- Data centers are new and notoriously thirsty for electricity, making them a convenient scapegoat for rising electricity bills
- Research shows that data centers aren’t to blame for higher power bills, but bad policies are, and many have been passed in North Carolina in recent years
- Passing Consumer-Regulated Energy (CRE) legislation would let data centers build, bring, or buy their own power without impacting other ratepayers
A new report from the John Locke Foundation features a county-by-county energy poverty index for North Carolina. The previous research brief discussed the findings and the report’s methodology in examining the gaps between what families in poverty pay for electricity vs. what they can afford.
The second half of the report, “Energy Poverty in North Carolina: Securing Affordable, Reliable Power,” delves into the findings and offers several policy recommendations to uphold affordable, reliable electricity and protect households most at risk of energy poverty.
One of the policy recommendations concerns data centers, which have featured heavily in recent news reports about rising electricity rates.
Data centers: On the rise and thirsty for electricity
Data centers are a growing need in the digital age, but they are not very well understood. Artificial intelligence (AI) is expanding exponentially as people, businesses, and governments find more and more ways to employ its capabilities, but each use of AI also requires a significant expenditure of electric power. Closer to home, while your digital documents, photos, recipes, videos, and more are said to be saved in “the cloud,” they aren’t in the clouds; they’re housed in a data center somewhere.
For many, many years, demand for electricity had been fairly static. North Carolina utility law prioritized adequate, reliable power as affordable as possible. Perhaps this relative stability emboldened policymakers into thinking they could get away with replacing those priorities with other priorities rooted in ideology, which they have done in recent years — first by requiring utilities to add more and more renewable energy into their portfolios, then by requiring utilities to beginning shutting down all coal plants and eventually all natural gas plants.
They proudly declared that affordability is no longer a value to prioritize going forward, and now they complain that electricity isn’t affordable. This outcome was predictable, as witness to that fact that we have been warning about it for many years.
For culpable policymakers, data centers make for a very convenient scapegoat. They’re relatively new to the scene and not very well understood, and their rise has coincided with increasing power bills.
They proudly declared that affordability is no longer a value to prioritize going forward, and now they complain that electricity isn’t affordable.
No worse example of this proclivity exists than the very culpable former governor, Roy Cooper, who now parades in the lamb’s clothing of affordable electricity and blames data centers as “a driver of rising consumer utility rates.” As governor, however, his administration pushed the Clean Energy Plan (whose architects rejected affordability and reliability as “[v]alues to prioritize going forward”), opposed pipeline projects, and bestowed large amounts of corporate welfare on data centers.
Cooper’s 39-year, $846-million award to Apple, which included the Maiden data center, was named the “Worst Economic Development Deal of the Year” in 2021 by the Center for Economic Accountability.
Nevertheless, data centers’ power demands are unprecedented, and they have upset policymakers’ presumptions about power system demand amid their grand generation mix scheming. If electricity demand spikes even as the state is forcing Duke Energy to transition away from reliable energy generators, North Carolinians face a perfect storm of losing paid-for baseload power plants and being charged to overbuild expensive, unreliable, weather-dependent power sources and the heavy increase in transmission infrastructure they’ll need.
How does this problem affect electricity rates?
The fear regarding data centers is that, because of their outsized power usage, power companies will have to build more generation capacity. Here is how that matters for rates. State law requires the utility to provide “adequate, efficient and reasonable service” in return for “just and reasonable” rates that guarantee a “fair return” to shareholders.
In practical terms, if Duke Energy cannot provide adequate service unless it builds new generation facilities because of data centers’ power demands, then it is allowed by law to build those facilities and charge it to customers’ rates plus a nice return on equity for their shareholders (currently proposed to reach 9.8 percent).
That said, research into data centers’ effect on rates suggest that the fears are rather overblown. Analysis from Tom Pyle and Daniel Simmons for the Institute for Energy Research (IER) failed to find evidence of data centers causing higher electricity rates. If anything, the study found that the presence of data centers contributed to smaller rate increases than otherwise.
IER’s research found that the greater electricity demand from data centers allowed utilities’ high fixed costs to be spread across a greater sales base.
According to the report,
There is no statistically significant correlation between the number of data centers in a state and its current electricity prices. In fact, prices in the top ten data center states are virtually identical to the average across other states. Furthermore, there is no statistically significant relationship between data center concentration and faster increases in electricity rates.
What is the culprit for rate increases then? The analysis concluded: “Ultimately, the discrepancy in electricity rates across the country is driven more by state-level policies than by the proliferation of data centers.”
What are those state-level policies? They will sound very familiar to North Carolinians dealing with rate increases [links added]: “States that have embraced aggressive renewable mandates, 100% ‘carbon-free’ targets, premature coal and nuclear retirements, rooftop-solar cost shifting, and restrictions on natural gas infrastructure routinely deliver the nation’s highest electricity prices. … Americans struggling with utility bills need the same thing Florida and Louisiana residents already have: state leaders willing to put affordability and reliability ahead of ideological mandates.”
What is the solution?
Locke’s report has several recommendations to put affordability and reliability back in their rightful place as the top priorities in state electricity policy. Here is what the report recommends specifically to deal with the issue of data centers:
Pass Consumer-Regulated Electricity (CRE) Legislation
This legislation would let data centers supply or buy their own power. Finding a way to enable data centers and other large-load users to meet their outsized power needs without saddling households with higher rates from adding new power plants is a challenge for policymakers. The answer is to give the private sector the freedom to “build, bring, or buy” their own power from systems off the grid.
An earlier research brief discussed CRE and linked to model legislation. The idea has bipartisan backing and is promoted by, among others, Gov. Josh Stein and President Donald Trump. North Carolina would need to pass CRE or similar legislation to allow data centers to procure their own electricity off the grid.
Epilogue: Duke signs the Ratepayer Protection Pledge
Since the report’s publication, Duke Energy has signed onto the Trump administration’s “Ratepayer Protection Pledge.” Noting the importance of data center infrastructure, the pledge “call[s] on the leading United States hyperscalers and AI companies to build, bring, or buy all of the energy needed for building and operating data centers, paying the full cost of their energy and infrastructure, no matter what. As part of the Ratepayer Protection Pledge, companies agree to protect American consumers from price hikes due to data center energy and infrastructure requirements, and lower electricity costs for consumers in the long term.”
Carolina Journal reported that Duke’s move was greeted favorably by Stein and Attorney General Jeff Jackson but that they wanted “legally enforceable protections approved by the North Carolina Utilities Commission,” including Stein’s call for “a separate tariff for data centers and other exceptionally large electricity users.”
