Southeastern Wisconsin and the Chicago area are emerging as major players in the national data center explosion, most notably with Microsoft’s $3.3 billion planned data complex near Racine, Wisconsin.

Clean energy advocates in the region say data centers pose both a risk and an opportunity, as they can put major stress on the grid, prolong the lives of coal plants and spark new natural gas plants, but also facilitate significant renewable energy investment. Wisconsin utility We Energies, for example, cited demand from data centers in its recent requests to the Public Service Commission for 1,300 MW of new gas generation. Microsoft, meanwhile, has promised to build renewables in the state while also likely creating demand for new or continued fossil fuel energy.

The organization Data Center Map shows more than a hundred data centers in the Chicago area and a handful in Southeastern Wisconsin, often located on the site of former coal plants or industrial operations. A data center is underway on the site of the shuttered State Line coal plant just across the border from Chicago in Indiana. The data center developer T5 recently announced plans for four to six data centers totaling 480 MW of capacity and costing as much as $6 billion in the Illinois town of Grayslake near the Wisconsin border, adding to data centers it already runs in the region.  

Virginia has long been known as “Data Center Alley,” with about 70% of global internet traffic passing through its servers, according to the Wall Street Journal. Dominion Energy said that because of data centers, its electricity demand in Virginia could quadruple and represent 40% of total demand in the state over the next 15 years. Georgia and Tennessee have also seen much data center construction and speculation. Utilities like TVA, Duke and Dominion have announced plans to build more gas plants and keep coal plants open longer in that region, along with building renewables.

Meanwhile, some experts say the Great Lakes region is an increasingly promising spot for data centers because of its cooler climate that reduces energy demand and the availability of water.

“There is no better place” for data centers than the Upper Midwest, said Josh Riedy, who helped design North Dakota’s first tier-three data center, referring to a data center with high reliability — on a scale of one to four tiers — that includes multiple power sources. Riedy also founded Thread, a grid maintenance software company that he’s marketing as especially helpful to serve data center demand.

“The Upper Midwest can export data around the globe,” Riedy said. We’re starting to see the tide turn, it’s just natural.”

Growing load

Projections abound regarding the way data centers — including those processing cryptocurrency and running AI applications — will increase energy demand nationally and end an era of stagnant load growth.

Last year, the Federal Energy Regulatory Commission predicted 4.7% load growth over the next five years, up from 2.6% previously estimated for five-year growth. Data centers “supercharged by the rise of artificial intelligence” will require between 9 and 13 more GW of electricity over the next five years, according to seven case studies analyzed in a December 2023 report by the Clean Grid Initiative, which does not include data center estimates for MISO or CAISO (California) regional transmission organizations. A McKinsey & Company report predicted 35 GW of total demand from data centers by 2030.  

Load growth sparked by data centers comes on top of a shift from fossil fuels to electric heating, cooling and transportation. A 2022 report commissioned by Clean Wisconsin and RENEW Wisconsin found load growth could increase to 166% of 2022 levels with building and vehicle electrification needed to meet the state’s goals of net-zero emissions by 2050.

“Everything from data centers to manufacturing to AI to cryptocurrency,” said Sam Dunaiski, executive director of RENEW Wisconsin. “These all could be triggers for new load, and it all could be coming to Wisconsin, though it’s not unique to Wisconsin. Things like solar and battery manufacturing are coming online that ironically need new load growth too. We think the best way to meet that new load both environmentally and economically is through renewables and transmission to go along with it. This is a great opportunity for a low-cost renewable energy boom in the state.”

Along with the generation demand, Riedy noted, come needs for grid updates and resiliency, which can ultimately help the grid as a whole.

“If you’ve built and designed a data center, you know the nature of them is in many ways fundamentally different than most energized structures,” Riedy said. “Walmart, for example, is going to consume power, but it will have peaks, and constant power is important but not in the way it is to a data center. With crypto mining or AI model training, you see machines running at near peak performance around the clock. That’s producing a type of strain on the grid that has few comparisons.”

Microsoft and more

Microsoft’s energy plans — like many details about the massive data project — are not yet clear, and the company’s ambitious climate goals give advocates hope that the company will finance much new renewable generation either on-site or through power purchase agreements. The company has announced it will build a 250 MW solar array in Wisconsin.

But Microsoft will likely also purchase power from We Energies, fueling advocates’ worries about new natural gas generation and rate increases for regular customers.

The data center will be located on the sprawling site between Milwaukee and Chicago that was previously slated for an enormous LCD screen factory by the company Foxconn. That plan was repeatedly scaled back and then scrapped in the face of economic issues and local opposition.

Citizens Utility Board executive director Tom Content noted that “under state law passed for Foxconn, Microsoft is eligible for discounted market-based electricity rates. They would pay basically for the transmission and distribution, but a portion of their rates would just be set at wholesale market rate,” rather than the retail amount customers usually pay.  

In February, a subsidiary of We Energies filed a plan with the Wisconsin Public Service Commission for an estimated $304 million in grid upgrades related to the Microsoft project. Public auditors filed a letter with the commission noting exemptions that allow less oversight because the project is in a special technology zone.

The Microsoft plan was touted by President Joe Biden as an example of reinvigorated Midwestern investment, but it has faced concerns about its energy and water use. Meanwhile Microsoft has faced setbacks globally in reaching its climate goals, in part because of the massive energy demand of artificial intelligence applications.

Cost concerns  

Advocates said utilities may use data centers to justify more investment that earns them a rate of return, even when it is not necessarily needed.

“We are concerned that there could be an overinflation of expected demand in order to capitalize on this trend and build more gas as a last-ditch effort,” said Ciaran Gallagher, energy and air manager for Clean Wisconsin.

“There’s a little bit of a sky-is-falling scenario here,” Dunaiski agreed. “In the early 2000s we saw this with load growth [projections] particularly around the internet. People thought the internet would cause our electricity generation needs to explode. They increased, but there were improvements that came with it — infrastructure getting more efficient, and software.”

That precedent raises questions about the rush to build out gas power to accommodate projected demand.

“Gas isn’t coal, but we shouldn’t be striving for the second worst option, for the environment or for our pocket books,” Dunaiski continued. “If we build these gas plants, customers will be paying for them for the next 20, 30 years.”

Gallagher noted that the EPA’s new rules for gas plants make new gas investments even more questionable.

“All the gas plants proposed in Wisconsin and across the country in relation to this demand from data centers will have to comply with these standards, and by 2032 either run not very often or reduce greenhouse gas emissions by 90% through carbon capture and sequestration or  low-carbon hydrogen,” Gallagher said. “That prompts the question: Is it worth the price tag to build these gas plants that could become stranded assets or have to spend additional money to comply with these rules?”

Using existing renewables or zero-emissions nuclear energy to power data centers can impact customers too. Content noted that this strategy “accomplishes the decarbonization goals for the tech companies and the reliability needs for the data center. But then you’re taking the fully depreciated, mostly paid-off asset on utilities’ books and having it serve one or two customers, and then the utilities will have to backfill that with a combination of natural gas, solar, storage, wind or future nuclear to serve the rest of the customers.”

“It’s on everybody’s mind how we’re going to tackle this in a way that ensures we don’t say no to economic development, but don’t make energy costs unaffordable,” said Content, noting that data centers have been a major topic of discussion among the National Association of State Utility Consumer Advocates – including at the organization’s conference in Madison in June.  

“Different states are trying different approaches,” Content said. “There’s talk of changing the way utility costs are divided up — currently among residential, industrial and commercial — and dividing it up four ways, with data centers becoming their own entity. Tech companies are pouring a lot of money into the development of these things. They have the wherewithal to contribute mightily to these projects.”

Renewable opportunities

Gallagher emphasized that renewable advocates are not opposed to data centers.

“We think data centers and the economic development that they can bring are not at odds with environmental protection and climate mitigation,” she said. “This can be a low-carbon industry but only if new additional renewables are built to supply all or most of their demands. We think that’s viable if renewables are cost-competitive with gas, and pairing renewables with storage can provide the type of reliability these data centers need.”

Riedy sees renewables and gas as a necessary mix to fuel data centers. While renewables’ intermittency might be seen as a barrier, he said renewables actually could have a unique role to play in energizing data centers – especially in the Midwest.

“In the heat of the day you’re delivering, so having alternate [energy] sources to peak-shave and normalize the cost of energizing that equipment is very important,” Riedy said. “It’s leading to a change in thinking around where to place data centers, that speaks to Wisconsin, the Dakotas. 

“The old way of doing things was generate power in one place, and transmit it for thousands of miles. What data centers are understanding with their insatiable and constant need for power is they are more logically placed by power generation so you can buy that off-peak power, to maintain that load consistently. Since solar and wind overproduce [at certain times], if you can harness that imbalance it’s somewhat of a win-win.”

Data centers offer energy peril and promise, with the Midwest increasingly in the crosshairs is an article from Energy News Network, a nonprofit news service covering the clean energy transition. If you would like to support us please make a donation.

Correction: The Ohio Consumers’ Counsel is Maureen Willis. A previous version of this story misstated her name.

Last year was the eighth in a row that at least one of Ohio’s regulated electric utilities failed to meet one or both company-specific reliability standards set by the Public Utilities Commission of Ohio. 

Companies providing service to a majority of Ohio ratepayers also missed one of their marks last year.

These utilities’ track records suggest consumers aren’t getting full bang for their buck, even as they’re charged millions for riders purportedly for grid improvements, vegetation management and other work.

“AEP Ohio has been investing hundreds of millions of dollars in its distribution to improve reliability,” said company spokesperson Scott Blake, commenting on the PUCO’s slightly stricter standards for the company starting in 2019, compared to those from 2013. “These investments are making stricter performance standards more achievable.” 

Yet AEP Ohio failed to meet its standard last year for how long it takes to get power back on when outages affect customers.

All Ohio utilities reduced the frequency of their outages per customer last year compared to 2021 and 2022. But Duke Energy Ohio still failed to meet that standard. AEP Ohio and FirstEnergy’s Cleveland Electric Illuminating Company and Toledo Edison meanwhile failed to hit their targets for how long it takes to restore customers’ power after outages.

Prolonged outages can lead to spoiled food, loss of heating and air conditioning, interruptions to business, inability to use power for electronics and more. Those problems in turn can threaten people’s physical or financial well-being. Additionally, ongoing climate change poses continuing challenges for the electric grid’s reliability and resilience.

“Regulators of course are interested in utilities’ performance in delivering safe and reliable power,” said Matt Schilling, spokesperson for the Public Utilities Commission of Ohio.

Toward that end, the agency sets two company-specific reliability standards for each electric utility, using common metrics in the electric industry. Utilities must file reports each spring showing how they performed on each metric in the prior year.

One standard refers to the average time outages last for customers who experience them, measured in minutes. It’s called the Customer Average Interruption Duration Index, or CAIDI. The other is the average number of outages per customer systemwide. It’s known as the System Average Interruption Frequency Index, or SAIFI.

If a utility fails to meet the SAIFI metric, “it means they are having too many outages occurring,” said FirstEnergy spokesperson Lauren Siburkis. “And if they fail at meeting CAIDI, it means they are taking too long to restore [power] when there is an outage.”

The metrics allow period-to-period comparisons so a company can track its improvement over time, she added.

The PUCO’s rules exclude major outages, such as those due to some extreme weather events, in determining whether companies met or missed their regulatory reliability standards, although the annual reports include the data both before and after the exclusions. Yet the “customer minutes interrupted,” which did count toward the reliability standards, added up to more than 1,000 years of power loss for individual customers last year.

Eight years in a row

The four utilities that failed to meet one of their standards last year provide power to more than half of Ohio’s electricity customers. The Energy News Network’s data review shows at least one Ohio utility also missed meeting a standard every year going back to 2016.

In 2022, CEI and AES Ohio both missed their standards for the average duration of customer outages, and Duke missed its standard for the average frequency of outages in 2021 and 2022.

AES Ohio failed to meet its standard for the average length of customer outages for four years in a row, from 2019 through 2022, but spokesperson Mary Ann Kabel said the situation is improving. 

“The company’s CAIDI has improved every year since 2019, and we’re committed to providing safe and reliable service,” she said.

Before that, in 2018, AEP missed on both of its performance standards. Duke Energy Ohio missed on both of its standards in 2017. And in 2016 Duke missed on its standard for the average time customers with outages went without power.

When companies fail to meet either of their reliability standards in the prior year, regulators require them to provide reasoning and a plan to address those issues. The Ohio Administrative Code says missing the same standard for two years in a row counts as a violation. Violations can result in penalties, corrective action, or restitution to customers. 

Utilities’ ability to meet their performance standards depends on multiple factors, Schilling said. All have programs to trim vegetation within their rights-of-way, but vegetation outside that area also can interfere with power lines and equipment.

“Other factors like aging infrastructure and maintenance can cause outages,” Schilling said, although “utilities routinely invest to update and maintain their systems.” 

Additional causes include damage from wildlife or motor vehicle crashes, some of which may be out of utility companies’ control.

Extreme weather played a role in Duke’s miss on the frequency standard last year. Three big storms in July 2023 bumped up the number of outages, even though the storms didn’t meet criteria for excluded events, the company’s filing said. 

FirstEnergy’s action plan filed in April pointed to line and equipment failures and to trees as reasons why CEI and Toledo Edison didn’t meet their standards last year. Toledo Edison and CEI plan to conduct thermal scans of their worst performing circuits and additional work to upgrade lightning protection and other equipment in places where customers have multiple outages. Other work aims to prevent tree-related problems.

“Tree-related outages are a top contributor to outage durations because of the need to safely remove the vegetation prior to starting repair work,” Siburkis said, “so the tree-related work in the plan will have a positive impact, even during major events.”

Vegetation management was also part of AES Ohio’s work when it failed to meet its outage duration standard. The company’s action plan filed in 2023 said the company was working to install stronger poles and make other improvements “to reduce the severity of storm outages.” Smart grid deployment was also part of the company’s plan, along with a revision of its reliability standards.

AES Ohio’s updated standards took effect last year. They allow nearly seven minutes longer for restoring service to customers when they lose power, but require a slightly lower average frequency for outages. A slightly lower SAIFI standard would reflect an expectation for there to be fewer outages in the first place.

AEP Ohio blamed arithmetic for its failure to meet the outage duration standard last year. Smart grid work eliminated various shorter outages, the company reported. But a smaller number of service interruptions pushed up the average duration for outages that did occur.

“AEP Ohio’s CAIDI score has gone up not because AEP Ohio’s performance on longer outages has gotten worse, but rather because AEP Ohio has been able to eliminate shorter outages that had been keeping the CAIDI average down,” Blake said.

An additional industry metric, known as SAIDI, for System Average Interruption Duration Index, divides the number of outages by all customers, whether they lost power or not. Using that metric makes it look like AEP Ohio outperformed by more than 25%, according to data in the company’s filing.

House Bill 260, sponsored by Republicans Bill Seitz of Cincinnati and Monica Robb Blasdel of Columbiana, would swap out SAIDI for CAIDI. 

Seitz initially said he didn’t know how reliability was currently calculated. Then in a follow-up email he said he had been informed a switch “would better incentivize utilities to meet the reliability demands of customers,” adding an opinion that the installation of smart meters and other work to reduce outages makes the CAIDI standard “obsolete.”

“It’s meaningless if you don’t have both” of the current standards, said Ashley Brown, a former PUCO commissioner, adding that decisions about reliability standards are best left to regulators, not the legislature. 

The bill’s proposal to change the metric “diminishes the importance of individual consumer outages,” said Ohio Consumers’ Counsel Maureen Willis. “Other changes being proposed weaken the reliability standards by excluding more outages from being part of the reliability assessment,” she added.

Despite millions spent on service upgrades, Ohio utilities still miss reliability marks is an article from Energy News Network, a nonprofit news service covering the clean energy transition. If you would like to support us please make a donation.