Data Centers Need Lots of Electricity. Why Consumers May Get the Bill.

How much of a discount? Neither Amazon, the electric company, nor the state regulator would provide details, but a rival Ohio utility has estimated that Amazon could eventually save more than $135 million annually under the 10-year agreement. As a result, home and business ratepayers in the state could shoulder more of the mounting costs of providing electricity to meet soaring data center energy demands – much of it from Amazon.

Across the country, consumer advocates and energy experts say they worry that more ordinary consumers could end up footing the bill for billions of dollars in power system upgrades that will primarily serve trillion-dollar tech behemoths and wealthy Wall Street investors as they chase profits in the lucrative data center business.

A record surge of data center construction is underway to provide the computing and storage that underpins society’s fast-expanding digital footprint and powers artificial intelligence. Data center electricity consumption in the US is expected to triple by 2030, according to Boston Consulting Group, much of it to power generative artificial intelligence.

The growth has placed sudden and unprecedented demands on decades-old energy grids that haven’t seen such increases since the development of suburbs, the widespread adoption of air conditioning, and the heyday of domestic manufacturing after World War II. In areas of the country where data centers have clustered, utilities have unveiled plans to spend billions of dollars to keep up.

“How do we make sure that the cost causers, which are the new data centers, are in fact paying for the underlying costs that they cause?” asked David Springe, the executive director of the National Association of State Utility Consumer Advocates. “If people aren’t nervous, they’re not paying attention.”

Ryan Augsburger, the president of the Ohio Manufacturers’ Association, said that electricity charges related to new transmission infrastructure had risen threefold over the past 7 years in the service territory where data centers have begun to cluster in the state.

“We’re concerned that’s a noticeable new cost item,” Augsburger said. “If you’re a manufacturer, you need to manage your cost. 300% increases over seven years is not a sustainable increase.”

An Amazon spokesperson said in a statement that the company’s electricity payments “should more than cover any AWS specific infrastructure,” referencing the company’s cloud computing arm, Amazon Web Services, which drives the bulk of its data center demand.

“We don’t expect any AWS costs to be passed onto other ratepayers,” the spokesperson said.

Data centers benefit from a utility system that favors large energy users

State and federal regulators allow the majority of utilities to spread the cost of major electrical system upgrades, such as new power plants and high-voltage transmission lines, across ratepayers, including consumers who may not directly benefit from the infrastructure.

Energy experts struggled to think of an industry that has stripped bare the inequities built into that system as starkly as data centers have.

Ron Nelson, a senior director at the energy consulting firm Strategen, said that most power use across residential and business ratepayers had plateaued or even declined slightly in recent decades because of energy efficiency efforts.

“Then you have the data centers that are having exponential load growth,” Nelson said. “The state of play is that the data center loads are triggering large upgrades and not being allocated a fair amount of the costs.”

Because the data center industry’s huge demand is only beginning to come into focus, experts have said it is hard to estimate the price tag for all of the upgrades to accommodate it and what portion of that will be handed off to consumers. There are signals that it will be in the many billions of dollars and spread across millions of ratepayers.

In Virginia, the country’s largest data center market, for instance, there are plans to spend more than $100 billion to grow the capacity of a section of the grid that heavily serves data centers by nearly 60% over the next 15 years.

Dominion Energy, the utility that controls that territory, has estimated energy bills for residents could more than double in the next decade as a result of the planned upgrades.

And projections for the industry’s growth are mounting.

In January, PJM, an entity that oversees a vast section of the nation’s grid spanning from Chicago to New Jersey, released a new forecast that estimated that data center demand in Virginia would balloon from about 5 gigawatts today to 15 gigawatts by the end of the decade. That’s almost three times the power of New York City on an average day.

PJM recently approved a roughly $5.1 billion package of transmission projections, known as Window 3, to help match the industry’s spiraling energy use.

That drew objections from David Lapp, the ratepayer advocate in Maryland, along with state consumer advocates in West Virginia and Pennsylvania.

“The primary drivers for those costs are the data centers in northern Virginia,” Lapp said. “And over half that $5 billion is being allocated to customers outside of Virginia that are not really benefiting.”

Lapp believes the costs should be better segregated

“There’s a strong case for requiring the data centers to bear the costs,” he said.

He brought his protest – one of the largest-ever cost allocation disputes – to the Federal Energy Regulatory Commission, which ruled against his arguments in April. Lapp said he is considering whether to refile the case.

Jeffrey Shields, a spokesman for PJM, said that in addition to data center demand, Window 3 would also help compensate for the deactivation of a collection of power plants across its system.

“Regional transmission solutions benefit all customers in the PJM footprint,” Shields said in a statement. The costs will be spread across ratepayers “pursuant to an established cost-allocation methodology that has been previously approved by the Federal Energy Regulatory Commission.”

Tech giants and Wall Street titans have their hands out for discounted power

The data center industry has increasingly sought electricity discounts that critics say shifts even more costs onto other consumers.

In the suburbs of Columbus, Ohio, where Amazon announced plans to spend $7.8 billion on an undisclosed number of new data centers by 2029, the tech giant has asked Ohio’s public utility commission, the utility regulator, to grant it discounts on a line item in its bill, called a rider, that covers the costs of transmission infrastructure.

Exactly how much of a discount Amazon is seeking was redacted from public documents describing the arrangement. Neither Amazon, the public utility commission, nor American Electric Power, the utility that will serve Amazon’s new data centers, would disclose the details of the potential deal. The companies also declined to provide the specifics of a previous rate reduction that Amazon received from 2018 to 2023 on electricity consumed by $6.3 billion of data centers it built in the state during that period.

The potential new reduction has drawn criticism from Buckeye Power, a neighboring electric utility, which has said it could eventually shift more than $135 million a year onto other electric customers at a moment when transmission costs are already fast rising.

In March, AEP received permission from regulators to raise the transmission charges it bills to ratepayers, an increase that will add more than $10 per month to the average consumer’s bill.

Citing information from PJM, Buckeye Power pointed to $760 million of upcoming transmission upgrades in the state that cater to data center demand, including Amazon facilities, that could push that rider even higher. Amazon, Buckeye Power claims, would be shielded from those charges if the new discount is granted.

“Large electric service requirements of data centers have caused very significant transmission investments,” Shelby Moore, a spokeswoman for Buckeye Power, said in a statement. She noted that transmission charges “have more than doubled since 2017 and are the fastest increasing part of our costs.”

An attorney for AEP dismissed Buckeye’s complaints and called the utility “greedy” in a state filing, suggesting that its objections were motivated by a desire to reduce its own costs by pushing more transmission charges onto AEP customers.

A spokesperson for AEP in Ohio said that Amazon’s projects would be served by “existing transmission facilities or previously planned upgrades.”

“As our payments to AEP should more than cover any AWS specific infrastructure, we don’t expect any AWS costs to be passed onto other ratepayers,” a spokesperson for Amazon wrote to Business Insider in an email.

Other data centers have sought similar electricity breaks to what Amazon is seeking in Ohio.

In October 2023, Meta received permission from Minnesota’s utility regulator for a power discount at a large data center it is building in the state.

QTS, a data center builder and operator owned by the alternative investment behemoth Blackstone, is planning a 160-megawatt project just east of Denver that has sought state approval for a 10-year electricity discount and an exemption from a transmission rider.

“Costs associated with the transmission facilities for this project and the on-site substation are borne solely by QTS,” a spokesman for the company said in a statement, referring to roughly $28 million of infrastructure that QTS has pledged to pay for to power up the project.

“They should pay their full freight.”

Staff from the state’s utility regulator say those contributions ignore the larger costs that the new QTS data center would push onto ratepayers across the system. Exemption from the transmission rider, for instance, would come during a period when $2 billion of transmission related charges is expected to be passed through to consumers – including for new lines that will feed power to QTS.

“To me it is unfair; they should pay their full freight,” said John Gavan, who served as a commissioner for Colorado’s utility regulator from 2019 until last year. “Data centers are coming anyway. They don’t need these incentives.”

States have lined up for data center investments

The data center industry claims that its heavy use of power is a necessary outgrowth of the essential services it provides and that its facilities are increasingly a critical component of societal infrastructure. Data centers host the internet, deliver the computing behind a universe of mobile apps and now artificial intelligence, and offer storage for vast reams of information such as medical records, emails, documents, and photographs.

As data center operators spend billions of dollars, more states have become eager to attract that investment, offering tax breaks and other incentives on top of electricity discounts.

Data centers are expected to receive nearly $3.6 billion in just sales and use tax exemptions in Virginia between 2022 and 2025, according to an estimate by the state senate’s finance and appropriations committee.

In New Albany, Ohio, where Amazon is erecting five data centers as part of its $7.8 billion upcoming building spree, the company has been granted a 15-year full property tax abatement and a 75% reduction for the next 15 years.

In Minnesota, where Meta is building, lawmakers have proposed expanding and extending tax breaks to the industry.

The lucrative incentives are being handed to a sector that, by all accounts, is experiencing surging demand. Data centers also don’t deliver the number of long-term jobs – a key yardstick for public benefits – that other industries do.

In Ohio, for instance, Intel plans to employ thousands of workers at a $20 billion chip manufacturing plant it is building outside of Columbus.

Amazon does not disclose the number of workers employed at its data center locations, but JobsOhio, a workforce development nonprofit, said that the company’s $7.8 billion data center portfolio would bring just 230 “direct” jobs.

Nonetheless, more states are lining up for data center investments.

Earlier this year, Mississippi lawmakers approved a multimillion-dollar incentive package for Amazon after it committed to spending $10 billion to build two data center campuses, the single largest corporate investment ever in the state.

Entergy, the utility that will serve the Amazon facilities, was also exempted from having to obtain state approval for any infrastructure it needs to build in order to power up the data centers. Daniel Tait, a research and communications manager at the Energy and Policy Institute, likened the arrangement to a blank check paid for by consumers.

The utility can build “whatever the heck it wants,” Tait said. “If AWS is coming to Mississippi, OK, that’s fine. But Amazon should be paying for all of the related upgrades necessary to serve Amazon.”