How much should data centers pay for the massive amounts of new power infrastructure they require? Wisconsin’s largest utility, We Energies, has offered its answer to that question in what is the first major proposal before state regulators on the issue.
Under the proposal, currently open for public comment, data centers would pay most or all of the price to construct new power plants or renewables needed to serve them, and the utility says the benefits that other customers receive would outweigh any costs they shoulder for building and running this new generation.
But environmental and consumer advocates fear the utility’s plan will actually saddle customers with payments for generation, including polluting natural gas plants, that wouldn’t otherwise be needed.
States nationwide face similar dilemmas around data centers’ energy use. But who pays for the new power plants and transmission is an especially controversial question in Wisconsin and other ​“vertically integrated” energy markets, where utilities charge their customers for the investments they make in such infrastructure — with a profit, called ​“rate of return,” baked in. In states with competitive energy markets, like Illinois, by contrast, utilities buy power on the open market and don’t make a rate of return on building generation.
Although six big data center projects are underway in Wisconsin, the state has no laws governing how the computing facilities get their power.
Lawmakers in the Republican-controlled state Legislature are debating two bills this session. The Assembly passed the GOP-backed proposal on Jan. 20, which, even if it makes it through the Senate, is unlikely to get Democratic Gov. Tony Evers’ signature. According to the Milwaukee Journal Sentinel, a spokesperson for Evers said on Jan. 14 that ​“the one thing environmentalists, labor, utilities, and data center companies can all agree on right now is how bad Republican lawmakers’ data center bill is.” Until a measure is passed, individual decisions by the state Public Service Commission will determine how utilities supply energy to data centers.
The We Energies case is high stakes because two data centers proposed in the utility’s southeast Wisconsin territory promise to double its total demand. One of those facilities is a Microsoft complex that the tech giant says will be ​“the world’s most powerful AI datacenter.”
The utility’s proposal could also be precedent-setting as other Wisconsin utilities plan for data centers, said Bryan Rogers, environmental justice director for the Milwaukee community organization Walnut Way Conservation Corp.
“As goes We Energies,” Rogers said, ​“so goes the rest of the state.”
Building new power
We Energies’ proposal — first filed last spring — would let data centers choose between two options for paying for new generation infrastructure to ensure the utility has enough capacity to meet grid operator requirements that the added electricity demand doesn’t interfere with reliability.
In both cases, the utility will acquire that capacity through ​“bespoke resources” built specifically for the data center. The computing facilities technically would not get their energy directly from these power plants or renewables but rather from We Energies at market prices.
Under the first option, called ​“full benefits,” data centers would pay the full price of constructing, maintaining and operating the new generation and would cover the profit guaranteed to We Energies. The data centers would also get revenue from the sale of the electricity on the market as well as from renewable energy credits for solar and wind arrays; renewable energy credits are basically certificates that can be sold to other entities looking to meet sustainability goals.
The second option, called ​“capacity only,” would have data centers paying 75% of the cost of building the generation. Other customers would pick up the tab for the remaining 25% of the construction and pay for fuel and other costs. In this case, both data centers and other customers would pay for the profit guaranteed to We Energies as part of the project, though the data centers would pay a different — and possibly lower — rate than other customers.
Developers of both data centers being built in We Energies’ territory support the utility’s proposal, saying in testimony that it will help them get online faster and sufficiently protect other customers from unfair costs.
Consumer and environmental advocacy groups, however, are pushing back on 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.
“Nobody asked for this,” said Rogers of Walnut Way. The Sierra Club told regulators to scrap the capacity-only option. The advocacy group Clean Wisconsin similarly opposes that option, as noted in testimony to regulators.
But We Energies says everyone will benefit from building more power sources.
“These capacity-only plants will serve all of our customers, especially on the hottest and coldest days of the year,” We Energies spokesperson Brendan Conway wrote in an email. ​“We expect that customers will receive benefits from these plants that exceed the costs that are proposed to be allocated to them.”
We Energies has offered no proof of this promise, according to testimony filed by the Wisconsin Industrial Energy Group, which represents factories and other large operations. The trade association’s energy adviser, Jeffry Pollock, 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.
Clean energy is another sticking point. Clean Wisconsin and the Environmental Law and Policy Center want the utility’s plan to more explicitly encourage data centers to meet capacity requirements in part through their own on-site renewables and to participate in demand-response programs. Customers enrolled in such programs agree to dial down energy use during moments of peak demand, reducing the need for as many new power plants.
“It’s really important to make sure that this tariff contemplates as much clean energy and avoids using as much energy as possible, so we can avoid that incremental fossil fuel build-out that would otherwise potentially be needed to meet this demand,” said Clean Wisconsin staff attorney Brett Korte.
And advocates want the utility to include smaller data centers in its proposal, which in its current form would apply only to data centers requiring 500 megawatts of power or more.
We Energies’ response to stakeholder testimony was due on Jan. 28, and the utility and regulators will also consider public comments that are being submitted. After that, the regulatory commission may hold hearings, and advocates can file additional briefs. Eventually, the utility will reach an agreement with commissioners on how to charge data centers.
Risky business
Looming large over this debate is the mounting concern that the artificial intelligence boom is a bubble. If that bubble pops, it could mean far less power demand from data centers than utilities currently expect.
In November, We Energies announced plans to build almost 3 gigawatts of natural gas plants, renewables and battery storage. Conway said much of this new construction will be paid for by data centers as their bespoke resources.
But some worry that utility customers could be left paying too much for these investments if data centers don’t materialize or don’t use as much energy as predicted. Wisconsin consumers are already on the hook for almost $1 billion for ​“stranded assets,” mostly expensive coal plants that closed earlier than originally planned, as Wisconsin Watch recently tabulated.
As energy-hungry data centers loom, Wisconsin ratepayers owe $1 billion on shuttered power plants
Obsolete power plants continue to cost ratepayers. Now, the push to generate unprecedented amounts of electricity for data centers risks creating another $1 billion in “stranded assets.”
“The reason we bring up the worst-case scenario is it’s not just theoretical,” said Tom Content, executive director of the Citizens Utility Board of Wisconsin, the state’s primary consumer advocacy organization. ​“There’s been so many headlines about the AI bubble. Will business plans change? Will new AI chips require data centers to use a lot less energy?”
We Energies’ proposal has data centers paying promised costs even if they go out of business or otherwise prematurely curtail their demand. But developers do not have to put up collateral for this purpose if they have a positive credit rating. That means if such data center companies went bankrupt or otherwise couldn’t meet their financial obligations, utility customers may end up paying the bill.
Steven Kihm, the Citizens Utility Board’s regulatory strategist and chief economist, gave examples of companies that had stellar credit until they didn’t, in testimony to regulators. The company that made BlackBerry handheld devices saw its stock skyrocket in the mid-2000s, only to lose most of its value with the rise of smartphones, he noted. Energy company Enron, meanwhile, had a top credit rating until a month before its 2001 collapse, Kihm warned. He advised regulators that data center developers should have to put up adequate collateral regardless of their credit rating.
The Wisconsin Industrial Energy Group echoed concerns about risk if data centers struggle financially.
“The unprecedented growth in capital spending will subject (We Energies) to elevated financial and credit risks,” Pollock told regulators. ​“Customers will ultimately provide the financial backstop if (the utility) is unable to fully enforce the terms” of its tariff.
Jeremy Fisher, Sierra Club’s principal adviser on climate and energy, equated the risk to co-signing ​“a loan on a mansion next door, with just the vague assurance that the neighbors will almost certainly be able to cover their loan.”
A version of this article was first published by Canary Media.
