Starting next month, new data center load seeking to come online in Utah could have the opportunity to source their own generation, thanks to a law signed by the governor at the end of March.
Utah’s Senate Bill 132 modifies Rocky Mountain Power’s duty to serve “large loads,” which it defines as 100 megawatts or more in five years. Under the new regime, the utility will have 90 days to evaluate the impact of a large load request on its infrastructure, and determine whether it can meet the demand without significant investments. If it can’t, the new law allows the data center to seek out its own energy supply — either one connected to the grid, or entirely separate.
The legislation arrives as discussion escalates about how to handle the energy demands of artificial intelligence without harming existing consumers on the grid. Ongoing proceedings at the Federal Energy Regulatory Commission, and legislation in states like Texas, Virginia, and California, are grappling with similar questions: Who should bear the cost of grid updates to serve these massive new loads? Do colocated loads still benefit from the grid without paying their fair share? And how can states benefit from the AI-boom without raising rates for residential customers?
In Utah, state legislators attempted to answer those questions by creating three distinct pathways for large data center customers to procure power. They can 1) receive service from traditional qualified electric utilities, 2) contract separately with large-scale generation providers while using the utility’s transmission infrastructure, or 3) create what the law calls “closed private generation systems,” which operate entirely behind the meter with no connection to the local grid.
For closed private systems, the generation must independently meet all load, transmission, and electricity requirements without any support from the utility.
For customers that want to source their own power but still tie in to the transmission grid, the law requires them to register with the state’s Public Service Commission, and use generation sources that both meet NERC and WECC standards and are capable of serving the entire load (with certain exemptions). Self-builders may also be able to sell excess electricity to other utilities, directly to other commercial or industrial partners, or community programs.
The challenges of large loads
The types of “special contracts” between data center loads and utilities outlined in Utah’s bill have come under criticism elsewhere in the country.
Ari Peskoe, a researcher at Harvard Law School’s Environmental and Energy Program, recently co-authored a paper on the potential challenges with such contracts. Peskoe and his co-author Eliza Martin reviewed 40 Public Utility Commission proceedings, and found that many are shielded from public view — and that the only participant in the proceeding is sometimes the utility itself.
“The easiest thing for the utility commission to do is just to approve the agreement, particularly when there may be political pressure to bring this [data center] project to the state,” Peskoe told Latitude Media in an interview when the paper was released.
In that scenario, a special contract could ultimately shift costs to other ratepayers if a data center customer is paying the utility less than what it costs the utility to serve that customer. Utilities will then use subsequent rate cases to raise rates for other customers to cover the gap.
“That was one thing that was somewhat surprising to us, is how many of these special contracts we saw out there,” Peskoe said.
It’s not clear from the text of Utah’s bill whether the proceedings in the state will be public.
For more on the case for colocating data centers and generation, listen to Intersect Power CEO Sheldon Kimber speaking on Catalyst with Shayle Kann:
Utah’s bill appears to attempt to work around some of the other challenges facing large loads as well. In PJM, for example, an ongoing FERC proceeding has raised concerns over colocation arrangements for data centers. Utilities including AEP, Dominion, and Exelon, are arguing that colocated data center still benefit from the transmission system, and therefore should pay their fair share of grid costs so as not to get “free ridership.”
Utah’s new law requires that connected generation systems pay for interconnection or transmission-related studies and any system upgrades, as well as paying the transmission service rate.Other states are taking distinct approaches. In Texas, for instance, large users interconnecting after 2025 will be required to pay retail transmission charges based on peak demand. California, meanwhile, is considering legislation that would establish special rate structures for data centers to prepay their expected energy consumption. In that case, Pacific Gas and Electric has suggested that for every new gigawatt of data center load, rates could fall as much as 2% through increased system utilization.
