent data centers from increasing electricity prices in the state.

The legislative package creates a separate process for utilities to set electricity rates for data centers requesting 50 megawatts or more. The power contracts developed through this process will require data centers to bear the cost of any new infrastructure built specifically to serve them. 

Additionally, the bills order the New Jersey Board of Public Utilities to develop incentives that promote data centers building their own renewable power generation and to give other power customers priority over data centers if the grid is nearing capacity. Utilities will also need to obtain special approval from the state prior to building new transmission infrastructure if the costs are being passed along to customers. 

New Jersey is part of PJM Interconnection, the country's largest grid system, which has already seen capacity prices rise tenfold as a result of data center development. Sherrill said the measures are a response to New Jersey consumers paying the price for data center demand elsewhere in the PJM system. 

“I’m bringing accountability back to New Jersey energy and standing up to everyone who makes your families pay for their mistakes,” Sherrill said, according to the New Jersey Monitor. 

Delaware Lawmakers Consider New Rates

The Delaware House passed two bills last month that aim to set targeted utility rates for data centers and ensure they pay for their own power supply. 

As in New Jersey, the first of the two Delaware bills would require the state’s utility regulator to establish a separate data center rate class, with a mandate to create tariffs through which data centers or other large energy users would pay the full cost of any new infrastructure or grid capacity that they request. 

The second bill would mandate that data centers generate or secure their own power supply as a condition of being connected to the grid. To receive grid power, data center developers would need to submit a plan to create enough new power to supply all their operations within 10 years. 

While both pieces of legislation are still being considered by the Delaware Senate and would require a gubernatorial signature to become law, advocates for the measures argue they are critical to protect consumers in a state that is just starting to see an influx of large-scale data center development

“Delaware ratepayers should not be expected to subsidize the energy demands of massive data centers,” said Rep. Debra Heffernan, one of the bill’s sponsors, according to WDEL. 

Alabama Weighs New Rates

The Alabama Public Service Commission is considering changing how utilities in the state structure contracts with data centers, AL.com reported this week.

The state’s utility regulator has launched a process to rewrite guidelines for utility power contracts with data centers and other large-load customers.

Despite hosting several hyperscale projects, Alabama’s large-load tariffs haven’t been updated since the 1990s, and they give regulators just 10 days to review data center rate agreements. The commission hopes to have new guidelines in place by October.