AEP says data center demand is pushing its system to the brink and they need to impose safeguards to protect other customers
By:Nick Evans
The Public Utilities Commission of Ohio is giving American Electric Power the green light to start charging data centers differently. The decision is another acknowledgement of the strain large energy consumers are placing on the grid.
In a press release, the Ohio Consumer’s Counsel praised the commission for ensuring data centers “pay their own way.”
The PUCO’s latest decision set aside an appeal brought by tech interests like Amazon, Google, Meta, and Microsoft as well as the Ohio Manufacturers Association. But that might not be the final word.
The deep-pocketed companies fueling Ohio’s data center boom can still appeal to the state supreme court. The Ohio Manufacturer’s Association is already promising to do so, saying the recent ruling leaves them “no choice.”
Case background
In May of last year, AEP applied with the PUCO to establish a new tariff for data centers.
In the energy context, a tariff is the contract for service outlining what’s expected of the supplier and the customer.
AEP, for instance, has different tariffs for all sorts of customers like schools, churches, fairs, automakers, and more.
From the company’s point of view, a separate set of rules for data centers is just one more example, and entirely appropriate given the unique demands data centers impose.
In its decision, the PUCO leaned heavily on testimony from AEP officials like Vice President of Transmission Planning and Analysis Kamran Ali.
He explained in 2023, Central Ohio accounted for 4,000 MW of the state’s roughly 9,400 MW peak load.
Ali testified by 2030, the company has signed agreements to connect another 4,000 MW — or the entire current Central Ohio energy demand — from data centers alone.
What’s more, there are another 30,000 MW worth of proposed projects hoping to get online.
In its application, AEP said it was “resolute and unwavering in its conclusion that an updated set of terms and conditions for retail service to data center customers is needed in order to move forward with capacity expansion plans on a just and reasonable basis.”
AEP’s initial proposal applied to data centers using more than 25 MW a month.
The company asked that data center customers should be subject to a billing minimum, and a ‘load ramp’ that would increase year to year as facility gets up to speed.
AEP also proposed and an exit fee if the data center decided to pull up stakes before their contract expires.
The motivation for all those conditions, AEP said, was to ensure they’re not on the hook if a proposed data center never materializes, and infrastructure investments are borne by “those that caused the need,” rather than getting spread across the rest of AEP’s consumers.
Several tech and manufacturing interests aligned around a counterproposal that lumped data centers in with other energy intensive customers but pushed the minimum demand threshold up to 50 MW.
Among other changes, the proposal dialed back billing minimums, offered a gentler ramp up period, and made it easier for companies to exit.
The PUCO decided to go with a version of AEP’s proposal negotiated with the Ohio Consumers Counsel and a handful of other interests instead.
Following that decision in July, PUCO Chair Jennifer French said, “Today’s order represents a well-balanced package that safeguards non-data center customers on an industrial and residential level while establishing a dependable and reasonable environment for data centers to continue to thrive within Ohio.”
The appeal and what’s next
Early last month, data center interests petitioned the PUCO to take a second look.
In its filing, the Data Center Coalition argued the PUCO-approved settlement “is a knee-jerk, reactive response to the surge of data center interest,” that unlawfully discriminates against data centers based on their line of business.
The group added AEP never presented formal studies to back up claims that the new tariff would ensure the users driving demand bear the actual cost of infrastructure upgrades.
But the PUCO batted away those arguments as already asked and answered. The commission reiterated its determination that “actual, material differences” in the service that data centers support a separate tariff.
With 30,000 MW of potential data center demand in the offing, PUCO added, “there is a timely need for a proactive solution to address potential reliability issues in the AEP Ohio central Ohio region, which is specifically driven by data centers.”
Ohio Consumer’s Counsel Maureen Willis applauded the PUCO “for standing up for AEP’s consumers instead of giving into the demands of power-hungry data centers.”
But perhaps underscoring the unlikely partnership with AEP, Willis added her office isn’t giving the utility a free pass.
She said they’re investigating AEP’s pending rate case, “where the utility’s infrastructure investment has nearly doubled in just five years, contributing to rising bills for Ohio families. We urge the PUCO to continue to focus on fair cost allocation and affordability in that case.”
The Ohio Capital Journal reached out to several parties in the case about whether they plan to appeal.
Data Center Coalition Director of Energy Policy Lucas Fykes said they’re still “reviewing our options.”
“As DCC indicated throughout the proceeding,” he added, “the data center industry is committed to paying its full cost of service for the energy it uses,” and that they’d work on “evidence-based solutions” to support data center development.
The Ohio Manufacturer’s Association, however, came out swinging.
“It’s disappointing,” OMA said in a statement, “that the PUCO decided to uphold discriminatory tariffs on energy-intensive users, creating a slippery slope for utilities to potentially punish industrial and other high-energy users.”
OMA insisted PUCO’s rationale was “deeply flawed, based upon overstated and double-counted speculative load by AEP.”
The organization said it has no choice but to appeal to the Supreme Court of Ohio.
