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Trump Admins Ratepayer Pledge: What It Means for Hyperscalers
As shown in Exhibit 1, over the past few years large load tariffs have begun to more frequently set higher threshold sizes, although the “right” size will likely vary by system. Many large load tariffs that set eligibility by size also include aggregation clauses to prevent customers from splitting a large facility into smaller loads on nearby sites to avoid falling under the tariff. Other criteria that are sometimes used to establish large load tariff eligibility include load factor, power factor, or industry.
Introduction: The Collision of Artificial Intelligence and Grid Infrastructure
In contrast, the electric and water utilities point to risks they contend the OIR did not consider, and disagree with the OIR’s conclusions about the risks it did mention. SCE observes that the OIR’s risk calculus does not acknowledge anomalies such as the California energy crisis, stating that the crisis “has left doubts in the minds of utility stakeholders as to California regulators’ ongoing commitment to the regulatory compact.” The parties’ comments are divided on the OIR’s assumption that risk should drive the outcome of gain on sale decisions, and that we should cease relying on ratepayer harm or indifference to allocate the gain. Thus, an overestimated load growth through duplicate requests develops and in fact, could trigger a utility to overbuild capacity without subsequent demand all at the expense of ratepayers. Allocating costs and future risks related to catastrophic wildfires is a complex issue with a wide variety of important considerations.
How AI is Changing Energy Grids
The public absorbs the costs of poor decision-making and overruns on highly risky ventures, like nuclear power plants. Natural gas plants are also a long-term risky investment, financially and for the climate. A PUC could deny approval of construction or stipulate that shareholders pay all costs, including carbon dioxide abatement and other methods to limit pollution that extend the plant’s life.
Rate Reduction Bonds
- Securitization allows utilities to offer long-term bonds to investors to pay off short-term debt.
- The most common way to define eligibility of a large load is by its total capacity in megawatts.
- The utility is responsible to its shareholders and the bank underwriting the securitized bonds, which means “utility and ratepayer interests might not be aligned.”
- To correct that, state legislation should “support the commissions’ fiduciary duties to consumers and the public interest.”
- Electric utility bills often reflect a number of other state and local taxes and charges.
Under these programs, customers generally are credited for the electricity that they generate at the IOU’s retail volumetric rate. In effect, the IOU pays customers the same rate per kilowatt hour for generated electricity as it charges for consumed electricity. IOU customers who contracted for solar systems to be installed after April 2023 are under a new system known as NEM 3.0 (also referred to as Net Billing Tariff), which compensates customers at a notably lower rate.
How AI Will Transform the Energy Sector and Economy
Under the terms of the second agreement, STACK will pay the actual cost of work performed by PG&E as the work progresses, instead of a one-time advance payment. Furthermore, STACK is ineligible for the option, provided by PG&E’s tariffs, to receive a fifty percent discount in lieu of refunds. Finally, the agreement requires PG&E to issue refunds to STACK under the tariff’s standard methodology, subject to a cap of around $50 million. Utilities often goldplate grid modernization investments that can impose unnecessary costs on ratepayers, but mandating hosting capacity analyses could avoid this.
Why Do Some IOU Customers Pay More Than Others?
With utilities planning to invest billions of dollars of investment in the grid to serve these new large loads, there is a growing risk that these costs could spill onto others in unfair ways. Such temporal variations make balancing the supply and demand for electricity more difficult. In some cases, large amounts of solar generation can lead to an oversupply of electricity during certain times and days. This can result in a need to export electricity to other states or to curtail, or shut off, some of the electricity generated from renewable resources to maintain grid stability. In other cases, high demand for electricity—such as during the evenings of long summer heat waves—can make finding adequate supplies challenging.
Source data
California electricity rates also have been increasing rapidly in recent years—not only growing faster than inflation but also outpacing growth in other states. 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. The pace of AI innovation is simply speaking, soaring past the capacity of physical infrastructure as chip supply chains and energy demands have put added strain on the US power grid. Securitization is a financial tool that can reduce utility debt with low interest bonds secured by ratepayers, and with utilities’ growing costs related to COVID-19, the energy transition, and climate change, interest is accelerating. Legislators and regulators must dictate the terms of service to utilities, not the other way around.
- The minimum monthly billing demand can reduce the risk of large loads not contributing their fair share of system costs if they’ve been too bullish about how much power they need, and can encourage large load customers to more conservatively estimate their capacity.
- Data center infrastructure is the foundation of the internet, cloud computing, and artificial intelligence (AI), and supports our economic and national security.
- Gov. Mike Braun signed a bill into law that enables public utilities to petition state regulators to recover costs for developing small module nuclear reactors, a policy that consumer advocates say will put the financial risk on Hoosiers.
- Have served as financial advisor in a role similar to that advocated in the paper to public utility commissions and other ratepayer advocate organizations on billions in ratepayer-backed bonds over the last three decades.
- Before joining Academy, she was a Senior Trader at Legal & General Investment Management America, where she executed across equities, fixed income, derivatives, and FX for global client portfolios.
Challenges Power Grids Face With AI Growth
The main explanation for why NEM 3.0 provides a lower amount of credit to solar customers compared to the previous NEM programs is that the new structure credits customers only for the costs the utility avoids by not having to buy electricity elsewhere to serve them. Consequently, CPUC’s primary rationale for adopting NEM 3.0 is that under NEM 1.0 and 2.0, customers without rooftop solar were effectively subsidizing those with solar. This is because when solar customers do not pay for fixed costs (as generally was the case with NEM 1.0 and NEM 2.0), the costs do not go away.
That includes “the authority to require evidence in the utility’s filing from a bond team representing ratepayers in negotiations on the deal structure and transaction fees.” Securitization proceedings on utility proposals should and typically do include oversight from commissioners and consumer advocates, Petrosino acknowledged. “But whether the negotiation includes a team representing ratepayers is not relevant to https://bandlybands.com/narkes-elektriska/ the rating agency because pricing is determined by the marketplace and nobody else.” In addition, the standard for securitizations must be “the maximum present value savings for ratepayers,” he added.
New Hampshire Lawmakers Block Nuclear Reactor Plan Over Ratepayer Risk Fight
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.
Energy equity: Reforming utilities’ business plans by rebalancing ratepayers’ financial risks
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.
Trump Admin’s Ratepayer Protection Pledge: What It Means for Hyperscalers
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.
CleanAI: Proving Out the Power of Hybrid Microgrids for AI Data Centers
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.
Regulators, utilities, lawmakers and ratepayers – oh my!
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.
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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.
Regulators, utilities, lawmakers and ratepayers – oh my!
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.
The AI Power Crunch: Why Google’s Flexible-Load Blueprint Could Signal a New Era for Digital Infrastructure
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.
