A State Playbook for Managing Data Center Load Growth

Today Suzanne Glatz , Mahala Lahvis and myself issued a new paper on how States can manage data center-driven load growth: “A State Playbook for Managing Data Center-Driven Load Growth.” Based on best practices from across the country, we try to answer a number of the questions we've heard from State regulators, including:

• How do we enable solutions that can overcome “time-to-power” challenges to achieve the economic development benefits associated with data center without saddling ratepayers with unnecessary risk?

• How do we ensure that data centers pay their fair share of transmission costs?

• Can we manage the risk that we over-invest in energy infrastructure if data center load does not materialize as projected?

• How do we account for the asymmetry of the risk profile, where data centers have little risk associated with bullish forecasts, while consumers bear significant financial risk?

Making policy in the face of uncertainty can be challenging. The risk of being “wrong” on load forecasts, at least under today’s cost allocation rules, is largely put on captive customers — not on the data centers. This asymmetry of risk provides state regulators a strong interest in ensuring that utility load forecasts are reasonably accurate and emphasizes the need for pragmatic strategies for balancing economic development opportunities associated with data centers, with the need to preserve energy affordability, reliability, and clean energy goals. This is particularly true in today's rising cost environment.

We ground our recommendations in basic electric regulation principles and explain why State action is needed in the face of the large amount of uncertainty in data center load forecasts and how to best protect retail consumers if data centers end up using less -- or more -- electricity than currently projected.

There can be a sense that States are powerless in the face of explosive data center-driven load growth — that data center load growth is akin to a natural disaster that cannot be managed. The reality, however, is that States across the country are already deploying a variety of powerful tools to manage data center load growth, meet their economic development goals, and protect ratepayers from excessive financial risk.

As summarized in the chart below, we identify four different types of "levers" available to policymakers, and what steps States may wish to take within each grouping. States are anything but powerless!