Beyond Co-Location: The Emerging Opportunity for Vertically Integrated Utilities in the Data Center Boom

The explosive growth of hyperscale data centers is reshaping the power sector at unprecedented speed. In just a few short years, load requests from data center operators have gone from occasional filings to a full-on wave of gigawatt-scale development across North America. While much attention has been paid to the trend of co-locating data centers with generation assets, particularly as tech firms and developers seek control, speed, and clean energy certainty, vertically integrated utilities should not see this as a threat to their traditional model, but rather as an opportunity to modernize and compete.

The real question is not whether utilities can serve data centers, but how fast, flexibly, and intelligently they can adapt their operating models, regulatory processes, and customer engagement to remain relevant and attractive to these large-scale, technically sophisticated customers.

COMMENTARY

From Threat to Opportunity: Rethinking the Utility Model

The traditional utility model, built on long planning cycles, sequential investment approvals, and passive customer load forecasts, is not well suited to hyperscale data center needs. These customers operate on timelines measured in quarters, not years. They seek firm capacity, visibility into energy mix, and confidence in the utility’s ability to execute.

Co-location has gained momentum in part because many utilities have been too slow or too rigid to meet these expectations. Yet utilities have significant structural advantages: long-term planning mandates, low-cost financing, cost-of-service recovery models, and a deep bench of engineering and system operations talent. If unlocked, these advantages can be critical enablers in supporting data center growth.

To seize this opportunity, vertically integrated utilities must make targeted but meaningful shifts in three key areas:

1. Accelerated and Adaptive Planning Processes

Traditional Integrated Resource Planning (IRP) frameworks are not built for the pace or complexity of today’s large-scale, fast-moving loads, especially from hyperscale data centers. These frameworks often require extended timelines, multiple layers of regulatory approval, and sequential procurement steps before any new generation can be built. That cadence stands in sharp contrast to the expectations of data center developers, who typically seek to secure and energize capacity within 24 to 36 months.

A Typical Utility Planning and Procurement Process: In Missouri, the recently enacted Senate Bill 4 represents a meaningful shift in how utilities can plan and act on emerging load. The law moves to a four-year IRP cycle and, importantly, deems near-term projects identified in those plans as presumptively prudent for Certificate of Public Convenience and Necessity (CPCN) purposes. This change streamlines regulatory approvals and creates a clearer, faster path from planning to construction, an essential feature for serving fast-moving data center developments.

Meanwhile, in Indiana, NiSource’s NIPSCO is pursuing a complementary strategy by proposing the creation of a dedicated generation company (Genco) to serve large-load customers, including data centers. The Genco structure is designed to operate with greater speed and flexibility, able to develop, own, and contract for new supply outside the constraints of the traditional vertically integrated utility model. It reflects a growing recognition that serving hyperscale customers may require not just faster planning, but new institutional models altogether.

To keep pace with the scale and speed of data center growth, utilities and regulators in other jurisdictions should take steps to replicate and expand on these innovations:

• Adopt more agile and modular IRP frameworks. Shift from rigid, multi-year cycles to flexible IRP structures that allow for interim updates, scenario-based modeling, and more dynamic planning that can incorporate emerging large load opportunities.
• Establish expedited regulatory pathways for load-backed investments. Create fast-track approval processes for generation, transmission, and storage projects tied to committed data center loads, reducing delays and allowing planning, permitting, and procurement to advance in parallel.
• Formalize early-stage customer integration into system planning. Develop structured mechanisms to bring hyperscale customers into the planning process earlier, ensuring that utility forecasts reflect real-world development timelines and enabling.

These changes will do more than help utilities serve data centers, they’ll modernize the very foundation of utility planning. In a grid environment that is becoming more dynamic, distributed, and demand-driven, these reforms will allow vertically integrated utilities to lead, rather than lag, the next wave of infrastructure transformation.

The graphic below illustrates how a modernized, fit-for-purpose resource planning process can better meet the needs of hyperscale data center customers. Unlike the traditional linear model where IRP, CPCN approval, and procurement occur in sequence over several years, this approach introduces earlier customer engagement, integrates commercial signaling (like open seasons and RFPs) into the planning phase, and creates a fast-track regulatory pathway for projects tied to near-term load commitments. By enabling multiple workstreams to run in parallel such as forecasting, modeling, regulatory filings, and procurement, the process becomes far more agile, coordinated, and responsive. This structure allows vertically integrated utilities to accelerate delivery and match the pace of data center development, without sacrificing transparency or regulatory discipline.

2. Regulatory Modernization and Procurement Reform

To effectively serve hyperscale customers, utilities must take the lead in modernizing the regulatory and procurement frameworks that govern how they plan, contract, and invest in new capacity. In an environment where data centers are making multi-gigawatt commitments years in advance of energization, traditional regulatory processes are simply too slow and too rigid. Utilities that want to compete for this load must take action to align regulatory strategy with commercial urgency.

That starts with reframing the regulatory conversation, not as a constraint, but as a space for innovation.

Utilities can take several specific steps:

• Proactively seek pre-approval mechanisms for load-backed investments. Work with regulators to establish frameworks where projects tied to committed, large-load customers can be approved ahead of the full IRP cycle. These “fast-lane” CPCNs can help accelerate construction timelines while maintaining regulatory oversight.
• Propose modern cost allocation tools that balance fairness and flexibility. Design differentiated rate structures, such as minimum take obligations, reservation charges, or standby service pricing, that ensure new load pays its fair share without burdening existing customers. This also creates pricing certainty for data centers.
• Expand procurement models to match load diversity and risk profiles. Introduce pathways for utility-owned, bilateral, and joint development solutions. Utilities can structure portfolios that combine in-house projects with third-party capacity, giving them the agility to meet hyperscale timelines while managing long-term risk.
• Pilot capacity commitment structures with large customers. Offer contracting models where hyperscalers commit to long-term capacity in exchange for firm delivery and grid-backed reliability, delivering many of the benefits of private wire without the regulatory fragmentation. In doing so, utilities position themselves not just as passive infrastructure providers, but as strategic, commercial partners capable of delivering scale, speed, and certainty—within a regulated framework that maintains fairness and system integrity.

3. Customer-Centric Operating Models

To effectively compete with private developers offering bespoke co-location deals, vertically integrated utilities must fundamentally evolve their customer engagement model. Serving hyperscale data centers requires more than standard account management, it demands a consultative, end-to-end approach that integrates engineering, siting, interconnection, rate design, and power supply strategy into a cohesive and responsive offering.

This transformation starts by recognizing that hyperscalers don’t just want megawatts, they want confidence. They need to know how long infrastructure will take, what it will cost, and how resilient and clean their supply will be. To meet that need, utilities must begin operating more like strategic partners and less like commodity suppliers.

From our experience, that shift entails several key changes from the traditional customer engagement model:

• Establishing dedicated large-load solution teams. Utilities should deploy cross-functional teams that engage directly with hyperscale developers during early site selection. These teams should be equipped to provide detailed, bankable information about infrastructure capacity, upgrade timelines, and energy mix options. A single point of contact that can coordinate across departments—e.g., engineering, planning, regulatory, and legal—can dramatically reduce response times and signal professionalism and reliability.
• Offering modular infrastructure packages. Pre-designed substation and interconnection configurations, scalable by tranche, can give developers certainty and reduce delays caused by one-off engineering reviews. Aligning these packages with existing system standards and permitting requirements allows for faster deployment and a smoother customer experience.
• Designing tailored rate structures for large, flexible customers. Data centers are often willing to make long-term commitments, pay for reliability, and adjust load shape, if the price signals are clear and fair. Utilities should create rates that reflect these attributes, including standby charges, load guarantees, and performance incentives. Thoughtfully designed rates not only support cost recovery, but also provide the pricing transparency hyperscalers expect in commercial negotiations.
• Deploying digital tools for transparency and coordination. Customer-facing dashboards and portals can provide real-time updates on interconnection status, permitting milestones, and project timelines. Internally, shared project trackers can ensure that utility departments stay aligned, minimizing the handoff issues and miscommunications that often derail delivery.

By embedding these capabilities into their operating model, utilities do more than attract large-load customers. They institutionalize a more agile, customer-responsive way of doing business. That shift not only improves the utility’s value proposition to data centers but also reduces internal friction and improves delivery execution across all major capital projects.

The Strategic Payoff: More Than Just Load Growth

For utilities, serving hyperscale data centers isn’t just about adding gigawatt-scale load to the system: it’s about reshaping their strategic relevance in a rapidly evolving energy landscape. These customers may be exacting, but they bring with them capital investment, long-term commitments, and a collaborative mindset around infrastructure development. If utilities adapt accordingly, the benefits extend far beyond load volume:

• Improve asset utilization and revenue stability across the network. Large, consistent loads from data centers help flatten demand profiles and improve the economics of existing infrastructure—particularly transmission, distribution, and base load generation. This enhances revenue recovery and reduces the need to spread fixed costs over volatile or declining retail usage.
• Create ratepayer value by enabling growth without broad-based increases. When new load pays for dedicated infrastructure through tailored rates or contribution mechanisms, the utility can expand its system without raising costs for residential and small commercial customers. This reduces political and regulatory resistance to capital investment and positions the utility as a steward of equitable growth.
• Position the utility as an innovation leader, not an infrastructure laggard. By moving quickly, creatively, and collaboratively to meet the needs of hyperscale customers, utilities can demonstrate agility, technical leadership, and commercial sophistication. This reputational benefit can improve stakeholder relationships, attract talent, and create new opportunities in adjacent sectors like storage, hydrogen, and digital infrastructure.
• Protect against bypass risk as third-party solutions proliferate. If utilities are too slow or rigid, data center developers will turn to independent power producers, gas LDCs, or private wire providers to get what they need. By offering competitive, grid-based solutions, utilities can retain load, maintain relevance, and prevent fragmentation of the energy system.

Conclusion: Compete Where You’re Strong

Data centers are not an existential threat to vertically integrated utilities. They are a generational opportunity. But realizing that opportunity requires more than accommodating new load; it demands a rethinking of how utilities plan, invest, and engage. The rise of co-location is not a foregone conclusion; it’s often a response to perceived utility inaction, misalignment, or delay.

Utilities that recognize this moment for what it is – i.e., a chance to modernize their regulatory toolkit, streamline their planning frameworks, and transform their customer engagement model—can redefine their role in the emerging energy economy. With the right reforms, vertically integrated utilities can offer what no third party can: firm, scalable, grid-integrated power backed by decades of operational expertise, long-term infrastructure vision, and regulatory credibility.

The winners in this new landscape will be those utilities that move first, not just to protect load, but to unlock new value for their systems, their customers, and their communities. By leaning into their structural strengths and embracing purposeful change, vertically integrated utilities can compete, not by imitating co-location, but by offering something stronger, smarter, and built to last.

—Jim McMahon is a Vice President and Practice Leader of Charles River Associates’ Energy Practice. He has been a strategic, economic, and financial consultant to the energy sector for more than 25 years. McMahon works with diversified energy companies, electric and gas utilities, merchant generators, private equity, and independent system operators. He specializes in strategy, business planning, and mergers and acquisitions. For utilities, McMahon has advised on business strategy, integrated resource planning, grid modernization, rates and resiliency issues, among other areas. In addition to advising on these topics, McMahon has supported and filed expert testimony in federal and state regulatory settings, including at FERC and with the regulatory commissions of several states.