Michigan regulators are now reviewing multiple objections to Consumer Energy’s proposed rate terms for data centers, which would create a demand rate specifically for hyperscale facilities of more than 100 megawatts. The debate is playing out amid growing scrutiny nationally about the immense energy demands of such data centers — and who should pay to connect them.
Last week both the state’s attorney general and the industry group the Data Center Coalition filed formal opposition to Consumer’s attempt to limit the scope of a regulatory proceeding examining the proposal.
The utility initially sought approval of its rate terms without a formal hearing. In February they submitted a filing to the Michigan Public Service Commission outlining proposed terms that would require large data center loads to sign a 15-year minimum contract term, pay for at least 80% of contracted capacity regardless of usage, as well as administrative fees of up to $100,000. Consumers also sought provisions that would establish fees for early terminations — equal to the data center’s minimum billing demand for the remaining duration of the contract, with no cap.
However, several key data center players, including Microsoft, which owns property in Michigan and is considering building data centers in the state, intervened.
The tech giant proposed several modifications to soften the terms of Consumers’ proposed data center terms, including allowing customers to reduce contracted capacity with 36 months notice, limiting exit fees to a minimum of 60 months of minimum demand charges, and requiring administrative fees to be reconciled to Consumers’ actual costs.
Meanwhile, Attorney General Dana Nessel pushed back against Consumers’ requests to limit the scope of the proceeding to exclude considerations of how data centers impact compliance with state renewable energy standards. Data centers’ immense electricity demand may force the utility to acquire more renewable energy credits or implement additional clean energy measures in order to comply with Michigan state laws surrounding clean energy, Nessel argued. If Consumers’ costs increase due to data centers, those costs could ultimately be passed on to other customers, leading to higher rates. Consumers, however, pushed back, saying the topic is “not relevant to the proceeding.”
Industry group the Data Center Coalition sided with the attorney general, writing that any efforts Consumers must make to mitigate risks associated with serving data centers should be applied to all large loads. Proposed rate modifications should be industry-neutral, the group added, and limiting the proceeding to data centers alone would be inappropriate.
A broader debate
Michigan’s debate reflects discussions playing out across the country. In Utah, regulators recently passed legislation giving data centers the option to source their own power, and even bypass the utility entirely if it can’t meet their demand without significant infrastructure investment. Texas, meanwhile, is considering charging data centers based on their peak demand, and California is exploring prepayment models.
The debate is also ongoing at the Federal Energy Regulatory Commission, where AEP and Dominion are advocating for data centers to shoulder their share of grid costs, rather than securing special accommodations. The transmission operators, who operate in Virginia’s so-called “Data Center Alley,” told federal regulators that a new tariff governing colocation for large loads was unnecessary, given that such data centers aren’t actually “isolated” from the grid, if the generation they’ve contracted is connected to the wider system.
In those types of setups, the transmission operators said, the data center “continues to use services provided by the grid and…continues to rely on the grid connection for the generator to operate,” the filing said.
The fact that a data center might not itself be a constant load on the system, they added, doesn’t negate the capital investment, operation and maintenance costs of ensuring the system is available.
“All load, including colocated load, is used to plan the transmission system,” the filing added. “Any attempt to isolate or piecemeal wholesale transmission services to quantify costs would be discriminatory because it would disregard the interconnected nature of the transmission system.”
