Cost Containment for Data Centers and Other Major Loads

Legislation and regulatory oversight can ensure that the energy demands of data centers and other major loads do not result in cost shifting to other commercial and residential ratepayers.

Table Of Contents
  1. Why This Matters
  2. Policy Solution
  3. Model Policy Features
  4. Potential Limitations & Pitfalls
  5. Complementary Policies
  6. Additional Information
  7. Examples
  8. Resources
COMMUNITY BENEFITAffordability, Decarbonization
KEYWORDSData centers, Utility rates
REGIONFederal, Regional, State, Local
AFFORDABILITY STRATEGYUtility Reform: Cost Containment
OVERSIGHTState Agencies, Regional Transmission Operators, Public Utility Commissions, Federal Energy Regulatory Commission
POLICY MECHANISMLegislation, Regulation

Why This Matters

The skyrocketing energy demands of data centers and other energy-intensive new loads, such as cryptocurrency mining and advanced manufacturing, are straining the electric grid. The increasingly competitive demand for limited energy resources is driving up peak costs, and proposed investments to alleviate grid constraints and meet this new energy demand put other commercial and residential ratepayers at risk of higher utility costs—in particular when utilities prioritize the needs of this discrete set of customers over the interests of all other customers.1 Over the past decade, data center energy use has tripled, and by 2028, it is expected to double or triple again to consume as much as 12% of all U.S. electricity.2 Utilities are also rapidly expanding infrastructure to support the energy needs of these large industrial users, with the strong likelihood of these costs being paid for by all customers instead of just the new loads. Cost shifting from the new load operators to all customers can be expected to drive up costs across the total customer base,3 thereby increasing energy burdens for low-income households and risking an increase in utility disconnections. Some of this proposed infrastructure includes new gas plants, which also risk turning into stranded assets under future low-carbon policies. In other cases, aging and inefficient fossil-powered plants are being paid to stay online past proposed retirement dates in the name of ensuring reliability in the face of data center-driven load growth. 

Policy Solution

Legislation and regulatory oversight can ensure that the energy demands of data centers, the cryptocurrency industry, advanced manufacturing, and other businesses with high energy usage do not result in cost shifting to other commercial and residential ratepayers.4 In parallel, additional incentive programs and standards, such as demand response programs tailored to data center operations and energy efficiency standards for data center energy use, can help reduce the stress data centers place on the grid.

Model Policy Features

Key policy features that can protect ratepayers against cost shifting and reduce data center grid strain include:

  • Creation of separate utility ratepayer classifications for industries with large energy demands that reflect total costs, including generation and transmission,5 and prohibition of using special contracts (which are often discounted) to attract large facilities to a utility territory.6
  • Regulations that extend to all new major loads (e.g., data centers, cryptocurrency mining, advanced manufacturing).7
  • Requirements that new major load customers bear any costs associated with expanded infrastructure developments undertaken by utilities on their behalf that subsequently go unused and become stranded assets, rather than shifting these costs to other residential and commercial ratepayers.8 
  • Incentives or requirements to reduce data center peak demand and increase peak demand flexibility to help reduce grid stress and high capacity costs through mechanisms such as demand response programs specifically tailored to data center needs and capabilities;9 such programs or requirements may take place at the level of multi-state regional transmission operators (e.g. PJM). 
  • Revised demand charges (i.e. a fee on the maximum power draw or peak demand, in kilowatts, that a customer pulls from the grid in a given month or year) that ensure that data center load-shifting (e.g., by shifting to backup power generation to reduce the demand charge) does not lower rates in such a way that data centers underpay the true costs of delivery and usage.10 
  • Bans on co-location of data centers and existing power plants behind the point of interconnection to utility transmission systems, which have the potential to reduce the amount of electricity available to other commercial and residential customers, thereby increasing prices.11
  • Requirements that utilities regularly report data on existing and projected data center loads and costs of service.12
  • Requirements that new generation capacity to meet growing loads aligns with future climate goals, reducing the risk of future stranded assets (e.g. methane gas plants) and exposure to volatile fossil fuel prices.
  • Building energy efficiency standards to limit the energy demands of data centers, including for cooling, or incentives to ensure adoption of energy-efficient cooling and other technologies, can help reduce total data center energy demand and the accompanying stress placed on the grid. Such building standards could also include load flexibility requirements. 
  • Guidelines to support the use of battery storage instead of diesel backup generators at data centers to 1) increase the flexibility of data centers through their use of storage during times of peak demand13 and 2) reduce local air pollution from diesel generators. 

Potential Limitations & Pitfalls

  • Data centers may have limited peak demand flexibility, depending on their use and the flexibility in timing of their computing requirements; the full available magnitude of peak demand flexibility at data centers may vary case by case.

Complementary Policies

Complementary policies that increase the effectiveness of cost containment for data centers and other major loads include:

  • Comprehensive and transparent data reporting to provide public-facing data about the resource usage of such major loads and their effects on other customers, including utility costs, noise, air quality, etc.
  • Data center environmental protections to address data center water use, pollution from backup diesel generators, and other local impacts.
  • Transmission planning and interconnection queue reform to ensure that new, clean resources are rapidly interconnected to the grid to offset the pressure of new large loads.

Additional Information

In October, 2025, Secretary of Energy Chris Wright directed the Federal Energy Regulatory Commission (FERC) to initiate a rulemaking to accelerate large load interconnection. The Advanced Notice of Proposed Rulemaking suggested considerations such as expediting interconnection of large loads that agree to be curtailed and/or are hybrid facilities co-located with energy generation or storage, and a requirement that large loads be required to pay for any necessary transmission upgrades, among other measures. The outcome of this proposed rulemaking will affect which state-level policy measures might be most complementary to ensure cost containment for major loads.14

Examples

1. Protecting Oregonians With Energy Responsibility (POWER) Act – HB3546: Relating to large energy use facilities; and declaring an emergency (2025)

Details:

  • Creates a classification of service for “large energy use facilities” (e.g., data centers, cryptocurrency mining).
  • New classification assigns rates that are equal or proportional to the costs of service (i.e. costs of “transmission, distribution, energy, capacity or ancillary electricity services, and any related costs or associated risks with serving a class of retail electricity consumers or a retail electricity consumer”).
  • Includes provisions to restrict cost shifting, including transmission and distribution, to other customers.
  • Rate setting must consider the impact on the utility’s ability to reduce greenhouse gas emission and clean energy targets set by the state. 
  • Requires large energy users to enter a contract with the utility for a minimum of 10 years and sets a minimum level of energy that facilities are required to purchase to ensure grid investments are fully paid for.

LIMITATIONS:

  • Does not include specific protections to ensure data-center load shifting to reduce demand charges does not mask the real grid costs of data center loads.
  • Applies only to utilities and not power plants, and therefore, does not include bans on co-location arrangements that may result in rate increases for other customers.

2. Texas Senate Bill 6 – SB6: Relating to the planning for, interconnection and operation of, and costs related to providing service for certain electrical loads and to the generation of electric power by a water supply or sewer service corporation 2025

Details:15

  • Enacted in 2025, creates new requirements for “large load customers” to pay for the costs of interconnection and to disconnect from the grid in emergencies.
  • Regulations apply to new and expanded interconnection rates of 75 megawatts or more at a single site.
  • Requires large load customers to report on backup generating capacity and to shut off connection to the grid during emergencies.
  • Imposes a $100,000 minimum fee on large load customers for an initial interconnection study.
  • Calls for a Public Utility Commission of Texas (PUCT) rulemaking to limit the possibility of stranded infrastructure costs and to ensure system reliability.
  • Requires the PUCT to reevaluate how the costs of interconnecting new large loads costs are distributed among customers classes to mitigate affordability impacts.
  • The goal is to mitigate some of the costs associated with rapidly growing peak demand in Texas, which ERCOT forecasts to grow from approximately 87 GW to 145 GW from 2025–2031, largely due to new data centers and cryptocurrency operations.16

LIMITATIONS:

  • Authorizes behind-the-meter generation, which is likely to rely upon fossil fuels and/or nuclear energy in the near future.

3. California Building Standards Code (Title 24): Data Centers and Computer Rooms – Restructured 2025 Energy Code – California Code of Regulations – Title 24, Part 6

Details:

  • Under California’s Title 24, the California Energy Commission updates building standards every three years, including for data centers and computer rooms.17 
  • Standards for data centers include specifications for heating and cooling systems, specifically preventing reheating of an already-cooled room and setting mandatory efficiency standards or technology requirements for humidification and fan control.18 
  • Prescriptive requirements for data centers set standards for space cooling and water efficiency, fan power consumption, air containment, and efficiency of uninterruptible (backup) power supplies. These requirements can be traded off if building performance targets are met.19

LIMITATIONS:

  • The 2025 Title 24 updates preclude nonresidential demand flexibility requirements from applying to data centers.20 There is potential for data centers to be included within flexibility requirements in the 2028 update.

4. Michigan Public Service Commission, Order No. U-21859 – MPSC Order No. U-21859: Consumers Energy Amendments to General Service Primary Demand Rate

Details:21

  • Sets contract terms for new large load Consumers Energy customers (100 MW+). 
  • Intended to ensure that Consumers Energy customers are not required to cover the costs of potential stranded assets from utility investments to interconnect and power large load customers. 
  • Requires large load customers to enter into longer contracts (minimum initial term of 15 years) with penalties for early exit, sets collateral terms to protect against default, requires large load customers to pay monthly for at least 80% of contracted capacity, and imposes reporting requirements.

LIMITATIONS:22

  • Does not yet establish a rate design for data centers and other major loads, to be determined at a later date.
  • Does not address interconnection reform, including load flexibility, or clean energy requirements.
  • Applies only to Consumers Energy; a separate proceeding related to DTE Energy is underway.

Resources

Written: September 2025

Policy Update: December 2025

  1. Martin, E. and Peskoe, A. (2025). Extracting Profits from the Public: How Utility Ratepayers Are Paying for Big Tech’s Power. Environmental and Energy Law Program, Harvard Law School. A recent study conducted in Virginia found that, to date, data centers are “currently paying their full cost of service, but growing energy demand is likely to increase other customers’ costs.” See: Sarte, K.A., Gribbin, M., Miller, E., Berday-Sacks, S., Hopkins, K., and Saunders, S. (2024). Data Centers in Virginia, 2024. Joint Legislative Audit and Review Commission. ↩︎
  2. U.S. Department of Energy. (2024). DOE Releases New Report Evaluating Increase in Electricity Demand from Data Centers. ↩︎
  3. Martin, E. and Peskoe, A. (2025). Extracting Profits from the Public: How Utility Ratepayers Are Paying for Big Tech’s Power. Environmental and Energy Law Program, Harvard Law School. ↩︎
  4. For a discussion of special contracts, see Martin, E. and Peskoe, A. (2025). Extracting Profits from the Public: How Utility Ratepayers Are Paying for Big Tech’s Power. Environmental and Energy Law Program, Harvard Law School. ↩︎
  5. Oregon State Legislature, An Act Relating to large energy use facilities; and declaring an emergency, House Bill 3546, 2025 Regular Session; Georgia General Assembly, Public Service Commission; costs incurred by an electric utility as a result of providing electric services to commercial data centers from being included in any rates, SB 34, 2025-2026 Regular Session. ↩︎
  6. Martin, E. and Peskoe, A. (2025). Extracting Profits from the Public: How Utility Ratepayers Are Paying for Big Tech’s Power. Environmental and Energy Law Program, Harvard Law School. ↩︎
  7. Bradley, K, (2025). The Energy Costs of Cryptocurrency. Regulatory Review. ↩︎
  8. Martin, E. and Peskoe, A. (2025). Extracting Profits from the Public: How Utility Ratepayers Are Paying for Big Tech’s Power. Environmental and Energy Law Program, Harvard Law School. ↩︎
  9. Norris, T., Profeta, T., Patino-Echeverri, D., and Cowie-Haskell, A. (2025). Rethinking Load Growth: Assessing the Potential for Integration of Large Flexible Loads in US Power Systems. NI R 25-01. Durham, NC: Nicholas Institute for Energy, Environment & Sustainability, Duke University. ↩︎
  10. Martin, E. and Peskoe, A. (2025). Extracting Profits from the Public: How Utility Ratepayers Are Paying for Big Tech’s Power. Environmental and Energy Law Program, Harvard Law School. ↩︎
  11. Martin, E. and Peskoe, A. (2025). Extracting Profits from the Public: How Utility Ratepayers Are Paying for Big Tech’s Power. Environmental and Energy Law Program, Harvard Law School. ↩︎
  12. Martin, E. and Peskoe, A. (2025). Extracting Profits from the Public: How Utility Ratepayers Are Paying for Big Tech’s Power. Environmental and Energy Law Program, Harvard Law School. ↩︎
  13. Numata, Y., Gorin, A., Speelman, L., Shwisberg, L, and Gulli, C. (2025). Fast, Flexible Solutions for Data Centers. RMI. ↩︎
  14.  Wright, C. (2025). Ensuring the Timely and Orderly Interconnection of Large Loads: Advance Notice of Proposed Rulemaking. U.S. Department of Energy. ↩︎
  15. Texas State Legislature, Relating to the establishment of the Texas Energy Insurance Program and other funding mechanisms to support the construction and operation of electric generating facilities, Senate Bill 6, 88(R). ↩︎
  16. ERCOT. Long-Term Load Forecast. Accessed: December 7, 2025. ↩︎
  17. California Energy Commission. (2025). Building Energy Efficiency Standards for Residential and Nonresidential Buildings. Title 24, Part 6. CEC-400-2025-010. ↩︎
  18. California Energy Commission. (2023). Computer Rooms & Data Centers: Fact Sheet. ↩︎
  19. California Energy Commission. (2023). Computer Rooms & Data Centers: Fact Sheet. ↩︎
  20. California Energy Commission. (2025). Building Energy Efficiency Standards for Residential and Nonresidential Buildings. Title 24, Part 6. CEC-400-2025-010. ↩︎
  21. Michigan Public Service Commission. (2025). Issue Brief: U-21859 Consumers Energy Amendments to General Service Primary Demand Rate (applicable to data centers and other large loads). ↩︎
  22. Shaver, L. (2025). Michigan’s Data Center Boom Demands a Clean Energy Strategy—Not Delay. Union of Concerned Scientists. ↩︎