Adapting utility tariffs for data center driven load growth

The rapid proliferation of generative artificial intelligence (AI) models, hyperscale cloud platforms, and real-time data analytics is fueling a surge in data center development that is driving electricity demand growth not seen in decades, if ever. For electric utilities, this presents an unprecedented opportunity to deploy capital into the infrastructure needed to meet the unique energy demands of data center customers. However, the pace, scale, and uncertainty of demand growth also creates new operational, financial, and regulatory challenges for utilities.

Data center customers have unique service requirements (e.g., large loads, high load factors, preference for low-carbon solutions), a desire to interconnect quickly (relative to traditional commercial and industrial customers), and they tend to be highly sophisticated (i.e., experienced energy/PPA buyers). Meanwhile, utilities have not experienced this level of load growth in decades and accurately forecasting demand has proven difficult in part due to speculative data center proposals and uncertainty around technology enhancements that may reduce the energy needed to power AI and other computing functions. Further, most utilities face resource constraints, be that financial, human, or access to materials. Resources needed to support data center growth may be limited due to other on-going efforts to modernize the grid, improve system reliability and resiliency, and enable the adoption of distributed energy resources and electrification.

Both utilities and regulators are examining the potential operational impacts of data centers, and increasingly, the potential financial implications to other electricity customers. Across the country, utilities are adapting existing tariffs, creating new rate classes, and/or changing energy services agreements to provide clear rules for large load customers while protecting other customers from unfairly bearing the costs of new infrastructure investments that are built primarily to serve these new large load customers.

Traditional ratemaking principles require that utility rates be “just and reasonable,” with costs allocated based on the principle of cost causation (i.e., customers should pay for the costs they impose on the system). To achieve these principles, utilities are considering a variety of tariff or contract provisions for new large load customers including:

• Minimum Demand Charges: Requiring customers to pay for a percentage of their contracted capacity, even if actual usage is lower
• Minimum Contract Duration: Locking in long-term agreements, which may include ramp-up periods as data centers come online
• Exit Fees: Requiring companies to pay hefty fees if they decide to break their contract
• Collateral and Credit Requirements: Mitigating financial risks if data center businesses fail

The rate structures and tariff provisions relevant to a given utility will depend on a variety of factors including the market environment and regulatory jurisdiction (i.e., is it a T&D only utility or fully integrated), current system capacity, and the scale of data center demand, among others. Two recent examples in Indiana and Virginia demonstrate how some utilities are adapting their rate structures to serve large load customers.

Indiana Michigan Power a subsidiary of American Electric Power (AEP)

In February 2025, Indiana Michigan Power received commission approval to modify its existing industrial tariff to accommodate large loads.[1] The modified tariff applies to customers with new or expanding load with contract capacity greater than (or expected to be greater than) 70 MW at one location or 150 MW in aggregate across multiple locations (each location must exceed 1 MW). The modified tariff also includes provisions which require large load customers to sign an initial contract term of at least 12 years, with an allowable load ramp period of up to 5 years, pay an exit fee if they reduce their contact capacity by more than 20 percent, pay a minimum monthly demand charge of at least 80 percent of their contract capacity, and provide sufficient collateral if they do not meet certain credit rating and liquidity requirements.[2]

Virginia Electric and Power Company a subsidiary Dominion Energy

In March 2025, Virginia Electric and Power Company submitted a request to create a new customer class (GS-5) for existing and new customers with measured or contract demand at one site of 25 MW or greater and a load factor of at least 75 percent.[3] The proposal would require new large load customers to sign a fixed 14-year contract term with the ability to ramp load during the first 4 years. The proposal would also allow customers to reduce their contracted capacity by 20 percent, further reduction in capacity or termination would trigger an exit fee. GS-5 customers also would need to pay a minimum monthly demand charge covering 85 percent of contracted capacity for transmission and distribution, as well as 60 percent of generation. Lastly, large load customers would be required to post a collateral of $1.5M per MW of their contracted capacity if they are unable to meet credit and liquidity requirements. According to Dominion’s filing this rate would apply to 139 customer accounts including 131 data centers, approximately 30% of data center customer accounts in Dominion’s Virginia service area.[4] Dominion has also committed to proposing an experimental “High Load Interruptible Load Tariff” in a future proceeding.

Looking Ahead

As data center development accelerates, utilities and regulators will continue to refine their approaches to large load tariffs. To capitalize on the opportunities that data centers represent, utilities must balance enabling economic development and protecting existing customers from undue financial risk.