Tariff Proposal to Ohio PUC by Amazon, Microsoft, Meta, Constellation Energy, and Others Opposed by AEP Ohio

 

     In May 2024 AEP Ohio proposed increased financial requirements for new data centers and cryptocurrency operations. Foreseeing about 30GW of new data center load, AEP Ohio argued there would be a considerable need for new transmission to feed that load, costing billions. These “tariffs” would require the data centers larger than 25MW to make long-term financial commitments. The risk for AEP Ohio is that they could end up building and paying for transmission that ends up not being needed if companies decide to pull out. They also argued that if they end up overbuilding transmission it could leave rate-paying residential customers footing the bill.

“Under AEP Ohio’s proposal, data centers would be required to commit to ten-year electric service contracts, with an option to pay an “exit fee” after five years, according to McKenzie. Also, data centers would be required to pay minimum demand charges based on 90% of their contract capacity, up from 60% under the utility’s current general service tariff, he said. Mobile data centers, such as cryptocurrency mining operations, would be required to pay minimum demand charges based on 95% of their contract capacity.”

     AEP Ohio cited multiple potential customers hoping to build data centers with loads of 1GW or more. AEP also noted that data centers do not support local economies like commercial and industrial (C&I) customers with high loads (typically 200MW or less). C&I customers typically provide 25 jobs per MW, but data centers provide just 1 full-time equivalent job per MW.  

     Data centers provide AI and cryptocurrency processing power which in turn requires lots of electricity. In a sense they transmute electricity into knowledge and currency, respectively. Perhaps, ironically, tech companies are wealthy enough to invest in renewable energy where they can on these projects, but they need baseload power. Thus, natural gas is the obvious best choice. Nuclear is also being pursued as has been reported recently. PJM’s recent capacity market shortfall, partially due to attributing sources differently, still shows a need to build generation and transmission and these data center proposals are likely a big factor. The same is true in the Texas ERCOT region where adequate reserve margins have proven to be vital for maintaining reliability. Cost increases for customers (I’m one) may also happen, some suggest. Texas is incentivizing baseload power and other states are considering it.

     Utility Dive reported on AEP Ohio’s rejection of the tech companies’ proposal:

“It’s unprecedented to present a ‘settlement’ to the [Public Utilities Commission of Ohio] that isn’t supported by the PUCO staff or the utility that initially raised the concern,” Marc Reitter, AEP Ohio president and chief operating officer, said in a statement Friday. “The PUCO should reject it.”

The technology companies and others on Thursday filed what they said was a negotiated settlement to resolve an AEP Ohio data center interconnection proposal at the PUCO. All parties in the docket were part of the negotiations that led to the agreement on the terms for connecting electricity-intensive customers to the grid, according to the filing.

     Interestingly, the unprecedented nature of the proposal might be seen as a new strategy for tech companies to influence power upgrade costs. I am speculating here. They do cite the Ohio Administrative Code and the Ohio Revised Code in their filing. It may be unprecedented, but they say it is legal according to state law. It seems like it should be seen as a proposal rather than a settlement since all parties did not agree. My guess is that is how PUCO will see it. It may lead to further negotiations and an actual settlement later – still guessing here.

     According to Baker & Hotetler’s law filing:

B. Tariff Applicability

2. The name of Schedule DCP (Data Center Power) will be changed to Schedule EIC (Electricity-Intensive Customer) and will apply to any electric service agreement (ESA) signed after the tariff effective date for new load greater than 50 MW at a Single Location if AEP Ohio provides Proof of a Transmission Capacity Constraint. Schedule EIC will not apply to loads greater than 50 MW at a Single Location that have already signed an LOA or ESA by the effective date of the new tariff

     Thus, we can see that the parties to the new ‘stipulations’ have changed AEP Ohio’s original tariff proposal where any loads greater than 25MW were subject to long-term agreements to greater than 50MW facilities. There are other changes as well including shorter contract times and lower exit fees. Perhaps, it can be seen as a kind of collective bargaining by a group of high-paying power consumers.

“Among other things, the agreement asks the PUCO to open an investigation to see if transmission capacity on AEP Ohio’s system could be expanded through reconductoring, battery storage, virtual power plants and grid-enhancing technologies.”

“Parties to the agreement are: the Data Center Coalition; Amazon Data Services; Google; Microsoft; Sidecat, a Meta Platforms affiliate; Constellation Energy Generation and Constellation NewEnergy; Enchanted Rock, a microgrid company; Interstate Gas Supply; Ohio Blockchain Council; Ohio Energy Leadership Council; Ohio Manufacturers Association Energy Group; One Energy Enterprises; and the Retail Energy Supply Association.”

     Perhaps AEP Ohio will see it as tech companies flexing their muscle and poking their nose where it doesn’t belong, but it is what it is. Better cooperation of relevant parties in power grid planning and implementation is an acknowledged need for many U.S. power grids and regions.

     The Ohio Consumers’ Council pushed back on the tech company stipulations by saying it will force residential and C&I payers to subsidize the data centers.  

“It appears to be the first stipulation agreement in Ohio that doesn’t include the utility making the initial proposal or PUCO staff, according to a Friday filing at the PUCO made by AEP Ohio, American Municipal Power, Buckeye Power and the Ohio Energy Group, a group representing energy-intensive utility customers. Also, the agreement represents only a limited set of interests and, for most of the issues it covers, is skewed towards the sole interests of data center customers, they said.

     In the filing AEP fiercely pushed back on the tech company stipulation proposal, saying it would set an unfair new precedent that circumvents long-standing procedure and be copied by others resulting in increased investment risks for utilities.

The Signatory Parties certainly have the ability to propose their own alternative resolution to AEP Ohio’s application. Indeed, intervenors do so (either separately or jointly) in almost every Commission proceeding. However, the simple fact that several intervenors propose the same modifications to the utility’s application does not eliminate the need for the Commission to conduct a complete hearing on the Company’s proposal (which remains pending), nor does it negate the Company’s ability to seek an alternative settlement with the remaining parties to this proceeding. The Data Center Stipulation and Motion filed by the Signatory Parties – which were submitted without the involvement of either AEP Ohio or Staff – raise a number of significant procedural issues that must be addressed. These include an inappropriate attempt to untimely file additional testimony on new issues which have yet to be fully explored, as well as a woefully deficient settlement process that, if permitted, raises serious policy questions as to the future of settlements before this Commission.

     Utility Dive also notes:

“Allowing multiple intervenors to enter into a settlement or stipulation without the utility, and then permitting that settlement to entirely supplant the utility’s application allows those parties to arbitrarily change the utility’s rates, limit the utility’s investment, and/or modify the utility’s service to its customers — all of which significantly hinder the utility’s ability to provide adequate and necessary service to customers across its service territory,” AEP Ohio and the organizations said.

     They also noted that other relevant companies planning new loads are close to agreement on AEP Ohio’s tariff proposal.

 

 

References:

 

AEP Ohio urges PUC to reject Hail Mary data center tariff proposal from Amazon, others. Ethan Howland. Utility Dive. October 14, 2024. AEP Ohio urges PUC to reject Hail Mary data center tariff proposal from Amazon, others | Utility Dive

AEP Ohio proposes data center, crypto financial requirements amid 30 GW in service inquiries. Ethan Howland. May 15, 2024. AEP Ohio proposes data center, crypto financial requirements amid 30 GW in service inquiries | Utility Dive

Re: In the Matter of the Application of Ohio Power Company For New Tariffs Related To Data Centers And Mobile Data Centers - Case No. 24-508-EL-ATA. Baker & Hostetler, LLP. October 10, 2024. ViewImage.aspx (state.oh.us)

BEFORE THE PUBLIC UTILITIES COMMISSION OF OHIO In the Matter of the Application of Ohio Power Company for New Tariffs Related To Data Centers and Mobile Data Centers: : : Case No. 24-508-EL-ATA OHIO POWER COMPANY’S MEMORANDUM CONTRA INTERVENORS’ JOINT MOTION FOR CONTINUANCE. October 2024. ViewImage.aspx (state.oh.us)