Virginia’s Rappahannock Electric Cooperative is seeking regulatory approval for a new way to serve an anticipated wave of data center development — one that could demand more power than the utility’s entire existing customer base.
According to filings in Virginia, the co-op is projecting almost 17 gigawatts of data center load in its territory by 2040.
This estimate represents a dramatic increase in the co-op’s forecast. Less than a year ago, REC was predicting it would need just 3.3 GW of capacity by 2040, up from near zero in 2023. The anticipated 17 GW represents more than half of the entire state’s current power plant capacity.
To manage that staggering growth, REC has designed what it describes as an “innovative affiliate structure,” which involves creating a series of separate companies, each set up to handle power purchases for a single data center customer.
At the center would be the REC subsidiary Hyperscale Energy Services, created in September of last year. The proposal is for Hyperscale Energy to own several of its own subsidiaries. Each would register with PJM as a load-serving entity and buy power for individual data center customers. REC, meanwhile, would handle the physical infrastructure and the retail service.
To get things off the ground, REC would loan up to $4.5 million to Hyperscale Energy.
The setup, REC hopes, would create something of a buffer between the massive power purchases needed for hyperscalers and other data center customers, and the co-op’s regular operations. If one data center customer fails to pay a bill or uses less power than expected, for example, the costs won’t fall on the co-op’s existing 180,000 members. And because each hyperscaler would have its own isolated subsidiary, the costs and risks also wouldn’t fall on other data center customers.
As the co-op put it in a December 9 filing to the Virginia State Corporation Commission, “traditional residential and commercial members should not have to carry the obligation to guarantee or essentially underwrite large-scale risks associated with market volatility and stranded investment from data centers located in Virginia with global reach.”
The structure’s debut
Rappahannock’s approach to dealing with data center load appears to be a unique one, said Grid Strategies president Rob Gramlich. But the circumstances that led the co-op to create this new model are decidedly not. “Utilities all over the country are figuring out new ways to bring on new supply to serve demand growth and customers’ power preferences,” he said. “Some are sleeving in various ways such that large energy buyers can identify and procure the power they want.” It’s not surprising, he added, that Northern Virginia is where these new arrangements are being created, given the massive power demand there.
The tension between traditional utility frameworks and unprecedented load growth has been on full display this month in a proceeding at the Virginia State Corporation Commission, which brought together co-ops, IOUs, and hyperscalers to explore data center growth challenges and identify “one or more potential frameworks that could be used…to serve potential new large-use customer load.”
At a hearing in that proceeding, held December 10, Rappahannock CEO and president John Hewa outlined the co-op’s proposal to use isolated entities for data center customers to protect existing members.
And Stan Blackwell, who leads Dominion Energy’s data center practice, outlined that utility’s five-step process for connecting new data center loads. Dominion models its largest and fastest-growing customers individually, and is taking more of a traditional utility model approach than REC. The utility has also proposed a new program, called “Schedule CFG” that would allow large commercial customers like hyperscalers to purchase clean energy directly through the utility.
Dominion would either build new clean energy generation specifically for participating customers, or purchase power from existing clean energy facilities on their behalf. That “ring-fencing” approach, Dominion said, would mean their other ratepayers don’t end up subsidizing the program. If approved by regulators, the program would be open to 50 customers.
Google, in its own testimony to the Corporation Commission proceedings, emphasized its support for that direct procurement model, but also outlined its opposition to data-center specific tariffs and rate structures.
“Creating novel rate classes based on a customer’s specific industry or end-use of electricity rather than based on metrics associated with electric system usage such as peak demand, is discriminatory ratemaking and undermines the fundamental obligation of utilities to serve all customers fairly and equitably,” the company said in a filing. “It should never be accepted as a matter of course that any one particular customer class is ‘subsidizing’ another customer class without due analysis and consideration.”
Outside of Virginia, some utilities are taking yet another approach: AEP Ohio, that state’s largest investor-owned-utility, is proposing specific, stringent terms and conditions specifically for data center customers. Under that proposal, AEP would require data center customers to sign 12-year deals, agreeing to pay a minimum of 85% of their expected monthly usage as well as fees for canceled projects.
A repeatable model
Data centers aren’t the first load for which Rappahannock has attempted to apply its nesting doll subsidiary model.
Several years ago, as the co-op watched demand increase from electric vehicle charging, it became worried that members would end up paying for non-members charging in the region. Due to regulatory restrictions, REC isn’t allowed to own public charging infrastructure. But a wholly-owned subsidiary could, which is why the co-op created Vividly Brighter, a subsidiary with additional subsidiaries of its own, including for solar and charging.
As Peter Muhoro, Rappahannock’s chief strategy, technology, and innovation officer, explained on an episode of the With Great Power podcast, Vividly Brighter owns and operates public chargers, allowing REC to offer discounted rates to its members, and to separate the business venture from its core operations. Eventually, Muhoro said, the co-op hopes to allow members to bill public charging directly to their electricity bills.
Listen to Peter Muhoro on the With Great Power podcast:
At the end of November, Rappahannock (via Vividly Brighter) was awarded nearly $122,000 in funds from the Bipartisan Infrastructure Law dedicated to EV charging. The money will pay for three public chargers.
That subsidiary structure for EV load growth, though, is of course less complex than what Rappahannock is proposing for data centers.
An initial proposal for the hyperscaler-focused structure was rejected by regulators in October, because it involved direct sales from subsidiaries to data centers. REC re-filed in November, and in the updated version, power would flow through the co-op itself as the retail provider.
