Reading Time: 3 minutes

Microsoft and Wisconsin ratepayer advocates are asking federal regulators to hit the brakes on a proposal to allocate the costs of transmission infrastructure built to serve data centers. 

Both argue that We Energies and the American Transmission Company’s (ATC) recent proposal to federal regulators fails to adequately protect Wisconsinites from picking up the construction bill, among other concerns. 

The utilities’ plan — setting a minimum transmission charge for Microsoft based on its Mount Pleasant data center’s anticipated electricity needs — mirrors elements of a strategy approved by Wisconsin’s Public Service Commission (PSC) earlier this year. 

We Energies and ATC argue the minimum charge will help prevent their other customers from paying for overbuilt infrastructure if the facility uses less electricity than anticipated.

Microsoft and ratepayer advocates, however, argue that the proposal falls short on protecting Wisconsinites from cost shifts and that the two closely related utilities left little room for input from those most affected. 

Who pays for data center transmission upgrades?

ATC anticipates spending more than $500 million to upgrade the Mount Pleasant facility’s connection to the electrical grid. The utility passes infrastructure costs to customers of all kinds through their electrical bills; We Energies, for instance, estimates that transmission-related costs account for about 10% of customers’ bills. 

The PSC can’t require ATC to bill data center developers for the full cost of infrastructure built to serve them. Only the five-member Federal Energy Regulatory Commission (FERC), which oversees interstate transmission, could overhaul billing rules to fully shield other customers from the costs of new lines and substations for data centers.

The PSC signed off on a work-around this spring, requiring We Energies to set a minimum transmission charge for its large data center customers based on their projected electricity use — the same projections used to plan transmission upgrades. 

ATC and We Energies asked FERC earlier this month to approve a one-off transmission billing plan for Microsoft’s Mount Pleasant data center. The arrangement would require We Energies to pay ATC for the data center’s projected transmission capacity and pass that cost to Microsoft. The 15-year arrangement would take effect once ATC completes the infrastructure needed to serve the facility. 

“This is a customer protection mechanism that follows the ‘cost causer, cost payer’ methodology,” an ATC spokesperson wrote in an email to Wisconsin Watch.

Microsoft says proposal leaves gaps

The utilities didn’t consult with Microsoft before filing their plan with federal regulators.

“The entire purpose of these agreements, by ATC’s own description,” is to serve the Mount Pleasant data center, Microsoft’s attorneys wrote in a protest to FERC on Friday. Moving ahead without Microsoft’s input, they added, would risk “the timely interconnection and operation of this infrastructure.”

In their view, the utilities’ current proposal contains “systemic” flaws.

Some, they argue, pose risks to Microsoft’s finances, including an early termination fee that could force the company to pay “excessively more” than the remaining value of the transmission infrastructure if it backs out of the agreement before the 15-year mark.

Both Microsoft and the Citizens Utility Board (CUB) argue other elements of the proposal pose risks to ATC’s other ratepayers, including those outside of We Energies’ territory.

In a separate protest filed Friday, CUB regulatory affairs director Corey Singletary noted that the proposal would base minimum transmission charges on ATC’s standard interconnection rates.

“The electric demands and associated supporting infrastructure investments are so large relative to traditional loads and investments” that ATC will almost certainly undershoot the actual cost of data centers’ transmission needs,  Singletary wrote. 

“While ATC’s proposal would likely be an improvement over the status quo,” he added, it still falls short of shielding the utility’s other customers from data-center-driven transmission costs.

Microsoft’s attorneys echoed those concerns, emphasizing that Microsoft signed the White House’s Ratepayer Protection Pledge this spring: a commitment to “pay for all new power delivery infrastructure upgrades required to service (its) data centers” and “ensure that these expenses are not passed on to the ordinary household.”

Microsoft urges more scrutiny

We Energies’ parent company, WEC Energy Group, is ATC’s largest shareholder.

“A negotiated bilateral contract between them — especially one involving such large sums — should be further scrutinized,” Microsoft’s attorneys wrote.

Microsoft also pointed out that the proposal wouldn’t require the utilities to seek their company’s input before amending some terms of the contract, nor would it “create a clear path for Microsoft (or anyone else) to inquire and scrutinize the scope or prudence of expenditures made on its behalf.” 

Microsoft’s attorneys called that opacity “a recipe for future misunderstanding and litigation.”

Microsoft is asking FERC to send the entire proposal to a settlement judge, creating a venue for all parties to work through their concerns. As an alternative, the company’s attorneys suggested that the commission reject the utilities’ proposal outright. CUB, meanwhile, urged the commission to create a uniform transmission cost allocation process for all large data centers in ATC’s territory — including those in Port Washington and Beaver Dam.

ATC has yet to file a response to the complaints. 

“ATC is reviewing Microsoft’s filing and will respond through the established FERC process to demonstrate that existing customers are fully protected by the agreements,” a spokesperson wrote in an email on Tuesday. “We remain committed to cost transparency and protection of existing customers while ensuring reliable transmission service.”

Microsoft, ratepayer advocates challenge ATC plan for data center transmission costs is a post from Wisconsin Watch, a non-profit investigative news site covering Wisconsin since 2009. Please consider making a contribution to support our journalism.

Reading Time: 4 minutes

Click here to read highlights from the story

• Microsoft’s new 15-year electric service contract with We Energies includes outdated language limiting where power plants serving its Mount Pleasant data center could be located.
• The Public Service Commission rejected the geographic restriction, which would have limited Microsoft’s access to wind energy from neighboring states.
• We Energies says the commission’s order — not the outdated contract language — will govern Microsoft’s power purchases.
• Consumer advocates question why We Energies asked Microsoft to sign a contract that didn’t reflect regulators’ decision.

Microsoft’s new 15-year electric service contract for its Mount Pleasant data center includes a provision Wisconsin regulators previously rejected. 

Signed last month, the agreement with We Energies specifies that power plants built or purchased to serve data centers must be located in eastern Wisconsin or Michigan’s Upper Peninsula. But Wisconsin’s Public Service Commission (PSC) voted in May to remove those geographic constraints, which critics argued would cut off Microsoft’s access to abundant wind power generated elsewhere in the Midwest and Great Plains. 

We Energies says it will follow the commission’s order — as opposed to the contract’s language — while it works with the commission to resolve the discrepancy. In the meantime, some observers question how an outdated version of a high-stakes contract made it this far.

Where should data centers look for power? 

The mismatch traces back to one of many disagreements that arose during the PSC’s deliberations on a new rate structure for large data center customers: Should those facilities rely on nearby plants alone or be free to tap energy sources elsewhere?

The PSC-approved rate structure allows large data center operators to “subscribe” to new power plants, picking up the bill for purchasing or constructing them in exchange for the right to use the electricity they generate and revenue from selling surplus electricity on the wholesale market.

We Energies argued that those plants should be located as close as possible to the data centers they would serve. 

Longer distances would increase the risk of grid failures disrupting data center operations, WEC Energy Group Director of Planning Jody Arendt told the PSC in January. WEC Energy Group is We Energies’ holding company.

The local power plants would be within the territory of the American Transmission Company (ATC), a transmission utility in which We Energies owns a majority stake — a relationship that could simplify coordinating repairs and upgrades, Arendt said.

Ratepayer advocates and clean energy groups criticized the plan, arguing it would limit data centers’ access to wind energy. 

Electricity generated by onshore wind farms is, by some measures, cheaper than electricity generated by new natural gas plants. The Midwest’s regional grid operator has approved billions of dollars in grid upgrades over the past five years, in part to streamline transmitting wind energy from regions with high winds to population centers and industrial hubs. 

We Energies fully or partially owns a half-dozen planned and operational wind farms in Wisconsin, including the new Badger Hollow wind farm in Iowa and Grant counties. But neighboring states — especially Iowa and Minnesota — have far higher average wind speeds and generate vastly more wind power.

“Any Wisconsin customers should be able to benefit from lower cost resources like the wind profile in southern Minnesota,” Wisconsin Citizens Utility Board Executive Director Tom Content wrote in an email to Wisconsin Watch. 

The PSC ultimately sided with CUB and clean energy groups, striking the location constraints from the data center rate structure it approved in May. 

“Over-indexing on a smaller geographic area comes with its own risks,” said Commissioner Marcus Hawkins, adding that planned grid upgrades could resolve some of the challenges of powering data centers from afar. 

Outdated contract

With the rate structure approved, We Energies sent Microsoft a contract to implement the new rate structure.

Microsoft asked the PSC in June to reopen the case, in part to address “multiple errors or inconsistencies” in We Energies’ contract — including the provision limiting new power plants to eastern Wisconsin and the Upper Peninsula.

We Energies offered to drop the line, among other “ministerial changes that could streamline or improve” the contract.

After the PSC declined to reopen the case, Microsoft signed the contract as-is on July 16. A Microsoft spokesperson declined to comment on the contract.

Because the commission “did not reopen their decision or take up these changes,” the utility still needs to work with the PSC to fix the contracts, We Energies spokesperson Brendan Conway wrote in an email. “We do not have a timeline for when the language will be updated.”

“From a practical perspective,” he added, Microsoft will be held to the PSC-approved rules, meaning it can subscribe to plants outside of eastern Wisconsin and the Upper Peninsula. 

The companies are legally required to abide by the PSC’s terms, commission spokesperson Meghan Sovey-Lashua wrote in an email.

“To the degree there are conflicts” with the PSC’s order, Sovey-Lashua added, “there are procedural options” to bring the issue back to the commission for a resolution.

Ratepayer advocates, meanwhile, wonder why We Energies asked Microsoft to sign an outdated version of the contract in the first place. 

“There’s a basic and common-sense expectation that a utility’s filing would be revised to reflect changes the PSC made to a proposal,” Content wrote, “particularly for an issue that generated a fair amount of discussion during the seven-hour deliberation on this issue.” 

Microsoft has already signed up to purchase electricity from the planned Red Oak Ridge Energy Center in Kenosha County. We Energies is currently asking the PSC for permission to buy the natural gas plant from developer Invenergy for $1.8 billion while Invenergy awaits PSC approval to build the plant. 

We Energies says Microsoft won’t be held to contract terms that conflict with state regulators’ order is a post from Wisconsin Watch, a non-profit investigative news site covering Wisconsin since 2009. Please consider making a contribution to support our journalism.