As regulators grapple with rate design for large-load electricity customers such as data centers, some experts are pointing out the transparency benefits of tariffs compared to special contracts between the utility and customer.

“We don’t like these side deals,” said Ari Peskoe, director of the Electricity Law Initiative at Harvard Law School. “We think putting in place data center tariffs is better. It’s more transparent. It encourages robust participation in the process in developing these tariffs.”

Peskoe was a speaker during a Sept. 2 New Mexico Public Regulation Commission (PRC) workshop focused on large-load rate design. He gave an overview of a paper released in March on “How Utility Ratepayers Are Paying for Big Tech’s Power.”

Peskoe and co-author Eliza Martin reviewed 40 state utility commission proceedings regarding special contracts with data centers. They found that regulators often “reflexively” grant a utility’s request to keep the proposal confidential, and then “frequently approve special contracts in short and conclusory orders.” That’s in contrast to rate cases, which draw robust stakeholder engagement, according to the researchers.

Utility tariffs typically detail the price, conditions and terms of electricity service to customers and must be approved by regulators. In contrast, special contracts often are a bilateral agreement negotiated by the utility and the large customer, according to Natalie Frick, an energy policy researcher in the Energy Markets and Policy Department at Lawrence Berkeley National Laboratory.

“One of the big complaints about special contracts is that there’s a lack of transparency,” Frick said in a presentation to the PRC. “They’re often confidential, and so there’s less public scrutiny about them.”

Frick cited as an example an approved special agreement between Meta and Duke Energy Indiana.

“You don’t know how much capacity was being procured, you don’t know where it’s being procured [from], you don’t know what the demand fee or energy charge was,” she said. Frick noted that a consumer advocate was able to review the confidential information and found the deal didn’t increase costs for other customers.

Grid Readiness Proceeding

The Sept. 2 workshop was part of the commission’s proceeding on grid readiness and economic development.

“Data centers are a big topic,” said Commissioner Pat O’Connell, noting that the centers create challenges for the electric industry. “On balance, the need for data centers is real, and having them in the United States is valuable. So it’s a problem that’s worth solving.”

The commission is considering whether a large-load tariff could help address some of the issues.

“For me, it’s a lot about a fair allocation of cost to ratepayers, and a fair opportunity for large customers to interconnect and start receiving power from the utility,” said commission Chair Gabriel Aguilera. “A tariff — would it make it easier for a large customer to know what to expect?”

Aguilera said one option would be to form a stakeholder group to work on a proposed large-load tariff and associated agreements, focusing first on minimum requirements.

Frick and other Berkeley Lab researchers released a technical brief in January titled “Electricity Rate Designs for Large Loads: Evolving Practices and Opportunities.” The Brattle Group and U.S. Department of Energy helped with the research.

The report examined 11 large-load tariffs across the U.S. The minimum size to be eligible for the tariff varied, according to Frick’s presentation. In the case of Black Hills Power’s Economic Flexible Load Service, the minimum is 10 MW, while We Energies’ very large customer tariff has a minimum of 500 MW aggregated.

Some tariffs include an exit fee for ending service early. Ohio Power’s data center tariff settlement agreement proposed an exit fee of three years of minimum charges.

Frick said most of the tariffs have a ramping schedule, in which customers consume an increasing amount of their capacity over time.

In some tariffs, large-load customers may resize the load they plan to take, without penalty, if they find out before a certain deadline that they need less than they expected.

And sometimes tariffs and special contracts are used together, she said.

What’s the Goal?

In Nevada, when a large customer wants to take service under one of NV Energy’s large-load tariffs, the utility files an energy supply agreement (ESA) with the Public Utilities Commission of Nevada, said Karen Olesky, an economist with the PUCN’s regulatory operations staff.

The tariff states what should be in the ESA and in the ESA application, while providing some flexibility, Olesky said. Customers might have different energy needs — such as a data center versus a sports stadium — or different renewable energy goals, she said.

NV Energy’s large customer tariffs include the clean transition tariff, which the PUCN approved in March. It’s a framework developed in partnership with Google that will allow the utility’s existing large-load customers to receive power from new clean energy resources. (See Nevada Regulators Give Nod to NV Energy Clean Transition Tariff.)

The clean transition tariff was modeled on NV Energy’s Large Customer Market Price Energy tariff, which is available only to new customers.

Olesky said regulators should start by considering what they want to accomplish with a large-load customer tariff. That might be attracting new load to the system, lowering rates for large customers or helping a large customer meet renewable energy goals that are beyond renewable portfolio standard requirements.

Determining the tariff’s purpose will help regulators decide the acceptable level of subsidy from other customers, she said. “Is it zero?” Olesky said. “Or is the ultimate goal to bring new load at all costs, so having non-participating customers pay something for this is OK?”