Data centers’ demand for electricity brings unprecedented opportunity and challenges

The data center industry that powers everything online is reshaping the energy marketplace and Pennsylvania is poised to see an economic boost as companies like Amazon and Microsoft move into the state.

But regulators must strike a balance between feeding a data center’s voracious appetite for electricity and ensuring that the lights stay on and costs remain reasonable for regular people, members of the Pennsylvania Public Utility Commission heard Thursday.

“Pennsylvania is an attractive location for data center operators due to low cost rural land and property taxes, as well as the currently abundant supply of natural gas and excess electricity,” Allison Kaster, director of the commission’s Bureau of Investigation and Enforcement, said.

And the demand for data is constantly increasing, said Michael Fradette, an energy expert for Amazon Data Services, which last year purchased a data center campus in Luzerne County that will eventually consume about as much electricity as the city of Pittsburgh.

In addition to critical government and financial operations, video conferencing, remote learning, telehealth, artificial intelligence and online gaming all run off data centers. And those are competing with other sectors, such as transportation, heating and cooling and manufacturing, where the demand for electricity is also growing, Fradette said.

“We recognize the need for a balanced approach that supports technology, technological advancement, sustainable energy practices and fair cost allocation,” said Fradette, who was one of four data center industry experts who testified before the PUC.

On the other side of the electric meter are the electricity companies that distribute power for homes, offices and industry and the grid operator. Pennsylvania’s grid is operated by PJM Interconnection, which also serves all or part of 12 northeast and midwest states by ensuring there’s enough power generation to meet demands.

PJM estimates that its peak demand will grow nearly 17% by 2035. While it faces its own problems connecting new powerplants fast enough to satisfy that growth, the task of ensuring the electrical infrastructure is up to the challenge falls largely to electricity distribution companies such as PECO Energy, PPL Electric Utilities and FirstEnergy Pennsylvania Electric Co.

“This potential demand growth is unlike anything we have ever dealt with before,” Richard Webster, vice president for regulatory policy & strategy at Peco, said. Webster was one of four electricity company representatives who testified.

The cost of maintaining and upgrading electricity infrastructure by local electric utilities is passed along to customers according to rates that are approved by the PUC. But the demand from data centers will require electric utilities to build new substations and infrastructure.

PUC Chairman Stephen DeFrank said the commission’s goal is to develop a regulatory structure – known as a tariff – for data centers and other large-load customers that allows them to connect to the grid quickly, while ensuring that consumers aren’t left to pay the cost for projects that don’t pan out.

That’s likely to include financial security requirements to cover the cost of engineering studies and construction. The tariff may include incentives for developers who build their own infrastructure and equipment, which often requires long lead times. 

“If they build that out, and decide not to come, well that’s their dime. It’s not the rate payer’s dime, and that’s what we’re concerned about,” DeFrank told the Capital-Star.

At the same time, the commission needs to ensure that developers who want to build in Pennsylvania can do so on a schedule that makes sense for business. 

“We will never have a load-growth opportunity in our lifetime again like this,” DeFrank said. “This is the industrial revolution for the information age. This is equivalent to … the printing press.”

The PUC will accept written public comments until May 27 and replies to comments until June 11. Instructions for submitting comments are on the hearing website.