Cost Containment for Data Centers and Other Major Loads

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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

IMPACT AREAAffordability, transparency
TOPICPower sector, utility bills, financing
REGIONstate, Regional, Federal
AFFORDABILITY PATHWAYFunding/Financing
OVERSIGHTState government, public utility commissions
POLICY MECHANISMLegislation, regulation

Policy OVERVIEW

Challenge

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. Some of this proposed infrastructure includes new gas plants, which also risk turning into stranded assets under future low-carbon policies. 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.

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). 
  • 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 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. natural gas plants) and exposure to volatile fossil fuel prices.
  • 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.
  • 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 Policy Drawbacks and 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 and pollution from backup diesel generators.

EXAMPLES

1. Oregon POWER Act14

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.

Challenges:

  • 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 615

Details:

  • 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 initial interconnection.
  • Calls on Public Utility Commission rulemaking to limit the possibility of stranded infrastructure costs and to ensure system reliability.

    Challenges:

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

    RESOURCES

    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.

    Policy Written: October 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.” (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. Oregon State Legislature, An Act Relating to large energy use facilities; and declaring an emergency, House Bill 3546, 2025 Regular Session. ↩︎
    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). ↩︎