LoginWisconsin regulators: Data centers must cover full cost of their energy needs
Large data centers served by We Energies will pick up the entire tab for new power plants, solar farms and other generators needed to power the massive structures in eastern Wisconsin.
But the full picture of a payment structure the Wisconsin Public Service Commission unanimously approved Friday is more complex.
The new agreement, among the first of its kind in the Midwest,“has the potential to fundamentally reshape the utility system,” Commissioner Kristy Nieto said. It will set a precedent for how the utility will divide the costs and benefits of the vast generation buildout needed to support new data centers, including campuses set to open in Port Washington and Mount Pleasant.
The payment structure diverged from We Energies’ initial proposal in several key ways. Most notably, it requires data center operators to cover the full cost of generators and fuel needed to power their facilities.
Under the utility’s original proposal, data centers could have paid for just three-quarters of the cost of new generators. Other customers would have covered the remaining quarter — along with fuel costs — in exchange for revenue from selling excess power during periods of high electricity demand.
“Existing Wisconsin customers should not pay a single cent to subsidize the service of data centers,” Nieto said during Friday’s marathon hearing.
Vast data center energy needs
The scale of data centers’ energy needs leaves utilities and regulators in uncharted territory.
The soon-to-open Vantage data center in Port Washington and Microsoft data center in Mount Pleasant will likely require a volume of electricity “comparable to a mid-sized metro area,” PSC Chair Summer Strand said.
The Midcontinent Independent System Operator (MISO), which oversees most of the Midwest’s grid, anticipates the region may need to add new generation capacity at twice the current rate to avoid shortfalls within the next five years, largely to accommodate rising electricity demands from new data centers.
We Energies’ new arrangement with data center customers follows a year of negotiation with ratepayer advocates, data center developers and the PSC, which regulates the state’s utilities.
From the outset, We Energies said it aimed to shield current customers from worst-case rate hikes.
Data centers “can and will” operate in Wisconsin with or without a payment model tailored for their needs, Strand said Friday. Over the past year, We Energies argued that without a new rate structure, data centers would pay for electricity as if they were ordinary large industrial customers.
That status quo, We Energies Vice President for Regulatory Affairs Richard Stasik testified in January, would leave other customers paying too much for generators needed to power data centers.
Even under the utility’s original proposal, Stasik argued, customers would have saved $1.5 billion compared with a scenario in which data centers paid under the same structure as smaller industrial customers.
But ratepayer advocates, clean energy groups and some elected officials said We Energies’ proposal would have saddled existing customers with unfair costs and risk.
Critics said customers should not pay at all for power plants needed to serve data centers, even if that means giving up potential revenue.
“Requiring the large customers to own both the costs and the benefits,” wrote Cassie Steiner, a senior campaign coordinator with the Sierra Club of Wisconsin, is the “safest” option for the rest of We Energies’ ratepayers.
The We Energies proposal covered only the largest tier of data centers, critics noted. That would have left Wisconsinites to shoulder costs arising from future facilities that, while smaller than those in Port Washington and Mount Pleasant, would still rank among the state’s largest energy users.
“Smaller data centers pose the same level of risk,” Steiner wrote in an email to Wisconsin Watch.
The PSC echoed such concerns on Friday. Commissioners said the structure they approved offered stronger ratepayer protections without tossing aside much of what We Energies negotiated with Vantage and Microsoft.
“I disagree with those that suggested we should simply reject the proposal and send the applicants back to the drawing board,” Commissioner Marcus Hawkins said. He acknowledged the utility’s willingness from the outset to protect non-data center customers, including supporting a requirement that data center operators pay the full cost of generators built to serve them even if they withdraw early from their service contracts.
The three commissioners unanimously agreed that the new payment structure also applied to data centers far smaller than those in Port Washington and Mount Pleasant. Under the new structure, any customer using more than 100 megawatts at peak demand must “subscribe” to enough generators, either existing or newly built, to meet that peak.
The PSC retained We Energies’ plan to give data center operators leeway to overshoot their “subscribed” supply before paying a premium for extra electricity.
Ratepayers will still bear transmission costs
Some forms of cost-sharing are mostly outside the PSC’s jurisdiction. The new data centers also require a vast buildout of transmission infrastructure. That undertaking is largely the responsibility of American Transmission Company (ATC), in which Wisconsin’s largest utilities own a majority stake. Because Friday’s case did not directly involve ATC and federal regulators have substantial say in the company’s billing practices, the PSC could only partially address its concerns about the amount non-data center customers will pay to plug in data centers.
By 2027, We Energies’ existing customers will likely pay $63 million for transmission infrastructure needed to serve data centers, Hawkins said. That figure will approach $100 million by 2028.
ATC has not yet reached an agreement with data center operators to limit rate hikes for other customers, but the company is in talks with We Energies on the subject. In what Nieto called a “temporary stopgap measure,” the PSC voted to require a minimum payment for transmission costs based on data centers’ projected energy needs.
If data centers use less electricity than anticipated, Hawkins said, other customers could be left paying more than expected for overbuilt transmission infrastructure — a “huge stranded asset.” The minimum payment requirement could partially shield existing customers in that scenario, but Hawkins added, the issue remains far from resolved.
Despite the loose ends, ratepayer and clean energy advocates welcomed the PSC’s decision as a victory.
“This decision signals that the PSC commissioners heard loud and clear that Wisconsinites have significant concerns about energy affordability and AI data centers,” said Tom Content, executive director of the Citizens Utility Board of Wisconsin. “How this gets implemented in future rate cases remains to be seen, but customers’ interests are in a better place.”
We Energies also raised no public objections to the outcome. The ruling “underscores the importance of our plan to ensure data centers pay their full share for the power they use in our state,” spokesperson Brendan Conway said in a press release. “That is important to us and to the data center companies we are working with.”
The decision could reshape We Energies’ separate rate case before the PSC. That case, filed earlier this month, includes a projected 9.2% increase in customers’ electricity rates over the next two years, in part to accommodate the construction of new generation capacity to support data centers.
The PSC and ratepayer advocates alike said Friday that the new payment structure may set a precedent within Wisconsin and beyond. The decision will not go into effect until the PSC issues a final written order.
Wisconsin regulators: Data centers must cover full cost of their energy needs 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.
