Google, I&M Strike Landmark Deal to Share Clean Capacity and Flex AI Load

American Electric Power (AEP) subsidiary Indiana Michigan Power (I&M) has filed a special customer-specific contract with technology giant Google that could create a dual-purpose arrangement to address power capacity constraints in one of the fastest-growing digital infrastructure regions in the U.S.

AEP on Aug. 4 announced that the two companies filed a petition to the Indiana Utilities Regulatory Commission (IURC) that seeks approval for the special contract. The contract features two key components: a Clean Capacity Arrangement (CAA), and a custom demand response program designed for Google’s artificial intelligence (AI) workloads at its $2 billion Fort Wayne data center campus.

AEP said the contract, filed on July 30, and which results from “collaborative efforts,” supports I&M’s mission to provide reliable and affordable service in the region it serves, which is experiencing “significant economic growth.” I&M, a public generating utility that serves specifically the state of Indiana, has said it is bracing for peak demand growth of 8.3% CAGR from 2024-2034, driven by the addition of hyperscaler data center loads.

The contract will also allow Google to “leverage new capabilities that allow it to reduce or shift electricity demand to carry out non-urgent tasks during hours when the electric grid is under less stress,” AEP said.

A Novel Clean Capacity Arrangement (CCA)

As part of a long-term customer-specific contract with Google, I&M in the petition proposes a CCA that is designed to meet the power company’s accredited capacity needs under PJM’s Fixed Resource Requirement (FRR) plan. Under the CCA, Google will transfer a “specified amount” of long-term accredited capacity from clean energy resources into I&M’s PJM capacity portfolio via the Capacity Exchange System.

While Google is not a conventional power generator, it contracts directly with clean energy projects through power purchase agreements (PPAs), which can give it rights to the generating capacity associated with those projects. Under PJM rules, those capacity rights can be transferred between entities via PJM’s Capacity Exchange System. Under the petition, Google will transfer those rights to I&M, enabling the utility to count the clean energy capacity toward its FRR plan, which PJM uses to ensure grid reliability during peak periods.

The exact megawatt amount slated for transfer is redacted in the public filings, but testimony attached to the docket from Caleb Loveman, Regulatory Consultant Staff in the Regulatory Services Department at I&M, confirms that the commitment will scale annually and could reach a defined target by a future PJM Delivery Year. The transferred capacity will be used to fulfill I&M’s Indiana retail capacity obligations, and a key objective appears to be to reduce the utility’s need to secure additional generation resources and to mitigate long-term financial and operational risks for all customers.

“I&M operates within the PJM regional transmission organization market. As a Load Serving Entity in PJM, I&M has a capacity obligation that it must meet each year,” Loveman explained. “Utilities can satisfy this obligation in one of two ways—either through purchases made in the PJM capacity market, known as the Reliability Pricing Model (RPM), or through the ‘self-planning’ Fixed Resource Requirement alternative, commonly referred to as FRR. I&M, along with the other American Electric Power (AEP) East companies, participates in the FRR construct, which requires I&M to demonstrate annually its ability to meet its reserve requirements through commitment of sufficient capacity resources. These resources can include owned generation, short-term capacity purchases, and other bilateral capacity contracts.”

While the contract does not change I&Ms obligation as a PJM participant to satisfy the capacity requirement of all its retail customers, it “provides an additional tool to help I&M satisfy its capacity obligations,” Loveman added.

The timing of the arrangement, notably, coincides with unprecedented stress in PJM’s capacity markets. The regional transmission organization’s latest Base Residual Auction for the 2026–2027 delivery year cleared at record-high prices of $329.17/MW-day across all zones, representing a 22% increase over the prior year’s already elevated levels. PJM’s forecasted peak load for 2026–2027 surged by more than 5,400 MW compared to the previous year, with hyperscaler growth cited as a key contributor.

The CCA, notably, is structured to ensure that Google assumes full responsibility for any performance shortfalls, accreditation issues, or compliance failures. It also includes defined crediting mechanisms based on Commission-approved or cost-reflective capacity prices.

Loveman said the CCA will provide three key benefits to I&M, Google, and other I&M customers. It offers “an efficient, additional method to support meeting… growing capacity obligations with PJM,” reduces “the amount of long-term generation I&M would otherwise need to acquire,” and lowers “long-term risks associated with acquiring and operating generation.” He added that the agreement also “supports carbon-free energy resource development” and aligns with both Indiana’s “all of the above” policy and Google’s sustainability goals.

The Custom Demand Response Component

The filing suggests Google has also committed to a custom demand response program tailored to its operational capabilities at the Fort Wayne, Indiana data center, a $2 billion facility that Google unveiled in April 2024. I&M energized the facility in November 2024, and Google has begun operation at the site and “continues to develop its Fort Wayne site consistent with its contractual agreements with I&M,” Loveman said.

The program is essentially structured around Google’s ability to flex operations and reduce load during system peaks to align with PJM requirements and I&M’s FRR capacity planning. When the grid is under stress, Google will reduce or shift its electricity consumption at the Fort Wayne data center, thereby helping I&M lower peak demand, reduce its own capacity and transmission needs, and deliver system-wide cost and reliability benefits.

According Loveman, the arrangement includes two separate demand response offerings—one that is tailored to Google’s offerings and another that qualifies under PJM’s Emergency Demand Response Program. The structure, which includes defined curtailment schedules, compliance testing, and performance penalties, will “benefit I&M, and all of its customers, by reducing the cost of providing service through lower capacity and transmission costs,” he said.

I&M has proposed that all costs associated with the CCA and the demand response participation credits provided to Google be recovered through I&M’s existing Resource Adequacy Rider, effectively treating them as capacity-related purchase costs applicable to all Indiana retail customers. For now, the filing seeks all regulatory approvals, including, if required as an Alternative Regulatory Plan under Indiana law.

Discover the future of data center power at DPX 2025! Rapid AI adoption is driving an unprecedented surge in digital energy demand—but who will build, finance, and govern the next wave of grid infrastructure? Join global leaders from utilities, hyperscalers, regulators, and investors at DPX 2025: Where Digital Infrastructure Meets the Power Frontier, October 28 in Denver, Colorado. DPX convenes the decision-makers rewriting the rules for reliability, sustainability, and grid resilience as multi-gigawatt data center campuses reshape America’s power map. Don’t miss the only summit where candid debate meets actionable solutions. Register now at experience-power.com/data-center-power-exchange/ to save your seat!

Another Pioneering Data Center Model to Balance Flexibility, Ensure Reliability

The contract notably represents a significant departure from traditional utility-customer relationships, and it could serve as yet another template for future hyperscaler-utility partnerships.

As POWER has reported extensively, the data center boom has triggered regulatory responses across multiple states focused primarily on preventing cost-shifting to existing ratepayers. In states like Ohio, Texas, and Georgia, efforts have focused on cost allocation to ensure data centers pay for grid infrastructure, rather than shifting those costs to other ratepayers.

In July, Ohio’s regulator approved a landmark tariff requiring 85% minimum billing for facilities over 25 MW. New Georgia rules mandate large customers cover upstream infrastructure costs, and Texas’s Senate Bill 6 requires 75-MW-plus loads to contribute to interconnection expenses. The Indiana agreement goes further by creating a resource contribution model. Several states—including South Carolina, Utah, Minnesota, Illinois, and New Jersey—are also considering or have implemented targeted tariffs, cost-allocation mechanisms, or regulatory requirements for large-load customers, particularly data centers.

Most power agreements in the sector still revolve around structuring power purchase agreements (PPAs) and interconnection deals to balance “risk allocation and commercial strategy,” as law firm Pillsbury analysis noted in a helpful, detailed July 21 explainer.

Illustration: Evolving Power Procurement Models for Data Centers. This diagram from law firm Pillsbury illustrates four key models for how data centers source electricity. Model 1 (red arc): Direct Power Purchase Agreements (PPAs) between data centers and generators, often bypassing utilities except for delivery and settlement. Models 2A/2B (green arcs): Utility-mediated service, either through custom PPAs with special tariff provisions (2A), or through standard regulated service (2B). Models 3 and 4 (arrows): Grid interconnection agreements for generation (3) and load (4). Source: McKnight, Alicia M. & James, Robert A. (Jul. 21, 2025). Power Purchase and Interconnection Agreements for Data Centers. Pillsbury Winthrop Shaw Pittman LLP.

“As these facilities seek scalable, uninterrupted and cost-effective power, the negotiation of power purchase agreements (PPAs) and interconnection agreements plays a central role in determining both operational reliability and long-term economic viability,” write Alicia McKnight and Robert James. The typical goal is price certainty and reliable service—whether through a physical or virtual PPA, or ‘sleeved’ arrangements mediated by the utility.

However, evolving contract structures are already prompting regulatory scrutiny and innovation. In a notable recent development, Talen Energy restructured its contract with Amazon Web Services after FERC rejected a behind-the-meter model at the Susquehanna nuclear plant, opting instead to serve AWS as a grid-connected retail provider to ensure full cost transparency and avoid shifting transmission charges to other ratepayers. Likewise, under the Indiana contract, Google is contractually transferring fully accredited clean capacity directly to I&M, which the utility can apply toward its PJM resource adequacy obligations.

Google, notably, is part of EPRI’s DCFlex initiative, which has brought hyperscalers together with utilities, grid operators, and equipment suppliers to identify innovative strategies that enable AI development and growth while minimizing costs, lowering carbon emissions, and enhancing system reliability. The initiative, which has grown from 14 founding members to over 40 participants since its October 2024 launch, seeks to deploy five to ten large-scale “flexibility hubs” that serve as living laboratories to demonstrate how data centers can transition from passive electricity consumers into dynamic grid assets. Demonstrations will test various approaches, including computational flexibility, backup energy solutions, and demand response capabilities, with the ultimate goal of creating frameworks and tools that streamline data center integration with the electric system.

In June, DCFlex unveiled its first three “real-word” demonstration sites: a Google–Duke Energy site in Lenoir, North Carolina; a collaboration in Phoenix, Arizona involving Oracle, NVIDIA, Emerald AI, and Salt River Project; and a Paris, France site led by Data4, Schneider Electric, and RTE. Notably, the Arizona site has already demonstrated early success. In a preliminary test, an AI data center was able to provide measurable grid relief during a summer peak event by strategically reducing its electricity demand without impacting performance.

For I&M, the prospect of enabling demand response capabilities with Google presents an “exciting” opportunity, it said on Monday. “As we add new large loads to our system, it is critical that we partner with our customers to effectively manage the generation and transmission resources necessary to serve them. Google’s ability to leverage load flexibility will be a highly valuable tool to meet their future energy needs,” noted Steve Baker, president and chief operating officer of I&M.

Google Global Head of Data Center Energy Amanda Peterson Corio also recognized the contract’s significance. “As AI growth accelerates, we recognize the need to expand our demand response toolkit and develop capabilities specifically for machine learning workloads,” she said.

“Working closely with I&M to include load flexibility as part of the overall supply plan, we can support future power needs even where power generation and transmission are constrained. We want to be thoughtful about how we can continue to be a good grid citizen and see this as a vital tool for enabling responsible data center growth.”

—Sonal Patel is a POWER senior editor (@sonalcpatel, @POWERmagazine).