{"id":23237,"date":"2024-09-12T11:00:25","date_gmt":"2024-09-12T16:00:25","guid":{"rendered":"https:\/\/blogs.law.columbia.edu\/climatechange\/?p=23237"},"modified":"2024-10-01T14:37:35","modified_gmt":"2024-10-01T19:37:35","slug":"guest-blog-connecting-data-centers-to-the-grid-an-innovative-and-controversial-proposal-from-aep-ohio","status":"publish","type":"post","link":"https:\/\/blogs.law.columbia.edu\/climatechange\/2024\/09\/12\/guest-blog-connecting-data-centers-to-the-grid-an-innovative-and-controversial-proposal-from-aep-ohio\/","title":{"rendered":"Guest Blog: Connecting Data Centers to the Grid: An Innovative and Controversial Proposal from AEP Ohio"},"content":{"rendered":"

This blog post was authored by 2024 Sabin Center Summer Intern, Yoon Kim, with input and supervision from Abe Silverman, Research Scholar at The Johns Hopkins University, Zach Wendling, Program Manager at the Yale Center for Environmental Law & Policy, and Romany Webb, Deputy Director of the Sabin Center for Climate Change Law.\u00a0<\/em><\/p>\n

Concerns about the growth in data centers and the associated increases in power demand have received substantial press coverage<\/a>. As the scale of the burden that data centers impose on the electricity grid becomes clearer to the public, more and more people are asking the unavoidable question: who will pay for the grid upgrades needed to support these facilities<\/a>? One Ohio-based utility recently imposed a moratorium on new data center applications and put forward a novel proposal that it says will ensure data centers pay for the costs they impose on the grid, but the application is facing strong pushback from data center operators, blockchain groups, and competitive power suppliers. Opponents argue that the proposal violates the utility\u2019s duty to provide service on a non-discriminatory basis; the utility \u2013 Ohio Power Company (AEP Ohio) \u2013 disagrees.<\/p>\n

As data centers continue to expand across the nation, whether and in what form AEP Ohio\u2019s proposal moves forward could have important implications for how utilities deal with data centers.<\/p>\n

The Data Center Boom<\/strong><\/h3>\n

There is growing concern among energy regulators and others that the proliferation of data centers across the United States will lead to unprecedented increases in power demand. A recent report<\/a> from the Federal Energy Regulatory Commission<\/a> (FERC) estimates that U.S. data center demand will double this decade from 17 GW in 2022 to 35 GW by 2030. Electricity consumption by data centers, which currently accounts for approximately 2.5% of the U.S. total, could account for 7.5% of U.S. electricity consumption<\/a> by 2030. Other estimates project that number could reach up to <\/a>9%<\/a> by 2030.<\/p>\n

These projections have led to questions about where all the electricity needed by data centers will come from. Much has already been written <\/a>about the potential for data center growth to drive up fossil fuel generation and associated greenhouse gas, imperiling U.S. climate goals. Questions have also been raised about who will bear the cost of the grid upgrades necessary to serve data centers. The cost of transmission facilities built to serve new customers is socialized across all users of the system, including present-day ratepayers. The scale of the data center loads is leading utilities and regulators to question the traditional assumption that the revenues earned from new customers is sufficient to pay for any new transmission facilities necessary to serve them.<\/p>\n

The financial impacts of this expansion are already being felt by customers. On April 8, 2024, FERC approved a $5.1 billion proposal<\/a> from PJM Interconnection \u2013 the nation\u2019s largest electricity market \u2013 for new transmission that aims to, in part, accommodate the electricity growth from Northern Virginia\u2019s \u201cData Center Alley.\u201d<\/p>\n

The cost allocation debate has caused tensions in regions of the U.S. where data center growth is concentrated. States such as Ohio, Virginia, Illinois, California, Florida Georgia<\/a>, Texas, Arizona, and Oregon<\/a> have emerged as major data center hubs and are now faced with the challenge of upgrading their grids to bring more electricity to them. While regional transmission upgrades are under FERC jurisdiction, state agencies have jurisdiction over how the costs of the upgrades are passed onto retail customers. FERC itself is publically struggling with how to deal with meeting the energy needs of data centers and crypto miners (see here<\/a>, for example).<\/p>\n

AEP Ohio\u2019s Application for Data Center Tariffs<\/strong><\/h3>\n

On May 13, 2024, AEP Ohio filed an application<\/a> with the Public Utilities Commission of Ohio to create two new customer classifications and associated tariffs for data centers. Pending review of the application, AEP Ohio also placed a moratorium on new hookups, which is to remain in place until the new rate is put into effect.<\/p>\n

The two proposed customer classifications are (1) data centers with a monthly maximum demand of 25 MW or greater and (2) mobile data centers (i.e., cryptocurrency miners) with a monthly maximum demand of 1 MW or greater. AEP Ohio\u2019s proposed tariffs also include several new obligations for these customer classes::<\/p>\n