Understanding Electricity Costs and Projected Growth

Key Takeaway

Ohio’s Schedule Data Center Tariff (DCT) is one example of a utility-level regulatory tool that ties infrastructure costs directly to the large loads that impact them. In states without equivalent protections, a Schedule DCT may serve as a useful model for county-level advocacy in state regulatory proceedings.

Background

AEP Ohio is a local electric utility that owns and operates distribution infrastructure across Ohio, while coordinating with PJM for transmission reliability. Facing unprecedented large-scale computing facility demand requests, AEP Ohio and the Public Utilities Commission of Ohio (PUCO) developed a comprehensive large load tariff framework.

The Challenge

AEP Ohio faced two compounding challenges as large-scale computing facility demand surged. First, these facilities were seeking power commitments faster than the utility could plan, permit and build the infrastructure. Second, there was a stranded asset risk, meaning under standard terms, the cost of unused or underutilized infrastructure would have fallen to existing residents and small business customers.¹

The Response

The Data Center Tariff (Schedule DCT)

Schedule DCT applies to large loads exceeding 25 MW and contains three core protections designed to ensure large load growth does not shift costs onto existing residential and small business ratepayers:

• Minimum-Take Provisions: Data centers must pay at least 85% of their contracted capacity, even if actual usage is lower. This ensures infrastructure costs are recovered even if a facility underperforms.
• Stranded Asset Collateral: Developers post upfront collateral equal to 50% of total minimum charges for the full contract term. If a project is canceled, that collateral helps cover the cost of infrastructure already built.
• Extended Contract Terms: Long-term agreements align infrastructure cost recovery with the expected operational life of the facilities that triggered grid construction. If a facility exits early, the financial obligation does not transfer to other ratepayers.

The Settlement Framework

PUCO reached a settlement establishing 12-year contracts with the 85% minimum take provision as standard terms for large load computing facility loads. This framework reduces the risk that transmission infrastructure costs flow to other ratepayers.²

Outcomes for Ratepayers

Because pricing drivers are all indirectly affected by market conditions, residential ratepayers in municipal utility territories may see rate changes that are difficult to trace to a specific cause or decision point.

Key Takeaway

In low-density cooperative territories, regional rules for sharing transmission costs can shift the costs of distant large load growth onto local ratepayers. Large Load Tariffs are an emerging tool to ensure new users — not existing members — pay for the infrastructure they require. Local ordinances requiring utilities to offer or adopt large load tariffs, or statutory mandates compelling utility commissions to create these tariffs, are options that have been used to address this issue.

Background

Rural electric cooperatives within the Southwest Power Pool (SPP) face a dual challenge: maintaining poles and wires across low-density territories, while being subject to regional transmission cost-sharing rules that can assign costs from large industrial loads to small communities with limited ability to absorb the resulting costs.³

The Challenge

When a large industrial load in one part of the SPP region triggers a regional transmission upgrade, the costs of that upgrade are shared across the SPP footprint — including small rural cooperatives whose members may never benefit from the new infrastructure. For communities with a small ratepayer base, even a small regional cost allocation can lead to a significant rate increase.^4,5

Emerging Solution: Large Load Tariffs

Modernized contract structures, such as Large Load Tariffs, offer a path forward by requiring system expansion costs to be borne by the new users who trigger them rather than spread across the existing member base. This approach can also leverage large load growth to support long-term regional reliability improvements and rate stability that benefit all ratepayers.⁶

Outcomes for Ratepayers

In low-density cooperative territories, the arrival of large loads in one part of a regional transmission organization can result in cost increases for ratepayers in communities that have no direct connection to the new load and receive no local economic benefit from it. Without modernized cost allocations structures, rural cooperatives members are among the most exposed to this dynamic.

Intended Use: This content is intended for educational purposes only. NACo does not endorse any particular strategy or approach. For official NACo positions, please refer to the American County Platform. 

Key Takeaway

In an IOU territory, infrastructure costs from a large load in one community can be spread across an entire service area. The host community captures property tax revenue; neighboring communities share the costs. Michigan’s Special Contract model shows that regulatory action can flip this dynamic, ensuring equitable cost allocation across the service territory while still enabling large load growth.

Background

Detroit Edison (DTE Energy) is an investor-owned utility (IOU) that services a diverse mix of urban, suburban and industrial communities across Michigan including:

• Detroit: major urban center with traditional heavy automotive manufacturing
• Lansing and Grand Rapids: urban areas with no large new loads
• Ann Arbor: suburban-urban mix, where a 1.4 GW data center is planned

The Challenge

Ann Arbor ratepayers are not solely responsible for the infrastructure costs associated with the new 1.4 GW facility, despite its physical location within the city. As all three communities are served by DTE's shared infrastructure, the total cost requirement for hosting the facility is allocated proportionally across DTE's entire customer base.

This means Ann Arbor captures local property tax revenue from the development, while neighboring communities in Lansing, Grand Rapids and Detroit share the infrastructure costs without receiving any direct local economic benefit.

The Response

To address this imbalance, Michigan regulators introduced ‘Special Contracts’ requiring hyperscale developers to cover 100% of their infrastructure and clean energy needs upfront. The goal is to ensure large loads are a net benefit to the grid rather than a shared financial burden on existing ratepayers.¹

Outcomes for Ratepayers

The additional revenue generated through Special Contracts allowed DTE to pause electric rate hikes for two years, delivering direct and measurable savings to all ratepayers across the service territory, including communities that would otherwise have shouldered infrastructure costs without offsetting local benefit.²

Key Takeaway

Rural cooperatives are structurally more cost-vulnerable than IOUs when large loads arrive, because infrastructure costs are shared across a smaller member base. UEC’s PSA model partially protects residential ratepayers by ring-fencing electricity costs for large industrial users, but infrastructure costs were still socialized. The NWCPUD model shows that full cost recovery from large loads is achievable for smaller utilities.

Background

Umatilla Electric Cooperative (UEC) is a distribution cooperative in rural northeastern Oregon. Unlike IOUs, UEC does not generate its own electricity; it purchases power wholesale, primarily from the Bonneville Power Administration (BPA) and supplemented by open-market purchases to serve large industrial loads.³

Rural cooperatives like UEC face a structural cost challenge: high fixed costs for maintaining poles and wires across low-density terrain. These costs are spread across a small member base, making them more vulnerable to rate shocks from sudden large load growth.

The Challenge

The arrival of hyperscale data centers rapidly transformed UEC from a small rural cooperative built to serve a rural agriculture region into a high-density power provider. Data centers now account for over 80% of total system load.⁴

The Response

To meet demand, UEC established a long-term Power Supply Agreement (PSA) for large industrial members, purchasing power on the open market specifically to serve those accounts.

Outcomes for Ratepayers

Electricity costs under the PSA are passed directly to qualifying large industrial members, not spread across all ratepayers, resulting in measurable savings. However, infrastructure upgrade costs were spread across the broader ratepayer base.

Neighboring Example: NWCPUD – Municipal Utility, Oregon

Northern Wasco County People’s Utility District (NWCPUD), a neighboring municipal utility, has hosted data centers since 2005 and offers a contrasting model. NWCPUD does not subsidize new loads by the existing rate class. When new large loads seek to connect, NWCPUD conducts detailed load studies and establishes special contracts that recover 100% of infrastructure upgrade costs from the large load customer to ensure residential and small business customers do not shoulder the cost.

Intended Use: This content is intended for educational purposes only. NACo does not endorse any particular strategy or approach. For official NACo positions, please refer to the American County Platform.