Data centers should be regulated by the same laws, policies, and rules that apply to other commercial enterprises, with exceptions made only to address fundamental differences. The power demands of the largest data centers are a key difference. The House passed the Ratepayer Protection Act yesterday, legislation that would set federal advisory standards that data centers pay for their own infrastructure upgrades to connect to electric grids. This act takes a common-sense approach by pinpointing a specific problem caused by the largest data centers and correcting it.
All energy customers are part of a network. They share the benefits of system upgrades, like increased generation and transmission capacity, but they also share the costs, distributed among each ratepayer. Public utilities traditionally roll these costs into the rates all business and residential customers pay, meaning they are shared across the grid. There is no perfect way to allocate such costs across a shared network, but this system has worked well enough, and for long enough, for the relatively small electric loads demanded by customers within a whole system that this model has persisted.
However, the largest data centers have higher relative power demand. Hyperscale data centers routinely demand between 500 megawatts (MW) and 1 gigawatt (GW) of power. For comparison, auto factories demand between 10 and 30 MW, and the largest traditional manufacturers, such as steel mills, demand between 100 and 200 MW. Connecting hyperscale data centers to the grid can require large discrete investments in grid infrastructure, which can put upward pressure on household rates if distributed across all customers.
The standards included in the Ratepayer Protection Act would change how these costs apply to data centers demanding over 100 MW at a single site, specifying that developers must pay the “full, incremental costs” of upgrades needed to connect, including those for generation, transmission, and distribution. It also stipulates that if large data centers shut down early, they’ll cover any remaining unpaid amount.
The standards contained within the legislation would currently apply only to large-load customers that “require electric energy primarily to operate information technology infrastructure and related systems pertaining to data storage and computational applications and services,” effectively targeting only data centers. Congress could improve the bill by dropping this provision and making the standards applicable to all future customers demanding more power than the 100 MW threshold.
The Ratepayer Protection Act offers an economically rational approach toward federal advisory standards for a new class of energy customers larger than those seen before. However, more fundamental fixes to our energy infrastructure will be necessary to meet the growing demand of data centers and all other consumers. In the long run, there is no substitute for expanding power generation capacity, both from public utilities and private sources. Reducing regulatory barriers to large-load customers generating their own power outside the public grid is an essential step for lawmakers to take toward the goal of meeting rising future demand.