In PJM, the influx of data center load has fundamentally distorted the supply-demand balance. An exhaustive analysis by the Independent Market Monitor (IMM) for PJM revealed the staggering cost shift that has already occurred. Collateral requirements in large load tariffs help protect other ratepayers by ensuring large loads can cover costs like unpaid bills, exit fees, or penalties if they default or leave their contract early. In essence, these requirements can be designed to reduce the likelihood that stranded costs or solvency issues are passed on to other customers. Large load tariffs currently use a variety of formulas to establish the minimum monthly billing demand. The three most common ways large load tariffs to date are setting this minimum is with a percent of the customer contract capacity (often 75–90 percent), the customer’s historical peak, or a fixed floor.
- California electricity rates also have been increasing rapidly in recent years—not only growing faster than inflation but also outpacing growth in other states.
- Shifts risk from utility ratepayers and investors to insurers and property owners.
- This adds risk for investors (bondholders and shareholders) and, therefore, increases IOU financing costs (bond interest rates and shareholder returns).
- However, consumer decisions about whether or not to adopt these alternative technologies depend, in part, on electricity rates.
- The capital markets are often thought as a “black box” of buyers and sellers rapidly exchanging millions of dollars.
- Pursuant to Chapter 547 of 2015 (SB 350, de León), the California Air Resources Board also established specific 2030 GHG targets for emissions from the electricity sector.
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And they do this while imposing egregiously high fixed charges that discourage clean energy efforts. In a system of shared-costs and risks, utilities would not be able to recover costs of their stranded assets from ratepayers. Regulators could require a much lower return for central station power plant investments to shift investment to distributed resources, and order shareholders to shoulder all or most of their stranded costs. In this report, we generally refer to these charges—regardless of how they are structured—as rates.
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An irrevocable financing order means that once a state utility commission authorizes the securitization charges, that order cannot be repealed or altered until the bonds are fully repaid. This provides legal certainty that the cashflows supporting the bonds will remain intact regardless of political or regulatory changes. In practice, it ensures bondholders are insulated from legislative risk over the life of the bonds.
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The regulatory compact requires that if ratepayers bear such costs, they must be compensated for such burdens once the utility sells the property. Only a fraction of proposed data centers actually get built, making it difficult for grid operators and power system regulators to correctly estimate future electricity loads. So-called phantom data centers — projects that are proposed but never materialize — can create speculative interconnection requests.
A “bond trustee” handles implementation and most enabling legislation requires a commission-approved competitive solicitation in which “hundreds of trustees compete” to determine the trustee, he added. The utility is responsible to its shareholders and the bank underwriting the securitized bonds, which means “utility and ratepayer interests might not be aligned.” The first of the two agreements covered the construction of special facilities requested by STACK that exceed PG&E’s design standards. Under this agreement, STACK would pay the actual costs PG&E incurred to construct the special facilities, rather than the estimated costs as specified in PG&E’s tariffs.
“If these issues are shown to require active intervention, the CPUC can take appropriate steps.” In California, use of securitization to recover wildfire-related losses for utilities, some of it already approved, could involve as much as $12.5 billion. Regulators and utilities agree authority on securitization should be in enabling state law to make certain proceedings are done with high standards and are backed by the authority of the state.
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The December stimulus bill included $25 billion for unpaid rent and utility bills, and the Biden proposal would add $5 billion, but unpaid 2020 bills could require up to $70 billion, according to Moody’s Analytics Chief Economist Mark Zandi. Unpaid utility bills alone could reach $35 billion to $40 billion by March 2021, NEADA Executive Director Mark Wolfe said in November. On October 30, 2025, the CPUC adopted Resolution E-5420, approving two agreements between PG&E and STACK Infrastructure (STACK) to interconnect and energize a 90 MW data center developed by STACK. The bill was one of three with nearly identical language to shift the cost of building SMRs to customers. Senate Bill 423 would establish a smaller pilot project for SMRs and currently is stalled in the House, and House Bill 1007 had the exact language of SEA 424, but that language was removed from the legislation after Braun signed the 424 into law. We believe that the Commission should be the final decision maker, and we will provide all the information and analysis that you will need to reach a fair and equitable resolution of these complex issues.
In the absence of that standard, “underwriters and https://www.thisisdornoch.com/listing/lower-whinhill/ investors will have the negotiating leverage to dictate a final cost to ratepayers.” Securitization could address that debt, though state-enabling legislation is inconsistent in availability and in providing robust oversight, RMI’s Varadarajan said. “But even if securitization’s benefits are diluted, it can be of significant value to ratepayers because interest rates are almost always reduced” compared to typical utility interest rates. Shutoff moratoria allowing COVID-19-impacted residential and small business customers to defer utility payments without losing service have been invaluable to millions, according to the National Energy Assistance Directors’ Association (NEADA). But when the pandemic fades, national economic recovery could be impacted by potentially huge debts to utilities, NEADA added.
Data centers also need to be operational 99.999% of the time, requiring constant redundancies. Shifts costs and future risks among ratepayers, IOU investors, insurers, and property owners. Net effect on each group depends on details of the fund, such as initial contributions, process for settling claims, and future reimbursements to the fund. Because recent environmental lawsuits blocked solar projects in the California desert, utility companies there will be lucky to get halfway to their state-imposed mandate of 30 percent power generation from renewable sources anytime soon.
Usage in printed sourcesFrom:
- Indeed, energy usage from data centers alone is anticipated to double within five years, with forecasts suggesting they will account for about 12% of US electricity usage by 2028.
- Moreover, ratepayers bear the equivalent risk that forecasts will overstate needed utility rates of return in a given year, yet the utilities do not contend we should give ratepayers extra gains based on inherent unreliability in forecasting.
- In a utility bankruptcy during his tenure, “we discovered the tax treatment could affect ratepayer value over time by around a billion dollars, and understanding that allowed reaching a settlement.”
- But enabling state legislation is necessary for credit agencies to provide the AAA credit rating for securitized debt that makes interest rates low.
- For example, Appalachian Power Company and Wheeling Power Company’s Schedules L.C.P. and I.P.
To balance the risk of stranded costs against the promise of additional revenues presented by the data center, the CPUC adopted a modified methodology to distribute STACK’s full refund. The remaining 25 percent of the collected transmission-related revenues will be held back for ongoing maintenance and broader grid upgrades that are not part of the direct energization of STACK’s facilities. Under the CPUC’s approach, STACK is expected to receive the full refund in about six years.
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Many publicly owned utilities also offer NEM programs, but the policies are adopted by their individual boards (rather than CPUC) and thus vary. Electric utility bills often reflect a number of other state and local taxes and charges. For example, many local jurisdictions impose utility taxes that are used to support local programs, such as fire response and parks.
The longest minimum contract terms (20 years) still fall short of most grid asset lifespans. When a large load’s contract ends, significant remaining infrastructure costs might then fall to other customers. Regulators, utilities, and policymakers will have http://www.portobellocc.org/pccpn/2015/07/21/edinburgh-fuel-poverty-report-published/ to continue to evaluate whether that risk is balanced against the benefits of rates that attract customers. California Public Utilities Commission (CPUC) Recently Modified Structure of Solar Credits Provided to Investor‑Owned Utility (IOU) Customers. Customers of IOUs who contracted for solar installations before April 2023 participate in programs called NEM 1.0 or 2.0.