TOPIC #2
Large Loads and Implications for Rate Design
Large point loads for data centers, manufacturing, and crypto mining raise issues of proper pricing and cost causation.
Growth in Large Loads Continues Apace
Both technology and power industry discussions continue to highlight the growth of interest in large data processing and manufacturing siting and expansions in utility territories across both the United States and globally.
Data center power demand grew by 9.3 GW in 2024. As of Q1 2025, new data center power demand totaling more than 58 GW of incremental power demand is projected by 2029 (see Figure 1). Some observers believe this is overstated, but even if one adjusts forecasts downward, this constitutes significant power demand growth.
Some projections for energy demand growth of new large manufacturing facilities are up to 20 GW by 2029.
Cryptocurrency miners continue to expand operations, buoyed by continued market interest in cryptocurrencies as an inflation hedge, by federal policy interest in a U.S. strategic bitcoin reserve, and by flexibility in operations as an energy management tool.
Time frames requested by developers of these facilities are short and, in most cases, require significant infrastructure build-out: new generation and transmission as well as transmission upgrades (such as new or expanded substations and transformers).
Electric utilities and their regulators are studying closely the requirements and potential effects of these facilities, particularly where the new load will require new capital investment or significantly impact existing reliability or capacity needs.
FIGURE 1
U.S. Utility Power Demand from Data Centers (GW)
Note: Excludes enterprise-owned data centers.
Sources: Platts Megawatt Daily (May 28, 2025) (citing S&P Global Market Intelligence; 451 Research and Datacenter Services & Infrastructure Market Monitor and Forecast: U.S. Focused released Mar. 14, 2025)
Key Takeaways
Energy demand from data centers and other large loads is projected to grow significantly over the next 5 to 10 years.
Utilities and regulators are monitoring and managing the potential impacts to other customers of ramping up infrastructure to serve this new and rapidly growing demand.
Some utilities are proposing special tariffs and rate structures to equitably balance the economic development that these new customers bring with ongoing capital and revenue requirements to serve them and manage risks of overbuilding and potential stranded costs.
General Principles of Rate Regulation and Design
Under public utility regulatory principles, utility rates are intended to compensate utilities for the operating costs of electric service as well as a reasonable return on and of capital deployed in "used and useful” utility assets.
These principles apply generally to utility service, including the treatment of new large load customers. Key design principles include:
- Classes matter: Large customer rate classes are designed to reflect their unique service requirements and load characteristics.
- Cost-causer pays: Customers and classes that impose costs on the system and other customers are responsible for their payment. The costs of each class of service, which then dictates how rates are determined, are typically established through a cost-of-service study. Class cost of service reflects plant investment and O&M expenses to serve customers in that class.
- Just and reasonable: Rate design should ensure that service to those customers, including large customers, should not be subsidized by other customers or rate classes. This principle may inform the use of special rates and tariffs for large load customers.
Growing Large Loads and Potential Cost Impacts
Growth of new point sources of large MW loads has created interest among regulators, utilities, and other customers about the potential incremental adverse effects of those loads on the cost of utility service. A few growing areas of attention are shown in Figure 2.
How Utilities Are Approaching Large Load Risks
Utilities are taking several different approaches to managing risks of cost shifts and ensuring recovery of costs incurred on behalf of new large loads.
At a February 2025 panel of the National Association of Regulated Utility Commissioners (NARUC) Winter Policy Summit, the panel discussed both questions and considerations that inform these approaches (see Figure 3).
Through proposed and approved tariffs, utilities are using both terms and pricing in large load tariff and contract arrangements to ensure costs are recovered from new large load customers. These can take the following forms:
- Minimum charges: Akin to take-or-pay contracts, some utilities are imposing minimum charges, such as minimum monthly bills or minimum demand charges, so that large loads will pay most or all capacity cost even if a large load’s usage dips.
- Long-term contracts/early termination penalties or exit fees: Utilities may seek long-term (10 to 15 year) contracts to ensure that large loads pay for capacity obligations as well as avoiding imposing stranded costs on other customers in the event new customers use less energy than planned.
- Collateral or creditworthiness requirements: To backstop long-term obligations, utilities may require cash or other collateral or letters of credit in the event of cancellation or bankruptcy.
- Direct assignment of costs: Some utilities may require large load customers to pay the costs of infrastructure expansion to serve them if it would not be constructed “but for” the need to serve those customers.
A sample of approaches used in selected jurisdictions is shown in Figures 4A and 4B.
FIGURE 3
Large Load Growth—A Regulator’s Guide
Sources: Load Growth – A Regulator’s Guide to Getting It Right, Panel of the Committee on Energy Resources and the Environment, at NARUC Winter Policy Summit (Feb. 24, 2023)
FIGURE 4
Selected Utility Tariff Approaches for Large Loads
Sources: Lawrence Berkeley National Laboratory; The Brattle Group; Black Hills Energy; Wyoming Public Service Commission; South Dakota Public Utilities Commission: Virginia State Corporation Commission
Pursuing “Green” and “Clean” Tariffs
To meet emissions reduction targets of large loads (especially data centers) (see Figure 5), some large customers are entering into long-term power purchase agreements (PPAs) for energy from wind and solar resources or purchasing renewable energy credits via utility programs. Those customers are also participating in new or expanded green tariff programs.
Some example tariffs:
- Duke Energy Carolinas Accelerating Clean Energy/Clean Transition Tariff (proposed): This voluntary program for larger customers enables Duke Energy to provide individualized portfolios of new carbon-free energy to commercial and industrial customers with customers’ direct support. The tariff would match clean energy generation and customer load and would facilitate participation in load flexibility programs.
- NV Energy Clean Transition Tariff (approved March 2025): Available to any corporate customer with a monthly energy demand above 5 MW, the tariff is designed to allow large energy users to pay a premium for 24/7 clean energy from new resources by providing utilities with up-front funds to invest in new technologies. This differs from a traditional PPA as it involves NV Energy procuring clean energy directly from producers and supplying it to the grid to offset emissions. Google procured 115 MW of geothermal energy for a 15-year term through this tariff.
- Portland General Electric Large Nonresidential Green Energy Affinity Rider: Offers customers a subscription share of a new renewable energy facility for a 5- to 20-year contract term.
FIGURE 5
Net-Zero Energy Goals of Selected Large Technology Firms
Source: Company environmental and sustainability reports
Implications
The utility industry continues to modify its traditional playbook to accommodate growing large loads, particularly data centers. Several utilities are introducing tariffs and rate structures that demonstrate to legacy customers that infrastructure development to accommodate these new loads will not have adverse impacts on them.
These new tariffs also help utilities manage risks of financial commitments they make to grow power infrastructure and provide some level of transparency and certainty to these new large customers. With some customers bringing onsite generation, these tariffs may also afford operating flexibility to utilities in the form of demand response.
While some elements of these arrangements are forming a template for others, utilities will have to continue to work collaboratively and creatively with large customers to manage this economic opportunity.
CONTACT OUR EXPERTS
On Large Loads and Rate Design
Justin Stevens
PARTNER
justinstevens@scottmadden.com 404.814.0020
Talha Shiekh
DIRECTOR
tsheikh@scottmadden.com 919.781.4191
Mike Flint
DIRECTOR
mflint@scottmadden.com 508.202.7918
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