PSO parent’s proposal focuses on financial risk of power-hungry data centers

 

Some of the largest companies in the world are fighting with the parent company of Public Service Co. of Oklahoma (PSO) over how to allocate financial risk from the growth of data centers.

The utility, American Electric Power based in Columbus, Ohio, has asked the state to adopt rules that would require the owners of new data centers to make long-term commitments to buy electricity that will power the facilities, and pay substantial penalties for canceling those commitments. Without such rules, other AEP consumers would be left to pick up a potentially huge tab, the company has said.

Ohio Power Co., a/k/a AEP Ohio, filed an application May 13 for new tariffs related to data centers and mobile data centers. As used in this context, a tariff is a public utility’s schedule of rates or charges.

AEP Ohio informed state regulators it filed the application “to establish two new classifications of customers…”

Specifically, AEP Ohio is requesting approval of tariffs to create “(1) the Data Center Power tariff for new data center customers that will use a monthly maximum demand of 25 megawatts or greater at a single location; and (2) the Mobile Data Center tariff for new mobile data center customers (e.g., cryptocurrency miners) that will use a monthly maximum demand of 1 megawatt or greater at a single location.”

Both proposed tariffs include a long-term capacity commitment “to help ensure the capacity expansion is needed at the level requested, and to help justify the time and cost associated with building the requisite high-voltage transmission to serve these unique customers.”

The utility related that a data center “consists of a centralized facility housing computer systems, servers, networking equipment, and related components necessary for the efficient operation of IT infrastructure used for the management, storage, processing, and dissemination of data and information.”

Data centers “can often be massive, highly scalable, energy intense facilities that require large capital investments – both on the customer side and the utility side of the meter.”

Data centers “play a crucial role in supporting the modern digital economy by providing the infrastructure for cloud computing, big data analytics, and other high-performance computing tasks.”

Also, data centers “not only are typically associated with hyperscale loads, the load profile of data centers is unique because, unlike other commercial or industrial businesses that run varying shifts of production or only operate during normal business hours, they require high levels of demand – operating 24 hours a day, 7 days a week, 365 days a year with no natural cycling. Consequently, data center customers often have load factors that exceed 95%.”

Traditional data centers “often involve millions of dollars, if not tens of millions of dollars, of investment in real property and infrastructure,” the utility noted.

Like traditional data centers, mobile data centers such as crypto mining “operate 24/7 with no predictable cycling because they mine bitcoins so long as it is economical (i.e., power prices and other costs of mining compare favorably with bitcoin prices).” Thus, “there are no set business hours, no stable demand curves and no permanency to crypto mining operations.”

The case before Ohio regulators helps to make real the scope – and the stakes – of forecasts that data centers will be the leading driver of a surge in U.S. electricity demand.

“For many years, Public Service Co. of Oklahoma has served traditional data centers that handle anything from credit card processing to airlines scheduling. In terms of modern data centers that process things like crypto and AI, PSO serves a handful across our service area,” said Matt Rahn, PSO’s region communications manager. “Operators of those data centers are drawn to Oklahoma and PSO because of the safe, reliable, and affordable energy we provide.”

Oklahoma has perhaps two dozen or more data centers in Tulsa, Oklahoma City, and elsewhere. For example, Google has a data center in Pryor’s Mid-America Industrial Park.

Earlier this year Polaris Technologies officials announced the company is investing $100 million to construct a 200-megawatt Bitcoin mining facility at Port Muskogee’s John T. Griffin Industrial Park. This will be Muskogee’s first operational data center.

The Polaris site encompasses “40 acres, more or less,” said Deputy Port Director Jeff Underwood.

“This facility is a testament to our commitment to advancing mining operations within crypto technology,” said Alex Zhang, chief executive officer of Polaris Technologies. “Muskogee provides the ideal environment for a project of this scale because of its reliable power,” he said.

Oklahoma Gas & Electric Co. has a 1,716MW generating station just north of Muskogee on the east bank of the Arkansas River. In addition, a 1,000MW electricity substation has been built near the Polaris site, according to Data Center Dynamics

Data centers are electricity hogs

AEP Ohio is experiencing “an unprecedented load growth from data centers” in its service territory, especially in central Ohio, the utility told state regulators. AEP Ohio has signed Letters of Agreements or Electric Service Agreements with data center customers which will “more than double the amount of load in central Ohio by 2030,” the company said.

“This includes expanded load from the existing data center customers ramping up their current operations, as well as new data center customers.” Absent additional capacity, “even just the future load growth that is under contract will leave minimal amounts of reserve capacity for additional (non-data center) load growth for all existing and future customers in central Ohio.” AEP Ohio’s five largest customers will be data centers by 2030, the company said.

AEP said in its initial proposal in May that companies building Ohio data centers will need 5,000 megawatts of electricity generating capacity to meet their needs by 2030. For perspective, the Columbus metro area has an annual peak demand of about 4,000 megawatts.

“Beyond that, customers have expressed interest in building additional data centers with more than 30,000 MW of load in the Central Ohio portion of AEP Ohio’s service territory,” testified Matthew McKenzie, AEP Ohio vice president of Regulatory and Finance.

Many of the proposed data centers will provide computing power for the use of artificial intelligence in a variety of industries.

AEP will need to make investments to increase the supply of electricity, but the company wants to protect itself if some data centers close or use less power than they had planned. To account for this risk, the utility wants to charge the facilities for using a minimum of 90% of their contracted capacity, even if their actual use is less.

AEP also wants to require an exit fee for data centers that close before operating for at least 10 years. The fee would vary based on the size of the project, and could be hundreds of millions of dollars on the high end.

The companies that operate data centers were not pleased.

David vs Goliath?

In many cases before the Public Utilities Commission of Ohio, AEP has tremendous clout as one of the 10 or so largest companies in the state by revenue and market capitalization.

But this time it’s facing off against a coalition that includes affiliates of Amazon, Google, Microsoft and Meta – four of the most valuable companies in the world.

“AEP Ohio’s proposal in this case seeks to impose unprecedented discriminatory tariffs and other treatment on data centers, threatening their viability and the broader economic benefits they bring to Ohio,” attorneys for the Data Center Coalition, a trade group, wrote in a June filing. “No utility in the country singles out data centers with such disparate treatment, even those utilities in markets with far more data center development to date than AEP Ohio.”

The Data Center Coalition announced recently that it had reached a “joint stipulation and recommendation” that would revise and reduce the financial requirements.

This kind of filing is often similar to a legal settlement, in which parties have worked out their differences and present a unified front to regulators. But this time the signatories almost all came from one side of the issue, including coalition members such as Amazon, Google, and Microsoft. The agreement didn’t have support from key parties such as AEP, consumer advocates and the regulator’s technical staff.

An administrative law judge for the Public Utilities Commission of Ohio scheduled an evidentiary hearing in the case to start on Oct. 28.

AEP, one of the nation’s largest electricity producers, operates in 11 states, including Oklahoma. It serves nearly 5.5 million customers.

One of its subsidiaries, PSO, based in Tulsa, claims to serve a little over 575,800 customers (residential, commercial, industrial, and “other”) in 232 cities and towns in eastern and southwestern Oklahoma, including Lawton, Altus, Duncan, Cache, Elgin, Fletcher, Porter Hill, Sterling, Apache, Cement, Cyril and Frederick.