The relationship between utilities and hyperscalers is evolving into a symbiotic one.
While utilities have been cornerstone players in the energy landscape for generations, hyperscalers have only recently emerged as dominant energy stakeholders. Now, both sectors face the shared challenges of unprecedented load growth and grid constraints. And the resulting dynamic involves a balance of competition with mutual opportunity.
At this week’s BloombergNEF Summit in New York, a panel on rising power demands was standing room only. To the packed hotel auditorium, Bob Frenzel, president and CEO of Xcel Energy, addressed the complex nature of his company’s evolving relationship with hyperscalers.
“Our philosophy on data centers is they have to at least pay their share, so they help build upgrades, because they’re sometimes the key driver of the upgrade, which is great,” Frenzel said.
However, he added, there’s only so much energy industry talent, and key materials, to go around. “The hyperscalers and data center developers have a backup generation behind the meter, [and] gas turbines that they’re procuring that we’re trying to procure as well,” he said. “So there’s a competition for equipment and for talent.”
Another friction point involves load speculation, where data center developers flood utilities with speculative power requests that may never materialize, complicating load forecasting and taking up valuable utilities’ resources.
“We’ve got a 9,000-megawatt backlog of data centers,” Frenzel said. “We actually think we’ll probably serve 2,500 of those, not because we wouldn’t want to serve all of it… [but because] we don’t know what’s real and what’s going to locate itself in other parts of the country.”
These challenges, however, can be addressed through better cooperation and transparency. When utilities understand the actual needs of their large customers, and customers comprehend what utilities require to meet demand, both sides benefit.
“I can’t tell you how many conversations we’ve had with hyperscalers who said, ‘Oh, you need a transformer? We got one of those. You need a turbine? We got one of those, too. You need some help with filing for the regulatory link? We can help you with that, too,’” Frenzel explained. “They’ve built big power teams inside of Google, Meta, and Amazon, and they can be very helpful.”
Also on the panel was Ken Zagzebski, president of AES Utilities and CEO of AES Indiana and AES Ohio. Zagzebski thinks that even when it comes to the workforce, where hyperscalers are less likely to give up their coveted power engineers and steel workers, the competitive strain between utilities and hyperscalers can be productive.
“When you see car dealerships… they’re all kind of bunched [together]. And it seems like it would be more competition, but really they help each other,” Zagzebski said. “[It’s the] same way for the workforce: bringing these data centers or large manufacturing in allows you to expand the infrastructure area that loads that region, and it actually helps economic development.”
Frenzel agreed with the need to approach decisions as partners rather than adversaries: “If we sit across the table in competition with each other, we’re not going to pick where we need to be faster.”
Outside the comfort zone
Aside from fostering this new reciprocity, the demands of new load growth are also pushing utilities to change how they approach planning.
The utility industry has historically been risk-averse when it comes to decision-making. But load growth is coming to the United States, from a combination of the artificial intelligence boom, electrification, and the onshoring of manufacturing. But the fact that there’s uncertainty around where exactly the load will show up means that utilities may require a more active approach to when and where they build.
Caroline Choi, who is executive vice president at Southern California Edison and its parent company, Edison International, said that both regulators and utilities need to adapt. An ideal approach for this moment of load growth, she said, would be that investments are approved and infrastructure is built even if customers haven’t come forward with new loads yet.
“We may not have had a customer tell us that they’re going to electrify, but we know it’s going to be happening as a result of rulemaking at the state level,” she said at the panel. “So we need to go ahead and invest so that we’re ahead of and can be prepared to serve those customers.”
Frenzel, whose company Xcel Energy is headquartered in the hockey-obsessed Minnesota, describes it as a “need to skate to where the puck is going to be,” a reference to the words of hockey player Wayne Gretzky.
“That’s a bit of a different mindset than we’ve been in for 10 or 20 years, maybe 50 years, and I think it’s critical whether you’re thinking about data center load, EV load, or manufacturing,” he said. “We’ve got to get to a place where we’re building for growth, and it’s been a long time since this industry had to do that.”
A version of this story was published in the AI-Energy Nexus newsletter on April 30. Subscribe to get pieces like this — plus expert analysis, original reporting, and curated resources — in your inbox every Wednesday.
